If Congress has the power of the purse then why does the Fed have the authority to buy up private bank assets with its own bottomless pockets?
Why does the Fed have the authority to buy up corporate debt (as I've heard it did recently)?
Why not publicly-traded stocks?
Where and how is the line drawn of what the Fed is allowed to buy?
Imagine a world where US government just decided to buy all the Bitcoins/Ethereum any Cryptocurrency[insert name here]. At the same time make it difficult/illegal for banks to onboard or offboard. Currently people have so much problems anyway in this process. You can say that since they are buying value of my currency is not changed but then again since government is printing money to buy your value means nothing. So how resistant is Crypto to such measures?
Do a critical analysis and take my post as worst case scenario as constructive criticism instead of looking at it through crypto enthusiast's verification bias goggles.
What do you think of central bank policies since the 2008 financial crisis, mainly quantitative easing (QE)?
My view is that these policies are approximately correct and that most critics simply don't understand how the monetary system works, although I don't claim to be an expert either.
QE as I understand is basically the same thing that central banks normally do, except instead of buying short-term bonds to influence short-term interest rates, the central bank buys long-term bonds to influence long-term interest rates. Another difference is that even non-government bonds are being purchased.
And why do this? Here's one explanation I like but don't yet 100% understand. The natural interest rate is now much closer to zero than before for various reasons including demographics and inequality, therefore the central bank doesn't have room to deal with recessions. If the correct policy response is to drop the interest rate by 5 percentage points but it's currently set to 2%, you have to do QE.
Central Banks Expand Balance Sheet = Quantitative Easing = Print Money ! It is not only US FED that is doing Quantitative Easing since Jan 2020 but other countries Central Banks are doing as well !
More fiat paper currencies are created out of thin air since Jan 2020 by many central banks in the name "to save the economy". In fact most of those excess liquidity has been flowing into stock market that created a huge bubble in the stock market. When the unavoidable inflation comes, stock market will crash. After stock market crashed, those excess liquidity will come to chase after the limited quantity of safe haven asset that is Gold & Silver.
Silver is the most undervalued asset in the world due to it price has been suppressed for at least 40 years by commodity derivative market. Silver is also the most shorted commodity in the commodity derivative market ! The Silver price manipulation cannot go on forever. When the shortage appear for the industries usage, the price will skyrocket like what had happened to Palladium price in 2018. Right now the Silver price is still on sales, exchange some of your fiat currency in the bank that you may not use it for a few years to physical Silver will be a wise idea to hedge against coming inflation !
The table below give you a perspective of how much those central banks has expanded their balance sheet ( Central Banks Expand Balance Sheet = Quantitative Easing = Print Money ) since Jan 2020:
https://preview.redd.it/zga9aj7ptg681.jpg?width=432&format=pjpg&auto=webp&s=8d27a9f5c28996bcafb03b8dab4aafa80e0d8826
The are many more Central Banks that are not listed above have also expanded their Balance Sheet like the SNB - Swiss National Bank, BOC- Central Bank of Canada, Reserve Bank Of Australia ...
The above table data are extracted from TradingEconomics charts as follows:
https://preview.redd.it/t410kbjttg681.jpg?width=801&format=pjpg&auto=webp&s=6deb7d1b550e9674bed211930a31d1fa335d8269
https://preview.redd.it/1catn12vtg681.jpg?width=790&format=pjpg&auto=webp&s=47ec535bc259cb930ec753e8ef30b8df1a8899b0
https://preview.redd.it/lyh8celwtg681.jpg?width=802&format=pjpg&auto=webp&s=d37b08c7f45744a780be3c0789666e1d0db7c67d
https://preview.redd.it/yu87sisxtg681.jpg?width=793&format=pjpg&auto=webp&s=b4ee2ed855117ba061d63a879a407edbfe55dcb3
I had no idea who Thomas Koenig was until I read this article. The guy is a legend.
Its a long read, but is well worth it.
Foreword:
A market crash comparable in scope to the great depression is almost a certainty in the next few months due to decades of over-leveraging and irresponsible fiscal policy. Holders should begin moving their coins off of exchanges and into personal wallets immediately to prevent loss in case of exchange shutdown, outage, or "outage". Restrictions of Exchange and withdrawal are also a distinct possibility due to historical precedence.
Tl;Dr Take possession of your coins you are not actively using to trade or use in DeFi to prevent losing access to them during market volatility and the possibility of exchanges preventing access, going insolvent, or pretending to be having technical difficulties to prevent liquidity drain. Global economy screwed. No one can guess the effect that a market crash of the magnitude described here will have on the wider crypto-market. As the only widely spread store of value out of the direct control of a few entities and governments Crypto may paradoxically rise as the market falls as people Fomo into it to preserve capital. Or with the new inclusion of institutional investors with large holdings it may force the Market to dump as liquidators force sell institutional holdings at a loss to cover margin tanking the market (institutions have no choice in the matter). Worst case the US dollar will collapse making Crypto sympathetically worthless. Only you can decide what to do in the events soon to come and these posts are only about providing information so you can make informed decisions.
Note: None of this is speculation it is all based on existing facts, historical precedence, and other otherwise publicly unknown details. Sources will be cited at the beginning of each section. Some of this may be unintelligible due to terminology used. I will put long forms of Acronyms whenever possible but to explain every minute detail would detract from the message of the post. I speculate only on its effects on Crypto.
Quick Definition:
What is a derivative?
