The Trump Economy

[B-Man]

 

 

 

 

.

[Foxx]

suck it Democrats and get ready for another 4 year term.

 

https://twitter.com/paulsperry_/status/1154951512029835264

 

[Koko78]

29 minutes ago, Foxx said:

 

 

https://twitter.com/paulsperry_/status/1154951512029835264

 

 

Praise be Obama!

[GG]

On 7/27/2019 at 12:09 AM, TPS said:

.

So that we are speaking the same language, most people discuss QE as having three distinct phases: QE1 was the FED's actions during the crisis, where its BS expanded from $900K to $2.2 trillion the first few months after Lehman; QE2 (from late 2010 to May 2011) and QE3 (late 2012 to 2014) are what you describe, which were efforts to stimulate the economy post crisis (that link I gave with some graphs of the FED's assets and liabilities shows these stages clearly).  Every major financial crisis is also a liquidity crisis, and the FED's LOLR actions through all of its various loan programs was the most important factor stabilizing the system--we agree here. In terms of size and impact, while all of the various lending programs were most significant, QE1 was 3-4 times the size of any TARP funds that went to the banks.  

 

Speaking of conflating things.  TARP was the immediate and necessary bailout to restore market liquidity that required Congressional approval to allow Treasury to buy banks' equity and debt.  QE was the Fed follow up to jump start the economic recovery after the crisis was averted, and didn't need Congressional authorization.

 

But I'm sure you knew that.

 

On 7/27/2019 at 12:09 AM, TPS said:

2. The reason QE was not inflationary is because the FED bought most of the assets from the banking system, and, since banks were now being paid interest on reserves, they were (and still are) content to hold those trillions.   This has everything to do with bank management and almost nothing to do with "Investor acceptance."   By harping on reserve accounting, I AM focusing on how the $3 trillion was "created out of thin air."  I guess it's my turn to say "focus on the accounting."  When the FED "creates funds out of thin air," it still operates under standard accounting practices--Balance Sheets must balance.  Again, look at those graphs, specifically the "FED's liabilities" and the category "deposits of depository institutions." When the FED ;buys an asset, it simultaneously credits that account of the bank that it bought the asset from (or the bank of the investor it bought the asset from).  In QE, The FED pays for the assets by crediting a bank's reserve account.  Those deposits represent assets for the banks and liabilities for the FED, and all of the FED's actions that created them are done with keystrokes of a computer (bank reserves are created out of thin air!) at the NYFED. Prior to Lehman, that account was about $20 billion and after QE3 it peaked at about $2.7 trillion (which indicates the majority of QE was done via purchasing assets from banks).  Since the FED pays interest on reserves about the same as the T-bill rate, these reserves are risk-free assets on bank Balance Sheets. Because these funds are parked on an account with the FED, they don't circulate in the economy AND therefore do not influence prices and inflation. They have nothing to do with "investor acceptance."

 

3. Regarding money, I never said anything other than the FED/Treasury is the monopoly issuer of US$.  To quote Minsky, "Anyone can create money, the problem is getting it accepted."  Yes, many people try to create things that function like money, but, as I said before, the government will squash any attempts that encroach upon its monopoly.  Did you see the article today about the IRS sending letters to holders of crypto?  Since they have designated it as property, any gains are taxable. 

  

4. Your quote,

sounds a bit like you are coming around to what i have been trying to say...but not quite.  The Treasury "issued money" the way it ALWAYS does: congress appropriated funds for TARP which added to deficits in 2008 and 09. The Treasury still had to "sell bonds" to "fund" those deficits to provide the "money" for TARP.  TARP was simply additional "deficit spending" by the Treasury (had to say it).  Again, QE created liquidity by mainly creating additional reserves for the banking system, almost all of which show up as assets for the banks and liabilities for the FED (deposits of depository institutions).  You won't understand how the FED creates "money out of thin air" AND why it doesn't impact inflation until you understand reserve accounting.  

 

 

 

You're finally coming around to the crux of the argument.   Funny how you now agree with my point, but attribute it to Minsky.  Minsky is simply reiterating market mechanics, which you still don't want to admit.   

 

Follow Minsky's logic and ask why investors didn't punish the Fed's creation of $2.7 trillion of assets out of nowhere?   The Fed was buying real assets with its magic money machine and someone has to repay those assets.  Just because the Fed credited the private banks' reserve accounts doesn't mean that the money magically disappears in the same way it was created.  The whole reason for QE is to boost the banks' reserves so that they can resume lending!   Which they did, evidenced by JPM's loans increasing by $400 billion.

 

It all goes back to the fundamental analysis, which everyone can see just swelled obligations by $2.7 trillion.  The analysis doesn't change - the new $2.7 trillion in obligations just made the existing obligations worth less, which should drive yields higher.  QE was a sly move that didn't require printing $2.7 trillion in new cash, but the net effect was the same, the "private" central bank just created $2.7 trillion of value out of thin air, while betting that the private sector will suck up that capacity through economic growth. 

