Where is the inflation?

[g5000]

They are setting the rates. You are basically saying they will want to raise interest rates but then act like higher interest rates will make this difficult because of bond prices... or in other words higher interest rates.

No, I am saying interest rates will rise beyond their control. That's what inflation does. And their low interest rate bonds will be underwater.

High interest rates will slow down the economy and the money supply.

You are theorizing a world where inflation is high and interest rates are high.

Theorizing?

I take it you were born after 1980.

You are treating the Federal Reserve like it is a bank when it really isn't. You are worried about bond prices going down which is exactly what the Federal Reserve would be trying to do.

Lower bond prices = higher interest rates. How do you not know this?

 

[Bombur]

They are setting the rates. You are basically saying they will want to raise interest rates but then act like higher interest rates will make this difficult because of bond prices... or in other words higher interest rates.

No, I am saying interest rates will rise beyond their control. That's what inflation does. And their low interest rate bonds will be underwater.

High interest rates will slow down the economy and the money supply.

You are theorizing a world where inflation is high and interest rates are high.

Theorizing?

I take it you were born after 1980.

You are treating the Federal Reserve like it is a bank when it really isn't. You are worried about bond prices going down which is exactly what the Federal Reserve would be trying to do.

Lower bond prices = higher interest rates. How do you not know this?

The high interest rates of the 80's lowered inflation.

Obviously lower bond prices = higher inflation. My comment doesn't make a lot of sense if I didn't know that.

You compared the Federal Reserve to banks, this is a terrible analogy.

You claimed that the Federal Reserve won't be able to use higher interest rates to lower inflation, then referenced the 80's when it did just that.

It is like you think the Federal Reserve will somehow run out of its ability to perform open market operations.

 

[bendog]

The recession the Fed engineered in the early 80s resulted in 11% unemployment. The question for the Bernanke was whether he can pull the money out to prevent the necessity of doing that again.

 

[Contumacious]

The recession the Fed engineered in the early 80s resulted in 11% unemployment. The question for the Bernanke was whether he can pull the money out to prevent the necessity of doing that again.

Again, you continue to miss the point.

In 1913 the Congresscritters placed banking and credit under central control, ie, the Federal Reserve Board

The Chairman of the FRB can either reduce or expand the credit and the monetary supply.


In 1935 and 2008, for example it retracted the monetary supplied with disastrous consequences.

I do not know how long will it the zombified populace to conclude that centrally controlled economies do not work.


.

 

[Bombur]

The recession the Fed engineered in the early 80s resulted in 11% unemployment. The question for the Bernanke was whether he can pull the money out to prevent the necessity of doing that again.

The 1980's had its own specific list of problems and there were plenty of mistakes made by the Federal Reserve in the 70's that lead to the need to institute such strong measures.

Right now we are mostly fearing inflation that is directly related to Federal Reserve action and increased economic activity.

 

[bendog]

The recession the Fed engineered in the early 80s resulted in 11% unemployment. The question for the Bernanke was whether he can pull the money out to prevent the necessity of doing that again.

The 1980's had its own specific list of problems and there were plenty of mistakes made by the Federal Reserve in the 70's that lead to the need to institute such strong measures.

Right now we are mostly fearing inflation that is directly related to Federal Reserve action and increased economic activity.

I wasn't the one who raised mention of interest rates. I may be wrong, but I thought you initially did.

The question is whether the QE purchases will cause inflation, or whether the Fed can pull out the Treasuries and Mortgage Backed Securities it purchased (take the money back out of the economy that it created in buying these "bonds") before "too much" inflation sets in. "Too much" being a relative term, because some economists find a little inflation causes wages to rise in way that's good for the economy.

I'm not sure I agree totally with G5000. I don't see that great a danger with the really large level of Treasuries the Fed bought. The Fed buys Treasuries all the time. And, as G5000 discussed, it gets rid of them by selling them to the public. It may be that the Fed cannot sell for a dollar what it bought for a dollar, and if so there will be more money in the economy that there otherwise would be. And, as the economy gathers steam, the multiplier effect of bank lending will cause the money supply to expand further, thereby creating, possibly, hyperinflation. You may have criticized G5000 for mixing and matching the fed with "banks," and if you did, that was misplaced, because the actions of the Fed in buying Treasuries creates more dollars for banks to lend.

