# What can be done about the myth that the Federal government only has limits amounts of money **URL:** \ **Category:** Great Debates\ **Created:** [October 19, 2013, 12:52am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614 "2013-10-19T00:52:27Z")\ **Posts on this page:** 18\ **Page:** 6
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 10, 2013, 2:50pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/101 "2013-11-10T14:50:54Z")
> [@deltasigma](#): > > 1. IIRC, the main problem with stagflation was inflationary expectations. A new term had to be invented be historically inflation accompanied economic expansions. That was the first time I believe that you had inflation together with slow to negative growth. And also IIRC, that period of inflation was preceded by a period of artificially low interest rates. > > 2. Monetary theory says nothing of the kind and I defy you to provide any sort of citation from a reliable source that says otherwise - the OP you started this thread with being hardly reliable. There are plenty of monetary theorists out there that write for online sites like the Syndicate Project that you should be able to find at least one blurb someplace to back up this bogus claim. > > What you’re talking about is straight Keynsianism NOT monetarism and while many economists subscribe to both theories, and rightfully so, I would make a better effort to keep them separate ideologically. While there is overlap between them, monetary policy is not primarily concerned with fiscal policy. MMT stands for “Modern Monetary Theory” which isn’t really a good name for it, it’s just sort of the name it got stuck with. It’s not monetarism at all. It’s called “post-Keynesian”. It’s also called “heterodox”, to distinguish it from orthodox, or mainstream economics. There are only a handful of academics (tenured professors) who are pushing it, most of them at UMKC. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 10, 2013, 3:02pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/102 "2013-11-10T15:02:24Z")
> [@deltasigma](#): > > Except, as has been pointed out repeatedly, those purchases are done NOT for the purpose of monetizing the debt but for the purpose of increasing liquidity in the system. > > You may claim this is a distinction without a difference and it would be if the expressed purpose of the fed was not to resell those securities back into the market at some future date. At the point that is accomplished, then the debt has been “de-monetized.” Except since that IS in fact the expressed purpose, no one regards it as monetization. > > There is the issue of interest payments being made on that debt essentially being free in the meantime however I would point out 2 things here. First, the fed only owns about a third of the US’s long term (10-30yr) debt. Second, it has also purchased a huge amount of other securities, mainly MBSs, that IIRC rivals what it owns in the form of US Treasuries. > > So is there room for some legitimate criticism of the fed in terms of it’s ownership of US debt? Sure. But is this tantamount to saying that the fed is monetizing the debt? Hardly. I’m not criticizing the Fed for buying US debt. I think it should keep on doing it. It is, however, the [definition.](http://onswipe.investopedia.com/investopedia/#!/entry/,522a0bdbda27f5d9d0186003) (of monetizing the debt) ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 10, 2013, 4:25pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/103 "2013-11-10T16:25:21Z")
> [@LinusK](#): > > When the Fed “prints” money (admittedly a misleading term) it buys things with that money. Usually Treasury bonds, but more recently it’s bought other assets as well. > > Either way, when it buys those assets from the public, the public gets dollars, but it “pays” for those dollars with assets of equivalent worth. > > In other words, QE is not “helicopter” money. And no amount of QE ever (considered by itself) ever increases the public’s net worth. What it does is drives down interest rates. Which is a good thing, but not enough by itself. Yes, we know this. What is not so widely understood is the fact that the fed has very little control over the long end of the yield curve and it is the long end that the current round of QE is designed to affect. I’m not however convinced you understand why that is though. > [@LinusK](#): > > If the public is broke - because of, for example, a financial crisis and long-term unemployment - what’s necessary is to actually improve their financial position, so that they can actually do the things they’re trying to do: save money, for example, or pay down debt. And ultimately, start spending again, because spending is what’s necessary to employ people to create goods and services. > > No amount of asset swaps - which is what the Fed does (again, considered by itself) will do that. The Fed could buy all US debt - every Treasury ever printed - and that (by itself) would not fix the situation. (It would effectively eliminate the national debt, though.) > > “Helicopter” money would involve simply giving everyone money - money they didn’t have pay for (by selling assets to the Fed, for example). > > We don’t really have framework for doing that, directly. Wrong. From whom do you think the fed buys those assets? Where do you think the cash that’s created goes? Do you think it stays in cash or do you think it gets put into other investments? Just to show how little you seem to understand, the recent collapse in the value of the currencies of India and Indonesia was the direct result of fed policy. If you can explain that nexus, then the nexus to the wealth effect should be cake for you. > [@LinusK](#): > > My own opinion is that the financial system is inherently unstable. In good times stocks go up, people borrow, money gets spent, and people are employed. > > But the banking system is set up in such a way that the more that is borrowed the more interest is owed. At some point people start looking at the situation, and they start to get scared. Maybe they think stocks are over-valued (which they probably are) or that housing prices have become unsustainable (which they were) and suddenly assets that people were relying on start to look insecure. They start selling stocks instead of buying them. They stop buying houses, or MBS’s, or whatever. Meanwhile all that commercial bank debt is still out there - plus all the interest that’s accumulated. If the assets that people were depending on have disappeared (stocks have plummeted, the housing market has gone into the toilet) then some people aren’t going to be able to pay their debts, and then the problem spreads into the banking sector itself. > > Anyway, I