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Thread: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by damianvincent View Post
    They are!!!

    fed using quantitative easing to purchase bonds - Google Search

    check it out, scary stuff going on out there.

    We can't sell our treasury securities on the open market like we where because of the long term debt picture, 10 trillion over 10 years, and the fed is now purchasing them with money printed out of thin air.
    The Fed purchases treasuries via open market operations. They are not (because it is illegal) purchasing treasuries directly from the treasury.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by Goldenboy219 View Post
    The Fed purchases treasuries via open market operations. They are not (because it is illegal) purchasing treasuries directly from the treasury.
    The end result is the exact same thing.
    The devil whispered in my ear, "You cannot withstand the storm." I whispered back, "I am ​the storm."

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by MaggieD View Post
    The end result is the exact same thing.
    Not in the least bit. If that was the case, US debt would be downgraded, and USD/foreign currencies would fall faster than Vegas home prices. Within days, inflationary expectations would shoot through the roof.

    No, the end result is not the exact same thing.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by Goldenboy219 View Post
    Not in the least bit. If that was the case, US debt would be downgraded, and USD/foreign currencies would fall faster than Vegas home prices. Within days, inflationary expectations would shoot through the roof.

    No, the end result is not the exact same thing.
    Trying to learn here. Am I correct in thinking that the government is loaning money to itself? Through the secondary market? What would be the difference? It's still completely ridiculous either way. And why would the end result be different? If one way is illegal, it can't be done anyhow.
    The devil whispered in my ear, "You cannot withstand the storm." I whispered back, "I am ​the storm."

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by MaggieD View Post
    Trying to learn here. Am I correct in thinking that the government is loaning money to itself?
    Yes, but not due to monetary policy. Intergovermental agencies are the primary holders of US debt (with social security being the largest single holder). However, congress gave their control of monetary policy to the Federal reserve. When the Fed purchases securities, it purchases them from member banks who hold them as assets. Once they sell the Fed a bond, they trade an asset for liquidity (also known as the monetary base). This money does not make itself into the general economy (necessary to be listed as part of the money supply) until it is lent out.

    Through the secondary market? What would be the difference? It's still completely ridiculous either way. And why would the end result be different? If one way is illegal, it can't be done anyhow.
    Lets set up a simple example.

    Pretend Bank of America has $1million in reserves, and $1million in $100k US treasury certificates. The Fed purchases treasuries in this fashion: they purchase (with their newly created money) half of Bank of Americas USTC's at a price of $505,000. This does two things: first, it increases BOA's reserves to $1,505,000. Second, it decreases their assets by only $500,000 (or half) yet by purchasing the USTC's for more than face value, they have effectivily lowered the market interest rate (not to be confused with the coupon rate). Remember, Yield= Price of the bond/ coupon rate.

    The reason the Fed would do this is to lower the federal funds rate (the interest rate FDIC banks charge eachother to borrow). As bank reserves increase, the federal funds rate decreases. The inverse holds true as well.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by Goldenboy219 View Post
    Yes, but not due to monetary policy. Intergovermental agencies are the primary holders of US debt (with social security being the largest single holder). However, congress gave their control of monetary policy to the Federal reserve. When the Fed purchases securities, it purchases them from member banks who hold them as assets. Once they sell the Fed a bond, they trade an asset for liquidity (also known as the monetary base). This money does not make itself into the general economy (necessary to be listed as part of the money supply) until it is lent out.



    Lets set up a simple example.

    Pretend Bank of America has $1million in reserves, and $1million in $100k US treasury certificates. The Fed purchases treasuries in this fashion: they purchase (with their newly created money) half of Bank of Americas USTC's at a price of $505,000. This does two things: first, it increases BOA's reserves to $1,505,000. Second, it decreases their assets by only $500,000 (or half) yet by purchasing the USTC's for more than face value, they have effectivily lowered the market interest rate (not to be confused with the coupon rate). Remember, Yield= Price of the bond/ coupon rate.

