Fed announces $300 billion "quantitative easing"

That's only because the Federal Reserve Bank is subsidizing those low interest rates. (Which again, should carry an inflationary cost)
I think we're going to see some inflation.

What's happening now is not a bailout of a bursting bubble, so I believe the situation should be different than the Housing Crisis.

 

An alternative theory could be that the Reserve Assets on the Fed's Balance Sheet actually carry some weight with big banks. (That is, the dollar would not be acting like a mere fiat currency) And banks could be misgauging how much those assets are actually worth (in part because they are so intangible and being kept out of the main economy). If this is the case, there could some day be a massive "correction" which could precipitate a huge sudden bout of inflation. Remember there are a lot more assets in the economy denominated in dollars than there are actual outstanding dollars themselves, so this would have a big multiplier effect based on a smaller amount of assets in question.

To try to explain it a different way, basically banks would be placing value on dollars because they would need them to get their mortgage loans back. (The Federal Reserve Bank essentially forces other banks to lay a fraction of their assets on deposit).

However, this theory may not be very strong because as of March 2020, the Fed slashed reserve requirements to almost nothing.

Yet another theory could be that because people are expecting no inflation, the value of loans/debt is overvalued. Since there is a lot more loans/debt than money, this could have a huge multiplier effect. Right now the Fed has been the main one buying up government debt.

If the inflation goes up a little bit, that would reduce the inherent worth of that debt (held by the Fed) and thus result in a multiplier effect on inflation. A sort of feedback effect as this thing unraveled.

If it helps you understand, it would be very similar to price fixing schemes, and what happens when they unravel.

 

What is happening now is an effort to stop the worst ever economic downturn in all of our lifetimes. Crikey, monetarism continues to be zombie economics...

 

$300B of "quantitative easing" for 320 million American consumers aint nowhere near enough to kick-start the economy once this present mess is dealt with.

It's a drop in the bucket ...

 

Exactly.

But YOU are the one fretting about debt...unless you think Biden will be capable of raising sufficient taxes on the wealthy to pay off the debt....or reduce the deficit.

I know you don't want to reduce government spending.

Dilemma?

Meantime the Fed is propping up what Rolling Stones' mag is calling the "zombie US derivatives freak show" to the tune of $10 trillion, and no inflation in sight.....

 

1. The Fed implemented QE at that time to avoid a repeat of the GLOBAL Great Depression.
The GFC was a zombie financial derivatives episode, ie there was no sudden loss of real resources in the real economy.

2. Another view: "In 2008, at the start of the recession, inflation was running close to 5% – but this was primarily due to cost-push inflation from higher oil prices. A rise in oil and hence petrol prices. ... Firms have sought to maintain good cash flow by not cutting prices".


5%? ….hardly extreme, even at the height of the housing boom, and caused by oil price push inflation, not cost-pull (demand) inflation for houses?

Inflation is dead until people have enough money to bid up prices of things they want....and good government can avoid allowing that situation to develop in the first place, by taxing the offending private sector spending.
As Bill Mitchell et al say: "Any spending - private or public (by government issue) - has the potential to cause inflation".
The government's job is to manage it.

 

Reiver, you might also see this thread:
QE1 did result in some inflation by 2011

 

No thanks. I'm not in the mood to hear the same ole non-economic twaddle.

 

Do you think you can solve an economic crisis by taking purchasing power away from one area, and moving it to another area?

 

YES!

Especially when that purchasing power is deeply unfair. The measure being a calculation of Income Disparity (or Inequality) as defined here:

And which "developed" countries should be amongst the most unfair? As shown by this OECD graphic displayed here.

 

We already have evidence of what happens to distributions in crisis. Those peddling monetarist myth will ensure that the elite are protected and inefficient inequalities intensify.

That is poor outcome on the best day. However, its downright evil with this one. The poor are typically on the front line. They tend to be the essential worker. Who is currently worth more? The hedge fund manager or the cleaner.

Without a progressive redistribution we would actually be maximising the death toll. That's the ultimate denial of rights, painfully ignored by big business fed right wing herd.

 

The Federal Reserve at it again, ready to buy corporate bonds

 

It's better than going belly-up from unpaid debt ...

 

That's the argument from your side.
But do you really think printing money to pay for unpaid debts in the private sector is the solution?

I mean, that isn't really solving any underlying issue, it's just moving the problem around and spreading it out.

And in the meantime, you might be handing out free money so that private big corporations who weren't responsible won't have to pay the consequences.
The message is: Take big risks, if you win you get lots of profits, but if you lose, there's a good chance we'll step in so your losses won't be too big.
It's basically a giant money transfer. To big corporations.
And I can't believe the Left tends to be the side most in favor of this.

 

Normally, no. But times are not normal.

So, if it is necessary, then why not? First and foremost in the US is any method that will sustain the economy, which is under pressure. Covid-19 deaths are still prominently in "growth mode". People are weary of buying, and that does not help sustain employment.

