[freejulian85]

The money absolutely impacts the economy and the individual. If the fed were not providing this printed money to the banks, the banks would need to do some combination of the following to increase liquidity:

1) Increase interest rates to attract new deposits

2) Sell assets — such as foreclosed homes now in the banks possession

With house prices at all time highs and interest rates at all time lows, both 1&2 sound great to me and absolutely have a direct impact on me.

[dragonwriter]

You left out #3, tighten lending criteria and raise interest rates on loans to increase income per dollar lent and reduce volume of lending, which also improves liquidity.

But, yeah, if you are flush with cash and don't own a home but want to, #1 & #2 sound great if you consider only their first order effects on you.

#1, especially, is a huge brake on the economy (as is it's close relative #3). Which probably also has a negative impact on you, unless you are living entirely off of a pile of cash previously earned.

[0x445442]

Given there's so much of this (https://en.wikipedia.org/wiki/Bullshit_Jobs) right now, I'm not convinced #1 would have a such a negative impact. If we broaden are thinking it could have an awesome impact long term.

[vpmpaul]

The problems with these types of books to me is that the researcher surgically analyizes a tiny part of the whole picture and claims this is the grand solution or something like that.

This book does nothing other than highlight common knowledge but does nothing to show why or how it is that way and what can be done to begin to change it.

Its the equivilant of saying well the reason the timing belt on your car breaks is it is too weak. So I made a 150kg gear system to replace it. "Wont that be too heavy for the engine to turn it?" , "Oh yeah you will have to replace the whole engine and transmission as well." Except in this instance it is all of society and humanity that would have to be changed or replaced.

On example: the reason duct tapers exist is that they handle the exceptions from really, really ,really, really difficult problems to solve that are already partially solved and working good enough.

[dragonwriter]

> Given there's so much of this (https://en.wikipedia.org/wiki/Bullshit_Jobs) right now, I'm not convinced #1 would have a such a negative impact.

Well, it would. Now, you can certainly argue that with an ideal distributional system (or even a far-from-ideal one that is still better than the one the US has, which aren't exactly rare in the developed world), we could have significantly lower total output and still equal or better overall well-being (and far better practical conditions for the lower 60-75% of the income/wealth distribution). And, sure, you'd be right. But we don't have such a system.

> If we broaden are thinking it could have an awesome impact long term.

Returning to a system that encourages positive-feedback economic crashes isn't broadening our thinking, it's just blindly throwing away beneficial progress.

Are there other economic friend that might eliminate the need for the current mitigation for that problem and be far better overall? Probably. Find and implement them first, though.

[BuckRogers]

It's stealing money out of everyone's pockets to keep the banks going. Devalues the existing currency already in circulation. I love the obsession with keeping the system going, if the system is cyclical and flawed for human beings, maybe we shouldn't base the system that feeds, clothes and houses humanity on a craps table. The more of this sort of news that comes up the closer I listen to Richard D. Wolff.

[throw0101a]

> Devalues the existing currency already in circulation.

Anyone with debt (e.g., mortgage, student loans) is advantaged from a future lower-value currency:

> If wages increase with inflation, and if the borrower already owed money before the inflation occurred, the inflation benefits the borrower. This is because the borrower still owes the same amount of money, but now he or she has more money in his or her paycheck to pay off the debt. This results in less interest for the lender if the borrower uses the extra money to pay his or her debt early.

* https://www.investopedia.com/ask/answers/111414/does-inflati...

Provisos:

> Inflation can help lenders in several ways, especially when it comes to extending new financing. First, higher prices mean that more people want credit to buy big-ticket items, especially if their wages have not increased – new customers for the lenders.

[BuckRogers]

I'd argue you can't "win" in any form, if you're in debt. That's like trying to lose your way to the top of a ranked competition. You never move up the ladder of life by losing.

Broadly speaking, it's a position of weakness and servitude. It's a similar suggestion that if you're deep in debt, you "win" if you get hit in the head with a baseball bat. Sure, you enjoyed spending the money and now you're mentally deficient so you got away with not having to pay it off, but you've still been beaten over the head with a bat.

