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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Fri Sep 14, 2012 8:38 pm 
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see Skitch, if you had made that post I probably would have laughed.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 15, 2012 12:01 am 
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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 15, 2012 5:16 am 
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here's a copy paste of a comment i left on facebook re: QE3

I don't think this will be especially effective; previous rounds of QE haven't done too much for the economy. Now, there are a couple ways in which it might help. QE seems to help the stock market, which obviously helps 401k's and the like.

It also might drive down the value of the dollar, though I'm not sure how much it will do on that in the medium/long term. A lower value for the dollar, if it persisted, would help reduce the US trade deficit (either increase exports or decrease imports or some combination of both). In the long run, that's a good thing--it's necessary, as global imbalances were a contributor to the crisis (though imbalances have been more important for Europe than the US thus far).

At the same time, Fed policy here has two main risks I see. One, it may cause inflation down the line, once the economy gets better. Two, the main way it seeks to work is to increase private lending (i.e. increasing private borrowing), which is to say, generate growth through increased private debt. But the leading cause of the crisis on the US side, in my estimation, was the massive increase in private debt (as it fueled asset bubbles and the like), and the recovery has been sluggish in large part because private entities are trying to deleverage (reduce their debt loads). So, I think Fed policy will either be mostly ineffective, because borrowers and lenders will be reluctant to borrow and lend despite changes in interest rates; or it will be risky, because lending does pick up, and therefore private debt grows further, making the economy more debt dependent and thereby less stable (shocks will be exacerbated by high debt levels in an interconnected financial system, where the solvency of each actor depends on the solvency of other actors).

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 15, 2012 7:02 am 
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Doks post won't be surpassed in this page.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 15, 2012 7:21 am 
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stip wrote:
If you would like a more detailed defense of my views, littlewing, you could do worse than preordering

"A Better Kind of Liberty": The Theory and Practice of the New Deal. I believe Red Mosquito gets a shout out in the acknowledgements.

But if you wanted to wait until the far cheaper paperback version comes out next year I'll understand. The hardcover runs are really meant for libraries and people with research budgets or more discretionary income than I have.

It's kinda long Skitch, so it may not be for you.


For the Californians among us, its too late for such a suggestion. Damn you, tax man.


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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 15, 2012 11:33 am 
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and now the human costs of raising taxes finally hit home for me.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 17, 2012 4:52 pm 
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http://www.marketwatch.com/story/general-motors-pushing-us-to-sell-stake-report-2012-09-17

General Motors pushing U.S. to sell stake: report
By William Spain

CHICAGO (MarketWatch) -- The Treasury Department is resisting General Motors' push for the government to sell off its stake in the auto maker, The Wall Street Journal reports. Following a $50 billion bailout in 2009, the U.S. taxpayers now own almost 27% of the company. But the newspaper said GM executives are now chafing at that, saying it hurts the company's reputation and its ability to attract top talent due to pay restrictions. Earlier this year, GM GM -1.28% presented a plan to repurchase 200 million of the 500 million shares the U.S. holds with the balance being sold via a public offering. But officials at the Treasury Department were not interested as selling now would lead to a multibillion dollar loss for the government, the newspaper noted.

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Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 22, 2012 4:07 pm 
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article on QE

What the Heck Is Quantitative Easing?

Mike Konczal

September 19, 2012

A look at the history behind the Fed's latest move



Last week, the Federal Reserve announced a third round of quantitative easing, or what is referred to as QE3. This is an open-ended purchase of $40 billion a month, along with a commitment to keep rates low until “a considerable time after the economic recovery strengthens.” Many economic commentators are saying that this is a serious change in economic policy. In order to understand why this is so important to our economy now, it might be helpful to go back to an academic debate about Japan in the 1990s.

The era from the early 1980s through the financial crisis was referred to as the “Great Moderation.” It was common for economists to assume that the Federal Reserve and other central bankers could control the economy effortlessly, basically picking the unemployment rate they wanted. Prominent economists who studied macroeconomics, the field created during the Great Depression to study economic crashes, thought everyone in the discipline should pack up and go home. Robert Lucas, a renowned conservative macroeconomist, declared in a 2003 address to the American Economic Association that the "central problem of depression-prevention [has] been solved, for all practical purposes."

