Whenever the Fed does anything, it causes inflation

Whenever the Fed seeks to pursue any kind of monetary policy, it costs money. Whether they subsidize loans, or pay higher interest rates.

When the Fed "expands the money supply" and pays prices for assets above what the market rate would be, it dilutes the backing of the entire pool of reserve notes they have issued, causing inflation.

Inflation takes away from the buying power of taxes collected by the government, making it so the taxes collected are not enough. It is very expensive to pursue monetary policy, and I believe it is a huge waste of money and misdirection of wealth.

 

Lord Keynes would be proud, and as predicted, we have a thriving economy.......

 

The money isn't making it into wide circulation so we are not getting inflation. Banks are holding it in reserve to bolster solvency. The only people who are suffering are those who are heavily invested in fixed income vehicles like government bonds on old school savings accounts. That they have been able to keep all the QE money out of circulation by cracking down on banks is really quite an accomplishment on the part of the Fed and the Obama Administration.

 

The banks need ~$200B to assure solvency, they have well over $1T in "reserves".

An accomplishment? Instead of charging interest, incentivising the banks to lend, the Fed is paying interest, incentivising the banks to do nothing.

What happens when borrowers are willing to pay more interest (adjusted for risk) than the Fed? $800B dollars gets converted to $8T (at 10% reserve) to $24T (at 3.33% reserve).

 

How very neo-Keynesian of you! Of course you've given nothing of use: from QE to the use of interest rate rules

 

It is an accomplishment. It avoids inflation and allows consumer interest to remain low. Now when QE ends or that money is pulled back out of the economy by the fed, it is going to be a disaster, but Obama won't be President and the Republican who replaces him will get the blame

 

Could you present a credible economic source that predicts this economic meltdown? Your choice will be revealing

 

You can distill from whatever source you so desire, but this about sums it up: "It is certainly very constructive that, at this juncture, the FOMC is debating when and how to end QE3. Nothing is more likely to restore confidence at this delicate moment than the prospect of the withdrawal of liquidity and a shrinking of the Fed’s balance sheet. This is precisely the mistake that the Fed made in 1937, which cratered the recovery and prolonged the Great Depression by another three years. Millions lost their jobs. Bernanke wrote about it. Let’s try that experiment again--maybe it will turn out differently this time!

To recap: the power of conventional monetary stimulus has been severely attenuated by the psychological trauma of the 2002 and 2008 financial crises. There is no reason to assume that this trauma will dissipate, since the credit machine remains permanently broken and can’t be fixed without massive reintermediation, which will never happen. Thus, ever greater stimulus will be required to push up NGDP. And the Fed is now debating how to retract QE3."

Read more at http://www.project-syndicate.org/bl...by-christopher-t--mahoney#bELx5eGLwagrcohj.99

 

So you only have a blog? Well gosh, didn't see that coming!

 

I have lots of things, including an education. I picked a source that I felt was compatible with the person requesting a source's ability to comprehend. Do you have a source that says it won't happen? Here is a tip, when interest rates go up, people have less to spend and the economy goes down.

 

You picked a poor source that showed you couldn't defend your position with anything above grunt. Don't waste my time with pretending otherwise

 

Theoretically, it should not matter how much is in circulation. Do you even know where paper currency derives its value from?? Paper currency fundamentally derives its value from taxation and the assets used to back it. The U.S dollar, for example, is theoretically backed by assets. The dollar is technically a bank note issued by the Federal Reserve bank, which holds reserve assets. These reserve assets were about half US Treasury bonds and half mortgages made by other banks, last time I checked.

I say theoretically of course. In a completely "efficient" market, it would not matter how much is getting into wide circulation, but in actuality the wider market often does not behave entirely logically, so there may be some effect.

 

The Fed's actions in the late 1970s disproves your assertion that all Fed monetary policy decisions cause inflation.

 

Lets try a though experiment. Everyone in the US gets a checks from the Fed good for a new iPhone.

Phase 1, demand exceeds supply, and the price for iPhone increases.
Phase 2, try to sell your iPhone, how much do you get?

Phase 3, iPhone capacity is increased, prices return to normal, and everyone gets their new iPhone
Phase 4, the next generation iPhone is released, but with the capacity to meet demand
Phase 5, everyone in the US gets their new iPhone

Phase 6, try to sell your iPhone, how much do you get?
Phase 6, try to sell your last generation iPhone, how much do you get?


Now, repeat the above experiment, using artificially low interest rates, and houses.




Please explain "Paper currency fundamentally derives its value from taxation"

Taxation?

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What was the cause of inflation in the late 70's?

 

There will be a severe stock market jumble, nothing major. We will get to 1740 at least in the SP, possibly 1800 and we will see 1400 again soon, we could go as low as 1000 SP, if that breaks, hello 800. I only go by probabilities. That'll freak some people out for sure.

 

Quote from Oscar talking economics on Sesame Street?

 

If the Fed makes the money more expensive to the banks, how will it incentivize borrowers to borrow more? That's the key to getting this train going...consumers/businesses actually borrowing. But borrowing at higher rates will not somehow do more than the same folks able to borrow at lower rates today. Consumers and businesses are strained already, especially with upcoming increased costs we've seen small business owners will face for their own healthcare soon.

We're in an ugly state of treading water. The Fed is running out of tricks and the consumers and businesses are not risk foolish enough to decide now is the time to start borrowing. I don't have the answer to fix it, but I sure can see problems with why monetary policy is not working, or at least not working to the degree we need it to work at.

Instead of the Fed doing anything, we need the federal government to take control of the Fed and do what it was constitutionally set up to do, which is create and manage our money system. Privatization created this debt crisis and the fix is issuance of currency without debt via the Treasury, just as it was originally designed. Paying interest to borrow our own money only makes banks richer and creates the mountains of debt unavoidable by such a horrible system. This current system cannot mathematically continue indefinitely so at some point the hard decisions have to be made.

 

The banks won't loan at a lower rate less than the Fed pays, plus some offset to consider risk (the Fed is zero risk).

If the Fed stops paying interest, the banks will lower rates until they get loans, and could even throw in a toaster.

 

The policy is a failure.

UK QE has failed, says quantitative easing inventor ( http://www.bbc.co.uk/news/business-24614016# )

3 Academic Studies Show that Quantitative Easing Doesn’t Help the Economy ( http://www.washingtonsblog.com/2013...ntitative-easing-doesnt-help-the-economy.html )

In fact, the IMF is already considering severe options for the USA. In the October 13 Fiscal Monitor, the author proposes a one-time confiscation of 10% of wealth from everyone with a positive net worth. Thats not the top 1%, but every single person with a positive balance sheet. Even if your wealth is in assets (your house and car, for example) and you do not have the cash to pay the tax, you will be assessed a 10% tax. This is merely a revision to the recent confiscation of savings held in Greek banks. http://www.forbes.com/sites/billfre...he-groundwork-for-global-wealth-confiscation/

The clock is ticking and the fuse is lit.

 

Thankfully they have a lot of guns.

 

Really just a reference to the problems created through market concentration, not of the inability of monetary policy to positively adjust the economy.

 

Hello 1400, call me when I'm wrong, that would be at about the 1835 point.

 

The point is that you haven't actually said anything!

 

Almost to 1800, still can go higher.

 

Garbage.
When the Fed buys assets from banks (which I am against) it gives reserves which cannot be lent out.

The vast majority of the money supply (~93%) is private bank credit.