New answers tagged federal-reserve
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that is a really good question. One nuance to your answer might be found in this video.
Basically, Ben Bernanke once defended the Fed's QE Program by saying, "What we did was Qualitative Easing, not Quantitative Easing." The Fed made a specific effort to buy securities like MBS after 2008. In a true QE Regime, the Fed would buy comic books if they could - ...
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Conceptually asking when/how much new money will cause inflation has a very nuanced answer. For example, how come the Fed's QE Program from 2008-2013 hasn't lead to inflation?
One reason why QE might not lead to consumer goods inflation can be found in the famous equation: MV=PQ. In other words, the money supply (M) can go up due to QE. BUT, if Velocity (V)...
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The Fed uses quantitative easing to provide ample liquidity and to prevent deflation. Inflation has not been a problem in modern economies for over 12 years.
Deflation is much worse than inflation.
Technological advances, especially fin tech, cause deflationary pressure.
I’ll say it again. Deflation is the problem, not inflation. Even the price of ...
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The Fed is combating liquidity. The risk in the U.S. and most of the developed world is deflation. We are already seeing massive deflation as evidenced by plummeting demand for oil.
Deflation has been the risk for the past 12 years. It’s time to stop listening to your dad/uncle who lived through the devastating effects of inflation in 1970s.
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The New Deal cost an estimated 50B in federal spending over 7 years from 1933 to 1940, or about 7B per year. At that time GDP was 60B, so it added about 11% of additional federal spending.
In contrast the 2T of stimulus just passed is about 10% of gdp in additional Federal spending. Whether this continues is yet to be seen, but odds are good we see at ...
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Does the M2 increase by $2.2T?
Yes
Thus a 12.5% increase in inflation?
not necessarily
those record lifeline (2.2T) will spark risk assets like stocks,
business and company obtain support from authorities to combat effect of the pandemonium
no flight
no hang out in cafe
ultra low occupancy of hotel
in general case, inflation occurs when there is tight ...
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What we seem to know for a fact is that the $2T stimulus (CARES act) is going to be financed through government debt:
The CARES Act will raise U.S. debt substantially relative to a scenario where the economy did not have coronavirus. But, of course, that is not a relevant counterfactual. When the alternative scenario is an economy with coronavirus but ...
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Some estimates on what the Fed can do:
The embrace of QE Infinity is clearly a groundbreaking move. But is QE Infinity limitless in reality? No quite.
Analysis done last week by Bank of America Securities shows the Fed could spend up to $US8 trillion.
The bank says the Fed holds 15 per cent of marketable US debt excluding bills, noting that it ...
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There’s no real dollar cap on what the Federal government can do, rather the limit is on what is available to buy, and how much it is willing to spend. (There are various institutional limits on spending, but those limits can be raised. This is what allows the size of government to grow in line with increasing nominal GDP.)
Examples
It can only buy as ...
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I believe that the government is going to encourage the financing of the $2 trillion dollar stimulus to the FED and this will take place through the FED purchasing US treasuries.
It is also in the best interest of the FED to do so in order to foster the stability, integrity, and efficiency of the nation's economy (Federal Reserve Bank mission).
This ...
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Have you ever gifted your parents a "I'll wash the house" ticket? Or maybe your parents just forced you to do it. In any case, money, or less colloquially a Federal Reserve note, is like a "I'll wash the house" ticket issued by the Federal Reserve. But instead of being able to redeem it for a house wash, you can redeem it to receive a certain amount of gold. ...
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I believe that the Fed is more focused on saving the US economy from collapsing because of the effects of the coronavirus situation.
When the Fed wants to loosen monetary policy and increase liquidity, it lowers the reserve requirements ratio which will make lending cheaper.
Lowering the reserve requirement increases the amount of money that banks have ...
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Reserve requirements do very little to stop bank runs, and other countries abolished them years ago. Deposit insurance is the main mechanism to stop bank runs, as well as capital requirements.
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Let’s unpack “government non-interest bearing debt,” assuming that we are talking about government-issued notes and coins (dollar bills). (This does not include other instruments in monetary aggregates, like bank deposits.)
Money is an instrument issued by the government.
It pays no interest.
This only leaves “debt.”
Are notes and coins debt of the Federal ...
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This is because in order for many business to stay liquid they often have to issue short term debt. Many financial firms need liquidity so much that they literally make loans that are for duration of only one day.
However, the more people invest their savings in bonds which are usually long term debt (most bonds have maturity over 5-10y), the less money is ...
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The Fed can not buy stock. However a negative yield on bonds will forced investors
to buy index/etf that pays huge dividend. In effect the Fed can invest in equity or
stock.
Central bank of China and Japan had done the above in the past.
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