How will all of this printing unwind itself?

OperationButter

Ive been trying to do some more macro thinking as sometimes I get tied up in the daily movements. For the record, I dont care that gold is down or up, and its not the reason im posting this. I am trying to look out many years into the future (always a problem hah) and see the realistic outcomes on what is currently happening in our markets today. It brings up the question, how do we unwind all of this printing (digitally) and where do we end up because of it?

Its a tough question to answer and no one will know for sure. Im curious on what the board thinks of this. Please keep the manipulation talk to a minimum and lets try to think outside the box on this one.

A friend and I were discussing this and it lead to a very interesting direction. How do we get off the debt train...
1. Default
2. Print and pay (debasement)
3. Revolution (new govt)

When looking at the markets, the Dow is testing 14k again... Are we better off than we were when the dow was 14k? To me, no not even close for a multitude of reasons that I think everyone with half a brain is aware. Stocks have shown over time that they can be effective a an inflation protection tool. Are CFO's more responsible with stock offerings than the FED with money supply

On the flip side you have deflation, but one would have to assume that the fed will try to reflate...

Without being a puppet and just saying invest in silver and gold cause its the right, or to some ONLY thing to do, I'd really like some feedback on this. How do we get out of the mess we are in?

Justacommeman

Think globally. It's a race to devalue one owns currency. All currencies. All countries. No telling how it's going to end up. I have a guess though.

MJ

OperationButter

<< <i> I have a guess though.

MJ >>



Please share

Justacommeman

Very badly. MJ

JohnnyCache

Higher taxes, implementation of a VAT tax.

Significant reduction in entitlements (Soc Sec and Medicare)

New eligibility requirements on entitlements - you'll have to be something like 75 years old to qualify for benefits, and it will be likely that those benefits will be pro-rated based on your ability to pay.
AKA, Governemnt pays when you're at least 75 years old and likely broke.

In the end doesn't it have to involve some level of debasement of the currency?





Edited for the sake of clarity

JohnnyCache

We can watch Argentina, they're going for round two.












Edited for spelling

ricko

It will be interesting.... there will have to be a reckoning, but this could take so many forms. Cheers, RickO

OPA

Not in our lifetime. I wouldn't loose any sleep over it. Unfortunately, our Great grand kids may have to bear the brunt, but I'm sure they'll find a way to pass it along to their grand kids.

DoubleEagle59

<< <i>Not in our lifetime. I wouldn't loose any sleep over it. Unfortunately, our Great grand kids may have to bear the brunt, but I'm sure they'll find a way to pass it along to their grand kids. >>



How old are you OPA.....91??

cohodk

The assets of the baby boomers will be passed down which will go towards paying off the baby boomers debts. The grandchildren will be OK, as the children of the boomers will bear the brunt. In 25 years this will pass and a global economic boom will commence.lasting for 2 generations--very similar to the 1950 thru 2008 period. Why?. Because 3 billion Indians and Chinese will become consumers. And they will buy stuff made in USA.

razzle

johnnycache, you wrote:


<< <i>Significant reduction in entitlements (Soc Sec and Medicare) >>


This is not directed at you, just for clarification. Somehow the current admin has persuaded the public that Social Security and medicare are entitlements. They are NOT, no more than the benefit of any insurance policy one has paid for. People have to qualify for soc sec based on deductions from their EARNINGS. After found eligible, they must wait until age 65 to get the medical portion (medicare). These are EARNED benefits, something this admin seems to have a lot of confusion about.
Supplemental Security Income and Medicaid are entitlements, easily confused by the public, a confusion which seems intentionally further obfuscated by this admin.

jmski52

You know, razzle - this needs to be pounded into the heads of every political critter. Big difference, and thanks for refreshing the facts.

ksammut

<< <i>The assets of the baby boomers will be passed down which will go towards paying off the baby boomers debts. The grandchildren will be OK, as the children of the boomers will bear the brunt. In 25 years this will pass and a global economic boom will commence.lasting for 2 generations--very similar to the 1950 thru 2008 period. Why?. Because 3 billion Indians and Chinese will become consumers. And they will buy stuff made in USA. >>