Central bankers usually respond to an economy slowing down or speeding up by adjusting the short-term interest rate. They’ll announce a lower interest rate when an economy slows. This encourages people to borrow and businesses to invest. If an economy is speeding up too fast, they’ll raise interest rates. They balance full employment with preventing runaway inflation, trying to keep the economy as stable as possible. During the Great Moderation, this central-bank ability seemed sufficient to handle any economic crisis.

Japan was the second-largest economy in the world in the 1990s when it had a severe recession. Its central bank, the Bank of Japan, lowered interest rates to try to offset the recession, but even lowering rates to zero wasn’t enough. Monetary policy hit a “zero-lower bound.” If interest rates were to go negative, and banks were to offer a negative interest rate, people would just hold cash instead. Since the Federal Reserve can’t offer a negative interest rate, it has no other conventional options once rates hit zero to boost the economy.

This is relevant because the United States also hit a similar zero-lower bound in the Great Recession. By 2009, with the economy in free fall, the Federal Reserve set interest rates to zero, which wasn’t enough to get us anywhere near full employment. While economic policymakers initiated a large stimulus measure through fiscal policy, most notably the American Recovery and Reinvestment Act in early 2009, it wasn’t clear what the Federal Reserve could do. Many commentators assumed that the Fed was “out of ammo.”

But the fact that traditional, conventional monetary policy of adjusting short-term rates has run its course doesn’t mean the central bank is out of options. Academics in the United States studying and debating the Japanese recession were split into two camps about what could be done in an economy that has hit the zero-lower bound.

The first camp believes that the central bank, rather than just adjusting the short-term interest rate, could always print money and purchase things to adjust the price level. A Princeton academic named Ben Bernanke was a major proponent of this approach and warned in 1999 that central bankers could find themselves stuck in a “self-induced paralysis.”

This is the main notion behind the first two rounds of quantitative easing. The Federal Reserve, now chaired by Bernanke, printed money and used it to purchase mortgage debt and longer-term government debt. Studies show that this has worked to lower rates for corporate bonds, mortgage rates, and long-term government debt.

However, there is another camp that focuses on how a central bank should act when it is up against a zero-lower bound. This group argues that if the economy starts to recover, the central bank will immediately raise interest rates. The market believes that the Federal Reserve will ultimately pull back on the expansion the moment the economy starts to pick up. This will choke off the recovery, and the expectations will act as a self-fulfilling prophecy.

In order to break these expectations, the Federal Reserve needs to commit to acting aggressively even after the recovery has started. As economist Paul Krugman put it in 1998 while discussing the situation in Japan, central banks will have to “credibly promise to be irresponsible,” by leaving interest rates lower than they’d otherwise be or by actively seeking a higher inflation rate than they’d normally tolerate, in order to allow for a full recovery. This approach is clear in a recent, popular suggestion for how to boost the United States’ economy by Chicago Federal Reserve President Charles Evans. He said that the Federal Reserve should clearly state that it would be willing to tolerate 3 percent inflation, above the normal target of 2 percent, until unemployment is down to 6 percent.

This second camp is focused on expectations and commitments—on communicating where the Federal Reserve wants to end up and what it is willing to tolerate until it gets there. The first camp is focused on the balance-sheet of the Federal Reserve—on what the Fed is buying and how it is changing the interest-rate market.

Which brings us to the Jackson Hole conference, the major event for those following Federal Reserve policy, held in early September. Another leader of the expectations camp, Columbia University macroeconomist Michael Woodford, presented a highly debated paper arguing that the Fed wasn’t taking the expectations issue seriously enough. He maintained that the positive effects of Federal Reserve actions already taken were influenced in part by the Fed’s ability to change expectations, not just by its balance-sheet effects. Woodford is one of the leading macroeconomists in the world, and his paper was a sign that other macroeconomists were going to start demanding that Bernanke do more along these lines as Fed chair.

It is best to view QE3 as an attempt to bring in both camps on how to deal with the recovery. There are two parts to QE3, one for each camp. The open-ended purchases go with the strength of those in the first camp, who want to see more action through the balance sheet. The language to keep rates low “for a considerable time after the economic recovery strengthens” directly addresses the second camp. It is a designed to tell the market that the Federal Reserve is committed to a full recovery and is willing to tolerate low rates to get there.