 

If investors didn't have confidence in the US economy, you bet your pants that the Treasury yields would have spiked.  The investors ignored warnings of the 3 rating agencies, each of whom took negative rating actions in November 2011.  Here's the operative passage from the Fitch move:

 

"Fitch's revised fiscal projections envisage federal debt held by the public exceeding 90% of national income (GDP) and debt interest consuming more than 20% of tax revenues by the end of the decade, and including the debt of state and local governments - gross general government debt will reach 110% of GDP over the same period. In Fitch's opinion, such a level of government indebtedness would no longer be consistent with the U.S. retaining its 'AAA' status despite its underlying strengths. Such high levels of indebtedness would limit the scope for counter-cyclical fiscal policies and the U.S. government's ability to respond to future economic and financial crises.

 

The Negative Outlook reflects Fitch's declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. 'AAA' sovereign rating will be forthcoming following failure of the Congressional Joint Select Committee on Deficit Reduction (JSCDR) to agree at least USD1.2 trillion of measures to cut the federal budget deficit over the next 10 years as mandated under the Budget Control Act passed in August (BCA 2011)."

[TPS]

5 hours ago, GG said:

 

Speaking of conflating things.  TARP was the immediate and necessary bailout to restore market liquidity that required Congressional approval to allow Treasury to buy banks' equity and debt.  QE was the Fed follow up to jump start the economic recovery after the crisis was averted, and didn't need Congressional authorization.

Ok, so you don't use the same language that most do when discussing the FED, QE and crisis.  If you want to call the actions the FED took immediately after Lehman announced its, bankruptcy "LoLR" and not QE1, then let's call it LoLR.  From Sept 15, 2009 to the time TARP was passed in early Oct, the FED's balance sheet (and bank reserves) increased by over $600 billion, and another $600 billion over the next month.  TARP invested about $300 billion after it was passed in early October, 25% of the FED's initial response (what most call QE1...).

But I'm sure you knew that.

 

 

You're finally coming around to the crux of the argument.   Funny how you now agree with my point, but attribute it to Minsky.  Minsky is simply reiterating market mechanics, which you still don't want to admit.   

As I stated, I fully understand the flexibility of the financial system, but in the end there is only one legal tender acceptable in the US for "all debts public and private," and the government will assert its legal authority whenever it wants.  The private sector can create all kinds of alternative methods, but when the crunch comes, they go into a mad scramble for the government's legal tender (for the financial sector, that's reserves and government securities). 

 

Follow Minsky's logic and ask why investors didn't punish the Fed's creation of $2.7 trillion of assets out of nowhere?   The Fed was buying real assets with its magic money machine and someone has to repay those assets.  Just because the Fed credited the private banks' reserve accounts doesn't mean that the money magically disappears in the same way it was created.  The whole reason for QE is to boost the banks' reserves so that they can resume lending!   Which they did, evidenced by JPM's loans increasing by $400 billion.

What are  you talking about?  "Someone has to repay those assets".....?  In QE2 and 3, the FED bought treasuries and MBS (BY CREDITING BANK RESERVES). No one has to "repay". The government is paying interest on the treasuries, and from 2010-2014, the FED bought new ones as the old matured. Since 2014, the FED has let some mature and not replaced, slowly winding down its BS.  Homeowners were still making payments on the mortgages that made up the MBS, and those wind down over time as mortgage payments are made. If the FED wants, it can sell off some of those assets, but they don't have to.  They can let their BS decline as the assets mature and are paid off.  

The reason for QE was to keep interest rates down on longer maturities (T-bonds and MBS) to entice borrowing by the private sector.  The reserves are a consequence of the actions to keep those yields low.  In the real world, reserves don't have much impact on lending--interest rates are more important to borrowers.

 

It all goes back to the fundamental analysis, which everyone can see just swelled obligations by $2.7 trillion.  The analysis doesn't change - the new $2.7 trillion in obligations just made the existing obligations worth less, which should drive yields higher.  QE was a sly move that didn't require printing $2.7 trillion in new cash, but the net effect was the same, the "private" central bank just created $2.7 trillion of value out of thin air, while betting that the private sector will suck up that capacity through economic growth. 

No.  When the FED intervenes in those markets, its buying raises demand for (and the prices of) those assets, which causes their yields to decline, not rise.  They took $2.7 trillion of assets OUT of the market and put them on the FED's BS.  And one more time, if they bought an asset from banks (the majority), then it's a swap in the composition of bank assets (reserves for securities); if they bought it from a Hedge Fund (for example), then it's a swap of that asset for an increase in the demand deposit (and bank reserves) of the HF. 

 

If investors didn't have confidence in the US economy, you bet your pants that the Treasury yields would have spiked.  The investors ignored warnings of the 3 rating agencies, each of whom took negative rating actions in November 2011.  Here's the operative passage from the Fitch move:

They ignored warnings because no one believes them anymore....Fitch threatened to lower the rating of the US, and no one cared....