That might be wishful thinking:

Scary Retirement Numbers--No Matter How You Calculate Them

As baby boomers retire, the times will be a-changin'

Average net worth by age

The average baby boomer is going to struggle to make it during their retirement years. Lack of saving, the housing crash, poor investing, and most of all, too much spending and borrowing will not leave them in a good position. Sadly, I do not think there will be that much (assets) being passed down from baby boomers to their children. Many baby boomers will eat through their assests by the time they pass.

ksammut

<< <i>johnnycache, you wrote:


<< <i>Significant reduction in entitlements (Soc Sec and Medicare) >>


This is not directed at you, just for clarification. Somehow the current admin has persuaded the public that Social Security and medicare are entitlements. They are NOT, no more than the benefit of any insurance policy one has paid for. People have to qualify for soc sec based on deductions from their EARNINGS. After found eligible, they must wait until age 65 to get the medical portion (medicare). These are EARNED benefits, something this admin seems to have a lot of confusion about.
Supplemental Security Income and Medicaid are entitlements, easily confused by the public, a confusion which seems intentionally further obfuscated by this admin. >>



I agree with your statement but from a funding standpoint, the average person will receive a lot more in social security payments over their retirement years than they paid in. It is not their fault in anyway but increased life expectancy and the ponzi design of the system versus each person truly having their own ss account makes the program unsustainable when you look out a few decades. The future unfunded liabilities of social security is so great that the average worker of tomorrow would have to see a huge increase in their payroll taxes just to help pay for all the retiring baby boomers.

Medicare is even worse. Thanks to longer life expectancy, growing health care costs, and all the non-fatal but expensive illnesses that many older Americans face, the average retired person will receive a great deal more in Medicare benefits than what they put into the system. Projected unfunded liabilities are so great, a huge percentage of everyone's (in the future) income would have to be taxed to pay for the Medicare program. The Federal and payroll tax rate for everyone poor to wealthy would have to grow to 70% or more. Health care will need to be rationed at some point.

Politicians did not make the hard but necessary fixes to these programs over the years and actually compounded the problem by adding the MMA (prescription drug benefits) to Medicare.

So again, I agree with you that by definition, SS and Medicare are not entitlements as we have all paid into the programs but the reality is many will (at least for the next decade or two) will receive more than what we put into the programs.

VanHalen

<< <i>
A friend and I were discussing this and it lead to a very interesting direction. How do we get off the debt train...
1. Default
2. Print and pay (debasement)
3. Revolution (new govt)

>>



My vote is #2. We all realize that is what we are doing now and getting away with it for the moment. The moment is going to last a while, a good long while.

There is no fiat currency that has the USDs status and acceptability. If Americans accept a lower standard of living, #3 won't have to happen. #1 could happen in the distant future but won't happen in the lifetime of most people reading these threads.

There will eventually be a solid, world-wide economic recovery. It might take a depression to get us there though.

Steve27

According to Paul Krugman, we are not in a depression, but we do have depression economics. Which means the standard tools for jump-starting the economy, such as the Fed lowering interest rates to near zero, is not working. The bad news is, the last time we came out of depression economics it was due to large amounts of spending in preparation for WW II, and we have already inflated the national debt to record levels. The good news is, 92% of us still have jobs, the housing market is recovering, the average level of debt per household is down, the average level of savings per household is up, and we are still able to borrow at near zero interest rates. Thus, the economy will continue to improve (just not at a rate which will put people back to work as quickly as is needed). This will eventually lead to increased consumer spending and an even better economy. However, somewhere down the road, taxes will have to rise and spending will have to continue to fall.