don’t have to keep going on, do I? You get the point. I mean, we just lived through it. > > Anyway, the financial system is inherently unstable, and it’s not a problem that the private sector, on its own, can fix. > > Anyway, to answer your question, the constraining factor is that the public is trying to save (spend less than it earns) and trying to pay down debt. > > The private sector, on its own, however, can’t do those things, because 1. One person’s spending is someone else’s income (therefore, collectively, spending less just means less income) and 2. The public always owes more to the banking system than the amount it has on deposit with banks. And the more it tries to pay down its debt, the less money there is. You’re missing the multiplier effect that you get from spending which I’ve tried to explain several times before and which you seem to refuse to understand. Aside from that, the savings rate is not appreciably higher now than it was pre-recession so THAT clearly isn’t the issue, but by focusing on psychology you’re getting generally warmer. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 10, 2013, 4:29pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/104 "2013-11-10T16:29:42Z")
> [@LinusK](#): > > I’m not criticizing the Fed for buying US debt. I think it should keep on doing it. > > It is, however, the [definition.](http://onswipe.investopedia.com/investopedia/#!/entry/,522a0bdbda27f5d9d0186003) (of monetizing the debt) That link doesn’t work but I’m well aware of what monetizing means as I’ve already defined it for you and acknowledged that but for the expression of the fed’s intent to resell the debt it holds it could be considered monetization. Please try to pay attention. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [November 10, 2013, 8:28pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/105 "2013-11-10T20:28:38Z")
> [@LinusK](#): > > If they were running a perfectly balanced budget, the money dropped would simply be money previously taxed. They’d be moving money around, but not increasing it. This is not correct. A perfectly balanced budget is when the money that goes into Treasury from taxes perfectly equals the money that leaves the Treasury from spending. That is the definition. They don’t have to drop “previously taxed” money from helicopters. They can print it up and drop it while it’s still warm from the presses. This doesn’t change the budget deficit in the slightest: the money was created not taxed, and it was given freely away not spent. They could dump billions out of the helicopter without directly changing the budget deficit by a single dollar. (Subsequent spending behavior would be taxable, but the very act of dumping money wouldn’t change the deficit.) I already defined the budget deficit in this thread. More money can easily enter the economy without any spending. There are laws against this, but that’s exactly my point: everything about government money is a legal construct of one kind or another. > [@LinusK](#): > > They could do those things, but we already have a tax system in place, which is a better way of doing it anyway. Yes, it is a better way of doing it. Naturally. And having a “warehouse” is a better way of doing things, too. We can see that conventional taxes are good, because every functioning nation on earth uses some manner of conventional taxation. We can also see that the warehouse is good, because every functioning nation on earth uses some manner of money warehouse for their government. I could probably list five other advantages of the “warehouse”, a couple of them language-based but also including political and accounting advantages. But we don’t even need those arguments: again, we know it’s useful because it’s used literally everywhere with a stable government. > [@LinusK](#): > > > [@Hellestal](#): > > > > What you’re doing here is pointing out a single institution, the “warehouse”, and saying that that institution is an arbitrary legal construct. Well sure. But then so is everything else. You’re pointing at budget deficits and surpluses and saying that they are somehow more real and more relevant than the Treasury account. They aren’t. They are just legal constructs, too. > > > > It’s turtles all the way down. > > I disagree with you there. People’s own appreciation of their financial net worth affects their behavior: for example, when stocks go up, people spend more freely. When people spend more freely, they create jobs for the people who have to supply new goods and services. > > When the market tanks, like in 2008, suddenly people stop spending. That creates unemployment, which further reduces spending, creating more unemployment. This has nothing whatever to do with what I said. This is not a response to my point. > [@LinusK](#): > > The point is that while its true that money is a sort of collective illusion, it affects real productivity. Completely true. Absolutely correct. And the same is true for every other legal construct. They are all fictions, and yet they have effects on our behavior, in one way or another. Some of them are direct effects, and some of them are indirect effects. Some of them are important for people’s spending behavior, some of them are important for labor markets, some of them are important for us to speak clearly about these issues, and some of them are important for political stability. You pointed at the warehouse and said “It’s a fiction!” Then I pointed out every other law in the universe and said that they’re fictions, too. But I never said they were unimportant. I’m going to repeat a previous sentence, in bold and in a slightly larger size, because you aggressively missed it the first time: **You don’t get to ignore the legal institutions you dislike, while simultaneously defending the legal institutions you like.