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Senior Contributor

Re: OptionEye...Jan 29th

The government continues to spend money into the economy, that is how it is injected.  Over a trillion a year in deficit spending of which 43% or more gets created out of thin air.  Very simple. 

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Advisor

Re: OptionEye...Jan 29th

My understanding is that of all the trillions pumped out by the FED to protect the banking system, did nothing for the economy . . . lwhy?  Because it is the velocity of money that creates jobs and goods and services, most of the money went to purchase Treasury bonds, junk paper from the banks, and pay interest on that debt to bondholders . . . which was done to replace junk paper with qualifying securities to meet capital requirements. Very little seeped into the private sector where the multiplier affect sound start to work.

 

 Right now the velocity of money (the times it turns over in the economy) is non existent, because loans and expenditures have not been on items that add to the GDP.  Assets purchased by the FED from banks to keep them floating, did nothing, because those purchases were replaced with US Government Securities and not made as loans to business to add jobs or manufacture anything.  

 

Thiis is why if the United States Government would have let the Banksters fail, and just take the money given them for the junk on their balance sheets in order to keep them floating and issued a check for $200,000 to each household in this country, we would in fact not have 47,000,000 getting food stamps, or continue to experience the further decline in residential real estate.

 

The FED low cost or no cost low to banks, is what has ballooned the stock market, few if any retail customers trade there, it is the home of flash trading and front running by Lloyd and Jamie.  I am sure there is someone on here that knows more about this than my limited knowledge, and will flesh out this post.  Thanks John. Adios Amigos. John

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Senior Contributor

Re: OptionEye...Jan 29th

I pretty much agree with every thing you said.  The question was, how does  the fed money get pumped into the economy.  AND it DOES!!!!!   Just think what would have happened if the fed didn't monetize the some of the deficit!  Things would have have been much worse.  Not that I agree with what they did.  We just keep kicking the can down the road.  But it is beginning to be the size of a barrel though.

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Senior Advisor

Re: OptionEye...Jan 29th

If the Congress is spending money and creating debt, by definition, these actions have nothing to do with the Fed or it's policies. The debt is covered by paper issued to those who want to hold US debt for whatever economic reason they are using. Which is why the debt ceiling is an issue. The Fed has nothing to do with Congress' decisions to spend and to borrow to spend. The Fed can make predictions regarding Congressional actions and policies and that's about it.

So, the question stands - how does the Fed feed money into the system? Who gets it and why and on what basis? If you're a Fed 'complainer' but don't know the answer to the question you also don't know what you're talking about.

So, who's going to give it a try?

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Senior Contributor

Re: OptionEye...Jan 29th

Palouser have you ever heard of QE?  If you have, could you explain how it works? 

 

By the way, you sir, by asking the question, tells me you deny the truth, or else you don't know what your talking about.

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Senior Contributor

Re: OptionEye...Jan 29th

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Veteran Advisor

Re: OptionEye...Jan 29th

I've explained it to you several times. But you wanna belive what you wanna believe so go forth in ignorance.

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Senior Contributor

Re: OptionEye...Jan 29th

jr,

 

I share your frustration!

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Senior Contributor

Re: OptionEye...Jan 29th

Here this is more detailed.

 

http://ciovaccocapital.com/videos/qe/qevideopartone.html

 

 

 

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Senior Advisor

Re: OptionEye...Jan 29th

Thank you. You make my point. I'm on the road w/ my phone thingy so i needed some help. Many people believe the Fed is responsible for creating vast amounts of national debt which, strictly speaking, isn't true.

The diagram you provided shows a series of TRANSACTIONS for which there is a creditor and a debter. Using MS as the example, any money they borrow is a loan to be repaid. Therefore they have more than a little interest in doing so. Therefore they will loan to familiar customers (which leads to a problem
- it isn't the community at large). In any case, no national debt is created as these travel.sanctions are all offsetting - at least until there is a default. MS isn't going to take money planning on that.

As for the effectiveness of this strategy there has to be value in having kept the economy from sliding into the black hole. Those who think that would have been an option with position results done understand the basis of modern credit on a daily basis that helps businesses, large and small, operated efficiently. The collapse of that system would have left nothing. No way to order or purchase as there would have been no free money to provide transaction margins - and it gets compliance Ares as most weren't/aren't aware of those background transactions.

Debt can be created if the Fed bought assets that when sold aren't worth what they paid - and some of that happened - and Congress provided money for? some of that. The equation being - the damage from a seized up economy would be much greater than assisting it and vetting it by 'the black hole'.

But let's lay to rest the Fed just prints money and creates debt. Not how it works. It's Congress - your representatives - that create debt. Unfortunately the Fed is limited in its ability to stimulate the broader consumer driven economy. And as has been pointed out, inflation isn't ne essarily an outcome of debt.
The Fed under Greenspan patrolled for inflation (except in housing?), discouraged regatory oversight and led us up to the brink of catastrophic deflation.
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