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Thread: Why the modest inflation?

  1. #31
    Quote Originally Posted by eugenekop View Post
    "Home equity, which consumers had been using like cash"

    Can you explain this sentence please? What is the mechanism behind that?
    Also see HELOC (Home equity line of credit). When unemployment started rising after the crash of the dot con bubble, it became "common wisdom" that taking out your home equity for spending cash was a relatively better idea than using credit cards, which were at a higher rate of interest.
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  3. #32



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  5. #33
    Quote Originally Posted by eugenekop View Post
    "Home equity, which consumers had been using like cash"

    Can you explain this sentence please? What is the mechanism behind that?
    Home equity only means the difference between what you currently owe on your house and what it could sell for currently on the market.

    Simplistically speaking, let's say you paid $300K for a home in 2000. That is what you owe the bank, and what your house would still sell for after taking out the loan. By 2005, within five short years, the market price for similar homes trading in that area shoots up to $500K. You don't know why, and you don't care. It's your windfall, so happy days! You now have a home that is "worth" $500K, because you could sell it to someone else for that amount. That also means you have $200K in additional "home equity", meaning that if you sold your home (at that time), you could pay off the loan for $300K and pocket $200K for yourself.

    Banks during the housing boom saw this equity as a way of making more loans. Believing that your equity was indeed real (i.e., your house really would continue to be worth that much and more to others), banks would offer to loan you cash based on that equity. So home equity loan offers from banks were splashed out all over the place, as enticements to take out second mortgages. You could now borrow against your equity, and use that cash for anything you wanted; home improvements, a down payment on yet another overvalued home, a new car, send your kid to college, vacations, or anything else. You would now owe the bank(s) $500K total, but that's OK, because everyone knew that your house would be worth yet even more down the road, which meant that you would have even more equity! You could sell the house for that increased amount, pay off the first and second mortgages, and pocket that difference as well.

    Many homeowners were so euphoric about what was happening in the real estate market, and all that "wealth" being "created", that they were literally using their homes as ATM machines. The mechanism for using home equity as cash was simply going further into debt. This was on the belief (shared by banks and homeowners alike), on the full expectation that there would always be another sucker down the road who is willing to pay even more than you did for it -- that real estate prices could only increase - exponentially even.

    When the housing bubble finally did burst in 2008 (lots of triggering mechanisms for that inevitability), housing prices fell dramatically. Banks finally woke up to the fact that the free home equity ride was over. Now your house is back to being worth only the $300K you originally paid for it. But you took out a $200K second mortgage. That extra $200K was spent and is now long gone, but you are now "upside down", as you now owe $500K total for something that is currently only worth $300K. Much of the illusion of wealth was wiped out (the nominal market value of the home). Not the nominal price of the debts. You still owe that amount, regardless what the home is worth.

    The entire housing boom was a phase in the business cycle where rampant speculation was fueled by low interest rates, easy credit, government guaranteed loans, etc., all of which combined to cause the general prices of real estate to skyrocket. But real estate was not the only market that was affected. That extra $200K that you and others had spent from taking out second mortgages on overvalued real estate -- that created yet other market distortions -- other market bubbles as artificial expectations spilled over into other markets. These other markets, many unrelated to housing, saw only increased demand for their goods and services. And there was a full expectation that this demand would continue as well. There was no reason to believe that demand would dry up, so everyone geared up accordingly. Nobody was paying attention to the fact that much of that extra spending was coming from banks in the form of a massive amount of debts that were about to go sour.

  6. #34
    The only logical explanation I've heard for this is that since we "print" money and distribute it throughout the population we then ship it off seas to buy oil and goods and thus are exporting our inflation to China and the Middle East. Thus we won't have inflation until our holding in our own money supply increases.

  7. #35
    Thank you for the detailed explanation Steven.

  8. #36
    My thought was that when foreigners used to buy our cash (bonds) they would hoard them in there bank vaults as an investment and so that money would never hit the streets so we never seen the real damage of inflation. If I print a hundred dollars and keep fifty in my drawer and never spend it, it's like it was never created, until I do spend it. I thought this was the way they were going to take down America. Hand out all this money and then boom and uncontrollable inflationary spiral when everyone sells their bonds on the market for pennies on the dollar. Now that the FED is buying them up I have no idea. Though I'm not the most educated in Fiat money manipulation.

