Fed Adds $72.8B to Markets, Balance Sheet Moves to $4.07T
wsj.com
wsj.com
https://www.bloomberg.com/news/articles/2019-11-11/this-is-w...
When it comes to regular people; they will use the new Fed money to take loans to buy houses in speculative areas where those same corporations are headquartered.
The economy doesn't work. It has no incentive for value creation. It just takes money from people who have little capital and gives it to people who have big capital. Then, as the economy depletes capital from its most productive workers, it effectively enslaves them to capital holders who know everything about job creation but don't know the first thing about value creation.
Actually this explains rising inequality very neatly.
The FED is replacing the regular markets providing properly priced liquidity, it is only staving off a due recession in unhealthy sectors while completely fucking up the entire financial system; the next recession will be so severe, that the great recession will look like a walk in the park.
When everybody is too big to fail, capitalsim is dead.
Isn't the problem hoarding?
Everyone hoards. Rich people hoard wealth. Right? Not a moral statement. Preferential attachment (winner takes all) is just math.
The problem for society (the economy): we have all this unproductive capital (wealth) lying around, AND we have all this work that needs doing, BUT it's not efficient for rich people to manage a large basket of smaller investments.
So to grow the economy, we need better strategies to keep the money moving. Progressive taxation has worked in the past. YCombinator seems to have found a new way to match investors to opportunities more efficiently.
(Sorry, being a simple bear, I don't know of any other strategies. Maybe "Buy Local", which keeps the money moving in smaller networks.)
To me -- a person who barely understands "money", finance, economics -- it's really just that simple.
Keep the money moving.
Others have compared inflation to taxation; both reduce capital over time.
So is the converse true? Does lower, or even negative, inflation favor the hoarding of wealth?
However, speculative increases (buying land for increase in prices, buying shares for increase in share price, etc) and rent seeking adds price but doesn't add real value/investment to the economy.
Also how come they cannot inject this money directly to citizens instead of large companies? Sure, inflation might be larger but what guarantees are there that injecting money to large companies won’t create inflation later down the road.
Or use the money to buy back stocks, knowing that all your privileged buddies are doing the same, and if central banks would dare to raise interest rates you wouldn't be able to repay those loans, again holding the economy hostage with your scheme.
The rationale behind the bailouts was that the failure of many of these large banks would have caused lots of trouble and additional damage to the system as a whole. Markets are controlled by consumer sentiment. The failure of any huge banks or other huge organizations like AIG would have caused a catastrophic run on the banks and even farther fall in the market.
Additionally, I believe overall the US government has netted more than $100B in bailouts.
The bailouts were most definitely a good idea according to essentially every expert out there.
But if anything, they should have extracted more from the companies they bailed out to limit the moral hazard that was created.
https://www.whatbitcoindid.com/podcast/nik-bhatia-on-bitcoin...
https://apps.newyorkfed.org/markets/autorates/tomo-results-d...
They are doing overnights to $120b daily.
https://www.newyorkfed.org/markets/domestic-market-operation...
https://www.ft.com/content/1374afd4-181d-11ea-9ee4-11f260415...
This suggests a systemic instability.
https://www.newyorkfed.org/markets/domestic-market-operation...
I expect this longer term offer is because there is the expectation of year-end stress in outlays and could destabilize the market toward year-end. This term offering runs through the first week of Jan, so they're hoping to smooth over the possibility of year-end illiquidity.
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
I am bearish but I can't say I am excited to bet against the Fed!
The financial scheme does not trickle money in the real economy, people are having less children, all the money printing is doing is it is creating asset bubbles, enslaving the people willing to participate with loaned money.
If you can't sleep at night because you're paranoid about a stock market crash, buy some long dated put options on SPY to insure your portfolio or to hedge against the unknown. If you're scared about a bond market crash, buy long-dated put options on TLT instead. The reason for long-dated puts rather than short-dated puts has to do with lower theta decay. Options can be expensive so this is a short-term solution.
> If the dollar and the stock market are "going to crash"...
-The scenario in which that happens is when corporate profits are lower than expected and inflation is higher than expected.