jmski52

According to Paul Krugman, we are not in a depression, but we do have depression economics. Which means the standard tools for jump-starting the economy, such as the Fed lowering interest rates to near zero, is not working. The bad news is, the last time we came out of depression economics it was due to large amounts of spending in preparation for WW II, and we have already inflated the national debt to record levels. The good news is, 92% of us still have jobs, the housing market is recovering, the average level of debt per household is down, the average level of savings per household is up, and we are still able to borrow at near zero interest rates. Thus, the economy will continue to improve (just not at a rate which will put people back to work as quickly as is needed). This will eventually lead to increased consumer spending and an even better economy. However, somewhere down the road, taxes will have to rise and spending will have to continue to fall.

not

roadrunner

The current printing problems will get wrung out in the next 4-10 years. Whether that is a cliff dive or an Australian crawl depends on numerous inputs.
It can't be unwound. It will have to implode, explode, or the slate wiped clean by decree/default/overnight devaluation.

derryb

<< <i>johnnycache, you wrote:


<< <i>Significant reduction in entitlements (Soc Sec and Medicare) >>


This is not directed at you, just for clarification. Somehow the current admin has persuaded the public that Social Security and medicare are entitlements. They are NOT, no more than the benefit of any insurance policy one has paid for. People have to qualify for soc sec based on deductions from their EARNINGS. After found eligible, they must wait until age 65 to get the medical portion (medicare). These are EARNED benefits, something this admin seems to have a lot of confusion about.
Supplemental Security Income and Medicaid are entitlements, easily confused by the public, a confusion which seems intentionally further obfuscated by this admin. >>


Earned benefits? Most Americans have been brainwashed by the Washington spin machine on this topic. The money was earned only before it was taken from you. Just because they give some of it back doesn't mean you earned it again. Everything they take from you is a tax - a rose by any other name is still a rose. Taking money by force and then redistributing it doesn't not make it earned by those receiving it. They've only been convinced they are "earning" it again.

Gov. distributions of other peoples money (and a wee bit of yours) should not be compared to insurance. Life insurance is voluntary (so far) and there is competition in the private marketplace.

razzle

Like any retirement plan, federal, state or otherwise, you pay in a percent of your earned wages, you draw out at retirement based on your earnings. If, as with any insurance program, you have attained sufficient tenure and achieved sufficient "earnings" to be vested, you receive a pension.
Because the gov't has abused its fiduciary responsibility to the Social Security program, underestimated its actuarial liabilities, funded a host of other programs with the workers' contributions and purchased votes with the rest doesn't change the "earned" nature of social security retirement benefits as an insurance program for "workers" when they retire. Social Security retirement has almost nothing in common with entitlements other than they are both run by the federal government, just as earned veteran's benefits are. Many states have similar retirement programs, they have just been managed more responsibly (with the usual exceptions). The whole intent of these retirement vehicles is to assure that older Americans won't need entitlements
This admin seems to have a divisive agenda of class warfare in which segments of the population are being villified, particularly the wealthy and seniors. Blurring the entitlement line aids that agenda by lumping workers in with malingerers and the chronically indolent. In fact, until this admin, I had never heard Social Security Retirement benefits labeled as an "entitlement."


<< <i>Gov. distributions of other peoples money (and a wee bit of yours) should not be compared to insurance. Life insurance is voluntary (so far) and there is competition in the private marketplace >>


Premiums paid into a defined benefit program with vesting required is an insurance program. I don't know of any insurance program in which one doesn't receive other people's money. If I make one initital minimum payment into an insurance program, I am immediately entitled to its full face value benefit (other people's money). The two instances in your response with which I agree are that it is a mandatory federal program and that it is not competitive in the marketplace. Neither of those two exceptions alter its definition from an earned benefit to an entitlement program.

derryb

One has only "earned" what one has been forced to contribute. Everything above that is an entitlement to someone else's labor. It's a ponzi scheme that requires every American worker to participate.

the difference between SS and insurance is freedom of choice. Social Security is nothing more than a tax on your wages. Those who pay self-employment tax (Social Security tax in reality) with their tax returns know that it is nothing more than a tax. What you get for all of your taxes are entitlements and services, whether it be national defense, new highways, crooked politicians and yes, a kickback when you reach a certain age. What makes SS and all entitlement programs appear to be different is that it is given back in dollars instead of services.

