So how long are you going to believe the official "supply chain" argument?That’s not why we have inflation. We have inflation because of the supply chain. — Xtrix
First, no, not in this way. The alphabet soup of programs they went through wasn't at this level and intensity AND the money basically went to uphold the banks, which sat on the money like Scrooge McDuck. Banks sitting on money doesn't create inflation. Or basically just creates asset inflation, which isn't so bad as people don't have to buy assets (but they do have to buy food).The Fed has been printing money galore since 2009. — Xtrix
That is actually true. Perhaps better to say that things could get even worse.There is no 'brewing' economic and monetary crisis. The world economy has been in crisis for more than a decade now. — StreetlightX
Nah. Those who have it the worse now will be the ones hit the hardest in the future too, if we have another crisis (on top of the current long one).It's only 'brewing' for those who are comfortable and benefiting from the misery of those who have been in unending crisis for years. — StreetlightX
:smile:For sure it's the valley of death I open up my wallet and it's full of blood because of inflation. — Maw
Monetary policy (injecting or withdrawing credit money or hiking or lowering policy rates) is really ineffective in managing inflation or economic activity. Study after study has shown that ‘quantitative easing’ had little or no effect on boosting the ‘real’ economy or production and investment; and study after study has shown that huge injections of money credit by central banks over the last 20 years have not led to an acceleration of inflation – on the contrary. So whether the Fed, BoE or ECB speed up the tightening of monetary policy will not work to ‘curb inflation’. Monetary policy does not work – at least at the levels of interest rates that central banks are envisaging.
...If there is going to be any ‘cost-push’ this year, it’s going to come from companies hiking prices as the cost of raw materials, commodities and other inputs rise, partly due to ‘supply-chain’ disruption from COVID... Inflation rates reached post-war lows in the 2010s despite ‘quantitative easing because real GDP growth slowed along with investment and productivity growth. All monetary policy did was weakly counteract that downward pressure on price inflation.
Inflation now is ‘transitory’ in the sense that after the ‘sugar rush’ of consumer and investment spending ends during 2022, growth in GDP, investment and productivity will drop back to ‘long depression’ rates. That will mean that inflation will subside. The Fed is forecasting just 2% real GDP growth by 2024 and 1.8% a year after that – a rate lower than the average for the last ten years. In Q3 2021, US productivity growth slumped on the quarter by the most in 60 years, while the year on year rate dropped 0.6%, the largest decline since 1993, as employment rose faster than output.
We'll see.Inflation is a yawn that is being used by neolib wreckers to further institute cuts and hurt the poor. — StreetlightX
I guess the question is how long is something 'transitory'.Inflation now is ‘transitory’ in the sense that after the ‘sugar rush’ of consumer and investment spending ends during 2022, growth in GDP, investment and productivity will drop back to ‘long depression’ rates. That will mean that inflation will subside.
So how long are you going to believe the official "supply chain" argument? — ssu
First, no, not in this way. The alphabet soup of programs they went through wasn't at this level and intensity — ssu
AND the money basically went to uphold the banks, which sat on the money like Scrooge McDuck. Banks sitting on money doesn't create inflation. — ssu
Now the money is going directly to consumers, which does put the money into circulation. — ssu
Uhh... I do believe in economic history. Been a believer for a long time.How long are you going to believe in monetarism? — Xtrix
Keynes had noted in ‘A Tract’ that in all the Western countries from 1914 to 1920 the money supply had increased considerably leading to inflation. The case in Germany was the worst because the price level in 1923 was higher by 7,650 times of the price level in 1913. He called this an inflation a tax imposed by governments on society to avoid being declared bankrupt, the notion proposed by Adam Smith earlier. It also redistributes wealth in a manner injurious to savers, but beneficial to borrowers.
Oh like nobody knew who the "little green men" were that occupied Crimea. QE is just a fancy way to avoid terms like money printing or debt monetization.It most certainly was. They went through several rounds of QE, which at that point hadn't been done before. No one even knew what it was. — Xtrix
Alphabet soup refers to TAF, CPFF, TSLF, PDCF, etc. which you can read from The Alphabet Soup Explained: An Analysis of the Special Lending Facilities at the Federal Reserve . It's basically how QE rounds were implemented. And I think they have for a long time bought corporate debt and were directly involved in helping other entities than banks.Whatever "alphabet soup" of programs you're talking about, there is a difference: last March the Fed started buying corporate debt as well. — Xtrix
So when you have a banking crisis, give money to McDonalds.As expected, the data showed that the Fed loaned trillions of dollars to banks and other financial companies during the crisis. (The Fed says it hasn't lost any money on the loans, and the emergency lending programs are winding down.)