    This is why you have to have a PhD in economics from Harvard to understand what should be simple accounting. They bastardize the hell out of it and now it makes no sense.
    Dishonest money makes for dishonest people.

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  9. #37
    That is why the Fed (as Brian pointed out recently) is paying interest on excess reserves banks leave with the Fed- it is basically keeping the money from purchases the Fed has been making "under the matteress" and not circulating. Excess reserves have soared along with the Fed balance sheet.

  10. #38
    Quote Originally Posted by eugenekop View Post
    Why the modest inflation?
    Another factor might be productivity. Instead of enjoying lower costs, any benefit from productivty is inflated away. We might make and distribute bread 10% more efficiently over a period of time, but inflation can wipe that out and result in a "modest" 5% price increase. The actual price increase, if adjusted for inflation, would be higher - like 15%.

  11. #39
    One thing I heard about the mortgage purchases, is that the money homeowners pay off goes to the Fed. Though they really aren't paying off that much, I would think. And mortgages are long term propositions.

  12. #40
    If that mortgage was repackaged into a mortgage backed security and resold and that was in one of the ones the Fed purchased, that would be true. The Fed then turns over profits at the end of the year (minus their costs) to the US Treasury.



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  14. #41
    Quote Originally Posted by The Free Hornet View Post
    Another factor might be productivity. Instead of enjoying lower costs, any benefit from productivty is inflated away. We might make and distribute bread 10% more efficiently over a period of time, but inflation can wipe that out and result in a "modest" 5% price increase. The actual price increase, if adjusted for inflation, would be higher - like 15%.
    Indeed, and that extra 10% goes directly into the pockets of the bankers.

    Really, it's many different things holding back the inflation (temporarily). All of these factors together are working to $#@! us in the ass.
    Last edited by TheTexan; 09-17-2012 at 04:42 PM.
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  15. #42
    Quote Originally Posted by thoughtomator View Post
    Because the official inflation numbers are a blatant lie with the primary purpose of keeping COLA and other inflation-indexed expenses from blowing up the government, and secondary purpose of masking the true state of the economy from rubes who might otherwise protest it.
    This. Pretty much.

    My cost of living has shot up in the past 5-10 years despite still being single and still living a pretty similar/modest lifestyle.

    You don't need to be an economist to know inflation is well over zero.
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  16. #43
    Quote Originally Posted by bxm042 View Post
    Indeed, and that extra 10% goes directly into the pockets of the bankers.
    Not really. Banks may get a small piece of it as interest but most of it either goes to borrowers (if they don't repay the loan) & to the government.
    There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable
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  17. #44
    Quote Originally Posted by Paul Or Nothing II View Post
    Not really. Banks may get a small piece of it as interest but most of it either goes to borrowers (if they don't repay the loan) & to the government.
    They are first in line to get their hands on the funny money, hot off the printer. I'm sure they get more than their "fair" cut.

    Second in line is usually also bankers. Third in line is also a banker. They get their cut too.

    Maybe the fourth person is a borrower.
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  18. #45
    Quote Originally Posted by bxm042 View Post
    They are first in line to get their hands on the funny money, hot off the printer. I'm sure they get more than their "fair" cut.

    Second in line is usually also bankers. Third in line is also a banker. They get their cut too.

    Maybe the fourth person is a borrower.
    Let's look at a simple example of how new money usually enters the economy.

    Depositors deposit THEIR money with banks > banks PAY Treasury to buy securities > now Fed pays newly created money to banks for the securities

    Banks didn't get anything for free there, they pretty much get what they had PAID to the Treasury, most of it still indirectly belonged to the depositors, banks may just end up scoring the small difference between buying & selling, whether positive or negative.
    On the other hand, the interest to be paid on Treasury-Securities held with Fed is handed back to the Treasury as Fed's profits so that much money is saved for the government, which would otherwise have ended up with outsiders, that's the gain for the government; not to mention, inflation pushes up everybody's incomes, which means they must pay more in taxes to the government.