    The reason the Fed would do this is to lower the federal funds rate (the interest rate FDIC banks charge eachother to borrow). As bank reserves increase, the federal funds rate decreases. The inverse holds true as well.
    I've marked this as a Fave - I'm going to have to read it over a number of times to "get it." Thank you. I think your example is a good one, but I have to wrap my head around it!
    The devil whispered in my ear, "You cannot withstand the storm." I whispered back, "I am ​the storm."

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by MaggieD View Post
    I've marked this as a Fave - I'm going to have to read it over a number of times to "get it." Thank you. I think your example is a good one, but I have to wrap my head around it!
    Don’t read it more than once an hour or it will give you a friggen headache.
    The haggardness of poverty is everywhere seen contrasted with the sleekness of wealth, the exhorted labor of some compensating for the idleness of others, wretched hovels by the side of stately colonnades, the rags of indigence blended with the ensigns of opulence; in a word, the most useless profusion in the midst of the most urgent wants.Jean-Baptiste Say

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by Goldenboy219 View Post
    Explain to all of us the current situation regarding long term interest rates.
    I have a question goldenboy.

    During the crisis the average maturity of US treasuries took a nose dive, and the average maturity has really been decreasing since about 2001. Only recently has it begun climbing again. What, if anything, does this change represent?



    x -axis = year
    y - axis = average maturity of debt held by the public (in weeks)
    Last edited by drz-400; 08-31-10 at 05:15 PM.

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by Harry Guerrilla View Post
    Well self directed consumer spending, via a stimulus, can restore some economic confidence.
    It can establish new trends in the market and get businesses putting people back to work.

    The housing market will take more time to work itself out, on the other hand, we don't necessarily need those jobs in housing.
    It's more efficient to have those people going into other value added fields.

    Edit: following it up with a firm governmental debt reduction plan and you have a home run.
    More consumer spending will not fix the real problems in our economy. We do need to better our infrastructure and find the next home run sector. Obama thinks it is green energy. Maybe he is right.

    The problem that you and others here have is the expectation of a short term solution. The answer will have to be long term. That does not mean should not start right away, but we don't need any more sugar highs and be left with long term debt with no long term benefit.

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    Re: Obama Calls for 'Full-Scale Attack' to Revive Struggling Economy

    Quote Originally Posted by Goldenboy219 View Post
    Yes, but not due to monetary policy. Intergovermental agencies are the primary holders of US debt (with social security being the largest single holder). However, congress gave their control of monetary policy to the Federal reserve. When the Fed purchases securities, it purchases them from member banks who hold them as assets. Once they sell the Fed a bond, they trade an asset for liquidity (also known as the monetary base). This money does not make itself into the general economy (necessary to be listed as part of the money supply) until it is lent out.



    Lets set up a simple example.

    Pretend Bank of America has $1million in reserves, and $1million in $100k US treasury certificates. The Fed purchases treasuries in this fashion: they purchase (with their newly created money) half of Bank of Americas USTC's at a price of $505,000. This does two things: first, it increases BOA's reserves to $1,505,000. Second, it decreases their assets by only $500,000 (or half) yet by purchasing the USTC's for more than face value, they have effectivily lowered the market interest rate (not to be confused with the coupon rate). Remember, Yield= Price of the bond/ coupon rate.

    The reason the Fed would do this is to lower the federal funds rate (the interest rate FDIC banks charge eachother to borrow). As bank reserves increase, the federal funds rate decreases. The inverse holds true as well.
    I do not think that this is correct with the newest purchases the fed is making. During the crisis they bought up debt from banks as you mention.

    However what is happening now is materially different. As mortgages run off do to patments, prepayments eyc the Fed is now going into the market and buying Treasury bonds of varying maturities. So this will be purchased directly from the Federal government which in effect is funding the deficits.

    This is an important distinction that many do not really understand.

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