But the data also showed smaller loans to some companies that aren't usually associated with the workings of the Fed; companies like McDonald's, Harley Davidson, Verizon and Toyota.
These companies used an emergency program the Fed set up to keep a key financial market going in the teeth of the crisis -- commercial paper.
The commercial paper market is basically like a credit card for giant companies in every major industry; it's something they use every day to borrow money that they plan to pay back very soon.
During the crisis, when people were afraid that Wall Street would collapse, the commercial paper market basically shut down.
I'm not at all contradicting this!!! The financial crisis of 2008-2009 never went away. This is extremely important to understand just why the situation could be a bit sinister.The Fed is still propping up banks and corporations to this day. They're hostage to the banks, and are a backstop for them. — Xtrix
I think we agree on this, so I'm not contradicting you. The whole thing basically propped up the speculative bubble from not bursting...which actually would be the way free markets would correct the situation, if there would be free markets. The banks didn't lend, people saved, stock market went down, that is what people saw as the deflation era.And contrary to your implication, inflation was predicted back in 2009 -- and never came. — Xtrix
Yeah, do you remember that not long ago we had negative oil futures prices in the US? Tells how great theIt's gasoline that people mainly care about. — Xtrix
Isn't the actor who is the biggest buyer of US government debt a major player here? I think so. The Federal Reserve is already the biggest owner of Treasury debt. Not China.The Fed has nothing to do with the fiscal policy of last year or this year. Nothing. — Xtrix
The U.S. Federal Reserve has significantly ramped up its holdings of Treasury securities as part of a broader effort to counteract the economic impact of the coronavirus (COVID-19) pandemic. Currently, the Federal Reserve holds more Treasury notes and bonds than ever before.
As of July 14, 2021, the Federal Reserve has a portfolio totaling $8.3 trillion in assets, an increase of about $3.6 trillion since March 18, 2020. Longer-term Treasury notes and bonds (excluding inflation-indexed securities) comprise nearly two-thirds of that expansion, with holdings of those two types of securities doubling from $2.2 trillion on March 18, 2020, to $4.5 trillion on July 14, 2021.
And I think they have for a long time bought corporate debt and were directly involved in helping other entities than banks. — ssu
I do admit that thanks to the covid pandemic lockdowns have created supply chain problems, but those really, just as with toilet paper or masks, do get solved. They do get fixed and do go away. As we agree, the financial crisis never went away and the stock market was boosted by monetary policy. And this is why this is far more serious than just supply chain problems or a temporary bout of inflation. — ssu
The Fed has nothing to do with the fiscal policy of last year or this year. Nothing.
— Xtrix
Isn't the actor who is the biggest buyer of US government debt a major player here? I think so. The Federal Reserve is already the biggest owner of Treasury debt. Not China. — ssu
OK, let's concentrate first at the most important issue. The obvious question is the following: when is a central bank doing the basic thing which it has been created for and when is a central bank issuing money to pay for government expenses, printing money like in Zimbabwe?But again, I don't see the relevance. The Fed does buy treasury bonds, yes. But they always have. — Xtrix
Yes, biggest buyer but not (yet) biggest owner, so I stand corrected here. Thanks for the correction.That's not true. The biggest owner of treasuries is social security. The Fed owns a great deal. — Xtrix
Social Security was designed primarily as a “pay-as-you-go” system. Instead of prefunded accounts for individuals, such as individual retirement accounts (IRAs), contributions from current workers have always paid for most of the benefits. For the most part, money going into the system each year almost immediately goes out to pay for benefits.
When Social Security’s receipts from payroll taxes and other sources exceed program costs, as when the baby boom generation dominated the workforce and had not yet started retiring on Social Security, excess funds purchased interest-bearing special-issue US Treasury bonds. In effect, the Social Security trust fund lent money to the general fund.
