Bush’s tax cuts and federal reserve

[Euro]

When people critize the US debt they always point at Bush’s tax cuts. Before Bush came into office the economy did ok under Clinton.

But why did he cut taxes and then decided to go to war first with Afghanistan and then Iraq. By doing this he increased government spending. And why hasn’t Obama increased the taxes so the federal reserve could have stopped the money printing.

What’s the logic and thought behind this. Cutting taxes and increasing government spending, how can that work? At the same time people have to pay interest rate on the money printed by the federal reserve. Rising taxes will make people have more money, since then they can remove the interest rate that the federal reserve takes in.

Why aren’t anyone interested in closing down or controlling the federal reserve? Is’nt it extremly stupid to have the federal reserve on private hands, shouldn’t the government elected by the people have more controll on it?

 

[iamwhatiseem]

Do you want the answers, or are you just trolling?

 

[expat_panama]

Do you want the answers, or are you just trolling?

--and why do these Democrat EDIT - Let's just not go there, eh? pose nothing but insulting false rhetorical questions?

 

[DSGE]

And why hasn’t Obama increased the taxes so the federal reserve could have stopped the money printing.

Why would you want that? Printing money is stimulus and taxing people is the opposite...?

What’s the logic and thought behind this. Cutting taxes and increasing government spending, how can that work?

It works through having a higher tax burden in the future.

At the same time people have to pay interest rate on the money printed by the federal reserve.

Ah... what? Can you explain that one in more detail? Because it's actually the other way around; people pay lower interest rates when the Fed prints lots of money.

Rising taxes will make people have more money

Doesn't raising taxes mean people will have less money? Since they're being taxed more highly.

Why aren’t anyone interested in closing down or controlling the federal reserve? Is’nt it extremly stupid to have the federal reserve on private hands, shouldn’t the government elected by the people have more controll on it?

The Fed is responsible for managing demand in the economy (although they're doing a pretty bad job at it). It's not in private hands. Congress made it independent because an elected government will tend to run very inflationary policies because they have short term goals (getting re-elected), but at any time congress can amend or dissolve the Federal Reserve Act and the government appoints governors. The Fed is still accountable to the public through congress despite the fact that the governors aren't elected.

 

[editec]

When people critize the US debt they always point at Bush’s tax cuts. Before Bush came into office the economy did ok under Clinton.

But why did he cut taxes and then decided to go to war first with Afghanistan and then Iraq. By doing this he increased government spending. And why hasn’t Obama increased the taxes so the federal reserve could have stopped the money printing.

What’s the logic and thought behind this. Cutting taxes and increasing government spending, how can that work? At the same time people have to pay interest rate on the money printed by the federal reserve. Rising taxes will make people have more money, since then they can remove the interest rate that the federal reserve takes in.

Why aren’t anyone interested in closing down or controlling the federal reserve? Is’nt it extremly stupid to have the federal reserve on private hands, shouldn’t the government elected by the people have more controll on it?

Euro, you are asking the same questions many Americans have been asking themselves for over a decade.

Whgere you are probably confused is in thinking that what the American people want they can get.

If you think we are a democratic nation you have been misinformed.

We are simply a nation where the MASTERS have so much power and such a magnificent propaganda machine that they don't NEED TO repress our citizens with troops in the streets.

The genius of the tow party system is that the masters have bamboozled enough Americans into believing that there ARE two real parties.

There isn't when it comes to any issue that truly threatens the cosy INSIDERS who conbtrol our media, our government, and our corporations

 

[Euro]

Printing money is stimulus and taxing people is the opposite...?

Money printing is like a "flat hidden tax". On paper US has a progressive tax system, that means you pay a higher percent in tax the more you earn. But when the fed prints money this affects everyone flat. The once that benefits from a flat tax is the rich and people that earn more than average. The fed is making the poor poorer and the rich richer. The fed draws in 30 million $ every hour in just interest rate. So the money that the feds prints has to be payed back with interest rate. I don’t think US should tax the low and average incomers more, but by taxing the rich they could pay back the debt fast and ending the inflation.

Ah... what? Can you explain that one in more detail? Because it's actually the other way around; people pay lower interest rates when the Fed prints lots of money.

Government has to pay back the money to the fed with interest rate. When more money enters the market the dollar becomes weaker. That means importing food and oil becomes more expensive. Nations that don’t print that much moeny have strong currencies and low inflation. Then they can import cheap food because of strong currencies.

Doesn't raising taxes mean people will have less money? Since they're being taxed more highly.