But, G5000's concerns may be a little overstated, because the Fed can also pull out money from the economy by increasing reserve requirements that basically force banks to hold dollars in reserve, and not lend them out. The effect of that is essentially ... the Fed can pull money out of the economy. And the Fed can also hike the discount rate, which also in effect pulls money out of the economy.

So, in sum, I am not totally convinced that the Treasuries the Fed bought will prove to be that big of a problem in terms of inflation. I am a little concerned over possible unintended consequences of the Fed essentially supporting over the short term Congress and the Executive's inability to reform entitlements and control deficits.

However, the Fed also bought something in the line of 1.2 TRILLION dollars in mortgage backed securities. I put up a link before from the NY Fed Res Bank that seemed to indicate that as part of the Feds regular Open Market Operations, when that kind of bond matures, the Fed sells it, but buys a like amount of Treasuries. If bond prices tank, and the Fed is holding a whole lot of Mortgage Backed Securities, then I don't see how it would be able to use its tools of changing reserve requirements and discount rates to pull money out.

If the Fed can't pull out that money, and if we have rising economic performance that increases the money multiplier effect, then we may have a perfect storm in terms of what, I think, G5000 was hypothesizing.

If that happens, say hello to 11% unemployment, again.

 

[Bombur]

The recession the Fed engineered in the early 80s resulted in 11% unemployment. The question for the Bernanke was whether he can pull the money out to prevent the necessity of doing that again.

The 1980's had its own specific list of problems and there were plenty of mistakes made by the Federal Reserve in the 70's that lead to the need to institute such strong measures.

Right now we are mostly fearing inflation that is directly related to Federal Reserve action and increased economic activity.

I wasn't the one who raised mention of interest rates. I may be wrong, but I thought you initially did.

The question is whether the QE purchases will cause inflation, or whether the Fed can pull out the Treasuries and Mortgage Backed Securities it purchased (take the money back out of the economy that it created in buying these "bonds") before "too much" inflation sets in. "Too much" being a relative term, because some economists find a little inflation causes wages to rise in way that's good for the economy.

I'm not sure I agree totally with G5000. I don't see that great a danger with the really large level of Treasuries the Fed bought. The Fed buys Treasuries all the time. And, as G5000 discussed, it gets rid of them by selling them to the public. It may be that the Fed cannot sell for a dollar what it bought for a dollar, and if so there will be more money in the economy that there otherwise would be. And, as the economy gathers steam, the multiplier effect of bank lending will cause the money supply to expand further, thereby creating, possibly, hyperinflation. You may have criticized G5000 for mixing and matching the fed with "banks," and if you did, that was misplaced, because the actions of the Fed in buying Treasuries creates more dollars for banks to lend.

But, G5000's concerns may be a little overstated, because the Fed can also pull out money from the economy by increasing reserve requirements that basically force banks to hold dollars in reserve, and not lend them out. The effect of that is essentially ... the Fed can pull money out of the economy. And the Fed can also hike the discount rate, which also in effect pulls money out of the economy.

So, in sum, I am not totally convinced that the Treasuries the Fed bought will prove to be that big of a problem in terms of inflation. I am a little concerned over possible unintended consequences of the Fed essentially supporting over the short term Congress and the Executive's inability to reform entitlements and control deficits.

However, the Fed also bought something in the line of 1.2 TRILLION dollars in mortgage backed securities. I put up a link before from the NY Fed Res Bank that seemed to indicate that as part of the Feds regular Open Market Operations, when that kind of bond matures, the Fed sells it, but buys a like amount of Treasuries. If bond prices tank, and the Fed is holding a whole lot of Mortgage Backed Securities, then I don't see how it would be able to use its tools of changing reserve requirements and discount rates to pull money out.

If the Fed can't pull out that money, and if we have rising economic performance that increases the money multiplier effect, then we may have a perfect storm in terms of what, I think, G5000 was hypothesizing.

If that happens, say hello to 11% unemployment, again.

I don't see the problems of the 1970's and 80's happening again and my point was that comparing the two is difficult because the situations are so different.

The Federal Reserve doesn't have a lot of the concerns that banks have. The idea that bond prices are like some kind of bubble waiting to pop like MBS simply doesn't match reality. The impact of large changes in value just don't have the same impact on the Federal Reserve as they would on a bank.

I have no idea why anyone thinks the Federal Reserve won't be able to significantly impact money supply by selling their assets to the point that they can't increase interest rates enough to slow the rate of inflation. Referencing the 80's only makes this theory harder for me to understand considering the ability of the Federal Reserve to address that particular situation.

I am open to hear an explanation though.