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    The Federal Reserve Is Directly Monetizing US Debt

    In a very real way, MMT is already here
    by Chris Martenson

    Friday, November 15, 2019, 3:30 PM

The Federal Reserve is now directly monetizing US federal debt.

Sure, it’s not admitting to this. And it’s using several technical jinks and jives to offer a pretense that things are otherwise.

But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.

At a time, mind you, when US fiscal deficits are exploding and foreign buyers are heading for the exits.

How It’s Supposed to Work

Here’s how it’s supposed to work when the US government issues new debt:

  1. If the US Treasury needs to raise new funds, it announces an upcoming auction of US Treasury bills/notes/bonds.
  2. A date for the auction is set.
  3. Various participants bid for those bills/notes/bonds (including ‘regular folks’ like you and me if we’re using the government’s Treasury Direct program).  This is the ‘auction date.’
  4. A few days after the auction, the actual bills are “issued” which is when the money actually changes hands and the bills are live in the market.
  5. At a later date, the Fed can buy those US Treasury bills/notes/bonds. The various holders of that debt submit offers to sell, and the Fed (presumably) selects the best offers on the best terms.

The Federal Reserve, under no conditions, buys Treasury paper directly.  The Federal Reserve’s own website still maintains that this is the case:

Federal Reserve FAQ

(Source)

There are two important claims plus one assertion I’ve highlighted in there, each in a different color:

  1. Yellow: Treasury securities may “only be bought and sold in the open market.”
  2. Blue: doing otherwise might compromise the independence of the Fed.
  3. Purple: the Fed mostly buys “old” securities.

So according to the Fed: it’s independent, it follows the rules set forth in the Federal Reserve Act of 1913, and it mostly buys “old” Treasury paper that the market has already properly priced in a free and fair system.

But that’s not really what’s going on…

What’s Actually Happening

It’s now clear that something spooked the Fed badly in September.

We still don’t know what exactly went on, but the Repo market blew up. While this was a clear sign that something big was amiss, the Fed has not yet explained what the cause was, who needed to be bailed out, or why.

And it’s not going to anytime soon. It recently announced that its records on the matter are going to be sealed for at least two years.

While the Fed is ostensibly a public institution, and yes transparency should be extremely important — at least to maintain the appearance that it’s being careful with public monies — the Fed is prioritizing secrecy here.

Whatever’s going on has been serious enough for the Fed to openly lie. And not just in regards to the repo market.

“It’s not QE!” Fed chair Jerome Powell recently declared upon relaunching an asset purchase program that has already expanded the Fed’s balance sheet by hundreds of billion of dollars.

Given all the secrecy, obfuscation and lies, the Fed is now in clear violation of the spirit of the Federal Reserve Act of 1913.

Recall from above that the Fed “only buys Treasury securities in the open market”, meaning from other banks and financial institutions.  That’s how the Federal Reserve Act of 1913 is written:

Federal Reserve Open-Market Operations

(Source – the Fed)

Let’s walk through an example that connects the dots here.

Just know that this is but a single example out of many.

Data point #1   

Each and every Treasury offering comes with an identifying number called a “CUSIP” number (referring to the Committee on Uniform Securities Identification Procedures).

On October 31st, 2019 the Treasury Department held an auction for a series of 8-week T-bills with the CUSIP number 912796WL9.

November 5th, 2019 those T-bills were “issued”, meaning that was the actual date that they were to become active.  Before that date, nobody had possession of them and nobody was earning interest on them:

US Treasury Offering Announcement

From the Treasury Offering Announcement above, on November 5, 2019, $40 billion of CUSIP number 912796WL9 were issued to the market.

It’s worth pointing out that no money changes hands on auction day (Oct 31 in this instance). It only does when the bills are issued (Nov 5 in this case).

Data point #2

Looking at the Federal Reserve’s website, we can see what they bought and when (but not for how much).

There we find that very same T-bill with the CUSIP 912796WL9 showing up as having been purchased by the Fed Nov 5, 2019 — the very date of its issuance:

Federal Reserve Operation Results

(Source)

The Fed bought more than $4 billion of this CUSIP.  If these T-bills were out in the “open market” they weren’t there for long. At most, less than a day before the Fed scooped them up.

Does it really matter if a big bank sits ever-so-briefly between the Fed and the Treasury debt it buys?

Maybe to a trial lawyer seeking to get a guilty client off on a technicality. But this certainly doesn’t qualify as “old” paper.

This is the Fed buying huge amounts of very freshly minted – not even a day old! – government paper using the power of its electronic printing press.

What’s the practical difference between the Fed buying this directly from the US government and buying it same day it issues from a big bank?