Not if you have a large national debt that needs to payed back. The faster you pay back your debt the lower the sum because of the interest rate. If you don’t pay your debt it’s gorwing because of the interest rate. For the government to pay the debts they need taxes. Taxing the rich as under Clinton will solve much, their is lots of money in US but they are only on a few hands.

For instance if you have a credit card loan that finances your consuption, and you decide to get another credit card to "stimulate" your economy more. What you get is just more debt that has to be paid back with interest rate. The government lives this way taking more and more debt.

The Fed is responsible for managing demand in the economy (although they're doing a pretty bad job at it). It's not in private hands. Congress made it independent because an elected government will tend to run very inflationary policies because they have short term goals (getting re-elected), but at any time congress can amend or dissolve the Federal Reserve Act and the government appoints governors. The Fed is still accountable to the public through congress despite the fact that the governors aren't elected.

An independent will try to make as much money as possible by lending out, they prorbobaly have connections to. JFK and Abraham Lincoln tried to take controll of it but they got shot. Ron Paul wants to see the accounting in the congress but it hasn’t happened?

Taking more debt for the governement only means that more money has to be paid back with interest rate. Ratton loans where money dries out, short term solutions.

Here’s a link with Ron Paul, he explains it well.
[ame=http://www.youtube.com/watch?v=A4kxTkhwR_Q]Ron Paul 0wnz the Federal Reserve - YouTube[/ame]

 

[DSGE]

Money printing is like a "flat hidden tax".

Just to be a little pedantic here, it's actually unexpected inflation (a rising price level) that's acts as a tax, not printing money (since printing money may not lead to inflation if the demand for money has increased).

On paper US has a progressive tax system, that means you pay a higher percent in tax the more you earn. But when the fed prints money this affects everyone flat. The once that benefits from a flat tax is the rich and people that earn more than average. The fed is making the poor poorer and the rich richer.

Well firstly the tax is negligible. Especially when compared to the amount of tax used to fund the government budget. The other thing unexpected inflation does is erode the value of debt. Now who is more likely to be in debt, rich people or poor people? Poor people are greatly in debt. So while inflation acts as a tax by raising the prices they face (although their wages also rise in the long run to make up for it), it also greatly erodes the real value of their debt, effectively increasing their real income. Inflation is much worse for rich people than for poor people.

The fed draws in 30 million $ every hour in just interest rate. So the money that the feds prints has to be payed back with interest rate.

Well banks sell bonds to the Fed. So instead of selling bonds to another bank which will pay for it with their money, they sell it to the Fed who pays for it with newly created money. The money will have to be paid back with interest either way, but why is that a problem? The bank sells the bond voluntarily because they can earn more profit by swapping a bond for cash and loaning out that cash. Interest has nothing to do with anything.

I don’t think US should tax the low and average incomers more, but by taxing the rich they could pay back the debt fast and ending the inflation.

Printed money isn't being used to pay back the debt. The Fed keeps the inflation rate at about 2 percent. They don't pay the government's bills. And as discussed before, inflation is good for poor people (who are net lenders) and not so good for rich people (who are net savers).

Government has to pay back the money to the fed with interest rate. When more money enters the market the dollar becomes weaker. That means importing food and oil becomes more expensive. Nations that don’t print that much moeny have strong currencies and low inflation. Then they can import cheap food because of strong currencies.

Yeah the Fed doesn't lend money to the government. Also since the US dollar is a reserve currency, lots of imports are priced in US dollars (oil, for example). So inflation won't make imports of those things more expensive.

An independent will try to make as much money as possible by lending out, they prorbobaly have connections to.

That's not true for two reasons. 1) They've kept inflation extremely low. A Fed wanting to make profit would run inflation very high. 2) They only keep about 2 billion dollars a year for their budget and have to return all the rest of the money they earn from interest payments to the Treasury.

Here’s a link with Ron Paul, he explains it well.

I'm sorry but I think of Ron Paul as an economic illiterate. To address the video:

The Fed is transparent (although could be more so). It gets audited by the GAO. It releases its balance sheet with a list of all its assets and liabilities. It releases the minutes of the FOMC meetings. Members have to testify twice a year before congress.

Congress absolutely has a constitutional right to create the Fed. The power to issue money is granted to congress and congress have delegated that responsibility to the Fed. Congress still retains the rights to issue money, they can choose whoever they want to administer the issue. The Fed hasn't taken over the rights, congress has just given them the power to act as their agent.

Purchasing power has not been reduced. Our purchasing power now is much higher than it was a hundred years ago because inflation raises all prices. Including the price of labour (ie, wages). Wages rise in the same proportion as prices through inflation. However, they also rise due to increases in labour productivity. So our purchasing power is significantly higher. (Ron Paul never seems to grasp this obvious point).

