More boom and bust cycles? It seems like most of the busts come when the fed eventually raises rates. What if they simply kept rates at .25 like Japan, where dispite talking head garbage, there has been growth over the last 20 years. Thanks for the help.
Thanks, would you mind addressing my previous comment
"I also want to add the comment...
It seems like lowering the fed funds rate only temporary increases inflation, as the money lent out will be paid back or the bank will eat the losses. It creates the booms and busts. The fed is not printing much money to adjust the fed funds rate. It seems like the only time there would be real drastic permanent inflation would be during quantative easing, when the fed is really printing money. Is this line of thought correct? It just hasn't fully happened yet because so much of the money is sitting at the fed as excess reserves."
How do you know the banks are borrowing from the fed? I thought it was very rare that the banks actually borrowed from the fed's discount window. That is where they are borrowing from, right? The discount window rate is greater than .25%, so the banks would be losing money here. Can the banks just borrow as much as they want or does it have to do with how much real savings they have? Thanks again for the help.
And about Japan, we are borrowing from them(close to 1 trillion). I am sure they have a lot of countries that are borrowing from them.
So? Did you read the article? If you will summarize its contents, then show how that line you wrote is relevant or a refutation to what it says, I will understand you better.
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It's easy to refute an argument if you first misrepresent it. William Keizer
The money is sitting at the fed. The fed doesn't need actual money to buy US debt. It can create that out of nothing. The banks could withdraw their excess reserves tomorrow and the fed could keep on buying. Yes, I know that is printing and that is what causes inflation. When the fed lowers the fed funds rate it does very little printing(though you are saying differently). I want to know how you know the banks are borrowing at low rates from the fed and buying bonds/stocks.
It is very long, but I will look at it soon. I would assume it comes down to the fact that Japan citizens save a lot more of their money than we do.
unit4: Thanks, would you mind addressing my previous comment "I also want to add the comment... It seems like lowering the fed funds rate only temporary increases inflation, as the money lent out will be paid back or the bank will eat the losses. It creates the booms and busts. The fed is not printing much money to adjust the fed funds rate. It seems like the only time there would be real drastic permanent inflation would be during quantative easing, when the fed is really printing money. Is this line of thought correct? It just hasn't fully happened yet because so much of the money is sitting at the fed as excess reserves." I replied to this one. It was the post containing the suggestion you read Hazlitt's books. How do you know the banks are borrowing from the fed? I thought it was very rare that the banks actually borrowed from the fed's discount window. That is where they are borrowing from, right? http://www.ronpaulforums.com/showthread.php?289475-Largest-Banks-Likely-Profited-By-Borrowing-From-Federal-Reserve That's one place google sent me to. Come now, you have fingers and an internet connection. The discount window rate is greater than .25%, so the banks would be losing money here. Can the banks just borrow as much as they want or does it have to do with how much real savings they have? Thanks again for the help. The real saving they have determines how much they can lend [to some extent], not how much they can borrow.
I replied to this one. It was the post containing the suggestion you read Hazlitt's books.
How do you know the banks are borrowing from the fed? I thought it was very rare that the banks actually borrowed from the fed's discount window. That is where they are borrowing from, right?
http://www.ronpaulforums.com/showthread.php?289475-Largest-Banks-Likely-Profited-By-Borrowing-From-Federal-Reserve
That's one place google sent me to. Come now, you have fingers and an internet connection.
The discount window rate is greater than .25%, so the banks would be losing money here. Can the banks just borrow as much as they want or does it have to do with how much real savings they have? Thanks again for the help.
The money is sitting at the fed. The fed doesn't need actual money to buy US debt. It can create that out of nothing.
Not sure what this means.
The banks could withdraw their excess reserves tomorrow and the fed could keep on buying.
From Wikipedia:
Central banks in most developed nations (e.g. UK, USA, Japan and EU) are forbidden by law to buy government debt directly from the government and must instead buy it from the secondary market.[56][64] This two-step process, where the central bank buys government bonds that have previously been sold to private entities, has been called "monetizing the debt" by many analysts...
Yes, I know that is printing and that is what causes inflation. When the fed lowers the fed funds rate it does very little printing(though you are saying differently).
Ordinarily, a central bank conducts monetary policy by raising or lowering its interest rate target for the inter-bank interest rate. The central bank achieves its interest rate target through open market operations – where the central bank buys or sells short-term government bonds in exchange for cash...
Where does the cash come from? It's digitally printed. Now you may say it was digitally printed ex nihilo a year ago, and sta in the fed's computers doing nothing. That may be the case. However, in such an instance it might as well not have existed, right?
I want to know how you know the banks are borrowing at low rates from the fed and buying bonds/stocks.
I read it many times, a google search turned up that ron paul- huffington post link.
Yes, that was during the crisis. The banks went to the discount window. That money has been paid back. How do you know banks are still borrowing from the fed? Like I said the discount window is higher than the interest the fed is paying on reserves.
I know the fed doesn't directly buy from the government, but the fed can directly buy from the banks by creating money. You say the money sitting at the fed is being used to buy US bonds. Do you mean that banks buy the bonds and quickly sell them back to the fed keeping their money on reserves?
I know that lowering the fed funds rate requires some money printing, but that money is quickly taken right back out as the short term paper they are buying matures. I don't see how it would cause anything but temporary inflation.
Sry for not being clear Dave.
"Thus, the low rates doi not cause new money printing. No new moneyt printing means no inflation. No inflation means they get richer and richer, which is exactly what has been happening there."
This is what i was addressing. Looking at my post, I think i was asking if the cpi, which showed low and negative inflation in the time after the crisis, means that the banks are getting rich? But I'm not sure if you meant cpi inflation, or shadow stats inflation. But basically the banks are making atleast 4% on loans and paying .07% (because of the fed) on savings accounts. This is how they are getting rich right?
I will have to check out that kel kelly article. I knew GDP was a joke but not to that extent.
Unit4- http://www.nytimes.com/2011/01/11/business/economy/11fed.html
"Fed buys Bonds by the Billions"
http://www.bloomberg.com/news/2010-11-03/federal-reserve-to-buy-additional-600-billion-of-securities-to-aid-growth.html
sry wrong link
Yes, I know all about quantative easing. That is not the same thing as simply lowering the fed funds rate. The fed funds rate has been lowered many times in the past and it usually does cause some sort of boom and bust, but large permanent inflation does not insue. I think QE of his scale is a whole new ball game and will lead to massive massive inflation.
Bearchu,
Guess I wasn't being clear. That whole paragraph is about Japan. The "they" who I said get richer and richer are the Japanese people as a whole. Because a healthy economy that produces and produces, while not getting the purchasing power reduced by money being printed, means everyone gets richer.
I am incredibly impressed with Kel Kelly. Two blockbuster articles, original and surprising and built on solid AE.
Dave - Those Kel Kelly articles were great.
So you hold the position that hyperinflation is not coming?
I don't think it's an economic q, but a political one.
Hyperinflation depends on how much money printing will happen. Obama has announced he intends to have trillion dollar deficits every year. Nobody is trying to stop him, as we saw with the farce about budget cuts. Which I am guessing means no matter who is prez in 2012, that kind of spending will continue.
Since everyone else seems to have stopped lending the govt money, both at home and abroad, the Fed will have to pick up the slack, as it has already started doing. Which seems to inexorably point to high inflation coming soon.
I've heard people say that at the very last minute someone in govt will wake up and save us. Maybe.
Only on the precipice.
Sry for suggestig your posts as answers. Not in a bad way. My laptop is crazy.
How would the government wake up and save us? By actually spending what it takes in? Not likely. By printing money to stave off default, yes probably.