Social Security was not designed to be and is not a retirement program. It is a supplemental income program for those who should have made their own financial preparations for retirement. Unfortunately, the younger generation has been convinced that all they need in retirement is Social Security. Good luck with that. Bottom line, it is nothing more than redistribution of other people's money. I would rather you keep yours and I'll keep mine.

I have a relative who works for SS. She tells me most of the monthy payout dollars go to minor dependents of deceased SS payers who died before they were eligible to receive monthly payments. What did these kids do to earn their monthly payment. Appears SS is also a gov. sponsored life insurance program as well.

Best fix for a program gone bad: Let those on SS continue to draw monthly benefits for life. Those not yet old enough to draw money, give them back everything they contributed and let them set up their own retirement program. And, stop taking this tax out of all paychecks.

razzle

<< <i>I have a relative who works for SS. She tells me most of the monthy payouts go to minor dependents of deceased SS payers who died before they were eligible to receive monthly payments. What did these kids do to earn their monthly payment >>


derryb, insurance policies have beneficiaries with whom we could often question worthiness. Risk pools behave that way, whether public or private and they employ actuaries to assess the risk such that the entity managing the pool remain solvent.
Your arguments seem to be about the obsessive interventions of gov't in private lives and earnings vs individual responsibility. I am most sympathetic to that point of view, yet object to lumping in the one area which is an exception, especially when it seems it is employed manipulatively to further alienate us from one another.

derryb

so, we've got a gov. sponsored retirement program AND a gov. sponsored life insurance program. Next thing you know we'll have gov. sponsored health insurance. Time to end the madness that in reality is nothing more than wealth redistribution. People feel SS is sacred because it includes their contributions. Guess what - all gov. expenditures include their contributions. The real question is "are we prepared to reduce gov. expenditures?"

What does this have to do with the OP? All of this printing is a result of all the spending.

RedTiger

> 1. Default
> 2. Print and pay (debasement)
> 3. Revolution (new govt)

4. War, which often involves some combination of all three of the above. If it is a major war, the bonds of the losing country may become worthless (the stocks don't do much better), the losing country may suffer massive casualties, and be split into pieces or have a revolution shortly after. If there is a change in government, deeds to real estate may not mean much either. If it is a full on war, most will be thankful to get out with their lives, and not be so worried about their net worth.

For those that think I'm crying wolf, there was the panic of 1907 and a World War in 1914 with the U.S. entering in 1917. The crash in 1929 and World War in 1939, with the U.S. entering 1941. If a person starts the clock with the 2008 financial crisis, that projects 2018. The Chinese are doing a huge ramp up in military spending, and some of their military leaders are already openly calling for using their new muscles.

http://blogs.the-american-interest.com/wrm/2013/02/22/chinese-admiral-says-goal-would-be-a-quick-win/

/edit to add: The seeds of revolution are all over Europe. Spain has a 50% unemployment rate for 18 to 30 year olds. When the dole checks no longer cover necessities those young people will take to the street. How long can an economy last when 50% of the population either has no desire, or can not find gainful employment? 5 years? That takes us to 2018. World War II had its dress rehearsal in Spain. Europeans are not known for resolving things peacefully. This time won't be different. The young in many countries have a nihilistic, violent streak. It is sport in France to over turn and burn cars. The media there no longer reports the numbers, because the youth doing it, seek to have a higher total each year. Prosecutions? The violence is so widespread on the burning car holiday that the police tend to hunker down and try and protect their own lives, rather than confront the marauders. And this is when the people still have food to eat. Wait until food prices spiral so high that no longer can afford that. The catalyst may include famine, crop failures, or debasement of currencies.

jmski52

History repeats itself, and in my opinion the only thing standing between the US and a history similar to that of 20th Century Europe is the US Constitution. If the US continues to be balkanized and continues to have leadership that preys on its own middle class solely for the purpose of grabbing more power, then it's my opinion that we will have wars all over the place, including internally. If the Constitution can be reinstituted, it's as close to being fair as any other system ever devised for governance. I see the odds of that happening as being fairly low, in the range of a 10% possibility. Education is the key, and that is failing or has failed.