Where does the money go? When the non–Social Security part of government is running deficits, any Social Security surplus funds other government activities, reducing the size of the unified fund deficit. When the trust funds themselves run deficits, however, they add to these other non–Social Security deficits to produce an even larger unified fund deficit. Because these special-issue bonds are essentially both sold and held by the government, aren’t publicly traded like other financial assets, and represent IOUs from the government, some people believe that the trust funds are nothing more than an accounting fiction.
Another factor confuses the issue. Because the trust funds represent an asset to one side of government (the Social Security Administration) and a liability to another side of government (the general fund), some accounting presentations based essentially on cash flows make the effect of the trust funds on the budget look “neutral.” In fact, future obligations are also liabilities to be paid but are not counted in that trust fund ledger.
So, are the trust funds real? Yes. They have legal consequences for the Treasury and are backed by the full faith and credit of the federal government, just like other Treasury bonds. When the Social Security Administration redeems the bonds, the government has a legal obligation to pay the money back with interest, with no additional appropriation by Congress required.
The trust funds are not a free lunch for taxpayers. Money from the general fund used to repay debts to the trust funds cannot be used for other purposes, like building roads or providing for national defense. And as an additional outlay for the government, those general fund payments increase the Treasury’s need to borrow from the public, increasing federal deficits and adding burdens on future taxpayers.
For all the heat about whether the trust funds are “real,” the debate misses a larger issue: the long-term fiscal challenges posed by Social Security and Medicare are not caused by inadequate trust funds, which will be depleted after only a few years of drawdown, but to decades-long imbalances between promised benefits and the revenues required to fund those benefits.
But central banks providing money for governments for wars and stuff is a historical fact, which one cannot disagree with (and I think you agree with me on this). — ssu
Which takes us back to the fundamental question: the US is uncapable of doing anything else than deficit spending and now it's own central bank has had to buy a huge share of that new debt. Furthermore: nothing, absolutely nothing will happen before there is a huge crisis. The Republicans spent as there's no tomorrow (let's remember that it was Dick Cheney who said "deficits don't matter") and so do the Democrats. The Republicans just bitch about the issue when they are in opposition, and hence leftist people think I'm a Republican if even talk about the same issue.
The whole fucking system is built on these cards. It can blow up some day. And then we all have some expedient narrative fed to our tribe that it was the fault of the people in the other side of the political spectrum. — ssu
There you said it yourself.Treasuries are issued by the treasury to make up the difference between revenue (mostly taxes) and spending. So the Fed buying treasuries is, in a sense, funding all kinds of government spending. — Xtrix
Technically they aren't. (That's the norm with central banks, actually) Remember it was the Wall Street banks who created the Fed, even if then the law was passed by Congress. Meeting at Jekyll Island in 1910 and all that.They themselves are a part of the government, of course, but they're given this special privilege. — Xtrix
When there a speculative bubble that has burst, the deflationary effects can easily overwhelm any actions central bank makes for the moment.But the original issue was about inflation. The Fed is in charge of monetary policy, which plays a role in inflation -- no doubt about it. But Friedman's thesis, that inflation is "everywhere and always a monetary phenomenon" just doesn't seem to apply everywhere and always. — Xtrix
When? During the Clinton era? More of a technical one as with changes to Social Security (and it's famous Trust Fund) you can get a surplus:But remember not long ago there was a surplus, not a deficit. — Xtrix
Actually the above is a good example how the system works. But of course, the problem is that aging of the population doesn't mean good for the Social Security Trust Fund, even if the demographic situation of the US isn't as bleak as it is here.When it is claimed that Clinton paid down the national debt, that is patently false--as can be seen, the national debt went up every single year. What Clinton did do was pay down the public debt--notice that the claimed surplus is relatively close to the decrease in the public debt for those years. But he paid down the public debt by borrowing far more money in the form of intragovernmental holdings (mostly Social Security).
Interestingly, this most likely was not even a conscious decision by Clinton. The Social Security Administration is legally required to take all its surpluses and buy U.S. Government securities, and the U.S. Government readily sells those securities--which automatically and immediately becomes intragovernmental holdings. The economy was doing well due to the dot-com bubble and people were earning a lot of money and paying a lot into Social Security. Since Social Security had more money coming in than it had to pay in benefits to retired persons, all that extra money was immediately used to buy U.S. Government securities. The government was still running deficits, but since there was so much money coming from excess Social Security contributions there was no need to borrow more money directly from the public. As such, the public debt went down while intragovernmental holdings continued to skyrocket.
