I’m pretty sure you’re the only one who thinks this is an issue for anyone.
Really? Care to back that up?
The Fed and other banks work the same when it comes to creating money: they enter a number in a computer which represent the liability against the bank equal to the amount of new money just created.
The difference is that when commercial banks need money to make transactions with each other, or with the public, they need Federal reserves or currency to make those transactions. They cant just issue “Bank of America” currency. So, theoretically, if the Fed refused to provide those those funds, the bank could run out of money and go broke. The Fed, on the other hand, CAN issue Federal Reserve Notes, which means its hard for it to go broke.
The Fed COULD just issue dollars, if it wanted, and in my opinion nothing particularly horrible would happen if it did. However, many people violently, or at least vehemently, disagree, and there’d be a political shitstorm if they did it.
I’m not sure what you mean by this. Commercial banks use the Fed as THEIR bank, in the same way you use B of A or whatever. Federal reserve accounts are assets to commercial banks, and liabilities on the Fed. When the Fed “creates dollars” it increases the amount of money in banks’ reserve accounts. It offsets those liabilities buy purchasing securities from the private sector.
LOL. What entities do you think constitute “the private sector?”
edit: anyone who’s interested can read more about open market operations here
Let’s simplify this, shall we? I own X #s of Disney stock. I wrote a check for it, it was debited from my checking account, I now own X shares of stock and have less dollars in my checking account. (Real money going in)
A whole bunch of people go to Disneyland and pay more to get in than it costs the Disney company to provide the Disneyland experience. Disney then pays dividends (of real money) that reflect their profit.
Real money went into my Disney purchase, and real money “left” (the seller got my check, which he cashed for actual dollars).
Over the past 60 years Disney has become worth much more than Walt started out with, and investors have generally benefited. The investors got a percentage of the ‘real cash’ that the real public paid to go to Disneyland.
“The stock market” is just this example encompassing thousands of companies.
Note, too, that Disney can buy back its own stock if it wants to.
Also note than when the market goes down, short sellers make real money.
Here’s the chart showing monetary base: St. Louis Adjusted Monetary Base (DISCONTINUED) | FRED | St. Louis Fed,
Basically it shows reserves increasing from about $800 trillion to a little less than $3.6. A 3x increase.
So if the theory is an x increase in base money ought to lead to a several-fold increase in commercial bank money, you’d expect commercial bank money to increase - what? 12 times? 15 times?
Here’s what the evidence shows: Bank Credit, All Commercial Banks | FRED | St. Louis Fed,
Commercial bank credit (after falling initially) increased from about $9 trillion to about $10.
So I’m not a math person, so please check my math, but no matter what way you count it, that doesn’t add up to a “several fold” increase in commercial bank money.
Oh dear. If only I had thought to address that point previously myself. [gasp] but I did it seems.
You even quoted me in post 194, but then that was almost 10 whole posts ago so maybe I’m asking too much of you.
No, the point I was making is what NORMALLY happens. I’ve made it clear that THIS situation is NOT normal.
You’d expect that $2T in excess reserves SHOULD have tremendous stimulative effect, unless you understood that while adding liquidity, the Fed was simultaneously subtracting other forms of financial wealth.
By which measure they’ll be returning financial assets to the private sector - simply swapping one kind of asset for another - with a net financial effect of zero. ((Setting aside manipulation of interest rates.)
- This is getting tiresome, but as long as you keep coming back, so will I. Apologies to those still following along.
As I’ve already stated, the whole purpose of Operation Twist WAS in fact to remove those other forms of wealth if YOU had understood the purpose of that maneuver by the fed. Clearly you didn’t. I have my doubts as to whether you even looked up what operation twist was or understand how it worked.
- The only things being swapped will be assets for cash and even that won’t be completely accurate if they go the repo/reverse repo route. You might want to look up what those are too.
deltasigma, you do know that sometimes people drop in to enjoy the discussion without actively participating. How you have determined the level of relative interest in the discussion, I’m not sure. Maybe you have contacts in the NSA. Just thought I’d pipe up to say that I am enjoying it, and learning things, and not all of them from you. Maybe there are others silently enjoying it too.
One reason this discussion interests me is that when I hear on the news things like “Today the stock market rose/fell xxx points…” I have no idea what that’s supposed to mean to an ordinary person, like me. Is it supposed to indicate something about the relative prosperity of the country? Does it only have meaning for people invested in the market? This discussion is not on that exact topic, but it is related.
Aside from the fact that issue was beat to death up thread, I guess I just have a higher estimation of the intelligence of the average person than to think they really believe, in some literal sense, that there is actually ‘money in the market.’ Sorry if I’m wrong about that.