Slavery ended 150 years ago and there is no justification for "reparations" or special dispensation for those who don't recognize what opportunity exists in comparison to anywhere else in this world. Same goes for those who feel that income disparity is solely due to their sex with no consideration of any other facts or variables. Recent immigrants from the Far East always seem to become productive in this country when starting from exactly zero. Recent immigrants from Africa are totally disgusted be what they see as a welfare society in this country when they compare the situation to the one they left behind.

Union bosses and company bosses have managed to destroy more good companies than I care to count in this country, and yet they both continue. The politicians reflect the power bases from which they came, but never the people from the districts from which they came. And yet, this is what the Founders already knew. It's the best system because of the structural balance of power. Since the Consitution has been ignored so many times, the results have been negative in every such case. Don't like the way the Constitution works? Amend it! But that's not what has happened, because so many sleazy politicians have been allowed to legislate around it.

So, I tend to agree with Red Tiger on most points. I see a continued struggle for global resources, and the weapons continue to become more and more deadly and effective. Since there is no best way to protect against every eventuality, I simply fall back on how I was taught - get an education and a good job, if one exists and can be found. Save for the future and be able to defend yourself. Don't believe everything you read or hear. TV is about the most worthless way to spend your time that I can find. Other than those things, eat healthy, get enough sleep, exercise and have a good relationship. And take your vitamins.

calleocho

man ...I could use a post from Baley right about now ...

derryb

printing cannot unwind. Too many citizens dependent on gov. spending, particularly in the defense industry. What the gov. cuts in spending with contractors and subcontractors it will have to make up in unemployment and welfare benefits. The economy has become too dependent on spending by Washington and Washington has become too dependent on creating debt (printing) to pay the bill. This is what makes the long term outlook for precious metals spectacular.

However, House Subcommittee on Economic Growth Demands Answers From Bernanke on Fed's Exit Strategy; Fed Must Reply by March 5

The answers should prove most interesting

Baley

<< <i>man ...I could use a post from Baley right about now ... >>



Baley just got back from 10 days in the Caribbean, he don't worry, about a ting, cuz every little ting, gonna be alright, mon!

ksammut

<< <i>printing cannot unwind. Too many citizens dependent on gov. spending, particularly in the defense industry. What the gov. cuts in spending with contractors and subcontractors it will have to make up in unemployment and welfare benefits. The economy has become too dependent on spending by Washington and Washington has become too dependent on creating debt (printing) to pay the bill. This is what makes the long term outlook for precious metals spectacular.

However, House Subcommittee on Economic Growth Demands Answers From Bernanke on Fed's Exit Strategy; Fed Must Reply by March 5

The answers should prove most interesting >>



Very well said.

tneig

Its obvious we are likely the folks that get stuck with the lunch bill for the free lunch,
and the overspending, and the debt.

Because who else is going to pay for it in the end.

EagleEye

It brings up the question, how do we unwind all of this printing (digitally)

Please explain who is digitally printing money?



During WWII the debt to GDP ratio was much higher than now and we survived. The reason we can maintain a high debt ratio now is because we are a very wealthy country. Our business engine is very efficient.

If you kill the engine (can you say sequester), then sure, the debt is going to be a real drag, but unless we go into another recession, I wouldn't worry too much.

derryb

$1.9 Trillion since Lehman collapse. Only one ending - INFLATION.

Keep an eye on Japan, they are the FED's experiment in solutions.



<< <i>Please explain who is digitally printing money? >>


Where else did the growth in the FED's balance sheet come from?


<< <i>The reason we can maintain a high debt ratio now is because we are a very wealthy country. >>


The number of Americans at the poverty level (a level set by Washington and reported by Washington) dictates that the "wealth" is in a limited number of hands. Success at maintaining a high debt ratio remains to be seen, and with all the panic over a sequester that is nothing more than a "budgetary fleabite," that success is looking questionable.