Virtually nothing — except the big bank probably took home a very hefty paycheck for conducting this “service” as a middleman.  Later JP Morgan, et al., can report magnificent “profits” from their ”trading activities”, which amounted to little more than calling the Fed the week before and asking how many $billions of these Treasury bills they wanted.

Just a temporary middleman who, if only skimming a single basis point (1/100 of a percent), would have gotten $400,000 in “trading profits”  for holding onto a big pile of government paper for less than a single day, with a guaranteed buyer with infinitely deep pockets already lined up.  Great work if you can get it, eh?

But not very fair. Nor even remotely in line with the spirit of the Federal Reserve Act. Or what capital markets are supposed to be about. Or the Fed’s actual mandate.

The summary here is this: the Fed is buying US government paper on the day it’s issued.

The Fed is directly monetizing US debt.

Which means…

MMT is Already Here!

The debate over whether or not MMT (“Modern Monetary Theory” see here for background and discussion) should or should not happen is now moot.

It’s already here.

Over the past year, the US government has spent ~ $1.3 trillion more than it took in.  To cover the shortfall, it had to raid the Social Security piggy bank for (another) $170 billion and tap the “markets” for another $1.1 trillion.

Annual Change In Total Public Debt Outstanding

If not MMT, what other name should we give a program where the US government spends $1.3 trillion more than it takes in and the Federal Reserve covers the shortfall by by purchasing US government debt on the day of issuance?

Does it matter if the US government issues it out of thin air, or if the Fed creates the same cash money out of thin air?  Does it really matter in the slightest what the precise mechanisms are if the results are identical?

I would argue they don’t matter in the slightest.

All that remains now is to argue over what to spend all that fresh cash on.

Sure, some might like to debate whether we should be doing this or not. But the reality is: there’s little point in arguing over whether something should happen if it’s already happening.

Now all that’s left to debate is how much larger or smaller the Fed’s government debt monetization efforts might be.

Further, we might debate exactly what the government is spending all that money on.  Or what the repercussions will be of the dangerous monetary road we’re now careening down.

But I’m not aware of any particular representative of mine even being aware of the situation, let alone concerned.

Conclusion

This is a very serious and extremely important conversation to have. But it’s not being had at all.

During Jay Powell’s last news conference, the Chairman of the Federal Reserve (and defender and champion of the largest wealth transfer to the rich in world history) was not asked a single question on this topic.

Nobody asked anything about the extreme and accelerating wealth and income gaps, both direct outcomes of the Fed’s policies.

Nobody expressed concern about the Fed’s secretive actions, its direct debt monetization, or its violation of the Federal Reserve Act.

The US media is toothless. I assume today’s journalists are simply too afraid of losing their jobs to speak truth to power, and have slipped into quiet acceptance of a mere stenographer’s role.

“Yes, Mr. Powell, you’ve reversed course and have started lowering interest rates again, and have resumed growing the Fed’s balance sheet via new QE. Oh yes, you’re right, it’s ‘not QE’. How silly of me. But despite those emergency measures, the economy is ‘in a good place’ and we all should be super optimistic? Got it. Yes, sir — very inspiring. Anything else?”

You’d think, given the enormous troubles that tend to follow central bank debt monetization that there’d be some curiosity on the topic, but no.  No pushback from the media or Congress, direct or tangential.

Meanwhile the Fed has tossed a mind-boggling $285 billion of permanent new money into the “markets” over the past couple of months, and is conducting daily operations that put additional tens of billions of dollars of short-term money into the markets as well.

All while claiming everything is fine.

Sure doesn’t feel that way, does it?

In Part 2: Why The Risk Of A Correction Is So High Right Now, we demonstrate why the faith today’s investors are placing in the Fed’s ability to push prices ever-higher is dangerously overextended.

Stock gains have already zoomed way ahead of the Fed’s recent excess liquidity measures, and it will not take much to topple them.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access).

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27 Comments

  • Fri, Nov 15, 2019 - 8:40pm

    #1
    MKI

    MKI

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    Posts: 103

    3+

    Today’s journalists are simply too afraid?

    Fed has tossed a mind-boggling $285 billion of permanent new money into the “markets” over the past couple of months, and is conducting daily operations that put additional tens of billions of dollars of short-term…All while claiming everything is fine.

    I’m always puzzled at this sort of article. Fed bailouts are now the absolute norm. Sure, back in 2008 violating the financial laws may have been shocking & newsworthy. But after a decade and counting? Markets are now “markets”, in the open, without apology. I concede maybe this was so before 2008 and only naive rubes like myself thought otherwise. But by 2019? it’s a yawn. Everyone knows the score. Why write it up? Who would read it? Who would teach them to read?