Many noticed, however, that there were no hard numbers in the plan, so while it is a good start, it doesn’t specify the rates or inflation that will be tolerated until the economy recovers. Some see this is as a strong feature of the policy, while others are worried. During his press conference last week, Bernanke didn’t say whether he’d tolerate a period of higher inflation while the economy recovers, which is crucial to the actual implementation of the expectations policy and whether the recovery speeds up.

The Federal Reserve has consistently held back since the recovery started. During the long summer of 2010, when the market was concerned about a double-dip, the Fed waited until November to execute QE2, which immediately crushed worries that we’d trend into deflation. Now the Federal Reserve is taking the advice of those who have been pushing for much more substantial action. Will it work? We are about to find out. Millions of people’s productive lives hang in the balance.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Sat Sep 22, 2012 4:14 pm 
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and a critique of it from the left

Why the New Fed Stimulus Won't Jumpstart the Economy - and What Would
Friday, 21 September 2012 00:00 By Ellen Brown, Truthout | News Analysis



One Cent.(Photo: Jeremy Brooks / Flickr)The economy could use a good dose of "aggregate demand" - new spending money in the pockets of consumers - but QE3 won’t do it. Neither will it trigger the dreaded hyperinflation. In fact, it won’t do much at all. There are better alternatives.

The Fed's announcement on September 13 that it was embarking on a third round of quantitative easing (QE) has brought the "sound money" crew out in force, pumping out articles with frightening titles like "QE3 Will Unleash 'Economic Horror' On The Human Race."

The Fed calls QE an asset swap, swapping Fed-created dollars for other assets on the banks' balance sheets. But critics call it "reckless money printing" and say it will inevitably produce hyperinflation. Too much money will be chasing too few goods, forcing prices up and the value of the dollar down.

All this hyperventilating could have been avoided by taking a closer look at how QE works.



The money created by the Fed will go straight into bank reserve accounts, and banks can't lend their reserves. The money just sits there, drawing a bit of interest.

The Fed's plan is to buy mortgage-backed securities (MBS) from the banks, but according to the Washington Post, this is not expected to be of much help to homeowners either.

Why QE3 Won't Expand the Circulating Money Supply

In its third round of QE, the Fed says it will buy $40 billion in MBS every month for an indefinite period. To do this, it will essentially create money from nothing, paying for its purchases by crediting the reserve accounts of the banks from which it buys them. The banks will get the dollars and the Fed will get the MBS.

But the banks' balance sheets will remain the same, and the circulating money supply will remain the same.

When the Fed engages in QE, it takes away something on the asset side of the bank's balance sheet (government securities or mortgage-backed securities) and replaces it with electronically-generated dollars. These dollars are held in the banks' reserve accounts at the Fed. They are "excess reserves," which cannot be spent or lent into the economy by the banks. They can only be lent to other banks that need reserves, or used to obtain other assets (new loans, bonds, etc.).

As Australian economist Steve Keen explains:

... reserves are there for settlement of accounts between banks, and for the government's interface with the private banking sector, but not for lending from. Banks themselves may ... swap those assets for other forms of assets that are income-yielding, but they are not able to lend from them.

This was also explained by Scott Fullwiler, an associate professor of economics at Wartburg College, when he argued a year ago for something he called "QE3, Treasury style." This would be another form of QE: the minting of coins by the US Treasury in denominations of $1 trillion "or whatever amount is desired."

He explained why the increase in reserve balances in QE is not inflationary:

Banks can't 'do' anything with all the extra reserve balances. Loans create deposits -reserve balances don't finance lending or add any 'fuel' to the economy. Banks don't lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its ... interest rate target. Widespread belief that reserve balances add 'fuel' to bank lending is flawed, as I explained here over two years ago.

Since November 2008, when QE1 was first implemented, the monetary base (money created by the Fed and the government) has indeed gone up. But the circulating money supply, M2, has not increased any faster than in the previous decade, and loans have actually gone down.

Why, Then, Is the Fed Bothering to Engage in QE3?