But ultimately, even if my view is an inaccurate description of reality, what you're saying is true, but I'd argue it's still a net loss. The end-goal over a lifetime of earning is to be in the black, not red. It's difficult to lose your way to the top. Wages don't track inflation (contrary to those 2% raises a year, because salaries are suppressed from downward pressure on wages). So the relatively short time someone is in debt doesn't outweigh the time spent out of debt thus the advantage you speak of isn't worth it.

All that said, debt is not inherently bad.. but that's another discussion and not in the context of this discussion.

[LatteLazy]

The majority of people already own houses and have mortgages. That means they don't want interest rates to go up. So the Fed will not allow that.

That's it, that is the reason banks were bailed out in the first place. That's the reason they're being subsidised now (plus lots of cheap money pushes up the stock market and spurs investment and looks good at election time).

This isn't about economics. It's about politics.

[ls612]

The vast majority of mortgages out there today are fixed rate, not adjustable rate. That means that the interest homeowners are paying is locked in regardless of the rates in the market today.

[wutbrodo]

Most homeowners still have a substantial amount of leverage though, and you can refinance every X years. On top of that, rising rates reduce house values.

Most of my parents' net worth is in either residential or investment real estate, and low rates are very much good for them.

[freejulian85]

> The majority of people already own houses and have mortgages.

The majority of boomers maybe own houses. Exclude them and your claim isn’t even close to true.

Regardless, this entire situation is a huge moral hazard. I think the majority of us wouldn’t approve of the fed deciding winners and losers.

[robk]

Your mortgage rate would go up though unless you're an all cash buyer

[mindslight]

Which is exactly what you want. Expected monthly payments are fixed, so your principle would go down. This increases your ability to pay off the loan earlier, and lowers your property taxes.

(This may not sound causal until you consider the larger feedback loop that has gotten us to here in the first place.)

[sedeki]

I think it makes sense for the banks to wait for the Fed to do something. Banks are acting in the interest of their shareholders; the Fed for the population as a whole.

[freejulian85]

This is no different than the manipulation that happened with LIBOR. Back then the media was quick to point out that the manipulated interest rate impacted pension funds, mortgages, and everything in between.

The fed is doing the same thing by stepping in and manipulating the overnight rate. Without the fed doing this, banks would have to plan ahead and make sure they have sufficient liquidity. This means maybe offering better interest rates to earn customer deposits.

With the major banks still calling 0.05% “high yield”, I don’t think it’s appropriate for the fed to continue to enable their incompetence. Furthermore, the banks hold a significant inventory of foreclosed homes on their books. They’ve been sitting on them for years. It’s time they sell that resource to people who need them.

[sedeki]

I mean that given that the Fed will act if the banks do nothing, and that doing something will make the banks loose money, it is inevitable that the banks will "drag their feet". As you understand, I am not commenting on the moral aspect.

[pmart123]

Part of the problem is the fed has tried to raise short term rates while the rest of the world has had a zero interest rate policy. Meanwhile, the US interest rate curve is inverted. So banks, who typically lend long and borrow short get squeezed. So even if the fed is targeting 2% rates, but the 10 yr is at 1.5%, a bank really shouldn’t be borrowing from you at 2% to lend it out to someone else at 1.5% on a ten year loan.

[istrading]

Maybe it's because the rest of the world can though. If you look at the debt to GDP ratio of Germany, Russia, China, it is much lower than the United States. Recently it was reported by AB Bernstein that the Debt-To-GDP ratio in the United States -- the real Debt-To-GDP Ratio -- is 1,832%!! https://interactiveswingtrading.com/2019/09/09/ab-bernstein-...

[Cakez0r]

Following that line of reasoning, isn't a bank incentivised to accrue as much debt as possible because the fed will just bail them out if they can't pay it back?

[sedeki]

Taken to the extreme, yes. If enough banks do it, the reason for bailout is called "too big to fail".

[the_watcher]

That's the moral hazard, yes.