    I think journalists, and everyone else, know the score. The public wants the bailouts, and will do anything to keep the money flowing. I saw this plain as day in 2008; people I knew well were willing to do anything to save their 401k’s. And now the Fed has zero options, anyway: there is too much debt (public, private, corporate). They can’t raise rates or taxes without the whole thing unravelling, they can only QE & drive up asset/stock prices. We had a choice in 2008 to take our hits. We really can’t raise rates now without Armageddon.

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  • Sat, Nov 16, 2019 - 2:55am

    Reply to #1
    Rodster

    Rodster

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    Posts: 40

    8+

    Just Because You Know What's Going On Doesn't Mean Others Do

    “Everyone knows the score. Why write it up? Who would read it? Who would teach them to read?”

    Because there are plenty of people who have no clue what’s really going on who are just living their daily lives and trying to provide for their families. It’s the same reason the Crash Course exist.

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  • Sat, Nov 16, 2019 - 6:54am

    #2
    brushhog

    brushhog

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    MMT is just a rebranding of the status quo

    I never understood the big reaction to MMT and I never bought the branded package as being anything other than what we already have. What’s MMT say? Basically the government can create whatever money it wants with no restrictions to spend on whichever programs it likes. How is that different from what they are doing now? Maybe it differs only by degrees. The government is now creating over a trillion dollars a year to fund itself….maybe MMT wants them to create 2 trillion? 4trillion?

    Can anyone explain the difference in actual practice? Im yet to hear it.

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  • Sat, Nov 16, 2019 - 9:12am

    #3
    MKI

    MKI

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    Posts: 103

    QE/MMT

    Can anyone explain the difference in actual practice?

    QE is monetary (which inflates stocks/bonds/RE). MMT is fiscal (cash directly to people). In layman’s terms: QE benefits the well-off, MMT the have-nots. Or: QE embraces wage deflation; MMT accepts wage inflation. YMMV.

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  • Sat, Nov 16, 2019 - 10:53am

    #4
    yagasjai

    yagasjai

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    Posts: 21

    Question on Treasury Direct

    Doesn’t this news mean it’s more likely that there would be a collapse in the bond market and that it’s less safe to park money in the Treasury Direct Program that we would otherwise have in a regular bank account?

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  • Sat, Nov 16, 2019 - 1:21pm

    #5
    Uncletommy

    Uncletommy

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    Joined: May 03 2014

    Posts: 532

    Where to put your savings (for what it's worth)!

    I remember reading this in August and I don’t see what’s changed since then. Monetizing debt does’t appear to affect the rich, but if you think we are approaching a deflationary cycle, a negative yield of .06% on 10 year bonds doesn’t seem like too bad an investment.  (Short term; maybe a bit of money in the fracking business where roughly 60% of revenues staying in the driller’s pocket)

    https://www.cnbc.com/2019/08/07/bizarro-bonds-negative-yielding-debt-in-the-world-balloons-to-15-trillion.html

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  • Sat, Nov 16, 2019 - 2:44pm

    Reply to #1
    Steve

    Steve

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    Posts: 36

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    Living & spending like there is no tomorrow.

    Rodster, believe it or not, I see Millennials who are spending like there is no tomorrow.  It’s like they are made of money.  No plans for saving.  Consuming with every dollar they earn.  Completely clueless!

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  • Sat, Nov 16, 2019 - 3:22pm

    Reply to #1
    RocketDoc

    RocketDoc

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    Posts: 17

    1+

    @steve

    Perhaps they realize the “money” does not store value.  There are several ways it can “go bad”.  A money market fund breaks the buck, your bank pays no interest anyway and in a tight has a greater than zero chance of not paying you back.  When my bank asks me for the last three years  of my tax returns to maintain a line of credit, I tell them- do you see those .6%, 1%, and 2% CD’s sitting in your bank–I know they are “covered” by FDIC but I would still like to know your non-performing loan portfolio… I don’t owe YOU any money, you owe me.

    I like saying it but saving unfortunately may actually be a mugs game….

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  • Sat, Nov 16, 2019 - 3:32pm

    #6
    RocketDoc

    RocketDoc

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    1+

    Maiden Lane Folder

    I am no accountant.  Does the general balance sheet of the Fed include ALL “other” open market operations?  Several days ago I read the news about the repo operations of the Fed until the end of the year and saw  some new 4-week, 8-week, etc. funding notes as well as the 14 day and overnight loans.  Is the total more?  Do they go to the balance sheet or are they an asterik?  At some point it is possible to create hidden “folders” that no one talks about or accounts for.  Like the old M3, it might just be a statistic we don’t need to know…

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  • Sat, Nov 16, 2019 - 4:41pm

    Reply to #1
    Steve

    Steve

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    Are you in Georgia ... Don't give your wealth to the banksters and wallstreet.