** If every nation on earth uses a certain institution, and you can’t personally see the value in that institution, then you should consider the possibility that the fault lies with you and not with every government on the planet. > [@LinusK](#): > > People want money for various things: for spending, for saving (in the usual sense of the term), for taxes, and for repaying mortgages and other kinds of loans. If there’s slack in the economy (unemployment), because people are trying to save, or to repay loans, or to pay taxes, instead of spending, the government has within its power the ability to fix that particular problem, by either taxing less, or spending more, or both. > > The point is that while dollars and Treasury bonds are made-up things, they have the power to change people’s behavior, so that there are more people working, creating real goods and services. While dollars and bonds might be “pretend” wealth, in the sense that they can be created out of nothing, if creating them leads to more real wealth (goods and services) that’s what the government should be doing. I know this feels like a revelation for you. You’ve attained a holy truth, as if given by god on stone tablets at the top of some mountain in a desert-filled country, and you want to share your insight into these matters. You’re here to preach to the rest of us in the valley below of your newfound insight. So confident are you about your newly discovered monetary religion that you proselytize to the masses on this message board repeatedly, including [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=623087), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=637034), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=632335), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=626628), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=662225), the present thread we’re posting in, and likely several others that I missed. The problem for you is that the rest of us here are older than nineteen. We already know what your conclusion is. Some of us are not unaccustomed to climbing mountains in the desert ourselves. I even agree, to a certain extent, with that conclusion. The government _should_ do more to help the economy. Where I disagree, strenuously, is the specific nature of what the government should do. If I were having a conversation with a rational person, interested in facts and evidence, then that person would not simply repeat their same dogmatic conclusion again and again, even after half the evidence presented to support that conclusion turned out to be baboon feces. What you write is basic facts mixed indiscriminately with nonsense. You speak of behavior while showing no awareness of incentives. You speak of government spending with half your statements about it totally incorrect. You speak of bank accounting, while knowing nothing of accounting. All of us here can see with our own eyes that in your previous thread you demonstrated that you’d never opened an accounting book in your life. When I pointed out in this thread that you still hadn’t taken my advice to educate yourself before preaching your holy conclusion, you told us all that you hadn’t had time to do so. But you still have time to preach the same sermon! You’re even preaching to _me_ now, of all people, as if I’ve somehow forgotten your posts from ten previous threads. You are constitutionally incapable of discussing facts, by themselves, with no reference to the conclusions you like to sermonize endlessly about. But these sermons of yours are nothing to me. I care only about your many mistakes. And now in this thread you have happily admitted that you didn’t bother to learn from your previous errors. You believe the same things, always, regardless of how ignorant you are and regardless of how many mistakes you’ve made along the way. Like all true fundamentalists, your dogma doesn’t change no matter how many errors you make. You’ve misjudged my motives in nearly every thread we’ve been in, so let me clarify just this once for you: I’m not here for you. Your character was clear to me long ago. I don’t care what fundamentalist nutters think about the age of the universe. I’m here for everyone else who might be reading. I’m talking at you, with my posts addressed at you with the quote function, but my words are for every single other person in the thread _except_ for you. I’ve had more exposure to you than the average poster, and I’m trying to show everyone else that you’re the monetary equivalent of a creationist. You are cut from the very same cloth, the set of people who grasp tenaciously to their holy beliefs without any concern for the facts that should ostensibly support those beliefs. And thankfully, I’ve already succeeded in showing this in this thread. I could continue. I could list at least half a dozen other errors you’ve made in this thread that I haven’t had the patience to get to yet. But I’m not going to bother with that, unless I get a specific request from someone else to go on. I engage in these “discussions” for them, not for you. I love the SDMB because I can see people of all manner of expertise explain their own fields. I can learn directly from the pros in practically every field imaginable. Sometimes their explanations must necessarily include taking out the garbage. It’s only fair that I return the favor when this particular topic comes up, even given the drudgery. I know it can be worthwhile to at least some people out there. I’ve been thanked previously for my contributions in some of your threads. You are clearly going to continue your pattern of preaching your Religion of Money, just as you did in all the many other threads you started on exactly the same topic. You will continue to climb up on your pulpit and preach about things you only half understand. If in the future I feel it might be helpful to correct at least some of the nonsense, I’ll step into a future thread. If not, I won’t. But I’m not trying to do you a favor when I follow behind you with a pooper scooper after you shit all over the place. It’s for everyone else. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [November 10, 2013, 9:52pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/106 "2013-11-10T21:52:41Z")
> [@Hellestal](#): > > You’ve misjudged my motives in nearly every thread we’ve been in, so let me clarify just this once for you: I’m not here for you. Your character was clear to me long ago. I don’t care what fundamentalist nutters think about the age of the universe. I’m here for everyone else who might be reading… > > But I’m not trying to do you a favor when I follow behind you with a pooper scooper after you shit all over the place. It’s for everyone else. [hijack] I have multiple reading speeds: blur, skim, read and study are four. Lesser posters receive the blur. Hellestal gets my closest attention. I’m not trying to be mean here, but when I see multiple points of confusion presented by a poster, I’m not apt to focus on his work. I don’t actually mind LinusK, but I haven’t taken the time to work out his position. I don’t apologize for this. [/hijack] Macro seemed all so clear to me in 2006, relatively speaking. The lesser Depression has taught me a lot about political economy and financial markets. But I don’t think we’ve cracked the code. By 2016 though, we will have witnessed the aftermath of [Abenomics](https://en.wikipedia.org/wiki/Abenomics) and possibly a shift in regime in the US c. 2014. We will have a new Fed chair and it’s possible that the [2010-2013 era of fiscal retrenchment](http://delong.typepad.com/sdj/2013/10/why-are-we-doing-this-fiscal-policy-edition.html) will have leveled out, though I don’t expect to see much needed stimulus. Europe will be the control group. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 11, 2013, 3:44am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/107 "2013-11-11T03:44:47Z")