I'm gonna stop there.

 

[editec]

DSGE.

What is the current rate for cash at the FED discount window?

It is 0.035%

And what is the length of time that a bank has to repay that "overnight loan"?

Well it used to be 24 hours.

Now?

I'm told terms can go as long as 2 years.

Now what is a T-bill paying in interest?

3%

Now if you were a Federal reserve bank you could borrow at 0.035% from the FED, and invest that same capital in T bills at 3%.

Of course the overnight is short term and the T bill long term, so wehat do you do when you need to repay the FED?

You ROLLOVER the loan, that's what you do.

The current amount that has gone into FED banks (and their foreign banking partners) is now 27 TRILLION bucks (Bloomburg thinks its 18 Trillion but I think they're wrong).

Of course according to Bernacke the outstanding balance is ONLT $1.2 billion.

And that probably is true, since the money is loaned, repaid and then reborrowed again and again and again.

Nice work if you can get, huh?

But YOU and I can't get signed onto that gravytrain, sport.

WE aren't eligible for that MASSIVE WELFARE system

 

[expat_panama]

...by taxing the rich they could pay back the debt fast and ending the inflation...

Printed money isn't being used to pay back the debt. The Fed keeps the inflation rate at about 2 percent...

Good news! This link to the October/November prices shows they fell and we had deflation. If we're supposed to take money from the rich when we have inflation, then deflation means we need the government to give money to the rich!

 

[AVG-JOE]

DSGE.

What is the current rate for cash at the FED discount window?

It is 0.035%

And what is the length of time that a bank has to repay that "overnight loan"?

Well it used to be 24 hours.

Now?

I'm told terms can go as long as 2 years.

Now what is a T-bill paying in interest?

3%

Now if you were a Federal reserve bank you could borrow at 0.035% from the FED, and invest that same capital in T bills at 3%.

Of course the overnight is short term and the T bill long term, so wehat do you do when you need to repay the FED?

You ROLLOVER the loan, that's what you do.

The current amount that has gone into FED banks (and their foreign banking partners) is now 27 TRILLION bucks (Bloomburg thinks its 18 Trillion but I think they're wrong).

Of course according to Bernacke the outstanding balance is ONLT $1.2 billion.

And that probably is true, since the money is loaned, repaid and then reborrowed again and again and again.

Nice work if you can get, huh?

But YOU and I can't get signed onto that gravytrain, sport.

WE aren't eligible for that MASSIVE WELFARE system

An understanding of the system is a beautiful thing, except for all the scary shit that understanding allows you more clearly see.

 

[DSGE]

DSGE.

What is the current rate for cash at the FED discount window?

It is 0.035%

And what is the length of time that a bank has to repay that "overnight loan"?

Well it used to be 24 hours.

Now?

I'm told terms can go as long as 2 years.

Now what is a T-bill paying in interest?

3%

Now if you were a Federal reserve bank you could borrow at 0.035% from the FED, and invest that same capital in T bills at 3%.

Of course the overnight is short term and the T bill long term, so wehat do you do when you need to repay the FED?

You ROLLOVER the loan, that's what you do.

The current amount that has gone into FED banks (and their foreign banking partners) is now 27 TRILLION bucks (Bloomburg thinks its 18 Trillion but I think they're wrong).

Of course according to Bernacke the outstanding balance is ONLT $1.2 billion.

And that probably is true, since the money is loaned, repaid and then reborrowed again and again and again.

Nice work if you can get, huh?

But YOU and I can't get signed onto that gravytrain, sport.

WE aren't eligible for that MASSIVE WELFARE system

Actually the discount rate on primary credit is 0.75%.
The Federal Reserve Bank Discount Window & Payment System Risk Website

Either way, banks will borrow in the fed funds market where the rate of interest is 0-.25%.

Say they did borrow at that interest rate and buy long term treasuries. That means the money would actually work its way through the economy and raise NGDP! What we want is for the banks to get that money out there rather than just holding it in their accounts with the Fed. But what do we see:

The Fed is injecting money through open market operations, and the banks are just holding on to it. Now the real problem you should be addressing is the fact that the Fed is paying banks .25% interest on their reserves. What they should be doing is either paying 0% for now, or charging .25% on excess reserves like the Riksbank did.

 

[EdwardBaiamonte]

Is’nt it extremly stupid to have the federal reserve on private hands, shouldn’t the government elected by the people have more controll on it?

most people can't name the President and Vice President, let alone tell you what the Fed does, let alone tell you what Fed policy ought to be. Therefore, the Fed is independent and subject only to the opinion of the greatest economic minds in human history.