If the Fed is doing no more than swapping bank assets, what is the point of this whole exercise? The Fed's professed justification is that by buying mortgage-backed securities, it will lower interest rates for homeowners and other long-term buyers. As explained in Reuters:

Massive buying of any asset tends to push up the prices, and because of the way the bond market works, rising prices force yields [or interest rates] down. Because the Fed is buying mortgage-backed bonds, the purchases act to directly lower the cost of borrowing to buy a home. In addition, some investors, put off by the rising price of the bonds that the Fed is buying, turn to other assets, like corporate bonds - which, in turn, pushes up corporate bond prices and lowers those yields, making it cheaper for companies to borrow - and spend.

Those are the professed objectives, but politics may also play a role. QE drives up the stock market in anticipation of an increase in the amount of money available to invest, a good political move before an election.

Commodities (oil, food and precious metals) also go up, since "hot money" floods into them. Again, this is evidently because investors expect inflation to drive commodities up, and because lowered interest rates on other investments prompt investors to look elsewhere. There is also evidence that commodities are going up because some major market players are colluding to manipulate the price, a criminal enterprise.

The Fed does bear some responsibility for the rise in commodity prices, since it has created an expectation of inflation with QE, and it has kept interest rates low. But the price rise has not been from flooding the economy with money.

If dollars were flooding economy, housing and wages (the largest components of the price level) would have shot up as well. But they have remained low, and overall price increases have remained within the Fed's 2 percent target range.

Some Possibilities That Might Be More Effective at Stimulating the Economy

An injection of money into the pockets of consumers would actually be good for the economy, but QE3 won't do it. The Fed could give production and employment a bigger boost by using its lender-of-last-resort status in more direct ways than the current version of QE.

It could make the very-low-interest loans given to banks available to state and municipal governments, or to students, or to homeowners. It could rip up the $1.7 trillion in government securities that it already holds, lowering the national debt by that amount (as suggested a year ago by Ron Paul). Or it could buy up a trillion dollars' worth of securitized student debt and rip those securities up. These moves might require some tweaking of the Federal Reserve Act, but Congress has done it before to serve the banks.

Another possibility would be the sort of "quantitative easing" first proposed by Ben Bernanke in 2002, before he was chairman of the Fed - just drop hundred dollar bills from helicopters. (This is roughly similar to the Social Credit solution proposed by C. H. Douglas in the 1920s.) As Martin Hutchinson observed in Money Morning:

With a US population of 310 million, $31 billion per month, dropped from helicopters, would have given every American man, woman and child an extra crisp new $100 bill per month.

Yes, it would produce an extra $31 billion per month on the nominal Federal budget deficit, but the Fed would have printed the new bills, so there would have been no additional strain on the nation's finances.

It would be much better than a new social program, because there would have been no bureaucracy involved, just bill printing and helicopter fuel.

The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2 percent.

None of these moves would drive the economy into hyperinflation. According to the Fed's figures, as of July 2010, the money supply was actually $4 trillion less than it was in 2008. That means that as of that date, $4 trillion more needed to be pumped into the money supply just to get the economy back to where it was before the banking crisis hit.

As the psychological boost from QE3 wears off and the "fiscal cliff" looms, perhaps Congress and the Fed will consider some of these more direct approaches to relieving the economy's intractable doldrums.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 11:46 am 
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Quote:
With a US population of 310 million, $31 billion per month, dropped from helicopters, would have given every American man, woman and child an extra crisp new $100 bill per month.

Yes, it would produce an extra $31 billion per month on the nominal Federal budget deficit, but the Fed would have printed the new bills, so there would have been no additional strain on the nation's finances.

It would be much better than a new social program, because there would have been no bureaucracy involved, just bill printing and helicopter fuel.

The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2 percent.


:haha:

Printing money - it's magical!

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 12:16 pm 
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LittleWing wrote:
:haha:

Printing money - it's magical!



That was kinda mental. The author is probably sitting at home thinking "Bro, we could fix unemployment if only windows would break more often..."

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 12:58 pm 
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LittleWing wrote:
Quote:
With a US population of 310 million, $31 billion per month, dropped from helicopters, would have given every American man, woman and child an extra crisp new $100 bill per month.

Yes, it would produce an extra $31 billion per month on the nominal Federal budget deficit, but the Fed would have printed the new bills, so there would have been no additional strain on the nation's finances.

It would be much better than a new social program, because there would have been no bureaucracy involved, just bill printing and helicopter fuel.

The money would nearly all have been spent, increasing consumption by perhaps $300 billion annually, creating perhaps 3 million jobs, and reducing unemployment by almost 2 percent.