In terms of what fluctuations in the market mean, as I explained earlier, the market anticipates what companies will be earning 6-18 months in the future. But since no one can predict the future with certainty, these predictions have to be tempered with some degree of caution. That said, I belief that historically, if you look at the broad market moves over periods of months and years, it is considered a fairly reliable leading indicator.
Understanding the workings of the stock market has absolutely nothing to do with intelligence. It is specialized knowledge.
As for your explanation of market swings, explaining the usefulness of long-term trends does nothing to explain what useful information is imparted by reports of daily fluctuations.
As I just told you, it was also beat to death up thread and no, I think once you explain the idea to someone, no reasonably intelligent person will believe that there is actually ‘money in the market.’ But I guess we’ll have to agree to disagree on that point.
In terms of daily fluctuations, no meaningful information is imparted. Daily swings can and often do confound even avid market watchers.
The definition is: To convert (government debt) from securities into currency that can be used to purchase goods and services. That is what the Fed is doing. Whether you want argue about whether this percent or that percent is significant is a separate topic. I think I’m on record as saying monetizing the debt is a good thing, and we should be doing more of it. But to try to say you’re not monetarizing the debt unless you monetize some x% seems like a strange definition.
This would qualify as another myth, if I were keeping a list of them: the idea that banks can loan out reserves. The banks (collectively) have the amount of reserves the Fed gives them (leaving out currency for the moment). They can’t control it, and they can’t “loan out” their reserves. They may make loans at lower rates when the Fed provides more reserves - that’s how, in fact, the Fed controls interest rates. But no amount of commercial bank lending or not lending has any affect on the amount of reserves in Federal Reserves accounts. The idea that the banks are just hogging up Fed money instead of lending it out is just wrong. When commercial banks lend money it’s newly created money created by the commercial bank that made the loan. The loan has no effect on the amount total amount of Federal reserves.
That all loans are sort of a wash is my point. That includes loans by the Fed. ****With the admittedly important caveat that when the Fed makes loans (provides liquidity) it also lowers interest rates.
The money multiplier’s an unnecessary fiction. I think even Hellestal will say as much (in a lot more words) if you ask him.
What I said was, no matter how many markets there are, there is never any money “in” the market. If the gold market rises, talking heads will say things like “investors are taking money out of stocks and putting it into gold.” This is nonsense. There is no money in the gold market and there’s no money in the stock market, and the rise in the price of one does not mean there’s somehow less money to be invested elsewhere.
I’m not wasting any more time with you. You seem to be like a cat that runs full steam into a glass door, falls flat on its face and then gets up and staggers off pretending that it did that on purpose.
You’ve demonstrated and I’ve proven, beyond any shadow of doubt, time after time after time - WITH CITATIONS - that not only do you NOT have the foggiest idea of what you’re talking about but neither are you even aware of current news on financial topics.
So until you can come back here and attempt to refute (AHAHAHAHA) what I’ve said with citations, the same way that I’ve buried you, I suggest you go play with children your own age. 
No, only banks. Other lending can create IOUs, but IOUs don’t function as money. You could think of money as a very special kind of IOU, but it’s a very very special subset.
Also, money creation is not complicated. It’s just made to seem so:
Since I’m only responding to gibberish with cites . . .
Is that really the best you can do? An amorphous quote from 1975? Oh my fucking god that is pathetic. Obviously you are unaware that Milton Friedman didn’t win Nobel Memorial Prize for economics until 1976. Do you even know who Friedman was?
And I agreed with you, and do agree with you, that the Fed’s liabilities are fictional in the sense that the Fed’s liabilities are denominated in dollars, a financial liability (to the Fed) that the Fed is able to produce at will. They cannot go bankrupt, in any ordinary sense of the word. They could only go bankrupt in a technical, bookkeeping sense. The Federal government (of which the Fed is a part) has unlimited dollars. (Which is why all the angst about the government “running out of money” is so silly.)
Where we disagree, perhaps, is that if the Fed were to fail to keep its books “balanced” by buying assets from the private sector, it would create a political shitstorm, because at least half the Congress - and probably more - doesn’t understand, and doesn’t accept, the your view of the nature of money creation and the Fed. And the public doesn’t understand or accept it either.
Congress doesn’t even under the internet let alone the financial system.
You’re not understanding the difference between “real” wealth and “financial wealth”.
Financial wealth =/= fake wealth.
With an MBA, I’d thought you’d know this.
And you seem to be failing to understand the English language. Wealth is measured in dollars, usually of a base year and inflation adjusted.
edit: Still waiting to see some cites by the way. Having trouble with google are we?