Like most Americans, Washington lives on the edge of the credit card, robbing Peter to pay Paul. Unlike most Americans, Washington qualifies for a new credit card every month regardless of the balance on earlier credit cards. It appears the FED's mission statement has become "to finance Washington."

The growing house of cards is still dependent on none of the cards falling. One card is all it takes - the sequester discussion/threat is reminding us of that reality.

roadrunner

<< <i>It brings up the question, how do we unwind all of this printing (digitally)

Please explain who is digitally printing money? >>




The Fed, and most every large central bank that owns a currency is printing digitally. It's much easier to control the movements of digi-bucks than it is FRNs.
No question that the US, UK, China, and Japan have their currency digi-clouds operating in maximum overdrive. The black pool sources of digital debt are much
harder to track and quantify (ie currency swaps, gold swaps and leases, and otc derivatives such as interest rate contracts). Some of this digital printing would have
shown up on M3. Hence, M3 was deleted back in 2006.

EagleEye

Where else did the growth in the FED's balance sheet come from?

Are you asking me, or are to thinking your question answers my question?

Usually, FED loans money from the sale of T-bills. The more they can sell, the more money they can put in the economy. The QE's are tricky accounting, which is not so straight forward, but even there, they don't just print money out of thin air.

This is basic stuff.

EagleEye

M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

From the FED

It is oh so easy to say there is a fix on everything. It is impossible to disprove for one thing, so why not make the accusation. Also, M3 had nothing to do with currency production.

EagleEye

Derryb,

I'm not trying to be confrontational, but I see nothing but platitudes in what you put out as fact.


The number of Americans at the poverty level (a level set by Washington and reported by Washington) dictates that the "wealth" is in a limited number of hands. Success at maintaining a high debt ratio remains to be seen, and with all the panic over a sequester that is nothing more than a "budgetary fleabite," that success is looking questionable.

Like most Americans, Washington lives on the edge of the credit card, robbing Peter to pay Paul. Unlike most Americans, Washington qualifies for a new credit card every month regardless of the balance on earlier credit cards. It appears the FED's mission statement has become "to finance Washington."

The growing house of cards is still dependent on none of the cards falling. One card is all it takes - the sequester discussion/threat is reminding us of that reality.

The velocity of money, not the accumulated savings is the wealth of the country. We buy, we spend, we grow.

The US Government cannot be compared to a household on any reasonable level. Also don't confuse the need to pay expenses due with added borrowing.

The "house of cards" is the economy. Take away the growth, or put millions out of work just because the debt is too high, will result in a depression. The debt is not the cause. It is a necessary evil.

derryb

<< <i>Where else did the growth in the FED's balance sheet come from?

Are you asking me, or are to thinking your question answers my question?

Usually, FED loans money from the sale of T-bills. The more they can sell, the more money they can put in the economy. The QE's are tricky accounting, which is not so straight forward, but even there, they don't just print money out of thin air.

This is basic stuff. >>


And these Trillion$ the FED is loaning to the US in exchange for bonds/IOU's - did they go to the big FED vault and load up a cart with currency and hand it over? Or, did they pull out the big ledger and subtract from their massive physical cash holdings and add it to the the US Gov. account? Not.

The question is "where does the money come from that the FED is loaning to the US?" These private bankers are not loaning their own money to a high risk creditor. They have been authorized to digitally create it, out of thin air under the misunderstanding that it can be as easily evaporated from the system some time in the future.

If the FED was loaning out existing money at near zero interest rates their balance sheet would not have grown by almost $2 Trillion since 2008.

Debt, both personal and soverign, is the cause of current economical instability. The velocity of money is not the wealth of the nation, it is the speed with which money changes hands. The wealth of the nation is dictated by continuous production and output, not dollar holdings. Dollar holdings are only worth current and future value. If US gov. finances were treated in the same manner as personal/household finances we would have accountability and a stronger economy. The house of cards is not the economy, it is the way the economy is being mishandled and reported on by economic policymakers. Maintaining a high debt ratio leads to eventual financial ruin, whether it be a household or a country. A high debt ratio is not a sign of a healthy borrower.