> [@deltasigma](#): > > You keep spouting the same nonsense and people like myself and Hellestal and Measure for Measure keep telling you that you don’t know what you’re talking about and demonstrate why what you’re saying is nonsense but a few weeks or months go by and yet you seem to come back with the same bullshit arguments we’ve tried to correct countless times before. So forgive me if I ignore everything you just said and focus on what might be of interest to other posters. > > The difference between quantitative easing by the fed and fiscal policy is that when the fed buys assets, the money goes into bank reserves. Reserves cannot move directly into the economy but only indirectly as the basis for making new loans. Therefore the power of reserves is based on loan demand which in turn is based on a host of other factors. I said that earlier, but you (or maybe it was one of the others) corrected me and told me I didn’t know what I was talking about. But you’re right: banks (collectively) are stuck with whatever reserves the Fed chooses to stick them with. They can trade them back and forth, but they can’t get rid of them. (I even limked to an article that said the same thing.) the idea that banks’ excess reserves are evidence they’re “hoarding” money, or refusing to make loans is flat out wrong. It’s the Fed that decides the amount of reserves in the system, not the banks themselves. They can’t, and don’t, lend out reserves. When the Fed makes a purchase from a broker, though, two accounts get credited. One is is the dealer’s bank account (a liability on the bank); the other is a credit to the bank’s reserve account, which gets credited for the same amount. But I agree ultimately loans are based on demand, not on how much reserves there are. And you’re right, reserves themselves always stay within the reserve system (except for the part that escapes as cash). > [@](#): > > Beyond that, it’s rare that reserves would ever be a constraining factor in an economy with a central bank regardless, but that’s another post. I agree. The central bank controls interest rates, but it must provide at least the minimum reserves required by banks, unless it pointlessly wants to create a banking crisis, which is the opposite of what it wants to do. > [@](#): > > Fiscal policy however can inject funds directly into the economy and directly create demand for money by creating employment and economic activity through govt projects. There is no way that the fed can do this. I agree again. In fact that’s exactly what I’ve been saying throughout this thread. > [@](#): > > I should also point out that it is extremely rare that any central bank uses monetary policy the way it’s been used since 2008. QE is something you do only in ZIRP (zero interest rate policy) environments. And you only get into a ZIRP situation in very specific sorts of scenarios. It may be rare, but there have been no harmful effects from it, and there’s no reason why the Fed shouldn’t continue buying Treasuries.the fact that the Fed can and is wing to purchase Treasuries is why they’re such a safe investment,and why they carry such ow interest rates. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 11, 2013, 4:06am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/108 "2013-11-11T04:06:42Z")
> [@LinusK](#): > > It may be rare, but there have been no harmful effects from it, and there’s no reason why the Fed shouldn’t continue buying Treasuries.the fact that the Fed can and is wing to purchase Treasuries is why they’re such a safe investment,and why they carry such ow interest rates. No. The reason it’s not harmful is the fact that people believe the fed when it says that it’s intention is NOT to monetize the debt. If people believed otherwise you would see a very different result regardless of how reserves are treated. That you could erroneously put so much faith in the idea of a significant increase in the savings rate, which existed only for a very brief time during the depths of the recession and wasn’t even all that dramatic and miss other basic points of market psychology is beyond me. I really do have to believe that what you aren’t parroting back to us you just pull out of your butt. I would be inclined to give you some credit for you other admissions had I not formerly dealt with your intransigence on so many points so many times before. You also overlook a point that I mentioned early that distinguishes cash from reserves and that is the fed practice of paying interest on excess reserves. This creates a built-in firewall to inter-bank lending that makes the free flow of reserves from bank to bank more problematic and less free, further locking them into the system and out of the economy. This is all covered in that 15 page article I keep encouraging you to read. The problem right now is psychology, as I have previously intimated. This is the problem you have with every credit inspired recession and why they are so pernicious. Once the trust that the financial markets are built upon is shaken, it is extremely difficult to rebuild. Having a central bank like the fed that inspires confidence the world over is a huge step to restoring that trust but ultimately it has to come from the market itself and we’re only starting to see that again. In the interim, the companies that survived the recession have built up their cash positions and trimmed costs to the bone. No one has any confidence in the future so no one is hiring and no one is investing. And a big part of the reason for that is the turmoil we see in Washington. We should be well into a robust recovery by now but we’re not and the reason is not economic but psychological. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 12, 2013, 6:09am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/109 "2013-11-12T06:09:35Z")
