Why doesn’t the Fed simply print the $700B instead of having the government borrow the money? Is it because that solution creates way higher inflation?
Because that increases the jobless rate. The best approach is to borrow the money and then print the $700B topay back the debt. Lots more bureaucracy.
The Fed and the Treasury operate in different circles. 1 - If the Fed prints money* and puts it in the market, that increase the money supply in the market place. It does not impact the government’s balance sheet at all. I.e. it’s not the taxpayer’s money. It only increases the money supply, force banks to lend the money out, and drives up the inflation. As a matter of fact, the Fed pumped in $500 billion or so yesterday already. About $1 trillion has been pumped in the systems so far this year. In times of real crisis like this, the power of monetary policy is far less effective than the fiscal policy (point 2 below). *The Fed doesn’t really print money. The treasury dept prints money. The fed’s money comes from its reserve systems. Hence, it’s called the Federal reserve. 2 - Contrast to the Fed’s action, the $700 billion bailout will impact the government’s balance sheet. On the left side of the balance sheet, they will record those toxic assets they bought by the $700 billion. They fund the purchase by either borrowing money from, say China, to fund it or draw the deficit into further red. (Right hand side of the balance sheet). That’s reason the tax payers are upset with this.
Back to my original question though: is the main reason not to print money because we don’t want inflation to rise drastically?
former trader Wrote: ------------------------------------------------------- > Back to my original question though: is the main > reason not to print money because we don’t want > inflation to rise drastically? Yes. That said, I believe Ben said something like how he wasn’t worried about a liquidity trap since he could just “turn on the presses.”
juventurd Wrote: ------------------------------------------------------- > former trader Wrote: > -------------------------------------------------- > ----- > > Back to my original question though: is the > main > > reason not to print money because we don’t want > > inflation to rise drastically? > > > Yes. That said, I believe Ben said something like > how he wasn’t worried about a liquidity trap since > he could just “turn on the presses.” I think the quote was that he would drop money from helicopters (in response to deflation).
TJR Wrote: ------------------------------------------------------- > juventurd Wrote: > -------------------------------------------------- > ----- > > former trader Wrote: > > > -------------------------------------------------- > > > ----- > > > Back to my original question though: is the > > main > > > reason not to print money because we don’t > want > > > inflation to rise drastically? > > > > > > Yes. That said, I believe Ben said something > like > > how he wasn’t worried about a liquidity trap > since > > he could just “turn on the presses.” > > > I think the quote was that he would drop money > from helicopters (in response to deflation). Ye but see. Ben was wrong in his theory. Ben can’t force banks to lend. He can print all the money he wants, but if banks don’t lend (as they are doing) right now, his monetary policy becomes a failure. What has happened is the annual interest charge on debt outstanding got greater than the amount of annual debt expansion once the real estate, lbo, securitization bubble burst. When that happens cross-defaults overwhelm the economy like a tsunami. We are in the midst of that tsunami. During the Great Depression and Japan, the situation was more sunny because both the U.S. and Japan were net savers and had a current account surplus. It was easier to get credit flowing again. This time the situation is different and I wouldn’t be surprised for the bond market to dislocate pretty severely once bailout spending coupled with defense spending runs rampant. But to answer your question, if Ben prints and banks lend, yes it is highly inflationary. First, because the “raw” money supply has been increased, and second, that money supply grows 10x due to the inflationary wonders of fractional reserve banking.
former trader, Printing money doesn’t solve the perceived problem. The “printed” new money goes to banks and the monetary system as new money supply, which the systems has plenty already. It doesn’t removed the bad assets from banks. Either printing money or spending $700b on the bailout plan will increase inflation. That’s why you see the 10-year yield jumped from 3.30% to 3.80% when the bailout plan was originally announced.
^^ agree. either way dollar holders will be poorer.why isnt anyone speaking up for the wage earner. as if only tax payers will be impacted. the poor and many old folks who dont pay taxes-who really probably need help to get by -are also going to pay with lower purchasing power of their dollar . nobody wants to be outraged on their behalf .including Obumma saviour of the poor