EagleEye

Debt, both personal and soverign, is the cause of current economical instability. The velocity of money is not the wealth of the nation, it is the speed with which money changes hands. The wealth of the nation is dictated by continuous production and output, not dollar holdings. Dollar holdings are only worth current and future value. If US gov. finances were treated in the same manner as personal/household finances we would have accountability and a stronger economy. The house of cards is not the economy, it is the way the economy is being mishandled and reported on by economic policymakers. Maintaining a high debt ratio leads to eventual financial ruin, whether it be a household or a country. A high debt ratio is not a sign of a healthy borrower.

The point I want to make clear is that debt, while not good, will not be the cause of any future economic disaster. So, first sentence - wrong. Why? Because of what I pointed out earlier about WWII. We sustained a much bigger debt/GPD back then and survived, even flourished. So, starting out with the debt-is-the-problem is just parroting the stuff you have heard that is coming from Washington. They don't care about debt (At least Dick Cheney didn't), but that is the boogeyman they are using to scare you right now. I see through it, and most people do too.

If we only were allowed, as a nation, to spend only what we take in, then the whole economy would grind to a halt. Think 1800's lifestyle. So, the opposite of what you say would come to pass. It would be a much weaker economy and there would be greater income disparity then what we see even now.

The economy, in my opinion, is not being mishandled, the disaster we saw four years ago does not magically disappear. The effects are still here and the policy decisions made now might ease the burden in the future, but it will take a long, long time for it to be worked out of the system - Hey, just like after WWII.

We as a nation are the driving engine of the worlds economy, not some household bank account. The analogy is completely out of touch with reality.

Again, sorry to be confrontational, but your ideas are just plain wrong.

derryb

no apology necessary, i love a good disagreement, especially when I'm correct.

VanHalen

<< <i>...They have been authorized to digitally create it, out of thin air under the misunderstanding that it can be as easily evaporated from the system some time in the future...

>>



I don't think too many are "...under the misunderstanding that it can be as easily evaporated from the system some time in the future". We know that trillions of USD have been created (digitally or printed) and have thus far been absorbed by that roadway of a Black Hole we call "The Beltway/Wall Street" with no "end-game" in sight.

What has been done over the last five years should have led to massive inflation, instead inflation has been subdued. But the money IS still out there and the USD money supply has grow dramatically.

jmb

<< <i>

Best fix for a program gone bad: Let those on SS continue to draw monthly benefits for life. Those not yet old enough to draw money, give them back everything they contributed and let them set up their own retirement program. And, stop taking this tax out of all paychecks. >>

derryb

While creeping upward, no serious inflation (yet) because the FED was smart enough to offer a better return on the new money than the receivers of it would get loaning the money into the private sector. Most of the new money is on deposit with the FED. Since the FED indirectly controls commercial lending rates, it can control where the money goes. At some point artifically low interest rates will be overcome by a market demand for loans. That increasing demand will enable the market to drive up rates. At this point the FED will lose control of all the new money and price inflation (a result of money inflation) will take its natural course. An unexpected rise in interest rates will be the flock of black swans.

bronco2078

The Fed's balance sheet doesn't accurately represent what they are doing in the open market or synch up with what they claim they are doing when the media talks about it.

QE3 was widely reported to be 45 billion a month in MBS purchases but it was running more like 60 billion.

QE3+ is described as 85 ( 45 in MBS and 40 in treasuries) billion a month but the mortgage part is still running at 60 billion a month. The treasury numbers are hard to pin down the data is on the Fed's page but its clear as mud.




The balance sheet numbers of MBS owned aren't expanding as fast as the net purchases would indicate it should.

Are the face values of the securities declining or are they being marked to market in the hands of the fed where they may not have been prior to purchase? If they weren't marked to market before purchase then its more like a bailout of the security holder than a monetary expansion it seems to me.