> [@deltasigma](#): > > Yes, we know this. What is not so widely understood is the fact that the fed has very little control over the long end of the yield curve and it is the long end that the current round of QE is designed to affect. I’m not however convinced you understand why that is though. > > Wrong. From whom do you think the fed buys those assets? Where do you think the cash that’s created goes? Do you think it stays in cash or do you think it gets put into other investments? From what I understand, the Fed trades with what it calls “designated primary dealers”. I don’t know who they are, exactly. I believe they’re probably big banks and Wall Street firms. But I don’t know that it matters, in terms of this discussion. When the Fed buys something, two different transactions happen. 1. The person who sells the asset gets a credit at his bank, equal to the value of the asset. (The credit, obviously, is also a liability against the bank). 2. The bank gets a credit, for the same amount, in its reserve account at the Fed. (Which is similarly a liability against the Fed.) In terms of where the cash goes, I guess it depends on what cash you’re talking about. The Fed money stays (mostly) within the banking system. With the relatively minor exception of currency, there is no where else for it to go. Banks trade it back and forth with each other, but since one bank’s gain is another’s loss, collectively they’re stuck with whatever reserves the Fed chooses to provide. If you’re talking about commercial bank liabilities (bank deposits) those go wherever the owner wants them to go. If he chooses to use them to pay off loans, then the money disappears. If he buys something - a car, stocks, municipal bonds, whatever - then the deposit simply changes owners. I’m sure you didn’t mean it this way, but when you use the phrase “put in” (to other investments), it makes it sound like you think the money becomes the investment. Money only changes hands, of course. It never becomes something other than itself. > [@](#): > > Just to show how little you seem to understand, the recent collapse in the value of the currencies of India and Indonesia was the direct result of fed policy. If you can explain that nexus, then the nexus to the wealth effect should be cake for you. You’ll have to explain the India and Indonesia thing to me. Consider it a way of showing me how little I know. > [@](#): > > You’re missing the multiplier effect that you get from spending which I’ve tried to explain several times before and which you seem to refuse to understand. Aside from that, the savings rate is not appreciably higher now than it was pre-recession so THAT clearly isn’t the issue, but by focusing on psychology you’re getting generally warmer. It’s not that I’m missing the multiplier effect, it’s that the [multiplier effect itself is missing.](http://www.standardandpoors.com/spf/upload/Ratings_US/Repeat_After_Me_8_14_13.pdf) I’m not sure what you mean by “savings rate”. Are you talking about people spending less than they make, or about macro identity that says savings = investments? Because you agree - right? - that collectively we can never spend less than we make, or make more than we spend. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [November 12, 2013, 7:08pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/110 "2013-11-12T19:08:47Z")
> [@cornopean](#): > > the govt is the source of dollars? what does that mean? the govt has no money of its own. if the govt wants money, it first has to take it from someone. no? You Fail Economics Forever. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 12, 2013, 9:32pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/111 "2013-11-12T21:32:04Z")
**LinusK** : So basically you don’t have a clue. I figured as much. As for the connection between fed policy and emerging market currencies, [why don’t you try using google for once](https://www.google.com/search?q=fed+policy+emerging+market+currencies&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a). I’m tired of wasting my time with you. There should be a hit from the[Washington Post](http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/05/emerging-markets-think-the-fed-is-causing-bubbles-the-fed-disagrees/) on the first page that looks like it addresses the issue. Let’s see if you actually understand it. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 13, 2013, 2:35am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/112 "2013-11-13T02:35:09Z")
> [@Hellestal](#): > > This is not correct. > > A perfectly balanced budget is when the money that goes into Treasury from taxes perfectly equals the money that leaves the Treasury from spending. That is the definition. They don’t have to drop “previously taxed” money from helicopters. They can print it up and drop it while it’s still warm from the presses. This doesn’t change the budget deficit in the slightest: the money was created not taxed, and it was given freely away not spent. They could dump billions out of the helicopter without directly changing the budget deficit by a single dollar. (Subsequent spending behavior would be taxable, but the very act of dumping money wouldn’t change the deficit.) I already defined the budget deficit in this thread. More money can easily enter the economy without any spending. > > There are laws against this, but that’s exactly my point: everything about government money is a legal construct of one kind or another. > Yes, it is a better way of doing it. Naturally. > > And having a “warehouse” is a better way of doing things, too. We can see that conventional taxes are good, because every functioning nation on earth uses some manner of conventional taxation. We can also see that the warehouse is good, because every functioning nation on earth uses some manner of money warehouse for their government. I could probably list five other advantages of the “warehouse”, a couple of them language-based but also including political and accounting advantages. But we don’t even need those arguments: again, we know it’s useful because it’s used literally everywhere with a stable government. > This has nothing whatever to do with what I said. This is not a response to my point. > Completely true. Absolutely correct. > > And the same is true for every other legal construct. > > They are all fictions, and yet they have effects on our behavior, in one way or another. Some of them are direct effects, and some of them are indirect effects. Some of them are important for people’s spending behavior, some of them are important for labor markets, some of them are important for us to speak clearly about these issues, and some of them are important for political stability. You pointed at the warehouse and said “It’s a fiction!” Then I pointed out every other law in the universe and said that they’re fictions, too. But I never said they were unimportant. I’m going to repeat a previous sentence, in bold and in a slightly larger size, because you aggressively missed it the first time: > > **You don’t get to ignore the legal institutions you dislike, while simultaneously defending the legal institutions you like.