    @Rocketdoc … There are ways to “save” your wealth without giving it to the banksters or wallstreet.  It’s clear from Chris’ writings above on the Fed operations, even if we participate in treasurydirect.gov, we are directly competing with the Fed… and I don’t have the billions to invest (LOL).  But, my purchases are still competing with the Feds and consequently resulting yield is low.  What about investing those “savings” into precious metals, land, training, community or in general an attempt at resiliency?  Me thinks that tact is better than spewing it into the wind in the form of unleased consumerism.

    BTW, if there are any folks here in Georgia (USA), please send me a PM. I would like to have a meetup.

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  • Sun, Nov 17, 2019 - 3:33am

    #7
    ejhr

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    2+

    I posted, but it’s not showing, See if it can be found, please!

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  • Sun, Nov 17, 2019 - 6:22am

    #8

    travissidelinger

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    2+

    This is a very good article. Thank you PP team.

    -Travis

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  • Sun, Nov 17, 2019 - 1:59pm

    Reply to #1
    MKI

    MKI

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    Posts: 103

    …there are plenty of people who have no clue what’s really going on…

    The details, sure. But everyone (from the fast food worker to the guy laying drywall) knows the game is rigged and the government will do anything to prevent a financial crisis and keep the status quo for the fat cats. I’ve never met a single person who doesn’t affirm this.

    Heck, even the movie Too Big to Fail has a scene where US Tres Sec Paulson orders his subordinate to (illegally) tell Lehman (a private company) to file for bankruptcy. No, all know the Fed is orchestrating the economy, and we would un-elect any president who let the Fed to pull a Volcker and do the right thing.

    Why? Simple. Americans are unwilling to take the pain of honest government finances and demand we kick the can down the road. This makes good sense: we are no longer one people; for better or worse it’s now every man (and now every generation) for themselves. The real question, the one that everyone I know is waiting to know the answer to: how long can our bread-and-circuses capitalism hold together? I’m guessing a long time; America is still the cleanest shirt in a very dirty laundry pile (check out China or Europe where the free market has long been DOA). But I’ve been wrong before and only a fool doesn’t keep their stop-losses set tight & ~10% NW physical gold in these crazy times…

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  • Sun, Nov 17, 2019 - 3:27pm

    Reply to #1
    Rodster

    Rodster

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    I Call And Raise Your Bullsh*t i.e. Generalization

    But everyone (from the fast food worker to the guy laying drywall) knows the game is rigged and the government will do anything to prevent a financial crisis and keep the status quo for the fat cats. I’ve never met a single person who doesn’t affirm this.”

    EVERYONE? Who’s everyone? Because the kids I try and talk to about our future perils don’t know a damn thing who and what the Federal Reserve is, they don’t know what the Treasury is for, don’t have a clue about Gov’t bonds, they haven’t a clue what the IMF or BIS stands for what, what there purpose is to the banking world. They give you a puzzled look if you begin to talk about central banks around the world.

    So who’s everyone you are referring too? I find grown ups who have absolutely NO/ZERO clue about how our banking and monetary system works. All they care about is small talk.

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  • Sun, Nov 17, 2019 - 4:12pm

    #9
    RocketDoc

    RocketDoc

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    Saving

    It is smart and necessary to save for a rainy day and for retirement.  I have done so and don’t regret it–yet.  But I have my doubts and I appreciate Chris’s clarity in writing about it.  I have never been as lucid as he can be.  My wife rolls her eyes when I talk about this stuff so I know my explanatory capability is marginal to the uninterested.

    Why is it so hard to understand that you cannot actually save in imaginary money?  It can go away when someone/anyone points out that the emperor has no clothes.  But as many have pointed out, as long as we are all clapping for Tinkerbell, we do not have to face Reality.  So if everyone else is constructing Reality for us, they are not interested in any sort of Truth that entails pain and complications.  What is easier to believe–everything that you have worked for is at risk OR the government knows best and is trying to bring us all safely home with its machinations.  We thoughtful types are “wreckers”  (I think it was the communists that liked to call the people skeptical of socialism and the grand plans-wreckers).  If I am a pessimist it is not because I WANT the status quo to fail–I am old and fully invested in it–it is because  I feel I have a deep need for understanding the way things are(played upon the blue guitar) and wish to assure myself that I am not crazy.  So thanks Chris.  I may be crazy BUT I am not alone and crazy.

