The Center of the Universe
Be the Fed
Warren Mosler
See also
Matthew Boesler, Richard Koo: I Can't Find Anyone To Refute My Argument That America Is In A 'QE Trap' at Business Insider
Matthew Boesler, Richard Koo: I Can't Find Anyone To Refute My Argument That America Is In A 'QE Trap' at Business Insider
As Warren points out the Fed just thinks it is in a QE trap. The Fed doesn't need to taper and can continue indefinitely to expanded its balance sheet with POMO as long as it pays interest on reserves (IOR) and there is nothing "the market" can do for force the Fed's hand operationally.
However, The Fed is also aware of public perception and the political dimension, too. Ron and Rand Paul are already maneuvering to block the confirmation of Janet Yellen. And the moron hoards are ready to storm the gates of the Fed, threatening its independence, if not its existence. So the conundrum the Fed faces is not only financial and economic but also social and political.
19 comments:
That is NOT what the people at the Fed say they are actually doing:
"The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets.
“We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses."
http://www.nytimes.com/2011/01/11/business/economy/11fed.html?pagewanted=all&_r=0
Warren gives them too much credit....
rsp,
Right. They are concerned with government borrowing cost, which they think is funded by taxes. And these are "monetary experts."
the moron hordes are also quite good at producing slick propaganda:
http://www.youtube.com/watch?v=iFDe5kUUyT0
They have huge amounts of USD balances at their disposal y
They have an onslaught going on ever since the partisans did the deal last week.
So it's moronic to want to end the pet counterfeiter of the banks and the rich?
Tell me Tom, do you consider justice to be moronic?
Yes, Ron Paul is a fascist gold-bug but money can be created ethically without government privilege.
F,
what is wrong with having fiscal agents to advance balances of our state currency to our citizens under lending contracts subject to regulatory limitations?
If we at the same time make sure that these same citizens who take out loans of the state currency against certain qualified collateral maintain continuous access to the means to be able to pay the loans back?
Even with reasonable interest on the loans?
Who is hurt in that scenario? I don't see anyone being hurt... you go in and say you have a job and a family and need a house and a car to drive to work... BFD!
"Yes, Ron Paul is a fascist gold-bug but money can be created ethically without government privilege"
Define fascist.
Aside from that, the fed doesn't have to buy physical Treasuries to target rates. For one, it sends a mixed message because many market participants equate QE with printing money and hence inflationary so they hit the sell button on long term Treasuries. Just look at the charts. Without exception Treasury yields have shot higher as each QE operation got underway. Instead, the Fed could make use of derivatives to buy Treasuries and other fixed income assets synthetically without adding anything to its balance sheet. The Fed could simply start buying Treasury futures without revealing how much they might ultimately buy and let basis traders do most of the heavy lifting via cash/futures arbitrage. Here is a video I did on this topic about 3 years ago when I worked at Thomson Reuters…
http://reut.rs/oOsYGs
Fascism is government privilege for private interests. A gold-backed dollar, which RP supports, is government privilege for gold owners and also usurers since it artificially limits the amount of new fiat that can created. So RP is a fascist but that should be no surprise since many so-called libertarians are.
Ed, is the Fed allowed to buy derivatives?
F. Beard - I'm not going to dignify your reply with a response other than to say you know nothing about fascism or Ron Paul.
"Ed, is the Fed allowed to buy derivatives?",
The Fed did over $600 billion of currency swaps with EZ and other banks in the wake of the 2008 credit collapse. The Fed invented currency swaps in the late 1970s which were the precursor to many to many kinds of OTC derivatives that proliferate today. My recollection is that the Fed also sold call options on liquidity for Y2K to market participants who had concerns at the time, but I can't find a link right off the cuff. That said, after everything else the Fed has done since 2008 do you really think their reputation would be tarnished by making use of simple derivatives to conduct monetary policy?
Rombach,
Try to understand that the ONLY way we can have a true free market in private money creation is IF inexpensive fiat is ONLY money form used for government debts.
Do you understand that? How many times must I repeat it?
Otherwise, some private interest is profiting off the taxation authority and power of government and call it what you want but that ISN'T libertarian!!!
So Ron Paul is NOT libertarian!
He is also a moral idiot to conflate liberty with precious metals. Are you also?
And you had better understand this time because I'm rapidly coming to the conclusion that metal heads can't learn.
But no wonder since their god can't learn either, much less teach its worshipers.
Ed,
I can't really see the point of your scheme vs QE. What is the problem that your idea solves?
Just wondering what the law is. Of course, the Fed can do pretty much what it wants under emergency powers, and the president can direct the secretary of the treasury to direct the Fed to do just about anything under emergency powers, but politicians tend to be reluctant to do this out of concern with push back from the opposition, and the Fed chair is also careful not to do anything that would jeopardize Fed independence, which is under attack right now.
and the Fed chair is also careful not to do anything that would jeopardize Fed independence, Tom Hickey
Hmmm. It seems the Fed is in charge. A nation of the people but by the bankers and for the bankers.
Contemptible, really. And you guys are oblivious to how absurd it is that we should be slaves to counterfeiters.
shut up Beard
I can't really see the point of your scheme vs QE. What is the problem that your idea solves?"
My point is that in practice, fed QE does not work as it is intended to. Fed says QE is designed to bring down long term interest rates. Problem is that too many market participants see ballooning fed balance sheet as helicopter drop money printing operation. Doesn't help much when fed says it is trying to raise inflation. Even though QE drains interest income from the economy, perception becomes reality as a critical mass of traders think QE is inflationary. So, they do the logical thing and sell inflation sensitive long term Treasury bonds. That's why Treasury market sell offs with the commencement of QE1,2 & 3. Using derivatives like Treasury futures would get around that problem.
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