** I’m not sure what institutions you think I’m ignoring. I’ve said that we could simplify the current Fed-Treasury situation, without losing anything important, by simply taxing money out of existence to fight inflation, and spending it into existence when unemployment was the problem. We don’t have to get rid of the Fed to obtain the same outcome: instead the Treasury can print bonds, and the Fed can buy them. It’s a perfectly legal strategy. In fact it’s what’s happening now. Many people seem to think that there’s something wrong or bad about it, but I’d argue it’s exactly what we should be doing. In fact, I’d argue we should be doing _more_ of it. > [@](#): > > If every nation on earth uses a certain institution, and you can’t personally see the value in that institution, then you should consider the possibility that the fault lies with you and not with every government on the planet. Which institution are you talking about? The Fed? The Treasury? I’ve argued that a country could simply spend money into existence, when that was necessary, and tax it out of existence when that was prudent, and that the effect would be the same as running up deficits, and then monetizing them with a central bank. It’d be simpler, more straight-forward. But I’m not calling for the elimination of the Fed. As long as its doing the right thing, it doesn’t matter much whether the system is complicated, or straightforward. (And of course, the Fed does other things besides monetize the debt: it regulates the financial system, which has to be done by someone. And it facilitates bank-to-bank transactions, which again, has to be done by someone. Anyway, I’m not calling for the elimination of the Fed, if that’s what you think. I’m simply pointing out its not strictly necessary for a country to have a central bank, in order to create and destroy money. > [@](#): > > I know this feels like a revelation for you. > > You’ve attained a holy truth, as if given by god on stone tablets at the top of some mountain in a desert-filled country, and you want to share your insight into these matters. You’re here to preach to the rest of us in the valley below of your newfound insight. So confident are you about your newly discovered monetary religion that you proselytize to the masses on this message board repeatedly, including [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=623087), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=637034), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=632335), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=626628), [this thread](http://boards.straightdope.com/sdmb/showthread.php?t=662225), the present thread we’re posting in, and likely several others that I missed. That’s your interpretation. My interpretation is that this is something I’m interested in, and interested in discussing. This is a discussion board, so it seems like an appropriate place to discuss it. I appreciate anybody who wants to contribute, and I try to have a thick skin. This is the Internet, after all. But I recognize this as a distraction, as entertainment. Sometimes I watch Netflix (just finished Orange is the New Black: I know the premise sounds shitty, but you should check it out; it actually _very_ good.) Sometimes I discuss fiscal and monetary policy with anonymous strangers. Anyway, it’s not like Ben Bernanke is monitoring this thread, or that anything anybody says here is going to change the real world. I’m not trying to belittle it. It’s an interesting, important topic. I’m just saying there’s no reason to take it personally. > [@](#): > > The problem for you is that the rest of us here are older than nineteen. > > We already know what your conclusion is. Some of us are not unaccustomed to climbing mountains in the desert ourselves. I even agree, to a certain extent, with that conclusion. The government _should_ do more to help the economy. Where I disagree, strenuously, is the specific nature of what the government should do. If I were having a conversation with a rational person, interested in facts and evidence, then that person would not simply repeat their same dogmatic conclusion again and again, even after half the evidence presented to support that conclusion turned out to be baboon feces. I have been pretty repetitive. In my defense, many people haven’t read what I’ve said before. I could, I suppose, just link to previous posts. But frankly, I think that would be kind of stupid. It’s is, after all, a discussion board, and just saying “Here, go read this.” Would be boring, and maybe even a little disrespectful. > [@](#): > > What you write is basic facts mixed indiscriminately with nonsense. You speak of behavior while showing no awareness of incentives. You speak of government spending with half your statements about it totally incorrect. You speak of bank accounting, while knowing nothing of accounting. All of us here can see with our own eyes that in your previous thread you demonstrated that you’d never opened an accounting book in your life. When I pointed out in this thread that you still hadn’t taken my advice to educate yourself before preaching your holy conclusion, you told us all that you hadn’t had time to do so. But you still have time to preach the same sermon! You’re even preaching to _me_ now, of all people, as if I’ve somehow forgotten your posts from ten previous threads. You are constitutionally incapable of discussing facts, by themselves, with no reference to the conclusions you like to sermonize endlessly about. But these sermons of yours are nothing to me. I care only about your many mistakes. And now in this thread you have happily admitted that you didn’t bother to learn from your previous errors. You believe the same things, always, regardless of how ignorant you are and regardless of how many mistakes you’ve made along the way. Like all true fundamentalists, your dogma doesn’t change no matter how many errors you make. > > You’ve misjudged my motives in nearly every thread we’ve been in, so let me clarify just this once for you: I’m not here for you. Your character was clear to me long ago. I don’t care what fundamentalist nutters think about the age of the universe. I’m here for everyone else who might be reading. I’m talking at you, with my posts addressed at you with the quote function, but my words are for every single other person in the thread _except_ for you. I’ve had more exposure to you than the average poster, and I’m trying to show everyone else that you’re the monetary equivalent of a creationist. You are cut from the very same cloth, the set of people who grasp tenaciously to their holy beliefs without any concern for the facts that should ostensibly support those beliefs. > > And thankfully, I’ve already