:haha:

Printing money - it's magical!


it pretty much is. The whole idea of money is fundamentally magical.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 1:02 pm 
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here is the bio of the guy who made that suggestion, for those of you curious (since he was singled out I became curious).



About the Author

Martin Hutchinson has nearly 30 years’ experience as a global investment banker – plus a reputation for being bearish at just the right time. Slate magazine singled him out as the financier who most accurately predicted how bad the 2009 bear market would turn out to be. Martin is the editor of the Permanent Wealth Investor, where he focuses on stocks that pay high, reliable dividends. In his Merchant Banker Alert, Martin uncovers the fastest-growing companies in the fastest-growing economies and brings those ideas back home to you. Learn more about Martin on our contributors page.


I did not link the contributors page, so if you would like to know more you'll have to search it yourself

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 1:35 pm 
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broken iris wrote:
LittleWing wrote:
:haha:

Printing money - it's magical!



That was kinda mental. The author is probably sitting at home thinking "Bro, we could fix unemployment if only windows would break more often..."


Can someone please post an image of Helicopter Ben? LOL!

There is nothing magical about a uniform means of barter and exchange. The Romans paid soldiers with salt - which, funnily enough, is where the word salary comes from. Uniform means of exchange has been around for millenia. There's nothing magical about it. It's a division of aggregate labor, goods, and services.

The idea that removing DYNAMIC securities that carry significant risk from a banks balance sheet and replacing it with fixed digitized dollars and NOT resulting in more lending and inflation is laughable. That's uhhhhhh, kind of the point of the bailouts and this batch of QE. Socialize the bad investments so that private bankers can generate more tangible lendable dollars in the hope that they'll actually lend them. Insert Thodoks discourse on fractional reserve banking here. The more reserves you have (sound reserves), the more you can lend out. The risk you carry on your balance sheet, the more you can lend out.

The ignorance of all this is the fact that all this presumes there's a free lunch in economics. That those risky MBSs are gone for good. When in all reality they now belong to all of us should they lose value. Bankers win, common people lose. But this is all necessary for the election...

The worst part about this is that it does nothing but reinforce the negative behavior that led to the original bubble from happening. The implicit knowledge that your bad investments will be socialized is an AWFUL means of running a banking system. The only way we get out of this cycle is if creative destruction is allowed to take its course.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 2:39 pm 
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LittleWing wrote:
The worst part about this is that it does nothing but reinforce the negative behavior that led to the original bubble from happening. The implicit knowledge that your bad investments will be socialized is an AWFUL means of running a banking system.


This is one of your better posts in this thread.

LittleWing wrote:
The only way we get out of this cycle is if creative destruction is allowed to take its course.


Or simple regulations could be put in place to gradually change the system back so that financial "innovation" is not the driver.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 7:56 pm 
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broken iris wrote:

LittleWing wrote:
The only way we get out of this cycle is if creative destruction is allowed to take its course.


Or simple regulations could be put in place to gradually change the system back so that financial "innovation" is not the driver.


yup

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 8:46 pm 
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Barter is not magical. We don't live in a barter economy, and banks have almost always operated on a fractional reserve basis. Money, in a sense, is magical, depending how you define magical. But the key to money is that most of it is credit, and banks are crucial because people trust them to "guarantee" payment.

This is a pretty good explanation:

Quote:
When a bank makes a loan, does it create money “from thin air“? Are banks merely intermediaries, where “if people are borrowing, other people must be lending“? I consider these sorts of questions less and less helpful. Let’s just understand what a bank loan is, in terms of real resources and risk.

Suppose I go to my local bank and ask for a loan. The bank says yes, and suddenly there is “money in my account” where there was not before. Am I now a “borrower” and the bank a “creditor”?

No. Not at all. The transaction that has occurred is fully symmetrical. It is as accurate to say that the bank is in my debt as it is is to say that I am in debt to the bank. The most important thing one must understand about banking is that “money in the bank” also known as “deposits” are nothing more or less than bank IOUs. When a bank “makes a loan”, all it does is issue some IOUs to a borrower. The borrower, for her part, issues some IOUs to the bank, a promise to repay the loan. A “bank loan” is simply a liability swap: I promise something to you, you promise something of equal value to me. Neither party is in any meaningful sense a creditor or a borrower when a loan is initiated.