    Now, as for the borrowers, let's say there are X number of goods/services out there, when somebody borrows & buys stuff with it, they are essentially using depositors' purchasing-power to buy it & simultaneously push demand & prices up for everybody else
    If they produce & repay the loan then fine but if they don't then they'll have essentially consumed goods/services out of the economy without adding equivalent amount of it back into the economy. In most cases, it's a loss for the bank as it didn't get the money from borrowers but they would still have to pay the depositors; & in case bank doesn't have enough profits to cover such losses, it fails & depositors don't get their deposits back either.
    In the first instance, non-paying borrowers will have essentially stolen purchasing-power from the lending-bank while in the second instance, borrowers will have indirectly stolen purchasing-power from depositors; in either case though, they'll have also stolen a bit of purchasing-power from everyone in the economy as demand & prices were pushed up as borrowers consumed more than they produced.

    There's a big difference between Fed & commercial banks, former creates a lot of problems while latter are an essential part of a market-economy, without which the economy & production will grow very slowly, it will like going back to Dark Ages when charging interest was restricted, which had profoundly negative effect on economy.

    If the tirade against Fed turns into tirade against banking in general then we'll have a pretty bleak future to look forward to & there will be no difference between liberals & libertarians.
    Last edited by Paul Or Nothing II; 09-18-2012 at 04:13 AM.
    There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable
    - Milton Friedman

  19. #46
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  20. #47
    Quote Originally Posted by Paul Or Nothing II View Post
    Banks didn't get anything for free there ... small difference between buying & selling, whether positive or negative.
    Considering the volume of trades they do, there is nothing small about it. Most of the banking industry is just moving money around, not actually lending, and when they do lend, it's at a significantly higher rate than the rate at which they borrowed (~0%).

    Bankers profit. Big time.

    If the tirade against Fed turns into tirade against banking in general
    That's not what I'm saying. Banks and bankers are good, and serve a legitimate purpose. Banks and bankers who have a friend with a funny money printing press, is not good, and does not serve a legitimate purpose.
    Last edited by TheTexan; 09-18-2012 at 05:02 PM.
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  21. #48
    Quote Originally Posted by bxm042 View Post
    Considering the volume of trades they do, there is nothing small about it. Most of the banking industry is just moving money around, not actually lending, and when they do lend, it's at a significantly higher rate than the rate at which they borrowed (~0%).

    Bankers profit. Big time.
    Which is still small compared to the benefits gotten by non-paying borrowers & government, which was precisely my point.

    Besides, who is to decide whom they should lend? If lending to government is in their self-interest, then of course they would, afterall, all of us are guided by our own self-interests too, we too try to optimize our earning, the return on our capital, be it monetary capital or human capital.

    And why would anybody lend at the rate they are borrowing? That makes no sense so of course they are going to lend at a higher rate than they are borrowing at, otherwise there'd be point in doing it! And how high the rate ought to be is determined by the market as they compete with one another to offer the lowest rate possible to attract most borrowers.

    Quote Originally Posted by bxm042 View Post
    That's not what I'm saying. Banks and bankers are good, and serve a legitimate purpose. Banks and bankers who have a friend with a funny money printing press, is not good, and does not serve a legitimate purpose.
    We live in a majority-rule system so that printing-press even exists because majority chooses to support it indirectly, if majority wanted liberty & sound money then it'd be there in no time but no, instead they choose to support big government & socialist thievery so that's where the blame should go!
    Do banks benefit by lending to government? Of course they do but if majority wanted to stop it & end Fed, they can but instead they are too busy collecting welfare-benefits which'd probably not exist if government couldn't re-finance itself thru Fed!
    My point being that banks aren't the only ones benefitting, there are plenty of people who do benefit from the system so my original point still stands that banks are NOT necessarily the biggest nor the only beneficiary of the system.
    There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable
    - Milton Friedman



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  23. #49
    I think it's a combination of things:

    - CPI is understated, my guess is prices are rising somewhere around 5-7% a year. But that's still pretty low compared to how much we've printed.
    - Banks are holding cash.
    - Recession forces are putting downward pressure on prices.
    - Foreigners are holding cash.

    This is just a guess but I think the biggest factor is the last one, that foreigners are holding cash.