[jigglesniggle]

No matter how many times it is explained, at the end of the day people who are not me and who have no real valid claim to free money are being given free money and allowed to profit off of it.

[29_29]

I was talking about the two levers the Fed has to guide the economy at work - Printing Money and Lowering interest rates (as described by Ray Dalio https://youtu.be/PHe0bXAIuk0). My coworker starry eyed, looked at me and said, "What about Quantitative Easing?". I responded that is printing money. I think the issue is, these concepts are given difficult sounding names, so people do not question their ethics. I'm not saying they are not needed - in a credit based economy it seems they are absolutely necessary, but perhaps they could be implemented in a way that doesn't so favor the rich.

[mars4rp]

Yes, print money and pay for student loans!

[Fjolsvith]

Yes! Because we can postpone that bill to our future tax payers.

[mars4rp]

What bill? Printing money is not a bill

[Fjolsvith]

The student loans are.

[michalu]

Except that "Quantitative Easing" is NOT "printing money"... it's just media who dubbed it "printing money" as it is a more clickbaity term that works better for driving traffic to the advertisement infested pages.

[29_29]

Quantitative Easing could not exist without creating money. Its literally the Fed creating money to buy bonds to reduce interest rates.

[29_29]

https://www.investopedia.com/terms/q/quantitative-easing.asp

> Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply

[LegitShady]

Just so we're clear, he's not entirely wrong.

When the central bank 'buys' securities, they do so with money they're creating in that purchase. In effect they're dumping new money into wherever they're buying securities from, but the 'dumping' isn't with dump trucks or dropping it from planes.

Now those bonds come due and the money is supposed to leave the system, but until then the velocity of money means there are knock on effects.

[RhodesianHunter]

When you put money into the market, but take bonds (which are a guaranteed future cash flow) out you are injecting liquidity temporarily, effectively trading current cash for more future cash.

It's not the same thing as printing money and spending it and suggesting otherwise is either disingenuous or ignorant.

[grandridge]

It is exactly printing money, just the amounts are so large they just skip the paper and ink

[RhodesianHunter]

When you put money into the market, but take bonds (which are a guaranteed future cash flow) out you are injecting liquidity temporarily, effectively trading current cash for more future cash.

It's not the same thing as printing money and spending it and suggesting otherwise is either disingenuous or ignorant.

[geggam]

And it's easier to move around, for a fee.

Think of this business opportunity.

Start a company where you imagine wealth into existence then loan it to others. Then you setup partner systems where you charge folks who use that wealth. A charge for each transaction.

Zero overhead with a profit layer...

[geggam]

^ this is they key to being wealthy, counterfeiting :)

[0x445442]

That and when running a business you get to keep profits but someone else pays for your losses.

[grandridge]

I wish more people here understood this.

[jhayward]

> If the fed were not providing this printed money to the banks

I'm pretty sure you don't actually mean "printed money", since the Federal Reserve doesn't do that. No currency was created for this market operation, just balances in books kept by the Federal Reserve Bank of New York.

[freejulian85]

The money which the fed gave to the banks did not previously exist. The fed increased the balance sheet of the banks to indicate they had cash they would not otherwise have had. Fits my definition of “printed.”

[joeyrideout]

I think a more accurate phrase is "borrowed into existence", which is worse than printing because the balance created charges interest. Printing money directly rather than borrowing it is less inflationary, because more money is needed to service debt.

(This is all bad so I may be splitting hairs, but I would advocate for direct currency printing over this lending scheme if given the chance.)

[jhayward]

Currency is printed. Money is created as bits in a ledger. Money is not synonymous with currency.

Thats the difference I'm pointing out.

[zaphod420]

Here's a longer explanation for those interested...

https://www.thebalance.com/is-the-federal-reserve-printing-m...

[mindslight]

Yes, it is not literally "printing money" in the way that the US Mint physically does. The term is appropriate though, as the result of translating from the paradigm banks operate in into the paradigm natural persons are bound by. We can only give away what we have received - I cannot give a friend $20 in exchange for an IOU, and then transmute that IOU into a crisp new $20 bill.