Now suppose that after accepting a loan, I “make a purchase” from someone who happens to hold an account at my bank. That person supplies to me some real good or service. In exchange, I transfer to her my “deposits”, my IOUs from the bank. Suddenly, it is meaningful to talk about creditors and debtors. I am surely in somebody’s debt: someone has transferred a real resource to me, and I have done nothing for anyone but mess around with financial accounts. Conversely, the seller is surely a creditor: they have supplied a real service and are owed some real service in exchange. It would be natural to say, therefore, that the seller is the creditor and I, the purchaser, am the debtor, and the bank is just a facilitating intermediary. That is one perspective, a real resources perspective.

But it is an incomplete perspective. Because in fact, the seller would not accept my debt in exchange for the goods and services she supplies. If I wrote her a promise to perform for her some service of equal value in the future (which might include surrendering crisp dollar bills), she would not accept that promise as a means of payment. I circumvent her fear by writing to the bank precisely the promise that the vendor would not accept and having the bank “wrap” my promise beneath its own. The bank’s job is not to “lend” anything in any meaningful sense. The bank is just a bunch of assholes with spreadsheets, it has nothing real that anyone wants to borrow. The bank’s role is to transform questionable promises into sound promises. It is a kind of adapter of promises, or alternatively, a guarantor.


That's about half the post. The rest here.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 9:27 pm 
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You're right, barter isn't magical. But you're wrong in suggesting we don't have a barter economy. You barter every time you participate in a free transaction. You barter for the best compensation you can get for your labor, you barter for the goods you buy and by shopping around, you barter by going to the wholesaler instead of the retailer. Sometimes, particularly with used items between a private individual, you barter like hell. Who doesn't barter for the cars they buy? I bartered my house down substantially when I bought it. The only difference is the MEDIUM we do our bartering with. I didn't barter some future engineering to the bank for my house. Currency provides a clear means of directly bartering. It enables specialization. It facilitates growth. And sure, banking has almost always been fractional (not an absolute truth though.)

Money isn't magical at all. It doesn't matter how you define it.

I like, and agree with Thodok's post on fractional reserve banking.

As to regulations to gradually change the system back so that financial innovation is not the driver - how the hell is that gonna happen? The same people who are engaging in the socialization of mortgage backed securities would be responsible for implementing those regulations. That institution is engaging in quantitative easing for the same reason they allowed all that financial innovation to take root in the first place - because it's politically expedient.

The sad thing is that these measures will likely boost the stock market, and they may even overall GDP. But they will fuck the value of net assets held by the plebes of society...

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 9:41 pm 
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As for the rest of the post

LittleWing wrote:
The idea that removing DYNAMIC securities that carry significant risk from a banks balance sheet and replacing it with fixed digitized dollars and NOT resulting in more lending and inflation is laughable. That's uhhhhhh, kind of the point of the bailouts and this batch of QE. Socialize the bad investments so that private bankers can generate more tangible lendable dollars in the hope that they'll actually lend them. Insert Thodoks discourse on fractional reserve banking here. The more reserves you have (sound reserves), the more you can lend out. The risk you carry on your balance sheet, the more you can lend out.

The ignorance of all this is the fact that all this presumes there's a free lunch in economics. That those risky MBSs are gone for good. When in all reality they now belong to all of us should they lose value. Bankers win, common people lose. But this is all necessary for the election...

The worst part about this is that it does nothing but reinforce the negative behavior that led to the original bubble from happening. The implicit knowledge that your bad investments will be socialized is an AWFUL means of running a banking system. The only way we get out of this cycle is if creative destruction is allowed to take its course.

You're right, increasing lending is the point of QE, and driving up certain asset prices is a part of that strategy (by definition a type of inflation, though not the type most commonly worried about [i.e. consumer prices, food, and energy]). Driving up prices means yields go down, and therefore investors go elsewhere for return, including into food and energy, so QE can certainly lead to inflation through that mechanism.

It could also lead to increases in lending, and therefore more money circulating through the economy, eventually leading to inflation in various other prices (depending on where credit is channeled). However, it doesn't have to. Banks can just hold onto those reserves, instead of lending them out. (contra Keen's assertion, I'm pretty sure that while banks don't lend the reserves per se, when they have to actually hand out dollar bills, those do come from reserves, and when they need to settle debts with other banks, I think that comes from reserves).

