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> The Fed does not have the tools at its disposal that it did in 2008, they have been exhausted.

That hasn't been exhausted even in the slightest.

The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy.

The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.

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Maybe I'm a crazy for taking the state of the fed funds rate, the budget deficit, and the Fed's balance sheet into account? We can print money, but so far the USD hasn't reflected any sort of consequence for that. They can do a QE program, but will other actors accept the implicit loss on their treasury holdings? I can think of one major player there that is a lot less likely to do so now.

The Fed can replace / deal with China's treasury holdings relatively easily at this point, especially given the strength of the dollar. While $15t in global paper is yielding nothing or worse, the US is still yielding something and is still largely regarded as entirely safe by investors. China is no longer a threat to the treasury market re selling, even though more aggressive selling on their part would definitely cause some real short-term turmoil. They can rock the boat, they can't tip it over and the Fed would stabilize things quickly in reaction.

Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).

What exactly is wrong with this comment for the kind of downvotes?

At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics.

The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.

Curious question, because international government currency flows are still something that flumox me.

What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?

What consequence would you expect? Inflation? The Fed would probably welcome inflation right now.

And, how does QE cause other players to lose their treasury holdings?

If you think the federal gov't is going to print money to get itself out of the debt, you'd assume at some point that the value of the USD would drop.

Treasury holdings are bonds denominated in USD. They are worth less relative to alternatives when the USD decreases versus those alternatives or yields rise (as you expect them to, in the event of inflation), just like any bond.

>The Fed would probably welcome inflation right now.

I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.

Inflation is a consequence of money spent foolishly.

The same arguments were made against the New Deal.

Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.

> Inflation is a consequence of money spent foolishly

No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy.

> The same arguments were made against the New Deal.

Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.

The New Deal allowed labor to capture the majority of surplus value created by the rapid wartime industrialization of America. We would not have our modern understanding of a middle class lifestyle had it not been for New Deal policy and the blood of organized labor shortly before and during wartime.

> The New Deal allowed labor to capture the majority of surplus value created by the rapid wartime industrialization of America

That's certainly how such policies were sold to the labor force, yes. But it's not what actually happened.

> We would not have our modern understanding of a middle class lifestyle had it not been for New Deal policy

To the extent that this is true, it means that our modern understanding of a middle class lifestyle is not what "middle class" meant at any previous time in human history. "Middle class" used to mean entrepreneurs--what today we would call small business owners. In other words, people who understood that the only way to make sure of the lifestyle they wanted was to manage their own business risks and not entrust them to anybody else.

Our modern understanding of "middle class" is what used to be called "wage slaves"--people who are content to let the leaders of the large organizations they work for take care of all the business risks, in exchange for a safe source of steady wages and benefits. But the leaders of the large corporations, unlike the "middle class" who worked for them, always understood that the steady wages and benefits were not "safe"--that as soon as the business realities changed (i.e., as soon as the huge new markets that opened up after WW II became saturated, which was happening by the mid-1960s to early 1970s), the large corporations would basically renege on all the promises they made to the labor force during the boom. Which is exactly what happened, and which amounted to whatever surplus value was in fact captured by labor being temporary. And the New Deal did absolutely nothing to prevent it.

Was there much blood of organized labor spilled during wartime? I thought that it was a time of more or less labor peace.

Inflation is size of economy / money supply.

Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.

> Inflation is size of economy / money supply.

No, inflation is either an increase in the money supply (according to classical, i.e., pre-Keynesian, economics) or an increase in the average price level, often qualified to be the average price level of "wage goods" (according to Keynesian economics).

The underlying argument behind "size of economy/money supply" is that if the economy is growing (more precisely, if the rate of economic activity is growing), then increasing the money supply will not increase the average price level. In fact, if for whatever reason (and Keynesians have no trouble coming up with plausible-sounding reasons) you want the average price level to remain basically the same, you should print more money as the rate of economic activity increases.

While these are true statements, they ignore the fact that printing more money is economically equivalent to a wealth transfer from whoever does not get the newly printed money to whoever does get it (which under our current system is banks and other financial institutions). In other words, it's the same economically as a tax on ordinary people whose proceeds go to rich bankers and financiers. But it's much more palatable politically, which is why it's our current system. (The old system, before the Federal Reserve and other central banks gained power, was that when governments got in financial trouble they had to explicitly go to rich bankers and financiers and ask for bailouts, which was politically unpalatable, not to mention a huge pain for the rich bankers and financiers since people would see that they were effectively profiting from the economic woes of others. So the rich bankers and financiers got together and sold the politicians a system of central banks where all of this could be done under the radar so the ordinary taxpayers wouldn't see it and wouldn't complain about it.)

So, ignoring the digression into wealth transfer and central banking, we agree that...

> [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy

... is not a fully accurate statement?

> we agree that...
> > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy

> ... is not a fully accurate statement?

If you are saying I should have added a qualifier "assuming the rate of economic activity stays constant", yes, that qualifier should be there (if we define "inflation" as "increase in the average price level"). But I don't agree that any qualifiers like whether or not the money gets spent "foolishly" or "unwisely" need to be there.

Also, our current measure of "rate of economic activity", GDP, is not independent of the money supply, because it measures "activity" in dollars. So the fact that US GDP is growing does not necessarily mean the real rate of economic activity is growing.

Absolutely, on the denomination unit. Foolishly and unwisely were concise proxies for economic impact.

My point was that simply increasing the money supply may or may not result in objective inflation over modest timescales.

It certainly usually does, because foolish things are more politically popular than effective things. But it doesn't have to be so.

That's a very roundabout way of saying if you don't spend money it won't enter the economy.

That's not what ethbro is saying.

If the money supply (times velocity) is X, and I print more money so that it's now 1.1X, if I spend the new 0.1X in a way that grows the economy by 10%, then printing the money wasn't inflationary. If I spend the 0.1X in ways that don't grow the economy, then it was inflationary.

Additionally, most of the corporations are cash rich right now and own much more of their own companies allowing them to both dip into those reserves and sell off more of their companies to stay strong through the recession. I'm not worried... he's not worried either: https://www.youtube.com/watch?v=NJodqhzqPKQ

Corporate cash is $1.8 trillion, but that's against $2 trillion of debt maturing in the next five years and $15 trillion total. I'm worried... he's probably worried as well https://www.bloomberg.com/news/articles/2019-05-09/corporate...

What can the chinese do exactly? Sell all their USD treasuries? Sure, but what do they do with the money then? The only other currency big enough to absorb those kind of flows is the euro which would spike the euro exchange rate with the dollar to extremely painful levels for the EU, probably causing a deep recession in the EU but doing nothing to the US.

> Sell all their USD treasuries?

Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.

> The Fed took rates to zero for seven years

And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.

IMO QE is insanely regressive because of most people's non participation in the financial system, and thus is a "supply side wolf in keynsian clothing". Looking at all the unprofitable startups and other investment vehicles of the current cycle, combined with uneven increases in productivity and tenuous shitty jobs being the bulk of job growth shows how we've clearly don't have the demand and the money isn't trickling down enough to make it.

With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI.

Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.

Oil prices are lower and the euro is looking good as a second reserve currency.

That's a big chunk of pie to remove without some turmoil.

If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro.

https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...

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