Fed Admits Failure of ‘Plan A’ to Control Money Market Rates, Shifts Back to Repos ...

WolfStreet.com ^ | 20 September 2019 | Wolf Richter

[Toddsterpatriot]

You are asking the wrong questions which tells me you did not understand what Stills was saying.

I'm more interested in what you're saying.

You said the Fed issues our money with interest attached. You won't explain how much interest you are charged for your FRNs. Were you mistaken?

Dollars created at zero interest carry no debt.

None of the cash in my wallet is debt. No one has ever charged me interest on it. They don't even know how much I hold.

[Georgia Girl 2]

Every dollar in circulation is debt from inception. You are not personally making a monthly payment on it but you do pay through taxation.

Arguing with me about it will not make our monetary crisis disappear. It is what it is. The Federal Reserve system cannot continue to control our monetary system.

Trump’s constant tweets are his way of bringing the public along and educating them as to what the Fed really is. IMO Trump is preparing everyone for his plans to move us away from the Fed after his reelection.

The only way to pay off the FRNs is to issue US reserve notes at zero interest or negative interest.

[Toddsterpatriot]

Every dollar in circulation is debt from inception. You are not personally making a monthly payment on it

Because you're wrong.

but you do pay through taxation.

How much of my taxes pay for "interest on my FRNs"? How do you know?

Arguing with me about it will not make our monetary crisis disappear.

Your confusion is no crisis.

The only way to pay off the FRNs

Pay off FRNs? That's funny.

issue US reserve notes at zero interest or negative interest.

I'd ask you what a US note at a negative interest rate means, but I'm afraid you'll hurt yourself trying to explain.

[Pelham]

“Uh no every dollar that enters circulation comes with debt.”

So tell us how you go about paying the interest on this debt your money obligates you to. Are you getting billed by the Fed? Sending them a check?

[Pelham]

Well that’s certainly a list of bad things, but all of them involve something that Congress is responsible for doing.

The Federal Reserve has no role in any of that. Their field is our banking system and money supply.

[Pelham]

Lol!!

Gee, this sounds familiar, since it’s exactly what I told you that Friedman and Schwartz wrote in their “A Monetary History of the United States” and the lesson that Bernanke took from the book:

“In A Monetary History of the United States, Friedman argued that the economy was strong in the 1920s until the year 1929 when a typical economic downturn occurred.
He believed that the economic recession turned into a depression because the Federal Reserve did not print enough money between 1930 and 1933.
Friedman and Ben Bernanke essentially blame the Great Depression on the Federal Reserve’s failure to inflate the money supply.”

So you either don’t read posts, or you do and you haven’t the faintest idea what the words mean.

Apparently your problem is reading comprehension, or you would have noticed that your own citation makes exactly the same point that I had already made, and that both argue against your idea that Fed “intervention” caused the Depression when in fact their criticism is the opposite, that the Fed failed to intervene when they should have.

[Yosemitest]

You're so full of crap that I can smell you from way down south.

The best thing we could do is abolish the Federal Reserve and go back to the Gold Standard.
Hell, even our change has no real money in it.
If you don't believe me, wave a handful of today's change at a metal detector at an airport, and see if it goes into alarm.

You don't give a damn about the debt we'll placing on our children with our National debt.
Where did you get your education, in grades one thru twelve ONLY ?
You probably believe all that communist B.S. the teachers in public school are shoving down your throat.

Why don't you go get a real education ?

[Pelham]

You really are one of the dimmest posters at FR. Not kidding. You are genuinely stupid.

[Yosemitest]

Here's something your feeble mind MIGHT be able to understand, but I doubt it.

How the Federal Reserve caused the Depression and cheated Americans out of their money. ( 06:57 )

I'll even save you some time, since you're too lazy to watch to whole video,
Start at 04:00 into the video and go thru to 06:57 .

Maybe that not enough to convince you, so ... IF you can understand a REAL scholar on economics, here's another video:

Thomas Sowell - The Failure of the Federal Reserve ( 06:02 )

And finally ... here's one more with a more simple format :

The Federal Reserve Will Crash The Economy! Cause of the Great Depression ! ( 07:05 )

But I doubt you'll "Get it".
You pride won't left you.

[Pelham]

You managed to repeat in your post #85 an argument from the very same that book that I had just cited in post #84, without having any clue that you had done it.

That’s an achievement rarely accomplished by anyone, particularly when the book quoted argues against their own case. Congratulations.

Either you don’t read (likely) or you don’t understand a word of what you do read (even more likely).

Anyone else would be slowed down after having pulled a stunt like yours, but you’re a trooper who has filled his noggin with the finest of conspiracy junk and you’re eager to share it. I’ll get the tin foil out and wade in!

[babble-on]

https://www.youtube.com/watch?v=WTGok1W_mNI&feature=youtu.be

[Yosemitest]

You REFUSE TO ACKNOWLEDGE the FACTS that in Comment #85, Julie Borowski RIPPED Friedman APART with her REBUTTAL.
Lets AGAIN REVIEW the WHOLE POINT IN CONTEXT !