    I wrote my first skeptical paper about our monetary system in high school in 1969.  We had to pick a topic in 12th grade government/economics and I was interested in the claim that France(DeGaulle) was “stealing” all our gold by asking to redeem in gold all their dollars.  They were being mean.  I studied this wormhole for 2 months, grappling with the Breton Woods arrangement and the whole dollar pegged to gold system that was theorized to be modified by a bancor system  called SDR’s that was a system of  pretend “international” money that was going to serve as reserves for currency that the gold now was having difficulty covering because there wasn’t enough of it since France (and other countries) were demanding gold back at the official fixed exchange rate. Since I claimed at the beginning of the paper I was going to propose a workable international monetary system-I grappled with flexible exchange rates and throwing out the gold peg but then I couldn’t actually figure out what money was.  The problem of fixed vs flexible exchange rates still didn’t answer the question of how to define what money actually was.  I did not like the idea that the IMF could make a basket of currencies into something called an SDR that could be a reserve for all the currencies that composed it. It was a tautology I strained to penetrate as to why it was workable but finally had to cheat (plagiarize) an idea by a chap called Modigliani that said you could have crawling pegs that would give you the best of flexible v fixed exchange rates and the gold question would be solved by its increase in price.

    Since then I have been in awe of how little people know about money.  For something so important, it is a puzzle.  People acknowledge that they work to earn money their entire lives!!!!! but if you ask them what it is, they say -a dollar -and it is obvious to anyone what a dollar is.  Well, perhaps it is.  A dollar is what the Federal Reserve says it is and as disturbing as that answer is to me, it doesn’t bother a majority of the population.  I have often said 5% of the population knows it is a scam and 2% are bothered by it.

    I was traveling in Italy in 1971 when this problem was addressed (can was kicked) for the first time.  On August 15th I tried to pay my hostel bill with traveler’s checks and they were “worthless”.  I went to the American Express office in Florence and asked why my money was no good and they said they would redeem them at 3x LESS than they were worth yesterday. I received no comprehensible answer–something about Nixon and closing the gold window.  Did the float solve the problem of what money is?  Obviously it did for as long as it has but I am waiting patiently for Reality to make an appearance.

    Steve’s suggestion that we should buy valuable stuff is on target.  Land is always land no matter how much you paid for it but of course can be lost by legal and illegal means:  taxation or commandeered by the stronger and usurped by the weaker (squatting). No guarantees when trust is lost…..

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  • Sun, Nov 17, 2019 - 10:51pm

    #10
    richcabot

    richcabot

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    Joined: Apr 05 2011

    Posts: 217

    Does it really matter?

    “Does it really matter in the slightest what the precise mechanisms are if the results are identical?”

    The results aren’t identical.  The way it works now the bankers take a cut and (since the Fed is privately owned) also own the debt.

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  • Mon, Nov 18, 2019 - 12:09am

    Reply to #6

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3248

    fed balance sheet

    Here’s a link to the Fed Balance Sheet.  Unaudited, of course.  Real Banks get audited, but of course, the Fed is exempt from such pesky bothersome things like that.

    Maiden Lane has been zeroed out at this point.

    https://fred.stlouisfed.org/release/tables?rid=20&eid=840961#snid=840963

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  • Mon, Nov 18, 2019 - 7:21am

    #11

    Oliveoilguy

    Status Silver Member (Offline)

    Joined: Jun 29 2012

    Posts: 540

    Short and intermediate term bond ETF’s

    Would someone please explain to me how this current monitization impacts etf bond instruments. I don’t pay a lot of attention to the markets, just have very diverse holdings and hope to avoid areas that are dangerous.

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  • Mon, Nov 18, 2019 - 8:26am

    #12

    LesPhelps

    Status Silver Member (Offline)

    Joined: Apr 30 2009

    Posts: 493

    No Suprise

    For several years now, QE has closely matched the deficit.

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  • Tue, Nov 19, 2019 - 12:28pm

    #13
    Robert Tartell

    Robert Tartell

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    Posts: 6

    Is The Fed Monetizing the Debt

    “But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.” What is the difference, really, between openly monetizing the debt and lending money, virtually interest-free to the very banks which own the Fed, to do so on their own? These banks also run Wall Street’s largest casino, with winnings going into their pockets and losses added to the national debt.

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  • Tue, Nov 19, 2019 - 4:12pm

    #14
    Steve

    Steve

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    3+

    Jump - Is it time, yet, to blow off the dust from this video?

    This video was posted back in 2009.  Is it time, yet to blow off the dust from this video?

    It does have a catchy beat.  Doesn’t it?

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  • Wed, Nov 20, 2019 - 11:20am

    Reply to #2
    alan2102

    alan2102

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    Posts: 57

    Reply to brushhog

    “What’s MMT say? Basically the government can create whatever money it wants with no restrictions to spend on whichever programs it likes.”