succeeded in showing this in this thread. > > I could continue. I could list at least half a dozen other errors you’ve made in this thread that I haven’t had the patience to get to yet. But I’m not going to bother with that, unless I get a specific request from someone else to go on. I engage in these “discussions” for them, not for you. I love the SDMB because I can see people of all manner of expertise explain their own fields. I can learn directly from the pros in practically every field imaginable. Sometimes their explanations must necessarily include taking out the garbage. It’s only fair that I return the favor when this particular topic comes up, even given the drudgery. I know it can be worthwhile to at least some people out there. I’ve been thanked previously for my contributions in some of your threads. You are clearly going to continue your pattern of preaching your Religion of Money, just as you did in all the many other threads you started on exactly the same topic. You will continue to climb up on your pulpit and preach about things you only half understand. If in the future I feel it might be helpful to correct at least some of the nonsense, I’ll step into a future thread. If not, I won’t. > > But I’m not trying to do you a favor when I follow behind you with a pooper scooper after you shit all over the place. It’s for everyone else. So you see yourself as the self-appointed SDMB pooper-scooper? Sounds like a thankless job. Back on post [96](http://boards.straightdope.com/sdmb/showpost.php?p=16834858&postcount=96) I answered some questions you put to me about bank accounting. I’m curious if you have anything to say about it, because you haven’t mentioned it since. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 13, 2013, 4:55pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/113 "2013-11-13T16:55:57Z")
> [@deltasigma](#): > > It’s interesting to see you make some observations that actually are based on fact, such as the [wealth effect](http://en.wikipedia.org/wiki/Wealth_effect) - even though you either don’t know enough to call it by its proper name or for whatever reason prefer not to. And yet in spite of realizing certain facts persist in certain other false beliefs. I think as long as you continue to strive for internal logical consistency though, the remainder of your attitudes will fall into line with more conventional economic views. > > Anyway, as to the quoted bit, part of the fed’s QE strategy has in fact been to stimulate the wealth effect. But this is a dangerous game and the fact that it has not spun out of control is due almost entirely to the huge amount of faith and trust that the fed has built up in the years since the crisis. > > If people really believed that the fed was monetizing the debt over the long term or if they had in fact purchased a great deal more than the roughly 30% of long term US debt than they already have, you would have seen a very different response from the markets. > > The markets are not stupid and the feds figures are a matter of public record. So any attempt to engage in a wholesale debasement of the currency would have the opposite of the intended effect. But once again, the point here is that the fed has already done pretty much what you have suggested and done so at least in part for the reasons you are suggesting. The problem is that it has little to no appreciable affect. Why do you think that is? I’ve been critized for repeating myself, but here I’ll be doing it again. My argument is that it’s the Treasury that’s the prime mover, not the Fed. In our system, the Fed plays an important role, but it’s not the Fed itself that creates or starts the “wealth effect” (as you call it). It’s the Treasury, by creating private sector (non-government) wealth in the form of Treasury bonds. The Fed plays a supporting role by, first, actually turning Treasuries into money; and second, simply by its willingness and ability to do it. It’s an important role, but it’s not the Fed itself that’s creating net financial resources for the non-government sector. It’s the Treasury. I would also argue that trillion+ deficits the the government created, and the trillions of government debt purchased by the Fed have had an appreciable effect: they prevented the financial panic from turning into something much worse. What we saw was an economy going off the cliff. The government stepped into something that looked a lot like a death spiral, and the US economy responded and has slowly started to grow again. My argument is that we could have gotten here faster, and be doing better now than what we are, if the government had done more. Let me turn it around on you. You say there’s no “appreciable effect”. But a few years ago the stock market fell by, what? Fifty percent? Two-thirds? Now where is it? Suppose the markets believed the Fed was going to go on buying Treasuries, or that it was going to hold onto the ones it has, indefinitely? What would the markets do then? Would everyone go into a panic and start selling off their stocks? Why? Would they refuse to buy Treasuries? What is it you think they would do? ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 13, 2013, 6:18pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/114 "2013-11-13T18:18:08Z")
> [@LinusK](#): > > I’ve been critized for repeating myself, but here I’ll be doing it again. My argument is that it’s the Treasury that’s the prime mover, not the Fed. In our system, the Fed plays an important role, but it’s not the Fed itself that creates or starts the “wealth effect” (as you call it). It’s the Treasury, by creating private sector (non-government) wealth in the form of Treasury bonds. The Fed plays a supporting role by, first, actually turning Treasuries into money; and second, simply by its willingness and ability to do it. It’s an important role, but it’s not the Fed itself that’s creating net financial resources for the non-government sector. It’s the Treasury. > > I would also argue that trillion+ deficits the the government created, and the trillions of government debt purchased by the Fed have had an appreciable effect: they prevented the financial panic from turning into something much worse. What we saw was an economy going off the cliff. The government stepped into something that looked a lot like a death spiral, and the US economy responded and has slowly started to grow again. My argument is that we could have gotten here faster, and be doing better now than what we are, if the government had done more. > > Let me turn it around on you. You say there’s no “appreciable effect”. But a few years ago the stock market fell by, what? Fifty percent? Two-thirds? Now where is