“A financial product derived from another financial product” (for example, a futures contract tied to a stock index) — in practice, the term applies to a whole world of financial products that are written on a one-off basis between two entities called “counterparties,” as opposed to products that are traded on a broad, well-regulated market.
Standard futures contracts are bought and sold on large exchanges, for example, the Chicago Board of Trade (CBOT). If I buy a fu
... keep reading on reddit ➡I understand that OMO and quantitative easing are both tools utilized by the Federal Reserve in order to encourage or stifle economic growth. I'm having trouble understanding the nuances between the two tools, however.
My understanding of Open Market Operations: the fed manipulates the federal funds rate that banks use for interbank lending. They do this by either buying or selling treasury bonds. Under an Expansionary policy, treasury bonds are purchased from banks and the banks receive an influx of cash. With the increase of liquidity in the banking system, the supply of cash is higher, resulting in a lower market interest rate for interbank lending. Under a contractionary policy, the opposite is true.
My understanding of Quantitative Easing: the fed provides direct liquidity to a distressed sector of the economy by buying assets in exchange for cash.
My understanding of the differences: OMO is somewhat of an indirect, precautionary tool used to heat up or cool down an economy and does so through the manipulation of interest rates. Quantitative easing is a reactive approach to provide direct liquidity into a sector(s) of an economy to prevent contagion that could spread and result in an economic recession.
Please feel free to tear my understanding apart and/or add to anything that I left out.
Ok, here's how it works up in Canada:
- BOC buys assets, usually bonds, from banks
- BOC pays for these assets with "settlement balances" (i.e. reserves) which are not the same as cash or regular currency.
- BOC pays interest on these settlement balances and can adjust the interest rate they pay on them.
- The hope is that this will cause banks to issue more loans to consumers/businesses, which will create more money and boost GDP growth.
From this it seems to me that QE is not in fact "printing money" or even expanding the money supply at all. It's just swapping one interest paying asset for another interest paying asset.
So my questions are:
- Why exactly does giving the banks a different interest paying asset encourage them to issue more loans?
- Why do so many economists seem to indicate that QE does actually affect the money supply?
- Is any part of this wrong?
This article first appeared on SchiffGold on Monday and also appeared on ZeroHedge this morning.
3 Key Takeaways
- If the Fed tapers QE, it may reveal waning appetite for long-term treasuries
- The Treasury may have used its cash balance reserve to anchor inflation expectations
- If inflation persists, the Fed may have to increase rather than decrease QE
Note: By definition, inflation is an expansion of the money supply. In this article inflation will be used interchangeably with rising prices (usually as a result of money supply expansion)
Introduction
When the economy was shut down in March 2020, the government responded with massive fiscal and monetary support. The fiscal stimulus totaled $4T+ in relief packages. All of this spending was paid for with debt being issued by the Treasury. The Treasury mostly issued short-term debt. With rates being held at zero by the Fed, and strong demand for short-term debt, it made sense to quickly raise cash using Treasury Bills as interest free loans.
The Fed monetary policy was two fold, slash short-term rates to zero and inject $1.5 trillion into the long-term debt treasury market. The effect was to bring down interest rates across the entire yield curve. After the initial debt binge, QE changed to auto-pilot, buying about $80B a month in long-term debt (plus another $40B in Mortgage debt). Over the last year, the Treasury has continued to issue long-term debt, averaging more than the $80B the Fed has been buying. This has caused long-term rates to rise.
All of this fiscal and monetary stimulus is not without cost. Historically this type of activity almost always leads to higher inflation. The Fed may have recently indicated they want higher inflation, but this is not true. This stance simply provides cover for them to not act in the face of rising prices. To actually fight inflation, the Fed would have to increase short-term rates above the rate of inflation. Part 1 of this series went into detail about how US short-term debt has doubled from $2.5T to $4.5T. This makes even small changes in short-term rates an immediate risk to the federal government, not to mention the much higher rates needed in a true inflation fight.
In theory the Fed could leave short-term rates at 0% but end QE and even shrink its balance sheet, pushing long-term rates up to combat inflation. In the short/medium term the Treasury can mathematically
... keep reading on reddit ➡I've seen a lot of people spreading misinformation about how the Fed actually works, and misrepresenting what Quantitative Easing actually means. Now for those who don't want to work their brain too much, here is a good video from Ted Ed, with pictures as well: https://youtu.be/GFTKKyYSCKs
Now, moving on. I'm going to try summarise Quantitative Easing in as short a fashion as possible.
Quantitative Easing
When America (and other countries), and their banks fuck up, QE is the new money printing. Don't be fooled though, money isn't usually printed with QE, and this is the main misinformation surrounding QE. When the Fed lowers rates, banks have to hold less money overnight. This allows them to loan money. If rates were to go negative, banks get paid to loan money (But you won't get paid, they'll usually net the profits and offer 0% rates). Now, when rates are at 0, and shit isn't happening, that's when the Fed begin buying bonds. This gives more money to the government, which gets you your stimmy check. In return, bond yields fall, and bond investors are forced to look towards riskier investments, such as the stock market, or corporate bonds to make their money. It is this that brings the economy back to life.
Now, is money being given to the government for free? No, obviously not. These bonds the Fed buy, have to be paid back, with interest. This will be paid back in higher taxes, tax cuts, through the budget deficit, printing money or other debt repayment options in the unlikely scenario that the US government begins having trouble paying its debt.
Just what the title says above, I understand what quantitative easing is and the effects it has but does it classify as a macroeconomic policy?
Does quantitative easing affects inflation and USD ? I can’t understand why pumping 2 trillions doesn’t have bad effects in the long run. No karma ?