The better solution is to not buy overvalued stock and underperformant corporations in the first place but a wise man once said: "Don't go into stock-picking until you know how to value a stock." If you don't know how to value a stock, then the solution is to go into real assets like real estate, gold, or commodities. If you prefer real estate, REITs with a low P/AFFO or P/FFO ratio will have better returns. If all of the corporations and REITs are overvalued, the textbook-solution is to start your own public corporation or REIT.
Last, don't put all of your eggs in one basket.
Warren Buffet seems to hold cash in expectation for the next crash, but the last crash proved he can get access to much better deals than you and I can, so it doesn't mean you should hold cash because he does.
Real estate seems overpriced, but who really knows?
Gold?
Bitcoin? Yeah right.
Perhaps index funds? It would seem unwise now that stock markets are at all times high, but perhaps "time in the market is better than timing the market".
Real economy is downsizing so there is no pressure from inflation and people are willingly enslaving themselves in debt.
People in general seem to have forgotten that we can protest en masse to force changes. I'll skip work and walk on Congress in protest with millions of Americans at my side but if I do this alone I'll just get arrested. I'll take the risk of incarceration, job loss, etc if millions of others are with me.
We can protest for single payer healthcare/universal Medicare, student loan forgiveness. We can force these changes. It takes effort. Until a leader emerges to direct the suffering of the masses into boots on the grounds chaos our society will continueto decay.
Where rent is divided by more than one bed in a single room or couches in a living room?
Employment and everything else will take care of itself.
Anyways, the fed can only do so much but try to keep the laws of physics in place. Government spending, Entitlements and taxes are the real levers of economic influence.
US government policy has traditionally relied on a combination of entrepreneurs and military might for global economic mastery. Trump is (ironically) undermining military might by destabilizing alliances. Entrepreneurs are doing ok. He is increasing labor participation or at least stopping the decline. This all is making global economy more efficient and meritorious.
Trade wars are bad, yes, but China was/is a bad actor and was perverting the US economy by making it lazy. Trump is trying to kick it in the ass and get it going again.
I hate Trump, but my feeling is that these fed injections might just be the fact that global efficiencies are pushing rates down below what the fed is comfortable with. We will pay for all of this in other ways no doubt, eg, climate change, weaker social safety nets, nuclear proliferation, etc.
Short term, things look good. Longer term there are reasons to freak out. It's not really trumps fault though, people just generally can't reason with the fact that you can make things good and bad at the same time, so arguments and debates are all pretty much irrational. Why not vote in Trump, nobody else is making sense either.
Andrew Yang is a perfect example, the only guy who is talking sanity but is at 3% in the polling.
> Trump is trying to kick it in the ass and get it going again.
Get what going again? The economy? When exactly did it stop going?
Most Service jobs are bullshit jobs, IMHO. Trump is trying to bring back manufacturing.
Taylor rule is overridden by inflationary factors
'That is, the rule "recommends" a relatively high interest rate (a "tight" monetary policy) when inflation is above its target or when output is above its full-employment level, in order to reduce inflationary pressure. It recommends a relatively low interest rate ("easy" monetary policy) in the opposite situation, to stimulate output. Sometimes monetary policy goals may conflict, as in the case of stagflation, when inflation is above its target while output is below full employment. In such a situation, a Taylor rule specifies the relative weights given to reducing inflation versus increasing output.
Anyways, it's not the job of an unelected fed central bank to worry about employment. What does that even mean? Are gig jobs employment? You really need legislators for these types of sticky questions.
The fed job is to look at things people have to buy / pay for and try to keep them stable price wise, but not so stable people just stuff their excess money into their mattresses.
Part of being good at your job, as president, is finding ways to meet demands without sacrificing the future.
You seem to be suggesting that any president would do the same as Trump in this situation, but I think that's wrong
This isn't a binary choice, there is a middle ground where you're not goosing the economy but you're keeping it running, and setting up for a soft landing rather than a crash. This isn't it.
I’m curious what full employment means in practice.
It's hard to know what this level is, though.
If you only cared about nominal employment you could hand everybody shovels instead of excavators and you can employ 100 guys with shovels instead of a guy with an excavator.