it? > > Suppose the markets believed the Fed was going to go on buying Treasuries, or that it was going to hold onto the ones it has, indefinitely? What would the markets do then? > > Would everyone go into a panic and start selling off their stocks? Why? > > Would they refuse to buy Treasuries? > > What is it you think they would do? The fed does NOT normally do what it has done for the past 5 years as I have already stated. QE is an extraordinary remedy for extraordinary situations. If you don’t get that and understand how this situation is different from the normal business cycle that the fed would normally deal with, well, that just demonstrates the depth of your ignorance. Point me to any other time in history when the fed has done anything remotely comparable. You can’t because it has never happened before. The fed normally manipulates the short end of the yield curve via mechanisms such as the fed funds rate, NOT the long end via QE. As to the questions you’ve posed, if you’d been paying attention, I’ve already answered those. Monetization devalues a currency. When people believed that’s what was happening, that’s when gold soared to $1900 an ounce. What is it selling for now? It’s not even at $1400 last I checked. And yet the fed continues to purchase $85B in US treasuries and MBSs every single month and has not even begun to taper that buying program as of yet. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 13, 2013, 7:33pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/115 "2013-11-13T19:33:48Z")
> [@deltasigma](#): > > The fed does NOT normally do what it has done for the past 5 years as I have already stated. QE is an extraordinary remedy for extraordinary situations. If you don’t get that and understand how this situation is different from the normal business cycle that the fed would normally deal with, well, that just demonstrates the depth of your ignorance. Point me to any other time in history when the fed has done anything remotely comparable. You can’t because it has never happened before. No, the Fed has never bought so many assets before. As I said a few posts ago, it’s more than quadrupled its balance sheet in the last few years. That has never happened before. I’ve never said or implied otherwise. Why did you think that I had? The best analogy to the current situation is the deficits the US ran up during WWII. Those were comparable (though greater than, relative to GDP) the trillion+ deficits we had a few years ago. Yet after the war, instead of being crushed under the weight of all that debt, or sliding back into the depression that had gripped the US for the ten years before the war, the US economy expanded. And that wasn’t even debt for infrastructure or investment. It went to kill people and blow stuff up. > [@](#): > > The fed normally manipulates the short end of the yield curve via mechanisms such as the fed funds rate, NOT the long end via QE. > > As to the questions you’ve posed, if you’d been paying attention, I’ve already answered those. Monetization devalues a currency. When people believed that’s what was happening, that’s when gold soared to $1900 an ounce. What is it selling for now? It’s not even at $1400 last I checked. And yet the fed continues to purchase $85B in US treasuries and MBSs every single month and has not even begun to taper that buying program as of yet. You say that monetization devalues currency. But despite unprecedented levels of monetizing, the dollar remains strong against other currencies, and inflation remains low. If your theory predicts “A” will happen, but “A” doesn’t happen, is there some point where you question your theory? ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 13, 2013, 7:58pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/116 "2013-11-13T19:58:33Z")
> [@LinusK](#): > > You say that monetization devalues currency. But despite unprecedented levels of monetizing, the dollar remains strong against other currencies, and inflation remains low. If your theory predicts “A” will happen, but “A” doesn’t happen, is there some point where you question your theory? Really? Like we haven’t already discussed this to death in this very thread not to mention several others. As I’ve said, I’m not wasting any more time. :smack: :smack: :smack: ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [November 18, 2013, 6:17pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/117 "2013-11-18T18:17:35Z")
Well, at least the [Fed](http://www.bloomberg.com/news/2013-11-04/three-fed-policy-voters-signal-prolonged-easing-to-boost-growth.html) agrees with me: > [@](#): > > The FOMC in its statement last week signaled diminishing concern over higher borrowing costs, dropping a warning from the previous meeting that “tightening” financial conditions could impair the four-year expansion. The committee said fiscal policy is restraining economic growth. That’s some consolation, I guess. (Emphasis mine.) And [this guy](http://www.bloomberg.com/news/2013-10-22/the-fed-versus-the-people.html) seems to have it right: > [@](#): > > This is what makes fiscal policy so appealing. The government could mail everyone a check or give everyone a tax cut. Those Americans who wanted to increase their savings before going out and spending more could do so, while those lucky few who already have enough stashed away could go out and spend. Not only would this be more effective than the ideas currently circulating inside the Fed system, it would be far less dangerous. But maybe some name-calling would set him straight. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [November 18, 2013, 6:59pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/118 "2013-11-18T18:59:13Z")
You make it sound like this is some revelation. Since when? All you have to do is look at what happened in peripheral Eurozone countries in the wake of the fiscal tightening that occurred in places like Ireland, Greece and Spain. The whole area pretty much dipped back into a recession that they are only now starting to recover from, and that’s only until the next crisis. I and probably others have pointed out the importance of fiscal policy in stimulating the economy. I have also noted countless times that fed policy is dependent upon not only the willingness of people and businesses to borrow but the ability and willingness of institutions to lend - things over which the fed has very limited control when manipulation of interest rates proves, as now, to be an insufficient incentive. So if you think that you’ve stumbled on some great truth of which none of us were previously aware, please think again. [Previous page](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614.md?page=5)