    I have a feeling the longer this goes on the faster prices will rise when it finally hits.

  24. #50
    I think the point in all this is that a number of factors can influence how much inflation we perceive. In all our history since 1913 and since 1971, we haven't seen inflation shoot up directly as a result of the printing of money. We didn't wake up one day and realize that our dollars were worth less. Some of the printed money sits, some of it goes overseas, some of it goes into the banking system and takes a while to get transformed to credit, some of it is simply exchanged for other forms of money. In other words, there is no directly noticeable effect. It is a cycle that is ongoing. It has been going on and the cycles have been overlapping so that there is no perceived change except that which we can see has happened over long periods of time. I would imagine there was some timing that went into the decision to initiate QE3, but the inflation as a result of that is just another rock thrown into an already turbulent lake.
    Last edited by PaulConventionWV; 09-19-2012 at 10:04 AM.
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  25. #51
    Quote Originally Posted by Paul Or Nothing II View Post
    Which is still small compared to the benefits gotten by non-paying borrowers & government, which was precisely my point.
    That's a flawed perspective though. In theory, if you were to receive a loan and not pay it ever, you would be better off. Except, if you don't pay it, they rape your assets. You and I can't get away with not paying our debts... you can only get away with that if you have billions/trillions in debt. Funny how that works.

    The bankers are the ones who profit from this Federal Reserve arrangement. Not the borrowers. The borrowers may receive a loan at a slightly better rate than they would otherwise, but the bankers loan at a MUCH better rate than they would otherwise.

    That's the bottom line, and my main disagreement with you. You say that the bankers aren't the ones making money off of this... but that's extremely not true. They are the ones who created this system, keep it in place, profit from it, rape it, exploit it.

    Do banks benefit by lending to government? Of course they do but if majority wanted to stop it & end Fed
    They don't want to... they're making billions... if not hundreds of billions... or on a global scale, trillions... they don't want to stop it lol.


    My point being that banks aren't the only ones benefitting, there are plenty of people who do benefit from the system so my original point still stands that banks are NOT necessarily the biggest nor the only beneficiary of the system.
    I agree the banks aren't the only ones benefitting. But the bankers do benefit the most.

    Look at it this way, on a single loan:
    1) the "non-FED" rate or the "real market rate" of the loan may have been 8%
    2) the loan was given to the borrower at 3%
    3) the loan was given to the banker at 0.001% or effectively 0%

    The borrower got a 5% advantage, whereas the banker only got a 3% advantage. So at first glance, you may think the borrower is the one coming out on top. The borrower does benefit more on this single loan, but in total, the borrower does not benefit nearly as much as the banker.

    The reason that is, is because the borrower only got that single loan, but that same banker made 30,000 (or more.. a lot more) similar loans. The banker has unlimited 0% loans available, so if he can even loan at .5% he will do that, as many times as he possibly can.
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
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  26. #52
    Paul or Nothing, this article says it much better than I can, I encourage you to read it:
    http://www.zerohedge.com/news/guest-...ederal-reserve
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
    - Kim Kardashian

    Donald Trump / Crenshaw 2024!!!!

    My pronouns are he/him/his

  27. #53
    Quote Originally Posted by bxm042 View Post
    That's a flawed perspective though. In theory, if you were to receive a loan and not pay it ever, you would be better off. Except, if you don't pay it, they rape your assets. You and I can't get away with not paying our debts... you can only get away with that if you have billions/trillions in debt. Funny how that works.
    Not all assets are tangible, some are consumed & their value doesn't always remain stable & it may even fall, in which case non-paying borrowers are the essential beneficiaries at the expense of the lending-bank &/or depositors.
    Imagine lending out 100,000 for a house & being able to recover only 50,000 because its value has fallen.

    Quote Originally Posted by bxm042 View Post
    The bankers are the ones who profit from this Federal Reserve arrangement. Not the borrowers. The borrowers may receive a loan at a slightly better rate than they would otherwise, but the bankers loan at a MUCH better rate than they would otherwise.
    Actually, bankers would be able to score a higher rate if Fed didn't exist because without Fed, credit-supply would be much more limited & therefore "price of credit" aka interest would be much higher & so would be price paid for the service provided by banks.
    For example, when supply of computers was low, the profit made per computer would be much higher than now, when supply of computers is more.

