The Debt of US.

[Picaro]

The Fed prints far less money than private corporations and banks do. Every single loan made, bond sold, and stock issued is 'printing money', not just Federal and state borrowing.

Yeah, but private printing has limits. FED printing doesn't. Also private printing can implode, FED printing won't.

So the money supply without FED is fairly stable, even though the fractional reserve system is IMO simply un-needed.

Ideally, yes; in practice, the Fed exists to bail out banks, big, politically connected banks at least, and the government backs lots of 'private' securities, like mortgages, props up currency, subsidizes derivatives trading, and even manipulates futures markets and the stock market; there exists a 'PPT' team, the Plunge Protection Team, at the Federal Reserve for socializing the 'free market' traders' risks, which is why no big bank has failed, no matter how crooked their managers are, and with the loosened accounting standards passed in 1984, not just in the U.S. but Europe as well, 'private' money creation is a lot less restricted than the Feds, and not only that, gives some foreign banks the ability to create debt in U.S. dollars as well, through derivatives trading. It's merely a matter of bribing Congress to loosen the standards of what qualifies as 'assets' and hence 'collateral'.

Not to mention nobody ever goes to jail for fraud, except of course some brown-nosing little lackey or two.

 

[antagon]

i dont think congress could make that call. that would be inside the fed would it not? i'd like to get how you feel private money creation is less restricted than fed money. isn't that process more or less locked between private lending and reserves? you feel that fed printing is tight with trils of easing in the wings?

 

[Picaro]

i dont think congress could make that call. that would be inside the fed would it not? i'd like to get how you feel private money creation is less restricted than fed money. isn't that process more or less locked between private lending and reserves? you feel that fed printing is tight with trils of easing in the wings?

I'm a little behind on the latest info, but the general trend has been the same since Reagan, and in any case I'm copying some quotes from some books at the moment for another post on the issue, and I'm short of time, but I saved the question and hope to have a satisfactory explanation for the above questions as well as comments on the others of yours by tomorrow.

The short answer to the first question is that Congress has, and still passes, lots of legislation re GAAP's and standards, including international agreements and treaties re accounting standards, so I don't think it's strictly a Federal Reserve call, though they can easily have their own, tougher standards, as many private corporations do. In fact I think part of the problem with the Fed is Congressional interference with accounting standards, not only with the Fed but the OMB, GAO, and BEA as well, but that is another long discussion. We have no real idea what the Fed is doing, since it's not noted for its transparency, in any case.

 

[Norman]

i dont think congress could make that call. that would be inside the fed would it not? i'd like to get how you feel private money creation is less restricted than fed money. isn't that process more or less locked between private lending and reserves? you feel that fed printing is tight with trils of easing in the wings?

Is this for me?

Well first; Banks have reserve ratio which they can't surpass. FED has no such thing. So there is a limit how much money a private bank can create. Also if it screws up the money disappears. If FED screws up you pay taxes, or government just asks them to print even more.

2nd. If banks lose money, they go bankrupt, so they don't necessarily max out. FED can't go bankrupt, as government guarantees it's losses.

And I mean FED is at least now days in bed with the government. They bought some toxic stuff, which kind of proves this. Though not surprisingly it was pretty much bought from the member banks. Anyway that means they can take losses... Which means they can print as much as they want. Hey just print some more to cover the losses, nice ponzi scheme.

 

[antagon]

norman, that was addressed to that picaro post above it, and it is based on my understanding like yours that theres a lock between private and fed cash. like yourself i also missed how the fed has a restriction imposed on it. i think the market is the only thing that's keeping their policy in bounds.

i dont think that the government and the fed are partnered as tightly as you propose. certainly assuming those assets was in their own interest and obligation to keep american banks solvent - the point of their reserve system in the first place. the way i see the same picture is that of a government without the balls and the willingness to take the sort of fiscal measures i (at least) believe will recover the economy, and a fed who's got the balls to print the green but which doesnt have the right to effect any fiscal measures with it.

bottom line: an extra $2.3 trillion in fiscal recourse > $2.3T in QE, but that's the way the fed is chartered so they're the only folks who can do anything albeit ineffectively. the government wont do anything because the people dont want them to, even at their own expense.

 

[Norman]

norman, that was addressed to that picaro post above it, and it is based on my understanding like yours that theres a lock between private and fed cash. like yourself i also missed how the fed has a restriction imposed on it. i think the market is the only thing that's keeping their policy in bounds.

Sure FED has restrictions imposed on it, but like we can see they aren't so hard restrictions as they are dropping money from the helicopters currently. I think they have more than doubled the monetary base on this decade.

Anyway I am waiting for picaro's next response....

 

[loosecannon]

Sure FED has restrictions imposed on it, but like we can see they aren't so hard restrictions as they are dropping money from the helicopters currently. I think they have more than doubled the monetary base on this decade.

Anyway I am waiting for picaro's next response....

The Fed needs to double the money supply every 13.5 years to maintain inflation rates and interest rates that keep debt payable and banking profitable.

What has happened of late is that since Greenspan the Fed took on this "mission" to maintain economic growth without recessions and without the requisite inflationary penalties we must pay via recessions as corrections to imbalances created by growth, automation and productivity increases.

After 2002 the only way to keep this mission on track was to reduce interest rates to near zero. The money supply grew much too fast while never stoking a strong recovery from the dot com collapse.

Now the Fed is trapped. It is clearly losing a lot of money and taking on enormous risks by accepting toxic assets as reserves and as it's own holdings, and also by buying long term bonds at low interest rates. And banks are equally fucked in that they are financing fixed rate mortgages at low interest rates. Rates that are fully incompatible with the inflationary trend so many people feel is inevitable.

Maybe that is why the Fed is now trying to drive up interest rates and inflation. Maybe they know they are digging themselves into a hole. But I think Antagon was right, the Fed is a disposable artifact compared to the banks it represents. Maybe the banks feel it is better to let the Fed take it up the ass so that the banks themselves can return to a sustainable interest rate/inflation level.

 

[Norman]

BTW, is the wield on the US debt a fixed rate or non fixed rate?

Aka if you buy a bond that promises to pay 3%, does it pay 3% till maturity or does the rate move up or down?


I am just thinking, if interest rates raise will the interest rates also on existing bonds raise?

 

[antagon]

this depends on the bond... i think?? either way if that 3% is in cash, what % of what you've been promised does that represent inasmuch as purchasing power should the currency be debased?

 

[Norman]

this depends on the bond... i think?? either way if that 3% is in cash, what % of what you've been promised does that represent inasmuch as purchasing power should the currency be debased?

I was actually thinking about the bond bubble... Not so much how much you actually EARN from the bond.

I think all government debt is fixed rate... But I Do want to confirm it.

 

[loosecannon]

There are TIPS which are inflation protected bonds:

Individual - Treasury Inflation-Protected Securities (TIPS)

TIPS are allegedly one of or THE asset that the Fed is buying in it's latest round of QE. Ostensibly to prevent banks from buying them instead of lending.

Altho that might be true, I feel real funny typing it cuz it sounds screwy as a loon.

 

[antagon]

china'd move into those or another treasury say 80-90% of the extent the fed eases. that's the peg. even if they're diverse with their debasement, say to the euro, the euro will move into treasuries to keep a balance. my hypothetical 10-20% could go into lending, but that has to compete with equities, currencies and commodities.

this is why i think easing doesnt do anything but swell arbitrage positions while narrowing their margins. nothing substantial on the street.