Posted on 12/12/2021 10:04:14 AM PST by Browns Ultra Fan
The U.S. went on a borrowing binge last year and the hangover could make it harder for the Federal Reserve to fight inflation without crashing the economy.
Powell’s challenge is to try to curb price pressures without large costs to employment or growth, a move that would likely anger both political parties and blotch his record with the first Fed-assisted hard landing since the 1990-1991 downturn.”
The Federal Reserve is laying the groundwork for the start of a cycle of interest-rate hikes that the bond market warns might be unusually constrained in how far it can go, setting the two on a collision course where one will eventually have to giv
The problem facing Powell and The Fed is that they are stuck in a trap. They can’t raise their target rate more than just a little (say 50 basis points) and shrinking their enormous balance sheet is really their only option. And that may fail if the 10 year Treasury yield starts to rise too rapidly or gets too high.
Here is one of the traps facing Powell and the Gang after their Covid printing splurge: dying M2 Money Velocity.
It will only get worse as Congress and the Biden Administration keep spending like drunken ORCs from Lord of the Rings. Particularly when the Penn-Wharton Budget Model finds that Build Back Better will reduce the long-term GDP by 2.8 percent, reduce wages by 1.5 percent, and reduce work hours by 1.3 percent. The only thing it will expand is government debt, by 25 percent.
The Washington DC spending Gollums need to control their urges.
(Excerpt) Read more at confoundedinterest.net ...
If the staggering amount of debt that is already accumulated is a significant constraint - how much better will it be when the BBB legislation gets done throwing at least $3T more onto the pile?
Joe Biden, economist, operating with a degree of precision that treats $3T as a rounding error.
It’s a death spiral. Raise interest rates and we can’t afford to pay service on the national debt. Obviously, the only solution is build back better. May I suggest to spend three or four times the $5 trillion price tag and just end this charade now. Alternatively, do the right thing and massively cut government spending, shutting down huge portions of government. That has the side benefit of restoring freedom.
i think the commie fed plan is to fight inflation with propaganda. To increase rates would signal defeat for the commies.
“Raise interest rates and we can’t afford to pay service on the national debt. “
This is the elephant in the room. They will be borrowing even more money to pay the interest on the debt.
The Fed is like the performer spinning plates in the air.
They keep adding more and more plates....
“The Fed is like the performer spinning plates in the air.”
I have trouble understanding finance at the national level. I read today that the Federal Reserve was buying treasury notes. What does that mean? Who’s selling the treasury notes? Is the Department of Treasury creating them out of thin air? What is the seller of the treasury notes going to do with the money?
There is an international market of Treasury notes that are bought and sold every day, probably every minute of every day.
They are held by foreign governments, corporations, individuals, pension funds, etc. who can sell them to raise cash to pay off obligations (as one example).
But—they want you as confused as possible so they can manipulate the markets to benefit insiders.
If you don’t know who the sucker at the rigged poker table is, it is you!
As long as all you chumps have two pennies to rub together there is at least one the government can take.
What’s necessary for survival is for Congress to put Fedzilla on a vegetarian diet.
LOL.
5.56mm
the Penn-Wharton Budget Model finds that Build Back Better will reduce the long-term GDP by 2.8 percent, reduce wages by 1.5 percent, and reduce work hours by 1.3 percent. The only thing it will expand is government debt, by 25 percent.
The Washington DC spending Gollums need to control their urges.
Do any of these people understand that it is already
too late? The damage done is only an opportunity for
those who have created the problem to create more havoc!
Their solution is at the cost of our freedoms and
well being.
The Treasury drafts a bond to to raise funds and passes it to banks to sell in an auction. The FED "buys" the bonds at the auction with federal reserve notes, which is currency it creates, drawn from a bank with no dollars - basically it is willed into existence. Every federal reserve note is a debt instrument.
The banks charge a fee for their part in the auction.....oh, and they own the FED.
The Treasury then gives the federal reserve notes to government to waste as it sees fit.
For a very simple, educational, easy to follow series:
They are going to try to raise rates but it will backfire and you will see them quickly ease again. We are in hyper inflation now and likely to tip over into deflation.
Don’t worry, if they just add a zero to all denominations of our fiat currency, we will all be Rich and everything will be fine.
A flaw in this article is the idea that the Fed has any ability to control monetary velocity.
” I read today that the Federal Reserve was buying treasury notes. What does that mean? Who’s selling the treasury notes?”
The Fed buys treasury notes on the secondary market. That means from investors rather than directly from the Treasury itself.
Mostly the Fed is buying the Treasury notes from commercial banks. This gives those banks dollars that they can loan in exchange for T-bills that they can’t loan.
“Is the Department of Treasury creating them out of thin air?”
Congress authorizes and set the level of the national debt. The Treasury funds that debt by selling Treasury notes in its weekly auctions. It sells those notes to investors other than the Fed.
“What is the seller of the treasury notes going to do with the money?”
If the seller is a bank they can lend the money out in the private market. If the seller is an individual they will deposit it or spend it.
Under normal circumstances The Fed would be tightening and gradually raising interest rates to fight inflation, just like Volker did in the early 1980’s.
One of 5he problems is the amount of debt we now have and raising rates would increase the interest on the date, housing and business loans to cost more and possibly bankrupt a number of companies.
The Fed painted themselves into a box with no way out.
“The Fed buys treasury notes on the secondary market.”
I appreciate the information you and other posters have given.
Why is it always said “xxx is buying Treasury Notes” rather than “xxx is investing in Treasury notes”? I think that would be clearer to the average person.
Similarly, why, instead of saying “selling Treasury Notes”, say “cashing in Treasury Notes”.
Why do we have a Federal Reserve?
“Why do we have a Federal Reserve?”
It is the lender of last resort for commercial banks. A commercial bank has its deposits invested in loans and bonds, none of which are liquid. If their depositors all want to take out their money out at the same time the bank hasn’t got the cash on hand. Bank runs can collapse otherwise sound banks and in a worst case set in motion a collapse of the banking system as a whole.
“Similarly, why, instead of saying “selling Treasury Notes”, say “cashing in Treasury Notes”.
In the case of the Fed, it sells its stock of T bills to commercial banks in order to reduce the money supply in the banking system. Selling T bills acts as sponge, removing liquid cash from commercial banks and leaving the banks with illiquid Treasury paper that they can’t lend. The Fed will do this to counter inflation.
Similarly, why, instead of saying “selling Treasury Notes”, say “cashing in Treasury Notes”.
The Fed isn’t cashing in its Treasuries when it sells them. It’s adjusting the monetary base. The Fed isn’t a normal bank. It’s the nation’s monetary authority.
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