If I were the next president I would establish a national investment bank and use it to undertake infrastructure improvement / development by US companies in both the US and abroad (because stimulating the economy else where would be pretty useful to the US as well). I would mandate that the fed would have to invest in the national bank first and the national bank would be allowed to bail out other banks (with "liquidity") only if it received substantial near term reward from the investment (therefore definitely only liquidity).
The problem with this operation by the fed is that every banks finance department has priced it in for this quarter, so they're all going with the begging bowl now - moral hazard write large!
Even if we accept your premise that that is what is happening, what is it that you think the 0.1% are doing with that money? They're doing one of two things:
1. Reinvesting it in other companies, who are then using that capital to invest in their business.
2. Buying goods and services from companies who use that revenue to invest in their business.
> If I were the next president I would establish a national investment bank and use it to undertake infrastructure improvement / development by US companies in both the US and abroad (because stimulating the economy else where would be pretty useful to the US as well).
Why do we need to establish a national investment bank to undertake infrastructure projects? The federal government undertakes infrastructure projects all the time.
> I would mandate that the fed would have to invest in the national bank first and the national bank would be allowed to bail out other banks (with "liquidity") only if it received substantial near term reward from the investment (therefore definitely only liquidity).
Are you aware that the US government made a very healthy profit by bailing out the banks in 2008[1]?
> The problem with this operation by the fed is that every banks finance department has priced it in for this quarter, so they're all going with the begging bowl now - moral hazard write large!
That's...actually exactly the point of it. There is no 'moral hazard' here. The fed wants the market to anticipate its actions, and react to them pre-emptively. This allows the fed to actually do less than they otherwise might have to. If the Fed's goal is to drive rates down to a certain point, and the market knows they'll spend the money to do it, the market will do it for them. That's how arbitrage works. This is the system working exactly as intended.
1. https://www.washingtonpost.com/business/economy/bailout-high...
Of course, merely saying "trickle down" is enough to get a big laugh out of all but most co-opted of economists. It has repeatedly failed to achieve its stated objectives, and you just have to look at the wealth gap between the 99%, the 1%, and the .01% over the last 10 years to see what the actual effect is.
Trickle down economics is a theory about who benefits from giving money to the wealthy. I'm not making any statements about who benefits. What I am saying is that when some companies return cash to shareholders, other companies receive that cash in the form of either revenue or investment. This is how the economy works. It is, more or less, a closed system.
I don't care that they invest, I don't care that they buy stock. Regular people would buy stock and give to charity too, if they could. This level of wealth concentration is toxic to our society, full stop.
You have to look at not just what things look like, but also what things could look like, if we didn't have so much power concentrated among so few, with so little oversight.
a) The amount of money spent there is actually quite low, considering the wealth of the people involved, and the presumptive benefits.
b) So what? My point isn't to argue about where the benefits flow. My point is that the capital is being re-invested (politicians receiving bribes have the same two choices: spend money or invest it).
> I don't care that they invest, I don't care that they buy stock. Regular people would buy stock and give to charity too, if they could. This level of wealth concentration is toxic to our society, full stop.
You could be right. But what does that have to do with QE or this thread? And even ignoring that, exactly what is the mechanism by which wealth inequality destroys society? People make claims like this a lot. But they never actually trace it out. It's just taken as a given that it's a bad thing.
> You have to look at not just what things look like, but also what things could look like, if we didn't have so much power concentrated among so few, with so little oversight.
I'm not really sure what this means. Where is the power concentrated, exactly? Do you think that the Koch brothers have substantial unaccountable power? My guess is that they don't think so. Everything they do is scrutinized, and we certainly don't have the kind of economy they want. If there is so much unaccountable power, it doesn't seem to be doing them much good.
The amount of money spent is not limited to legal campaign contributions. There are also PACs, media spending (submarines, astroturfing, etc.), and other ways that money can influence public opinion on some issue. You can't really quantify this, but I'd be surprised to find anyone who would disagree that wealth itself will buy political power on its own without money ever changing hands. Here is a good example of what I'm talking about:
https://image.businessinsider.com/585b1865ee14b6b2008b4b24?w...
> You could be right. But what does that have to do with QE or this thread?