3. The Federal Reserve’s Tight Monetary Policy Caused the Great Depression.

Federal Reserve Chairman Ben Bernanke and the late Nobel Prize-winning economist Milton Friedman blame the Federal Reserve for the Great Depression.
But they do so for the wrong reasons.
While Milton Friedman was correct on many economic issues, he was wrong on monetary policy.
He was a monetarist who incorrectly believed that the money supply determines the level of economic activity.
In his view, an increase in the money supply will lead to more economic activity.

In A Monetary History of the United States, Friedman argued that the economy was strong in the 1920s until the year 1929 when a typical economic downturn occurred.
He believed that the economic recession turned into a depression because the Federal Reserve did not print enough money between 1930 and 1933.
Friedman and Ben Bernanke essentially blame the Great Depression on the Federal Reserve’s failure to inflate the money supply.

The real problem is that the Federal Reserve inflated the money supply in the 1920’s.
Inflationary booms induce widespread malinvestment -- bad investment decisions made under the influence of easy money and credit.
Malinvestments inevitably lead to wasted capital and economic losses.
An economic recession is actually necessary to correct all of the previous malinvestment.

At Milton Friedman’s ninetieth birthday party in 2002, Ben Bernanke even said
“I would like to say to Milton and Anna:
Regarding the Great Depression. You’re right, we did it.
We’re very sorry.
But thanks to you, we won’t do it again.”
He spoke too soon.
The current economic situation may not be as severe as the Great Depression — though economists such as Peter Schiff say it could get as bad.
But it's clear that the central bank was the main culprit in both financial crises.
The Federal Reserve’s expansionary monetary policy in the 1920’s caused the Great Depression,
not the central bank’s “tight” monetary policy in the early 1930’s.

Did you 'get that', or will your PRIDE NOT ALLOW YOU to acknowledge the truth ?
I will REPEAT the truth for you again !

The real problem is that the Federal Reserve inflated the money supply in the 1920’s.
Inflationary booms induce widespread malinvestment -- bad investment decisions made under the influence of easy money and credit.
Malinvestments inevitably lead to wasted capital and economic losses.
An economic recession is actually necessary to correct all of the previous malinvestment.

... But it's clear that the central bank was the main culprit in both financial crises.
The Federal Reserve’s expansionary monetary policy in the 1920’s caused the Great Depression,
not the central bank’s “tight” monetary policy in the early 1930’s.

Then again in Comment #98 Don Watkins shot Friedman's THEORIES full of holes.

3. Hoover’s high wage policy

The net result of the bank failures and the check tax was a credit-driven deflation the likes of which the U.S. had never seen.
As Milton Friedman and Anna Schwartz explain in their landmark Monetary History of the United States:

The contraction from 1929 to 1933 was by far the most severe business-cycle contraction during the near-century of U.S. history we cover,
and it may well have been the most severe in the whole of U.S. history. . . .
U.S. net national product in constant prices fell by more than one-third. . . .
From the cyclical peak in August 1929 to the cyclical trough in March 1933, the stock of money fell by over a third.

Why is a deflationary contraction so devastating ?
A major reason is because prices don’t adjust uniformly and automatically, which can lead to what scholars call economic dis-coordination.
In particular, if wages don’t fall in line with other prices, this effectively raises the cost of labor, leading to — among other damaging consequences — unemployment.
And during the Great Depression, although most prices fell sharply, wage rates did not.

One explanation is that wages are what economists call “sticky downward”:
people don’t like seeing the number on their paychecks go down, regardless of whether economists are assuring them that their purchasing power won’t change.
The idea of sticky prices is somewhat controversial, however — in earlier downturns, after all, wages fell substantially, limiting unemployment.

What is certainly true is that government intervention kept wages from falling — particularly the actions of President Hoover and, later, President Roosevelt.

Hoover believed in what was called the “high wage doctrine,” a popular notion in the early part of the 20th century.
The high wage doctrine said that keeping wages high helped cure economic downturns by putting money into the pockets of workers who would spend that money, thereby stimulating the economy.

When the Depression hit and prices began falling, Hoover urged business leaders not to cut wages.
And the evidence suggests that they listened
(whether at Hoover’s urging or simply because they too accepted the high wage doctrine).
According to economists John Taylor and George Selgin:

Average hourly nominal wage rates paid to 25 manufacturing industries were 59.3 cents in October 1929, and 59.5 cents by April 1930.
Wage rates had fallen only to 59.1 cents by September 1930, despite substantially reduced output prices and profits.
Compare this to the 20 percent decline in nominal wage rates during the 1920-21 depression.
During the first year of the Great Depression the average wage rate fell less than four-tenths of one percent.

Hoover would go on to put teeth into his request for high wages, signing into law the Davis-Bacon Act in 1931 and the Norris-LaGuardia Act of 1932, both of which used government power to prop up wages.
FDR would later go on to implement policies motivated by the high wage doctrine, including the 1933 National Industrial Recovery Act, the 1935 National Labor Relations Act, and the 1938 Fair Labor Standards Act.

The problem is that the high wage doctrine was false —
propping up wages only meant that labor became increasingly expensive at the same time that demand for labor was falling.
The result was mass unemployment.