Banks don't automatically just hold onto reserves at the required reserve ratio--they can hold onto any amount of money they wish. If they are risk averse and concerned about the future, they likely won't loan everything they can. In fact, they haven't increased loans to the same degree they've seen increases in reserves, and I don't think QE3 will change that. But as I mentioned in that post above I pulled from Facebook, it probably wouldn't be a good thing if it did. It would boost GDP growth, but at the expense of increased systemic fragility by increasing debt loads on an economy already inundated with debt.

Just printing money and giving it to people would probably boost growth as well, but yeah, the claim that it wouldn't cause inflation seems pretty fanciful, especially if it was primarily channeled to consumption like the author predicts. Steve Keen has a similar idea, but he calls his a "debt jubilee" and proposes the government give everyone money with the rule that it must first be used to pay down debt, and anything left over becomes money in the bank (and for those with no debt, all of it is money in the bank). I like that idea far more. Of course it would also lead to some inflation, but it would also address major problems in the economy like the excessive private debt load, as opposed to the helicopter and consumption plan that only addresses it roundaboutly. I'm not sure I'm on board with Keen's proposal yet, but it does take on serious long term issues poorly addressed by QE or helicopter drops.

Another problem I've got with helicopter drops: it seems pretty self-evident to me that this would benefit the most selfish and ruthless people.

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 Post subject: Re: Apparently people care...the ongoing saga of the US Economy!
PostPosted: Mon Sep 24, 2012 10:29 pm 
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It begs the question then - why isn't the lending happening anyway as there are HUGE sums of cash sitting on the sideline? I'm pretty sure that the last two batches of QE were proof positive that QE wasn't going to stimulate the banks to lend. They simply sat on their new pile of cash, and the credit markets continued to remain abysmal at best. I should have caught myself - QE doesn't necessarily have to lead to inflation. I meant it more of a "and/or/possibility of occurring" type of thing. Because it's plenty possible that there won't be any with QE as you mention here. I understand that banks don't just lend currency to maximize their reserve rate. I think this is one of the most important things to understand about our economy right now and why QE I and II failed to deliver, why the stimulus failed to deliver, and why growth has been so terrible. It presumed that just because money was added into circulation that it would lead to growth - a preposterous assertion - because the banks had nothing (relatively speaking) to invest in. Most of the firms that were running on debt were no longer worth investing in. Those that were succeeding weren't relying on credit in the first place.

I don't think giving people money would lead to any growth at all. Particularly the set of people the author is gearing his money throwing out of a helicopter scheme at. If you gave me an extra hundred dollars a month to spend, is it going to make me more productive? My coworkers more productive? Will you be more productive? Or is the idea that our spending will create new jobs elsewhere? What makes anybody think that the kind of useless consumer bullshit that would be bought with this money would be made in America and create new jobs? What makes anybody think that it wouldn't do anything other than inflate the value of disposable goods: energy, housing, food, and clothing? There are currently: 600,000 jobs available in manufacturing, 200,000 jobs in trucking, 200,000 jobs in energy, 300,000 jobs in nursing, and probably a million to two million other good paying medium skill positions that require little to no investment to get into. If THESE jobs aren't getting filled, much less the skilled jobs our economy really needs to grow, what makes ANYBODY think that the extra $100 a month would lead to them GETTING filled? Giving people money to pay down private debts, and paying for it with public debt is a sick thought. Just sick. It's like assholes who exploit bankruptcy laws. In my view it's no different than bailing out banks. You're dealing with people who made bad/risky financial decisions, got themselves all wadded up, and giving them an out to rid themselves of their privately accumulated debts at the expense of the rest of society. Those who have responsible debts will be left paying for the consequences of those who took on irresponsible, unsustainable debts. With that precedent set, like QEI, what makes you think the behavior will actually change and prevent people from digging themselves into another socially sponsored hole? You'd have assholes like me, selling shit to people on debt, knowing that their debt would get bailed out.

Capital will naturally flow where the most gain is to be had within individual risk paradigms. If you want to fix this by increasing debt financed investments, then our people need to offer something worth investing in and for banks to sink risk in to. Otherwise we'll simply see more offshoring, more hording, more bubble chasing, and more speculation. More of the last 15 years basically.

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