Fed suggests it's closer to slowing bond purchases

[TheTexan]

The supply of money is plentiful for loans- as is seen by all of the excess reserves not being loaned out. Demand is what is relatively scarce. The supply of money is being provided by the Fed- not the demand for money. They are responsible for much of the current demand for US Treasury notes though.

Ya, thats what I said..... And when the Fed stops supplying the money, where do you think the supply is going to come from? (hint, excess reserves)

(i see where you misunderstood me, previous post should be read as "demand is being fulfilled by the fed")

 

[TheTexan]

LOL Zippyjuan you are so clueless.



You know you can have people spending lots of money without the economy being very strong at all right? Do you think the 85bil/month injected will just sit there?? Do you think the government will significantly reduce their deficit?



How does any of this matter with the fed injecting 85bil/month? What people borrow are peanuts compared to that.


They can't allow rates to rise, not this time with that humongous debt the fed gov has, period. If they do it's game over and if they don't it's a different kind of game of but game over just the same. Getting out of this with lots of people not losing lots of wealth (notice I didn't say money) is a pipe dream.

Wealth doesnt disappear, it just gets reallocated. Historically, it always seems to get reallocated to the bankers...

 

[Zippyjuan]

LOL Zippyjuan you are so clueless.

How does any of this matter with the fed injecting 85bil/month? What people borrow are peanuts compared to that.


They can't allow rates to rise, not this time with that humongous debt the fed gov has, period. If they do it's game over and if they don't it's a different kind of game of but game over just the same. Getting out of this with lots of people not losing lots of wealth (notice I didn't say money) is a pipe dream.

What the Fed injects need to be borrowed and spent to have any impact on the economy. Two trillion sitting at the Fed in the form of excess reserves has no impact (it could later on). How much of that is being borrowed is very important- money has to circulate and compete against other dollars in search of goods and services to drive up prices. The reason that all of the Fed buying isn't having that dramatic of an impact on the economy is that there isn't really demand for the money they are injecting so it isn't circulating much. If the economy was running at full employment, all of that money would be moving around quickly pushing up prices and wages but demand for labor and for money and for goods is slack.

You know you can have people spending lots of money without the economy being very strong at all right? Do you think the 85bil/month injected will just sit there?? Do you think the government will significantly reduce their deficit?

Yes, that can happen if you have high price inflation and a stagnant economy forcing people to spend lots of money but that cannot be sustained unless wages are rising as well. We aren't in a high inflation economy. Consumers spending lots of money means lots of demands for goods and services. That means a stronger economy which we are not in right now. People aren't spending lots of money. If people did start spending, that would lead to more hiring and lower unemployment and a stronger overall economy. Higher interest rates would discourage that.

 

[Zippyjuan]

Wealth doesnt disappear, it just gets reallocated. Historically, it always seems to get reallocated to the bankers...

On paper, it certainly can. If I have say a baseball card and today people think it is worth $1,000 but next year the player is in a scandal, it may be worth $10, I have lost $900 in worth but nobody got it. It was not re-allocated. Same with perceived value of metals or stocks or bonds. If what people think they are worth changed, the "wealth" in it can disappear.

Or I buy a house for $100k. Prices of houses around me go to $200k. My wealth increased by $100k. I don't have that money- unless I sell my house at that price. If the value of homes falls back to $100k, did I lose that $100k? Not really. Did the banks get it? No. Again, unless I sold. The wealth existed only on paper.

 

[hazek]

Zippyjuan isn't 40 of the 85 bil going towards treasury purchases? Isn't that going directly into the economy via gov spending?

 

[Brian4Liberty]

Zippyjuan isn't 40 of the 85 bil going towards treasury purchases? Isn't that going directly into the economy via gov spending?

Same thing I was wondering.

I suppose that government spending doesn't really stimulate growth very well. It goes into the pockets of government employees (or crony corporatists), but that just maintains status quo. They are not spending more year over year. No growth in consumer spending. People going from jobs to unemployment actually spend less. That is key.

 

[Seraphim]

Furthermore, the cash from the MBS portion of the purchaes is being used by the Primary Dealers to buy US Treasuries.

This is a dual mandate program (QE). Re-cap the banks and finance the gov't. Nothing more, nothing less.

Zippyjuan isn't 40 of the 85 bil going towards treasury purchases? Isn't that going directly into the economy via gov spending?

 

[hazek]

Zippyjuan the inflation wont come because banks would start lending again. The inflation will come because of gov spending and the bond bubble bursting which the FED will try to reinflate and that's what you're missing.

 

[Zippyjuan]

Zippyjuan isn't 40 of the 85 bil going towards treasury purchases? Isn't that going directly into the economy via gov spending?

True- that money is being spent no matter what the Fed does though.

 

[hazek]

True- that money is being spent no matter what the Fed does though.

Ugh. I give up.