    No. That’s not what MMT says. It says that inflation, and resources, are constraints, or at least theoretical constraints. The practical extent of the theoretical constraint must of course be worked out in practice (cannot be predicted).

    I’ve noticed that a number of MMT theorists (I daresay most) seem to be quite afraid of inflation. They are stuck for example on the Federal Job Guarantee (FJG) versus Universal Basic Income because, they claim, the FJG provides built-in protection against inflation. Their fear of inflation is highly paradoxical, to put it mildly; I would even say it is irrational, and inconsistent with what they OUGHT to know (i.e. that the quantity theory of money is problematic at best and pure bunk at worst). But that is only some of them. Others are different.

    “How is that different from what they are doing now?”

    MMT is not about doing something different. It is not a program at all. It is a theory. Theories describe reality. They might be wrong, but that is their intent. MMT describes (attempts to describe) the reality we’ve been living in for many decades.

    Phrases like “MMT is already here!” and “MMT is actually happening!” have no meaning. Either the theory is right, and it correctly describes reality for many decades (at least since Bretton Woods), or it is wrong, and it doesn’t. It is not something that “happens” or not.

    Saying “let’s DO MMT!” is like saying “let’s DO the theory of evolution!”. (Except that the theory of evolution has WAY more evidence in favor than does MMT. MMT might be wrong; evolution almost certainly is not wrong.)

    True that MMT is associated with a lot of ideas about spending and the role of government. But it is itself not those ideas. The theory itself (the last letter of MMT, after all, means Theory) should be properly distinguished from the practical and presumably desirable courses suggested by the theory, or that the theory would seem to make possible. I touch on those matters in the post to follow.

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  • Wed, Nov 20, 2019 - 12:03pm

    Reply to #3
    alan2102

    alan2102

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    Posts: 57

    reply to MKI

    “QE benefits the well-off, MMT the have-nots.”

    I think that’s a good way of looking at it. I mean, leaving aside a pedantic correction, in keeping with my previous post:

    “QE benefits the well-off,  [policies implied or suggested by this theory that we call ‘MMT’] the have-nots.”

    MMT provides theoretical groundwork in support of a long march back to FDR-esque social democracy, justice, decency and sanity after the generations-long assault on our society by the twin plagues of monetarism and neoliberalism (and their toxic spawn: austerianism).

    Areas of terrible damage that must be repaired include: trashing of the public sector generally; destruction of the unions; abandonment of humane employment (full employment) policies; privatization of schools, utilities and pensions; cutbacks in social services, health care, education, transportation; wage stagnation and an abysmal minimum wage; stagnation of fundamental social support systems (e.g. Social Security benefit amounts); lack of single-payer health care system; and on and on,  it is a long list.

    MMT silences or at least muffles the voices of the niggardly austerians with their constant yammering “but how will we pay for it?” — often with respect to things we are already paying for, just in different ways (sometimes disastrous, bloody ways), and always with the pretension that a national economy is analogous to a household economy (it isn’t; this is explained in clear detail by MMTers).  It opens up possibilities for public financing of numerous critical projects to deal with the intersecting crises facing us, including but not limited to climate, climate justice, and economic and social justice.

    It may have a wart or three, but on balance a very good thing. Two cheers for MMT.

    (Of course none of the above will come to pass without a major political movement, which is becoming constituted in the Bernie campaign as we speak, and which will continue to grow in the coming decades. Among Bernie’s advisors, incidentally, are Stephanie Kelton and Pavlina Tcherneva, noted MMTers. The latter is one of the leading scholars of the job guarantee, whose writings are indispensable if you are interested in that subject.)

    ……………

    on an adjacent tab in my browser, something you might like:

    https://boingboing.net/2019/10/09/shattering-overton-window.html

    CORY DOCTOROW / OCT 9, 2019

    Washington establishment freaks out as Modern Monetary Theory gains currency

    the quote at the end is cool:

    “The decline of the deficit fear-factor [peddled by the people I call “austerians” –alan2102] is palpable in Washington, said Coronado, a former Federal Reserve economist. “You can see it politically, it’s already happening,” she said. “The progressive camp is frustrated, they have had it, and are saying  ‘You guys are wrong, you have been wrong about everything and now it’s going to be our turn.’

    Here here!

    PS:  “Washington establishment freaks out as Modern Monetary Theory gains currency” — did anyone else notice the pun in that title?  Just noticed it myself.

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  • Wed, Nov 20, 2019 - 7:05pm

    #15

    Mark_BC

    Status Bronze Member (Offline)

    Joined: Apr 30 2010

    Posts: 320

    2+

    Money only holds value if it has something of value backing it. Otherwise the people reject it as a savings vehicle and supply and demand forces devalue it. Historically this was done predominantly through gold backing since it is scarce and people always held it in high regards.

