The future, where else?
See:
Note:
Experts are skeptical lawmakers would ultimately let the budget measures take effect.
For one, they typically don’t. Congress overrode the automatic cuts that would have been triggered by former President Donald Trump’s signature tax cut in 2017, for example. It also did so last year to cancel the deficit effect of earlier pandemic aid measures.
Waiving them this year would require Republican support. It’s likely the GOP will opt to do so, experts said. Otherwise, they’d also be choosing to reduce funding for things like farm subsidies, defense, and customs and border protection.
The same place as Trump’s tax cuts. Except this one goes somewhere where it will do some good.
One encouraging thing is that Biden is going on the road to play up the bill, and remind people who won’t have to worry about getting kicked out of their house or apartment who made that possible.
Democrats can learn, it seems.
If someone didn’t delete my chart you can see it literally comes from the Federal Reserve and is created by nothing more than the press of a button:
(One of my lady friends works in HR, which helped because my major isn’t on the diploma.)
Moderating
Arguing the moderation in THIS thread is inappropriate here. Go to ATMB.
But that’s only meant to bail out banks, not lowly people.
Oh Jesus, John, I’m sorry. I don’t know your Bio and I don’t know you. I recognize the username but that is all. Your post (slamming Obama) and link to an image site left me questioning the graph posted. When I looked up Fred monetary base I saw the M2 and M! charts instead of the one you posted. So I thought you were probably repeating a chart that wasn’t from FRED. Not accusing you of any malfeasance but assuming you did make a mistake.
It wasn’t a mistake on your part but mine. I thanked you for the direct link you provided later.
Does that satisfy or do you need something more?
Same place the trump covid relief bill and tax cut for the ultra rich came from.
That may be where the MONEY is coming from, but not the FUNDs. The Government doesnt spend money by printing more, they spend the money that comes in thru taxes and of course- borrowing, at lot of which is Tbills and such.
Budgets have to balance, even if the balancing is by borrowing.
When someone cashes their $1400 check, that money appears out of nowhere. It didn’t exist, and now it does. That’s how it works anytime you get a check from the treasury.
Taxes and T-bills soak that money back up, preventing inflation.
The government could have no taxes, and sell no T-Bills, and still pay out money. That would be disastrous to the economy, of course, but in theory, it could be done.
They are not waiting for someone to purchase a T-Bill or pay their taxes before they can spend money. They are spending money, and then taxing and selling T-Bills to prevent inflation.
Dont confuse “money” with “funds”.
The government does not create funds by printing money.
I am positive that when he asked this, he didnt mean "money" in the technical economic sense but where the tax funds would come from, how the Government was gonna pay for it.
Preface:
A lot of this Johnt covered, so I tip my hat, but I want to elaborate on the processes.
I’m also not picking on you, a lot of the discussion seems to have the same misconceptions and you just happen to have a post that covers a lot of them.
No, the treasury doesn’t issue dollars, the Fed does. The treasury stopped doing that a century ago. The process is lengthy, but can be summarized as the treasury issues a bond which the Fed ultimately buys from the primary dealers with dollars it creates out of thin air. The Treasury can then do whatever with those dollars. It doesn’t, however, just make its own dollars (except for coins).
The Fed is not part of the government (though the government has a degree of control over the board), nor are the primary dealers who buy the bonds from the treasury. So the government is waiting, just not for average joes or retirement account managers. They’re further down the pecking order. It seems instant but is just a very fast process that goes on behind the scenes. Still, every bond the treasury issues does go to auction (and those auctions can fail).
So they’re selling bonds to the primary dealers, who immediately have those bonds bought by the Fed crediting their reserve accounts (This is QE). This part increases the total money supply, but not in a fashion that directly effects the velocity of the dollar. In fact, doing this kills velocity but that’s a really long explanation. We don’t see inflation because GDP = money supply * velocity of money = total goods and services. The money supply is increasing, velocity decreasing, and total goods and services is all over the place with the pandemic.
God help us if velocity comes back (for example, if some crazy person whipped up the perfect storm of increased lending facilitated by artificially low rates plus zero reserve requirements and/or massive excess reserves… oh wait… at least the banks aren’t lending much… for now).