    Quote Originally Posted by bxm042 View Post
    That's the bottom line, and my main disagreement with you. You say that the bankers aren't the ones making money off of this... but that's extremely not true. They are the ones who created this system, keep it in place, profit from it, rape it, exploit it.
    Consider re-reading my earlier posts, nowhere have I said this. I've VERY CLEARLY said that they DO benefit but just not as much as non-paying borrowers & government

    And no, the system can exist only with majority-consent as we live in majority-rule society & if the majority wanted to end the Fed badly enough then people like Ron Paul & others would be elected & Fed would be ended immediately but apparrently majority don't want to do that.

    Quote Originally Posted by bxm042 View Post
    They don't want to... they're making billions... if not hundreds of billions... or on a global scale, trillions... they don't want to stop it lol.
    It's not rocket-science so I don't know why it'd be so hard for anyone to grasp the reality that the majority don't wish to end the Fed because if they did then it would be ended immediately because there's a political market too, where politicians WILL do what voters say given they demand it badly enough........Ron's audit the Fed went thru only because of that.


    Quote Originally Posted by bxm042 View Post
    I agree the banks aren't the only ones benefitting. But the bankers do benefit the most.
    Biggest beneficiary is the government, it benefits in a number of ways, be it from the interest saved on Treasuries held by Fed, be it paying lower interest on Treasuries to outsiders with Fed putting downward pressure on rates, be it individuals & companies having to pay more taxes as their nominal incomes rise due to inflation & so on.

    Quote Originally Posted by bxm042 View Post
    Look at it this way, on a single loan:
    1) the "non-FED" rate or the "real market rate" of the loan may have been 8%
    2) the loan was given to the borrower at 3%
    3) the loan was given to the banker at 0.001% or effectively 0%

    The borrower got a 5% advantage, whereas the banker only got a 3% advantage. So at first glance, you may think the borrower is the one coming out on top. The borrower does benefit more on this single loan, but in total, the borrower does not benefit nearly as much as the banker.

    The reason that is, is because the borrower only got that single loan, but that same banker made 30,000 (or more.. a lot more) similar loans. The banker has unlimited 0% loans available, so if he can even loan at .5% he will do that, as many times as he possibly can.
    (bold part).....which also means 30,0000 (or more.. a lot more) borrowers benefitted too!

    What the banks earn is dependent on supply & demand of credit, they CAN'T arbitrarily charge any rate just like sellers of tomatoes or potatoes or whatever CAN'T just charge any rate they may feel like, all prices (interest being price of credit) are determined by the market based on supply & demand for a given product so whatever banks get is the fair value of their services according to the given supply & demand situation, just as it is for tomato-vendors, potato-venders, or laborers & CEOs (who sell their labor).

    And as I've said, if Fed didn't exist then supply of credit would be much tighter & therefore the service-premium earned by the banks would be much higher than it is in the current market where Fed is is making excessive credit available.
    There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable
    - Milton Friedman

  28. #54
    Quote Originally Posted by bxm042 View Post
    Paul or Nothing, this article says it much better than I can, I encourage you to read it:
    http://www.zerohedge.com/news/guest-...ederal-reserve
    Typical conspiracy theorists! They always mention that Fed is "private" Anyone wishing to offer an objective view of things wouldn't proclaim their conspiratorial bias so much, not to mention, Fed doesn't ACTUALLY work like a private company, it's just created the way it is to make it seem apolitical.

    And of course, the author must make it seem like 16 trillion were just "given away for free" when in fact, they were given as loans & Fed earned interest on it, which it handed over to Treasury. Not to mention the author would have every newbie believe that all 16 trillion were loaned at the same time whereas in reality they were actually given in cycles of loaning & getting paid, loaning & getting paid & so on.
    I don't approve of the bailouts but bailouts are bad by themselves, one doesn't need to go all over the top & make it seem like a big conspiracy by adding one's own fabrications.

    It also says banks never have to pay back their loans *facepalm* Clearly, the author has no clue, never seems to have read anything but conspiracy theories! I hope not too many people read & believe everything such articles have to say.