    Today it doesnt have gold. Over the last 3 decades of the 1990’s it had a genuinely growing debt-based economy providing value to the money since interest rates were real and positive.

    Since 2001 real interest rates have been negative so it no longer has that, although the continual dropping of rates over the last 20 odd years provided value to bonds. Interest rates cant really go much lower so the bond run is over.

    Today all there is backing the value of money is the faith of the majority of the population in that money. And the petro-reserve currency which backs the western currencies with oil. But due to the completely unfundable future liabilities that the current dollar system is burdened with, there will inevitably have to be a devaluation because the resources arent available to provide for that. This will destroy the public’s confidence in money.

    What will then prevent a hyperinflationary outcome with nothing of value backing the currency thereafter, other than the “full faith and confidence in the US government” issuing it (LOL)? That faith wont last long…

    The only thing I can think of is if they ban cash and institute electronic controls to force people to use the currency and prevent mass rejection. That’s hardly a socially just and sustainable option.

    I think these mmt theorists have developed their hypotheses in the environment of the US having the global reserve currency which allowed it to do financially whatever it wants. That will soon end. They live in a fantasy world.

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  • Thu, Nov 21, 2019 - 7:39am

    Reply to #15
    alan2102

    alan2102

    Status Member (Offline)

    Joined: Jul 31 2013

    Posts: 57

    reply to Mark BC

    “I think these mmt theorists have developed their hypotheses in the environment of the US having the global reserve currency ….  That will soon end.”

    You are right that it is in decline; I don’t know about “soon end”. It has been in slow decline for decades, and that will probably continue. At the turn of the century, central bank reserves were 70-80% in dollars (I’ve read different numbers, never nailed it down), now that is down to 62%.  In decades prior to the turn of the century, the percentage was even higher. In other words, the U.S. dollar has already lost a LOT of its reserve status, all the way down to 62%.

    How important is this?  It does not seem to have had much effect so far. Unless you could, let’s say, somehow attribute some huge negative thing (like the GFC) to this decline in reserve status.

    Another matter, possibly relevant, is the rise in absolute numbers. The chart at the link below illustrates this. The dollar’s position as go-to reserve currency has declined as a slice of the pie, but the pie itself has increased greatly — about 8X! — so that in absolute terms the dollar is more powerful than ever:

    https://si.wsj.net/public/resources/images/FT-AA445A_DOLLA_9U_20170920143913.jpg

    The immediate question that occurs to me is: WHY? Why are banks holding so much more (8X) cash than they did just 20 years ago? The global GDP grew but not nearly that much, maybe 2.5X.

    In relation to this discussion, the question is: what is the significance (to the value and ultimate fate of the dollar), if any, of this huge increase in global bank currency holdings, including a huge increase in dollar holdings?

    Another way to put it:  since banks are now holding such humongous piles of dollars (far more than 20 years ago), in absolute terms, would this be a negative influence, or any influence, on their ability to de-dollarize or “dump the dollar” (assuming they desire to do so) going forward?

    Not only do I have no answer to the questions I just asked, I don’t even have a clue. These questions are way above my pay grade.

    However, I’ll venture this: relative de-dollarization will probably continue, slowly, like in the past, and relative dollar reserves will drift downward from current 62% to 50% and eventually 40%.  De-dollarization is an (apparently generational) process, not an event. What impact will this have on the value of the dollar? Who knows?

     

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  • Thu, Nov 21, 2019 - 8:22am

    Reply to #15
    alan2102

    alan2102

    Status Member (Offline)

    Joined: Jul 31 2013

    Posts: 57

    reply to Mark BC, pt 2: gold standard

    “Money only holds value if it has something of value backing it….  Historically this was done predominantly through gold backing”

    A long long time ago, yes. And it did not work.

    The gold standard  has been pushed by Austrian/libertarian types like Ron Paul and many others, for decades. Austrianism and the gold standard are joined at the hip. But their entire school of thought is in tatters — a good thing because it was never more than an elaborate apologia for extreme wealth concentration, power-over, ruthless extraction, and immiseration or even murder of anyone who would stand in the way.

    Comprehensive debunking of Austrianism is in numerous articles archived here:
    http://socialdemocracy21stcentury.blogspot.com/2013/01/debunking-austrian-economics-101-updated.html
    Debunking Austrian Economics 101, Updated

    For debunking of the gold standard specifically, do this google search:
    “gold standard” site:socialdemocracy21stcentury.blogspot.com
    …. then scroll through the hits and read 6-8 of the most promising ones.