The net effect was that the national debt most definitely did not get paid down because we did not have a surplus. The government just covered its deficit by borrowing money from Social Security rather than the public.
Before the crisis, it isn't. Just like a "nobody" can see a speculative bubble until is bursts and all the excesses of the "strong new economy" are exposed. It's all based on faith and hence there isn't any real indicator when the faith bubble will burst.The debt isn't even that big a problem, for many reasons. — Xtrix
I agree. Let's forget the political rhetoric here. Basically the two parties just want to spend on different issues (or easy the tax burden of the super rich) and the Republicans have their sanctimonious lies about taking seriously the deficit issue. We should put the rhetoric aside and look how the two parties operate.The Republicans are itching to cut social security and medicare and turn them over to private hands -- no surprise there. The Democrats want to "tax the rich," which is on the right track, but then have no problem shelling out a grotesque $778 billion in defense spending. Meanwhile their "proposals" never come to fruition on taxes. — Xtrix
Likely it isn't so terminal. Just look at us now in the midst of global pandemic where millions have died an the World has been locked down in spectacular ways. Things go on.. And it's capitalism that is crushing us and will, in all probability, be terminal for us. The Fed plays a large role in all of that, no doubt -- but it's not completely their fault. — Xtrix
They themselves are a part of the government, of course, but they're given this special privilege.
— Xtrix
Technically they aren't. — ssu
but basically what already Adam Smith and Maynard Keynes noted. So this isn't a purely monetarist view here. — ssu
But remember not long ago there was a surplus, not a deficit.
— Xtrix
When? During the Clinton era? — ssu
How they operate is that they simply will continue with the same old ways until we have a crisis. — ssu
. And it's capitalism that is crushing us and will, in all probability, be terminal for us. The Fed plays a large role in all of that, no doubt -- but it's not completely their fault.
— Xtrix
Likely it isn't so terminal. Just look at us now in the midst of global pandemic where millions have died an the World has been locked down in spectacular ways. Things go on. — ssu
Indeed they weren't monetarists, but they did understand that just printing more money to cover expenses of the government will create inflation. Keynes of course did naturally see uses for things like debt financing, but the how not to run a central bank was obvious for a person that acted as a director of the Bank of England. Of course his theories for inflation ran into problems with stagflation, which only shows that there isn't one simple phenomenon or process for rising prices. After all, if prices rise because of larger demand or smaller production, that isn't inflation but ordinary way how markets should work.Smith and Keynes never stated that inflation is always a result of changes in the money supply, which is what the claim was initially. — Xtrix
Greed and ignorance of one's own role. Like having the attitude that problems are for others to solve... like the government. The basic problem is that actors that don't understand that there actions have large consequences.Again, it's hard to see the connection, but one important thing behind it all is essentially greed, the desire for more and more money and power, and the adherence to the "vile maxim of the masters of mankind" (Adam Smith) of "all for ourselves and nothing for other people" -- or "gain wealth, forgetting all but self." — Xtrix
Actually it's more of a reversal of a reversal (since Manchin blocked his very own bill two weeks ago), but whatever, I'll take it. — Mr Bee
That’s not why we have inflation. We have inflation because of the supply chain. — Xtrix
So how long are you going to believe the official "supply chain" argument? — ssu
Well, it has been seven months from this exchange. All only a supply chain problem, still? — ssu
Of course there are many reasons for the inflation, the effects of the pandemic, the war and both previous fiscal and monetary policy. But as the US is now in recession, it's interesting to see what the Fed will actually do from here onwards. — ssu
You’d think that would bring inflation down — but hasn’t. — Xtrix
You are right. And that's why actually the Russian linking their ruble to commodities (that you have to use rubles to buy their resources) made the ruble so strong.The Fed can do nothing about oil and gas supplies. Nothing. And it’s this that’s driving inflation so high. — Xtrix
The Fed will continue lowering rates until we hit recession. — Xtrix
The U.S. economy shrank in the last three months by 0.9%.
This is the second consecutive quarter where the economy has contracted. In the first quarter, GDP, or gross domestic product, decreased at an annual rate of 1.6%. While two consecutive quarters of negative growth is often considered a recession, it's not an official definition.
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