The Fed is about to wind down its emergency economic stimulus, Jerome Powell hints

Discussion in 'Economics & Trade' started by wgabrie, Aug 27, 2021.

  1. wgabrie

    wgabrie Well-Known Member Donor

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    The Fed is about to wind down its emergency economic stimulus, Jerome Powell hints
    So, what does this mean for things on the ground? I didn't read the whole article, but I assume that it is an end to the programs put into place to keep the economy going for years at near zero interest rates. This should be exciting.
     
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  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    It could not go on forever. These stimulus policies were too costly. The cost it caries in this case is inflation (or inflationary pressure, rather).


    For those who still don't understand, the Federal Reserve was supposed to run like a bank. Additional currency notes issued is supposed to match what is added to the bank's Reserve Assets. When there is a mismatch, that results in an inflationary cost on the currency. That is when the Fed pays out more money for Reserve Assets than those Assets being bought are presently worth in the market.
    The Fed does this all the time to implement "monetary policy", trying to have some effect on the economy, for example trying to change interest rates or create a stimulus.

    With the Democrat's massive spending plan, that is going to limit the type of stimulus that the Federal Reserve themselves can do.

    Money can't appear out of nowhere. Or in this case we should say wealth and purchasing power can't appear out of nowhere. If one arm of government spends more, that's going to mean another arm of government has to spend less.
    Right now the Fed is going into a mode to try to limit the extent of inflation. Part of this is their duty, but another part of it is political motives. They don't want to make the Democrats look bad, and trying to limit the extent of inflation will help that.

    To clarify, the Fed is not actually really doing anything active to reverse inflation, they are just trying to cut back on the type of actions they usually do which cause inflation.
     
    Last edited: Aug 29, 2021
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  3. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    It's rather difficult to keep interest rates near zero when there is lots of inflation going on.

    I mean, it's not difficult to do for short limited periods of time, but over a longer stretch of time it's much more difficult to do.

    You can print more money to lend out at zero percent interest, but that will just push the economy towards inflation. When people expect inflation, they demand higher interest rates. When the market demands higher interest rates and the Central Bank continues to lend out at zero percent, that just causes an inflationary effect even more than it did before.

    The inflationary effect is caused by the difference in the interest rate which the Central Bank is lending out compared to the interest which would otherwise exist in the private sector of the market, if it weren't for the Central Bank's intervention.

    The Central Bank can't pump out more currency without causing an inflationary effect unless the interest rate that money is being lent out at is the same as it would be in the free market private sector.
    It makes intuitive sense, if you think about it. They can't hand out free money without causing inflation. It's sort of like "free money" if you loan out money with artificially low subsidized interest rates. It would be like paying people's interest payments on their loan.
     
    Last edited: Aug 29, 2021
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  4. FreshAir

    FreshAir Well-Known Member Past Donor

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    so the economy will crash and the right will blame it on Biden...

    the fed is all that has been keeping the economy afloat for years now
     
  5. GrayMan

    GrayMan Well-Known Member

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    They will keep it going. Democrats do not care about inflation. It will be bad publicity to stop.

    The Federal reserve knows this. They are probably just trying to make profit waves in the stock market by announcing this.
     
    Last edited: Aug 30, 2021
  6. Chrizton

    Chrizton Well-Known Member

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    The fed has maintained a general policy of keeping interest and inflation low since the 80's. It is part of the reason why the rich get richer. Now, what they are really doing is putting tools back into the toolbox for when the next great correction happens. The stock market is trading close to historic high P/E's. That is usually a good sign that a near-term bear market is inevitable. Without the lifeboat bonds offer, investors--the big people and institutions who matter--would take a hell of a pounding if the fed had no way to help them.
     
  7. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You think the Fed can keep pumping out this stimulus forever?
    You obviously do not know how stimulus works.


    Stimulus is kind of like a shot of caffeine when you're tired. Sure, it can help for a time, but it's not a permanent long-term solution to not getting sleep.
     