Taxes don’t destroy currency any more than shopping at walmart does. Government spending makes up a HUGE portion of GDP right now, and all of that goes right back into the hands of whomever or the owners of whatever the government spends that money on. Currency is only destroyed when debts are repaid. The repayment of T-Bills soak that money up, but of course never at a rate anywhere near the rate of issuance. We haven’t had a surplus that reduced the debt since Clinton, and that was an extreme outlier.
Ultimately, we don’t see inflation because money gets funneled upwards and parked in assets which of course don’t count towards the CPI. There’s a reason BTC, SPY and VNQ are doing so smashingly, and it has nothing to do with technological innovation, increased profitability or efficiency, or increased quality of housing.
You’re correct on this fundamental point, but there’s a whoooole lot of nuance and intervening steps which will probably become very important as this discussion goes further.
Great post, @etasyde. I would like to counter that we are obviously seeing some sort of inflation/bubble-creation as most models of economics do not support what happened last year - that, despite losing 10-15 million jobs, a GDP which shunk 35% in Q2 only to rise 25% in Q3 and 5% in Q4*, 500,000 dead who represent the largest % drop in population since 1947, and the very political system upon which these metrics are created under attack by the President of the United States… the stock market should not be setting record highs in Q4 and early Q1 2021.
But it did. And while there may have been a time when the DJIA made a crudely accurate measure of the economy and economic sentiment, the inflated values we see today do not, imho.
Here’s another chart showing total US market cap vs US GDP - yesterday the stock market was worth 194% of GDP, a level near the historic highs:
Here is what the above is telling me: Up until 2009 the Fed effectively owned very little assets. Then the fed starting buying assets (which is why the green and blue lines start to diverge in 2010 - QE) which has boosted the stock market to today’s 1.94x GDP valuations.
That gap you see in the middle is the bubble created by Fed manipulation of the financial markets since the Great Recession.
And, yes, this is Obama. It’s right there in the chart. May have been a great speaker, killed OBL, got pre-existing conditions to be a thing of the past, but he wasn’t a very good macroeconomics President, at least when it came to controlling the Fed.
@JohnT Your post gets to a larger question I have, which is…
The economy and particularly the stock market seem to be held in place right now by some very artificial and probably unsustainable factors. You mentioned the massive increase in the money supply and the Fed buying assets in the stock market. There’s also the factor of extremely low interest rates.
In this situation, it seems like the authorities have run out of tricks. So what does the return to reality look like? You mention the possibility of high inflation and a “bubble” (impending stock market crash) – is one or both of those the most likely scenario?
A factor most people don’t understand is that the stock market today is a mostly meaningless term, especially if all they hear is the Dow Jones average.
The Dow covers only 30 stocks. Their stock prices are manipulated by a formula to produce the final number. The Dow does track other indexes like the Nasdaq and S&P 500 fairly well, but that’s mostly because the Dow swaps out stocks that aren’t performing for stocks that are. A Dow that kept its stocks from 10 years ago would look vastly lower than it does today. There’s value to them to keep hitting record highs and they fudge all factors to ensure they do.
The rest of the stock market is a phantom in many ways. Big companies keep buying up each other so that the apparent breadth of the market is illusory. The Wilshire 5000 index of all active American stocks - which of course started with 5000 companies - had only 3,473 actual companies listed as of Dec. 31.
And the rise of the tech firms overwhelm all other numbers. The top 10 stocks on the S&P 500 (actually 505) have a collective market cap of 27% of the total. When they have good days - and they mostly have good days, even Tesla which bounces up and down wildly - the whole market appears to go up, whether the other 495 stocks are tanking or not.
Whether these stocks are in a bubble is above my pay grade. I’ve been thinking that their stock prices are insane for years yet they keep going higher. Yet, most investors seem to operate under the principle of TINA - There Is No Alternative. Where else would one get any reliable returns without huge known risks? No good alternative seems to be available. So they pour money into the known. Only a cataclysm would take down Apple and Microsoft and cataclysms are not plannable.
Most people should pay no attention at all to what’s happening in the stock market, because they don’t have enough money to be a player. The standard advice of a diversified portfolio of some stocks, some bonds, some cash, and some other kinds of investments is still the best. It may not help you in a cataclysm, but you may get hurt less. And there’s nothing you can do about a cataclysm anyway.
nm…