    The article essentially seems like it's written by someone involved with OWS + conspiracy theorist, with an intention to incite people against the whole banking industry (which is an essential part of a market-economy) rather than it simply being a critique of government-bred Fed.
    There is enormous inertia — a tyranny of the status quo — in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable
    - Milton Friedman

  29. #55
    Quote Originally Posted by Paul Or Nothing II View Post
    And as I've said, if Fed didn't exist then supply of credit would be much tighter & therefore the service-premium earned by the banks would be much higher than it is in the current market where Fed is is making excessive credit available.
    The usually-unspoken side effect of that: When the price of credit goes up, the value of privately accumulated capital (savings, the other competing source of money) increases right along with it. Savings is a valid market substitution for debt-currency when it is not taxed.

    When savings (NOT fractionally reserve-lended bank savings -- but actual mattress savings) competes fairly, on even footing with debt-instrument currency from banks, even more downward pressure is placed on the value of credit itself. This naturally drives down its price, but not its supply in the microeconomics sense.

    "Demand" for credit (in the macroeconomic sense only) is one of the big Keynesian-spawned lies in the nightmare we have all inherited from Congress and it malevolent genie, the Fed. Just because the Fed can directly affect interest rates does not mean that they can affect supply in the microeconomics sense (the amount of credit a bank is willing and able to provide at a given price). That is because banks are not forced to lend to just anyone at any given price, any more than they are now. Just because interest rates for banks are zero (or negative) does not mean that the "supply" of credit is abundant to all. Credit is always an elite, exclusive market, and certainly not available to everyone. You actually need valuable capital as collateral, or else a good credit rating, to take advantage of those cheap interest rates (debt-money prices). So while Google, Microsoft, Apple and others can get a $#@!load of debt-cash to strategically hoard in the current environment, let the average doofus on the street try to go and pluck one of those nice warm "Debt Loaves" off the bank bakery store shelves, let alone at that same price. He'll be shown to the door, like everyone else.

    So QE from the Fed doesn't "SUPPLY" anyone but the banks and those fortunate enough to not need them in the first place. The economic 'supply' of currency to everyone else is another story entirely.

    Without the Fed in place for bank protection, and Congress in place to protect both the currency and banks as the only sources from any viable competition, banks would be even more afraid to lend, and at even lower prices. That spirals into even more tightening of credit from commercial lending institutions, because the rising value of the currency means that debts can no longer be liquidated using a currency that is guaranteed to be debased. Borrowers actually would be forced to pay off loans in a currency that is rising in value. Not even Google, Microsoft and Apple would touch that kind of credit with a ten mile long pole. That is when true demand for credit (from those who are actually willing AND ABLE TO BORROW -- based on bank approval -- goes down. And along with that goes the REAL PRICE of debt-money. The net effect is that everyone, but especially private individuals, will have all the incentive in the world to "work hard and save", while everyone else is discouraged from going into debt in the first place. Good for everyone else who works hard and save. Not good for banks at all, once they've lost their monopoly and other protections.
    Last edited by Steven Douglas; 09-19-2012 at 01:15 PM.

  30. #56
    Quote Originally Posted by bxm042 View Post
    Paul or Nothing, this article says it much better than I can, I encourage you to read it:
    http://www.zerohedge.com/news/guest-...ederal-reserve
    This article is wrong. Banks do not borrow from the Fed at 0%. In fact, they rarely borrow from the Fed. The discount window (primary credit) is rarely used and when it is, it is not at 0%. It also requires pledged collateral and a haircut. The discount window throughout this financial crisis has played an insignificant role.

    The specialized Fed lending programs that surfaced pre-September 2008 (such as the Term Asset Facility or TAF) were not zero interest loan programs. They charged a market interest rate that was nowhere near zero and required collateral and a haircut. These reserves injections were also sterilized, so the effect was one of change in balance sheet composition ... not size.

    Also, the banking system has received nowhere near $16 trillion from the Fed. This is the same nonsense garbage that has been spewed by other ignorant authors. The Fed is out of control. But let's not exaggerate the truth. It discredits the movement.

    I stopped reading the article soon after starting.

    Brian
    Last edited by gonegolfin; 09-19-2012 at 02:02 PM.