QE benefits people with access to capital by propping asset prices. The people with access to capital are wealthy. Who benefits when real estate goes up -- renters or homeowners? Who benefits when the stock market goes up -- people with a wealth manager or people living paycheck-to-paycheck?
> I'm not really sure what this means. Where is the power concentrated, exactly?
Power is concentrated among wealthy people. This is true in general, but specifically I'm talking about a very small number of people who have a huge say in media, politics, etc. It is not scrutinized; the media ensures that. Yes, I think anyone with Koch-degree wealth has a huge amount of unaccountable power. There will always be inequality, but there are degrees of difference. At $5,000,000 of wealth, you might be able to get the mayor on the phone (that's a very generous upper cap on lifetime earnings from labor). With $1,000,000,000, you certainly can get a senator. For an example, you can look at the Wisconsin Foxconn debacle. [1] This is the type of leverage over government that billions of dollars can buy. It is legal.
[1] https://en.wikipedia.org/wiki/Foxconn%27s_Wisconsin_plant
It's quite easy to see how wealth inequality is corrosive: make a list in descending order of wealth inequality by country, and look at which countries are where on that list. There's some noise, but for the most part, well-functioning democracies are concentrated at the bottom.
I'm aware of that. This is a thorough explanation of my view:
https://slatestarcodex.com/2019/09/18/too-much-dark-money-in...
> QE benefits people with access to capital by propping asset prices. The people with access to capital are wealthy. Who benefits when real estate goes up -- renters or homeowners? Who benefits when the stock market goes up -- people with a wealth manager or people living paycheck-to-paycheck?
QE does, sort of, inflate asset prices. It also lowers interest rates, which makes it cheaper for people to buy homes. QE does a lot of things, and summarizing it as "inflates asset prices" is too simplistic. QE is usually undertaken, in part, so that people living paycheck to paycheck can continue to receive that paycheck, rather than being fired.
> Power is concentrated among wealthy people. This is true in general, but specifically I'm talking about a very small number of people who have a huge say in media, politics, etc. It is not scrutinized; the media ensures that. Yes, I think anyone with Koch-degree wealth has a huge amount of unaccountable power. There will always be inequality, but there are degrees of difference. At $5,000,000 of wealth, you might be able to get the mayor on the phone (that's a very generous upper cap on lifetime earnings from labor). With $1,000,000,000, you certainly can get a senator. For an example, you can look at the Wisconsin Foxconn debacle. [1] This is the type of leverage over government that billions of dollars can buy. It is legal.
I certainly agree that there is some concentration of power. The Koch brothers and Bill Gates have a lot more influence than I do, and I would guess more than you do too. But how much more, exactly? It doesn't seem like all that much, to be honest.
> It's quite easy to see how wealth inequality is corrosive: make a list in descending order of wealth inequality by country, and look at which countries are where on that list. There's some noise, but for the most part, well-functioning democracies are concentrated at the bottom.
I think you're confusing correlation and causality, there though. Certainly in autocratic societies, you're going to have huge wealth disparity, because the rulers are rich. But the causality is flowing from autocracy onto inequality. I don't see much evidence that inequality causes autocracy, though.
Lack of wage growth is where the perception of societal stratification and divergence is coming from.
QE was never intended to inflate the economy. It was intended to inflate a price bubble in financial assets, particularly equities. It has been super successful and broadly speaking is working as designed. (At transferring value from society at large to the rich via this asset price bubble).
I don't want to explain more but some might want to look into it.
When that is 7,5 billion people (including moi), then there is a permanent shortage.
Feel free to diversify your pension in any African or South American currency
As long as the the FED is willing to provide liquidity no questions asked, why would you hold dollars?
Just buy high yield bonds and when you want liquidity, you call the FED and loan your junk bonds for real dollars and you pocket the interest rate difference.
Or maybe you're making snarky comment on how large banks were bailed out in 2008 by the Fed by which the Fed traded a portion of it's "good" treasury debt for bad bank debt (CDOs). If that's the case than I agree because I dislike how the Fed bails out the banksters more than the common man.
*Source for annual interest rates on common bonds: https://investor.vanguard.com/etf/list#/etf/asset-class/mont...