    And/or read this item:

    https://www.reuters.com/article/us-gold-standard/why-conservatives-spin-fairytales-about-the-gold-standard-idUSBRE98G07E20130917
    SEPTEMBER 17, 2013
    Why conservatives spin fairytales about the gold standard
    Charles Postel
    “In the years after 1913, the need for a flexible and regulated money supply was widely accepted across the political spectrum. By mid-century, only a small band of right-wing ideologues clung firmly to the gold standard. In a 1990 paper, Milton Friedman, the 20th century’s most influential conservative economist, aptly described such holdouts as “monetary monomaniacs.” But that was then. Today gold is king of conservative economic thinking.”
    snip
    “Supposedly, gold will provide an anchor of stability in a rough economic sea. But, like any other commodity, gold is subject to speculative bubbles. Over the last five years gold prices have been tossed high and low, more like froth in the wind than a sturdy anchor. Supposedly, “ending the Fed” will return us to the firm ground of prosperity of the last gold standard era from 1873 to 1914. But claims that the old gold standard made for a more stable economy have no basis in the historical record. Those years witnessed the terrible depressions of the 1870s and 1890s, and some of the most severe financials busts and economic storms in U.S. history. What the historical record does show is that the politics of gold and hard money bitterly divided the country and contributed to unprecedented levels of economic inequality. This experience helps make sense of the gold fever gripping conservatives today. Then, as now, hard money was the preferred policy of the corporate 1 percent.”
    snip
    Conservatives from business, politics and academia rallied to the gold standard. They were known as gold bugs because of the militant faith that they placed on this precious metal as the key to preserve their wealth, power and way of life. For Republican industrialist Mark Hanna, the political kingmaker behind President William McKinley, the danger lay in the “communistic spirit” of soft money. For Harvard economist Francis A. Walker, paper money would lead to “effeminacy” weakening the control fathers and husbands had over their wives and children. For the journalist William Allen White, Bryan’s attack on the gold standard amounted to “riot, destruction and carnage.”
    snip
    “the possibility that the U.S. will revert to a gold-backed currency is little to none. The gold standard is a relic of history. Yet, the cries of the “monetary monomaniacs” grow louder. Paul, Bachmann, Forbes, Beck and other conservatives now warn that it is either gold or the abyss. They do so because today’s gold bugs share the same goals as their conservative ancestors. They, too, understand that hard money serves power and wealth.”

    Put me down, dear comrades, as someone who proudly embraces the communistic spirit of soft money.

    …………….

    AND, if you feel like really taking a Walk On The Wild Side, try Anthony Migchels’ rants against the gold standard. I cite these mostly for amusement purposes, but they are also somewhat thought-provoking, and he certainly does get some things right:

    https://realcurrencies.wordpress.com/2019/10/14/the-crunch-is-back-theres-going-to-be-a-gold-standard-and-it-will-be-disastrous/
    OCTOBER 14, 2019
    The Crunch Is Back, There’s Going To Be A Gold Standard, And It Will Be Disastrous
    by Anthony Migchels
    The next round in the Crunch is here, and Central Banks have suddenly started saying that a Gold Standard will be necessary to start anew.
    The Gold Standard will force an excruciating deleveraging, austerity, deflation, and depression, and bring immense pain to the masses.
    The Real Populists have been warning against the coming Gold Standard as the Banker Master Plan to destroy America for decades. The Libertarians in the Truth Movement have a lot of explaining to do, for continuing selling the Banker Plan to the uninitiated.

    Phoenix Rising, the Return of the Gold Standard
    Phoenix Rising, the Return of the Gold Standard
    by Anthony Migchels on January 28, 2012
    What has been in the cards for decades is now fully on the agenda: the returning Gold Standard. Gold as currency is a weapon. It is a wealth transfer to those holding Gold and will precipitate a massive deflation. The ensuing chaos will help usher in their coveted New World Order and World Currency.

    Why Gold is so strongly deflationary
    Why Gold is so strongly deflationary
    by Anthony Migchels on February 19, 2012
    ‘You are aware that the gold standard has been the ruin of the States which adopted it, for it has not been able to satisfy the demands for money, the more so that we have removed gold from circulation as far as possible.’ Protocol 20
    One of the key problems with Gold as currency is that it is strongly deflationary. Austrian Economics both denies deflation is disastrous and that Gold is deflationary and this is one of its major weaknesses.

     

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  • Thu, Nov 21, 2019 - 9:19am

    Reply to #15
    Mohammed Mast

    Mohammed Mast

    Status Bronze Member (Offline)

    Joined: May 17 2017

    Posts: 114

    5+

    It did work

    It kinda did work for 700 years. That would be long enough for me.

     

    https://www.ancient.eu/Byzantine_Coinage/

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