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  32. #57
    Quote Originally Posted by gonegolfin View Post
    This article is wrong. Banks do not borrow from the Fed at 0%. In fact, they rarely borrow from the Fed. The discount window (primary credit) is rarely used and when it is, it is not at 0%. It also requires pledged collateral and a haircut. The discount window throughout this financial crisis has played an insignificant role.

    The specialized Fed lending programs that surfaced pre-September 2008 (such as the Term Asset Facility or TAF) were not zero interest loan programs. They charged a market interest rate that was nowhere near zero and required collateral and a haircut. These reserves injections were also sterilized, so the effect was one of change in balance sheet composition ... not size.

    Also, the banking system has received nowhere near $16 trillion from the Fed. This is the same nonsense garbage that has been spewed by other ignorant authors. The Fed is out of control. But let's not exaggerate the truth. It discredits the movement.

    I stopped reading the article soon after starting.

    Brian
    I've come to pretty much take your word as gospel when it comes to the Fed, but I'm at a bit of a loss here: Are you saying the GAO analysis chart in the article showing $16 trillion in loans is made up entirely, or that it's being misrepresented, or what? Could you elaborate? (Could you also elaborate on what you mean by the pre-September 2008 loans being "sterilized," since I'm unfamiliar with the concept?)
    Last edited by Mini-Me; 09-19-2012 at 04:24 PM.
    Quote Originally Posted by President John F. Kennedy
    And we must face the fact that the United States is neither omnipotent nor omniscient. That we are only 6% of the world's population, and that we cannot impose our will upon the other 94% of mankind. That we cannot right every wrong or reverse each adversity, and that therefore there cannot be an American solution to every world problem.
    I need an education in US history, from the ground up. Can you help point me to a comprehensive, unbiased, scholarly resource?

  33. #58
    Oops, double-post. (I have to catch up with the 30,000 club somehow.)
    Quote Originally Posted by President John F. Kennedy
    And we must face the fact that the United States is neither omnipotent nor omniscient. That we are only 6% of the world's population, and that we cannot impose our will upon the other 94% of mankind. That we cannot right every wrong or reverse each adversity, and that therefore there cannot be an American solution to every world problem.
    I need an education in US history, from the ground up. Can you help point me to a comprehensive, unbiased, scholarly resource?

  34. #59
    Quote Originally Posted by gonegolfin View Post
    This article is wrong. Banks do not borrow from the Fed at 0%. In fact, they rarely borrow from the Fed. The discount window (primary credit) is rarely used and when it is, it is not at 0%. It also requires pledged collateral and a haircut. The discount window throughout this financial crisis has played an insignificant role.
    There is a difference between the discount window and the "Open Market Operations." The discount window is loaned at a premium, whereas their so-called "open market" operations are loaned at or near 0% and are closed-book. (technically these open market operations aren't necessarily loans, but even the securities purchases accomplish the same thing, from the profit perspective of the bankers)

    (I put "open market" in quotes because that "open market" is restricted to Goldman Sachs, Citibank, and a handful of other global mega banks)
    Last edited by TheTexan; 09-19-2012 at 04:50 PM.
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
    - Kim Kardashian

    Donald Trump / Crenshaw 2024!!!!

    My pronouns are he/him/his

  35. #60
    Quote Originally Posted by Paul Or Nothing II View Post
    (bold part).....which also means 30,0000 (or more.. a lot more) borrowers benefitted too!
    Collectively, yes. Individually, the bankers are making the big $$$. BIG $$$. Huge incentive to keep the status-quo.

    If one banker takes 10% out of 10 trillion, and distributes the other 9 trillion relatively equally across everybody (in reality it isn't evenly distributed but that's not the point), the primary benefactor is the banker.

    Everybody else, didn't really earn much. Their small fraction of the 9 trillion was diluted through inflation. They do benefit, but they do not have nearly as much incentive to keep this system up and running as the bankers.
    It's all about taking action and not being lazy. So you do the work, whether it's fitness or whatever. It's about getting up, motivating yourself and just doing it.
    - Kim Kardashian

    Donald Trump / Crenshaw 2024!!!!

    My pronouns are he/him/his

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