So, yes, "printing money to pay for unpaid debts" is probably a good move at present. Unpaid debts is a brake on Demand expansion. That is not what the economy needs at present.

Besides, the problem (of insufficient Demand) is not permanent. Clearly, the US is not solving the Covid-19 problem in the right manner. Deaths in America will continue in upward mode, whilst a turnaround has already happened in Europe. But, in either circumstance, at present, neither the US nor Europe knows what is going to happen ot overall Consumer Demand.

No economist knows when Consumer Demand will respark production and thus put people back to work. We still have to wait this out ...

 

If they were interested in stopping the downturn, they wouldn't be giving almost all the newly issued money to the super-duper uber-rich.

 

COUNTRY NEEDS TO MOVE ON

A picture is worth a thousand words:


And reselling that debt to the world by means of International Buyers who would like to hold it is not a bad idea. But, it cannot go on forever, either.

There always comes a time historically where each peak crashes as shown above. And when the next one restarts, it is always at higher debt level. Whyzzat?

Because PotUS don't know how to govern without borrowing to pay the debt. Which is precisely how Obama stopped dead a major economic downturn by means of his .American Recovery & Reinvestment Act of 2008 upon entering office. (See here.)

Because most of us do not know how the Fed "runs American debt financing", voters have damn little knowledge of the machinations that go on. And, I'll bet any PotUS who wants to "do things" (in order to get reelected) spends most of his time with his Secretary of the Treasury to accomplish that objective!

But, if you look at that chart (the access to which is above) you will note that Obama stopped the disastrous fall in the E-to-p Rate, but without Stimulus Spending he could not kick-start the economy. Whyzzat?

Because the Replicants wanted to defeat him in 2012, so they did not want any economic-recovery! So they REFUSED ALL STIMULUS-SPENDING for his entire period of office.

Yes, that is how UGLY that party has become! Especially in the Senate under McConnell.

We, the sheeple, are not terribly attuned to the economic consequences that actually influence our well-being - or the lack of it. And politicians are not changing just because we just might depose the present Jerko-In-Office.

We need badly a change in the White House - but even a Democrat must understand and explain why certain changes are necessary but they might not necessarily please "all the people all the time". The country needs some very serious economic remodeling to attune itself to this new Information Age.

The Industrial Age moved to the far east long ago, because cheap-labor was there. We must get that factoid through our thick-heads!

Our country Needs to Move On and a free post-secondary education is the key to a successful economic-evolution into this Information Age of ours ...

 

You orthodox economists are as useless, and indeed as responsible for the coming economic pain which will be borne by those most marginally attached to the workforce, as always.

The sovereign currency-issuing government can change the digits on citizens' bank accounts of those who have been laid off by the pandemic - didn't you know - for as long as is required, WITHOUT BORROWING A CENT. You ****ing dummies. It's staring you in the face.

I long for a decent 2nd wave capable of destroying your obsolete neoliberal orthodoxy forever, as people realise the government DOES have access to a "magic money tree" which the government can use to fund food production and delivery, and utilities, for AS LONG AS the virus forces the shutdown of the non-essential economy.

How can inflation be an issue when much productive capacity is laid idle by government decree (because this virus is much more contagious and is at least twice as deadly as 'normal' flu} ?

Wakey, wakey.

And then in normal times, it will be seen that government can also judiciously access this tree - which is really a resources and productivity tree - whenever private enterprise fails to deliver the services the community needs; eg free tertiary education for those capable of studying and graduating at that level.

 

Within an economy struggling to stay alive? I doubt it ...

 

Inflation is very common in struggling economies because it is a way out from under unpayable debts.

 

Then we could argue that allowing some deflation in such a situation would have been more beneficial for the economy than creating inflationary pressure to prevent deflation from happening at all costs.

Deflation helps relieve pressure on consumers. If wages are falling, allowing prices to naturally fall along with that can help ordinary consumers.

 

I'll phrase it back to you in another way. How can printing money help stimulate the economy when much of the productive capacity is laid idle by government decree?
No, you're going to get inflation, rather than stimulation.

The underlying problem isn't lack of money, it's that government has shut the economy down, in the most direct and literal way possible.

 

In an economy overloaded with debt, deflation is far more dangerous.

Nope. Consumers are in debt. Deflation would wipe them out.

If consumer prices fall, how are the wages people are paid to produce goods and services not going to fall?

 

By relieving anxiety over debt.

That depends on who gets the money, why, and how.

 

Maybe debt is a terrible terrible for thing for the economy if it is not going to allow the economy to respond to downturns with deflation.

It seems like a trade-off between those who have borrowed money, and those struggling with lowering wages.

Furthermore, debt can often be part of the reason for the cause of inflation in the first place, since when that excessively accumulated debt begins to unwind, would naturally lead to deflation.