Remember:

Hear now this, O foolish people,
and without understanding;
which have eyes, and see not;
which have ears, and hear not ...

[Pelham]

When you posted your copy & paste screed which included the selection from Friedman & Schwartz stating that the Fed failed to intervene to halt the Depression you gave away the fact that you have zero understanding of what you post. Or that you don’t read what you copy & paste.

Either way it’s “an admission against interest”. You’re a typical poseur who is drawn to conspiracy theories, and your main skill is tossing poo at those who expose your ignorance. But the all caps and boldface is a nice touch, maybe you should go into poster art.

[jdsteel]

You posted a long opinion piece as fact. An opinion piece that included a bad definition of inflation and deflation to boot.

It’s neither accurate nor proof.

[Drago]

Money printing/QE/liquidity injection/black swan update BUMP!

Fed printed $75 billion so far in overnight/4-day “repo” operations:
https://www.newyorkfed.org/markets/opolicy/operating_policy_190923

Good general background info. update:
https://fortune.com/2019/09/23/repo-market-big-deal-400-billion-bailout-unnerving/

[Yosemitest]

WRONG.
You just don't like the FACTS those two articles present !

[jdsteel]

You can accept bad opinion all you want, but that does not make them facts.

[Toddsterpatriot]

banks are loaning out more money than they have

Banks aren't allowed to do that.

[Yosemitest]

The banks are doing it anyway.
Every heard of the term "bank money" ?

Here's another source confirming that FACT :

Why Banks Don't Need Your Money to Make Loans
BY MATTHEW JOHNSTON, Updated Jul 6, 2019

" ... KEY TAKEAWAYS
• Banks are thought of as financial intermediaries that connect savers and borrowers.
  
• However, banks actually rely on a fractional reserve banking system whereby banks can lend in excess of the amount of actual deposits on hand.
• This leads to a money multiplier effect. If, for example, the amount of reserves held by a bank is 10%, then loans can multiply money by up to 10x.
...

Banks in the Real World

In today’s modern economy most money takes the form of deposits, but rather than being created by a group of savers entrusting the bank withholding their money,
deposits are actually created when banks extend credit (i.e., create new loans).
As Joseph Schumpeter once wrote,
“It is much more realistic to say that the banks 'create credit,' that is,
that they create deposits in their act of lending
than to say that they lend the deposits that have been entrusted to them.”

When a bank makes a loan, there are two corresponding entries that are made on its balance sheet,
one on the assets side and one on the liabilities side.
The loan counts as an asset to the bank and it is simultaneously offset by a newly created deposit, which is a liability of the bank to the depositor holder.
Contrary to the story described above, loans actually create deposits.

Now, this may seem a bit shocking since, if loans create deposits, private banks are creators of money.
But you might be asking,
"Isn’t the creation of money the central banks’ sole right and responsibility ?"
Well, if you believe that the reserve requirement is a binding constraint on banks’ ability to lend then yes,
in a certain way banks cannot create money without the central bank either relaxing the reserve requirement or increasing the number of reserves in the banking system.

The truth, however, is that
the reserve requirement does not act as a binding constraint on banks’ ability to lend
and consequently their ability to create money.
The reality is that banks first extend loans and then look for the required reserves later. Perhaps a few statements from some notable sources will help to convince you of that fact.

Alan Holmes, a former senior vice president of the New York Federal Reserve Bank, wrote in 1969,
“in the real world banks extend credit, creating deposits in the process, and look for the reserves later.”

Vítor Constâncio, Vice-President of the European Central Bank (ECB), in a speech given in December 2011, argued,
“In reality, the sequence works more in the opposite direction with banks taking first their credit decisions
and then looking for the necessary funding and reserves of central bank money.”

Fractional reserve banking is effective, but can also fail.
During a "bank run," depositors all at once demand their money,
which exceeds the amount of reserves on hand, leading to a potential bank failure. ..."

Then there's this little bit of additional information on a separate issue with the USA Banks and the Federal Reserve funding the Banks every night from Friday night Sept 20, 2019 until Oct 10, 2019 from $1.8 TRILLION to $2.2 TRILLION .
So WHAT THE HELL IS THE REASON FOR THE FED NEEDING TO DO THIS ?

The Fed, Banks Printing Money to "Prevent" Trouble: Recession WILL Come Soon ( 8:48 )
Published on Sep 24, 2019
Glenn Beck
Glenn discusses the current state of the economy with author of "Zero Hour," Harry Dent.
He says the federal reserve is still funding big banks daily to increase their excess reserve, signaling that something is wrong with the system.
Dent says the banks printed money back in the 1930s to climb out of the Great Depression, which only created an aftershock that was even worse.
Banks and the Fed are doing the same thing today, so will the coming economic crisis be worse than the 2008 recession ?
Economist Dent says it's possible, and that it could come as early as 2020.

[Toddsterpatriot]

This leads to a money multiplier effect. If, for example, the amount of reserves held by a bank is 10%,

This means they can only lend out 90% of deposits, not multiples of deposits. Not "loaning out more money than they have".