 

"Fitch's revised fiscal projections envisage federal debt held by the public exceeding 90% of national income (GDP) and debt interest consuming more than 20% of tax revenues by the end of the decade, and including the debt of state and local governments - gross general government debt will reach 110% of GDP over the same period. In Fitch's opinion, such a level of government indebtedness would no longer be consistent with the U.S. retaining its 'AAA' status despite its underlying strengths. Such high levels of indebtedness would limit the scope for counter-cyclical fiscal policies and the U.S. government's ability to respond to future economic and financial crises.

 

The Negative Outlook reflects Fitch's declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. 'AAA' sovereign rating will be forthcoming following failure of the Congressional Joint Select Committee on Deficit Reduction (JSCDR) to agree at least USD1.2 trillion of measures to cut the federal budget deficit over the next 10 years as mandated under the Budget Control Act passed in August (BCA 2011)."

 

And one last time, since the US government is the monopoly issuer of its currency, it can always pay its obligations--it will only default if the idiots in congress fail to raise the artificial debt ceiling--it's a political constraint, not economic.  Long term treasury yields are mainly influenced by inflation expectations, which is why the 10-year has come down almost 100 bp over the past year; short term T-bill yields are tied to the FED's target rate interest rate.  While it talks in terms of the Fed Funds Rate, the more important rates are interest on excess reserves (IOER) and the repo rate. 

 

Btw, S&P did downgrade the US in August of 2011, what did the 10-year yield do?

[DC Tom]

Can't you two just have stupid arguments about quarterbacks like normal people?

[OldTimeAFLGuy]

On 7/26/2019 at 1:56 PM, Buffalo_Gal said:

Ok, so the estimated by the "experts" for Q2 was 1.8%, the 2.1% beat expectations, but was down from Q1 which was an "unexpected" 3.1%. The estimates have been beaten both quarters so far this year, so Q3 and Q4 will be interesting. 
 

...is it safe to say that Q2 had a safety hedge/hesitancy factor in the results for which way if any the Federal Reserve may act?......

Edited July 29, 2019 by OldTimeAFLGuy

[Buffalo_Gal]

2 minutes ago, OldTimeAFLGuy said:

...is it safe to say that Q2 had a safety hedge/hesitancy factor in the results for which way if any the Federal Reserve may act?......

My husband keeps bitching that they haven't raised. Trump keeps warning that they should not raise.  Me?  ?‍♀️ I don't know enough to have an informed opinion. 

[OldTimeAFLGuy]

15 hours ago, Buffalo_Gal said:

My husband keeps bitching that they haven't raised. Trump keeps warning that they should not raise.  Me?  ?‍♀️ I don't know enough to have an informed opinion. 

 

...raise tightens credit...not sure why hubby wants a raise......lower means small businesses (OUR ECONOMIC ENGINE) would expand and borrow at lower rates.....ask him why....

Edited July 30, 2019 by OldTimeAFLGuy

[SoCal Deek]

1 hour ago, Buffalo_Gal said:

My husband keeps bitching that they haven't raised. Trump keeps warning that they should not raise.  Me?  ?‍♀️ I don't know enough to have an informed opinion. 

The Fed Rate needed to be raised during the present booming economy so that there'll be wiggle room to lower them when needed to 'juice' the economy in the next down-turn. The Fed pretty much left the rate alone during Obama's two terms because they were afraid it would hurt a very, very fragile recovery.  It's simple really. Trump believes they've raised the rate enough already and that there's now enough of a cushion to lessen the impact of the next recession.

[GG]

3 hours ago, DC Tom said:

Can't you two just have stupid arguments about quarterbacks like normal people?

There's a franchise QB in the house.  Pick another position.  

[DC Tom]

1 minute ago, GG said:

There's a franchise QB in the house.  Pick another position.  

 

Like that has ever mattered.  People used to argue Kelly vs. Reich.  

[TPS]

4 hours ago, DC Tom said:

Can't you two just have stupid arguments about quarterbacks like normal people?

If he chooses Johnson, I'm taking Flutie....

[Taro T]

1 hour ago, TPS said:

If he chooses Johnson, I'm taking Flutie....

He clearly told you to have STUPID arguments about QBs, not to recreate the most monumental argument since "tastes great" / "less filling." ?

[Chef Jim]

3 hours ago, TPS said:

If he chooses Johnson, I'm taking Flutie....

 

You would go with Flutie. 

[/dev/null]

9 hours ago, TPS said:

If he chooses Johnson, I'm taking Flutie....

 

Give Van Pelt a shot

[KRC]

11 hours ago, TPS said:

If he chooses Johnson, I'm taking Flutie....

 

Johnson was the better choice as starter in the Tennessee playoff game. 

[Chef Jim]

51 minutes ago, KRC said:

 

Johnson was the better choice as starter in the Tennessee playoff game. 

 

Oh boy...here we go. 

[KRC]

6 minutes ago, Chef Jim said:

 

Oh boy...here we go. 

 

?

[3rdnlng]

Stop right now. No football talk at PPP. It's too divisive.