    Last edited: Aug 30, 2021
  8. FreshAir

    FreshAir Well-Known Member Past Donor

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    yep, they can, and should

    it's a new global digital world, the old rules no longer apply or the economy would of crashed under Trump
     
    Last edited: Aug 30, 2021
  9. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Can and should what?
    You think "stimulus" can be a permanent solution?

    Even if you think that, it should not be the role of the Federal Reserve Bank to do that.

    Sorry, but if you want to hand out free money you're going to have to tax it from somebody first.

    (And why would you want to spend hundreds of billions of dollars subsidizing low interest rate loans to billionaires and big banks, which is what the Fed is doing when they lower interest rates? Maybe you don't understand what the Fed is actually doing?)
     
    Last edited: Aug 30, 2021
  10. FreshAir

    FreshAir Well-Known Member Past Donor

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    how long have we had these low interest rates, how long have the feds been buying stocks

    so yes, they can give some to the people too
     
  11. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I think that would be a debate for another thread, about what happens when a Central Bank tries to hold down interest rates permanently for a long time.

    That is a complicated discussion and there's no way we could get into that here.

    Here's something to think about: Does it really make sense to be throwing out hundreds of billions of dollars when only a small percentage of that will trickle down to "the people"? Isn't that extremely wasteful?

    It remains to be asked why you even think trying to lower interest rates in the whole economy is even a good thing.

    I don't expect you'll have an explanation.
     
    Last edited: Aug 30, 2021
  12. FreshAir

    FreshAir Well-Known Member Past Donor

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    and nothing we say will change anything, the rich and powerful pull the strings
     
  13. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    So throwing lots of money out to the rich and powerful is okay, as long as it helps the Democrat Party?
     
  14. FreshAir

    FreshAir Well-Known Member Past Donor

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    I say send it to the working class, stimulus

    trickle down is not working

    [​IMG]
     
    Last edited: Aug 30, 2021
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  15. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Can you agree not to support any stimulus unless at least 50% of it is targeted to go directly to the working class?
     
  16. Joe knows

    Joe knows Well-Known Member

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    That’s what they did as of recent wasn’t it?
     
  17. FreshAir

    FreshAir Well-Known Member Past Donor

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    yep
     
  18. FreshAir

    FreshAir Well-Known Member Past Donor

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    yep, and it saved the stock market, when you give to the bottom half, they spend locally and it helps everyone including the top

    trickle up works
     
  19. Joe knows

    Joe knows Well-Known Member

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    So you think trump done the right thing then? Cause I disagree. I think he gave the American public a great taste of socialism and maybe for socialism. I think that promotes laziness and all sorts of bad. The eviction ban, the tax free unemployment, the higher unemployment, all were bad for long run economics in my opinion.

    The crazy thing was Trump had a state of the Union address where he promised to not allow socialist ideals happen then what does he do. He was a two bit hack on that promise.
     
  20. FreshAir

    FreshAir Well-Known Member Past Donor

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    I do think Trump did the right thing in helping the people

    I think the corp tax cuts were wrong, ect.... but, the stimulus checks were needed
     
  21. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Oh, you mean giving a little money to the rich while at the same time giving money to the working class was kind of wrong?

    Well how much more wrong is the "stimulus" coming from the Fed then?

    I think you have your priorities a little out of order.
     
    Last edited: Aug 31, 2021
  22. FreshAir

    FreshAir Well-Known Member Past Donor

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    the rich got tons, the fed even did stock buys
     
  23. FreshAir

    FreshAir Well-Known Member Past Donor

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    the fed used to be able to better control the economy

    the problem now is excessive foreign imports and excessive foreign outsourcing of our jobs

    if we pay people to do the jobs overseas and we pay people for the products overseas, all that is left is to print money
     
  24. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    So you don't approve of the Fed's stimulus policies.

    Glad both you and traditional Conservatives can agree that this was a massive waste of money and the Fed had no business doing this.
     
    Last edited: Aug 31, 2021
  25. FreshAir

    FreshAir Well-Known Member Past Donor

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    nope, I believe more of that printed money should go to the working class in the form of stimulus
     
    Last edited: Aug 31, 2021

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