VanHalen

<< <i>While creeping upward, no serious inflation (yet) because the FED was smart enough to offer a better return on the new money than the receivers of it would get loaning the money into the private sector. Most of the new money is on deposit with the FED. Since the FED indirectly controls commercial lending rates, it can control where the money goes. At some point artifically low interest rates will be overcome by a market demand for loans. That increasing demand will enable the market to drive up rates. At this point the FED will lose control of all the new money and price inflation (a result of money inflation) will take its natural course. >>



I agree with this statement with the big question being: How long will it take for this to happen? The longer it takes, the worse it gets and indications are it will take many years. Maybe even 10 years. We can easily keep the shell game running for another 5 years anyway.

derryb

It's called "kicking the can." They have gotten pretty good at it. Ten years is nothing, ask Japan. I expect the FED will have no choice but to allow a slight increase in inflation as part of the currency war. If they can maintain control over it remains to be seen. Inflation is a funny thing, it has a mind of its own regardless of what policy makers dictate. It is driven by fear once the snowball starts downhill.

EagleEye

I do agree that the FED has used up all its golden bullets.

I think the perception of "printing money from thin air" comes from the notion that the FED is being a bit too creative since the decline in demand for Treasury Bills. However, don't take the "printing money from thin air" part literally, since, it is certainly not the case, as the chart derryb posted shows. There is no entry for "thin air"

derryb

More bonds/debt are created from thin air. New money is then created from thin air to turn the debt/bonds into spendable money. The bonds are held by the FED as IOUs for the new debt/new money. The borrower (US gov.) authorizes the new money when they create the bonds. The result is new money from thin air, an increase in the overall money supply.

When China and Japan buy the US debt., they do it with dollars that are already in the world-wide US money supply system. The differences means no new money was created, but it also mean dollars return to the US ecomomy raising the money supply in the US. This can also be inflationary for the US economy.

The one advantage to the FED doing the debt buying is that they are in a position to control where all those new dollars go. As I stated earlier they have been successful (so far), by paying better returns, in encouraging the banks receiving it to keep it on deposit with the FED. This is why money supply inflation has not yet resulted in price inflation. The FED is playing with a loaded gun.

Remember, bankers profit from debt. By becoming the major purchaser of US debt the FED (a private group of bankers) has insured its financial hold over the future of the US. I guess one could argue that this is better than being indebted to China. On the other hand, defaulting on the debt (refusing to pay it in full) will be harder when it involves the world's largest banking families (the FED).

jmski52

For the first time, I sympathize with the Fed. They are going to create more money "until the labor market improves". Oh my.

How about removing 10,000 pages of new law that tends to promote about 50,000 pages of new regs?

It doesn't matter how hard you try, you are out of compliance no matter which way you turn. Of course, this is good news for lawyers and lobbyists.

Neither the Fed, nor Congress, and certainly not the Prez - none of them appreciate what it takes to actually "create a job". Morons.

derryb

I believe their goal is to have everyone on the federal payroll, one way or another. With this accomplished we all vote for the hand that feeds us.

1jester

The Jackass explains it, touching most of the bases.

roadrunner

<< <i>I do agree that the FED has used up all its golden bullets.

I think the perception of "printing money from thin air" comes from the notion that the FED is being a bit too creative since the decline in demand for Treasury Bills. However, don't take the "printing money from thin air" part literally, since, it is certainly not the case, as the chart derryb posted shows. There is no entry for "thin air" >>



I would disagree. Find me anywhere on the big bank balance sheets where they state their otc derivative's positions. 80% of those are interest rate contracts which tie back to a real, issued US govt TBond which therefore produces a net demand. No matter how you slice it, that liquidity or debt was created out of thin air, and resides in cyberspace where no one can see it. FED currency swaps are also "thin air" entries along with bullion bank gold leases. Good luck trying to find an accountable record of either of those. I think the FED and other big banks have more "thin air" type entries that we yet don't even know about. The modern computer and shifting entries back and forth between counterparties prevents tracking these items. No need to print FRN's any more as long as you can key stroke debt-money back and forth in an instant. Even better is that much of this stuff doesn't exist on a balance sheet.