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Author Topic: FED should buy stocks instead of government bonds  (Read 1790 times)
johnyj
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August 20, 2011, 12:44:02 AM
 #1

In this way, the stimulus money will have much better effect

I hope they even buy my used car for 1 billion$, because I can guarantee I will spend all those income, not like those big corporations sitting on tons of cash and doing cost cutting which bring down the total demand of the whole society  Angry


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CurbsideProphet
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August 20, 2011, 01:36:28 AM
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And which stocks get this lucky prop-up for nothing?  Let me guess, Goldman?

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August 20, 2011, 06:38:08 AM
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How about the FED stops trying to "fix" things?  Then we might actually recover.
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August 20, 2011, 08:53:21 AM
 #4

Thats silly. The Fed should buy my house and my products. That way the (my) economy would recover very quickly.

And the price of food is very cheap, poor people have it too easy, so more money printing and higher food prices is not going to matter.
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August 20, 2011, 10:01:06 PM
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And which stocks get this lucky prop-up for nothing?  Let me guess, Goldman?

S&P 500 index

jtimon
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August 20, 2011, 10:05:13 PM
 #6

The fed should stop buying things if he doesn't want the dollar to hyperinflate.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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August 20, 2011, 10:14:28 PM
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How about the FED stops trying to "fix" things?  Then we might actually recover.

That is also a good suggestion, but I'm afraid without we seeing a much deeper recession and everyone has been pushed to edge of poorverty, we are not going to see it happen

companies' sells going down -> cut staffs -> more people becomes jobless or threatened by jobless possibility and spend less -> total demand going down -> companies' sells going down -> cut staffs -> ......

This downward spiral can continue forever until either companies stop cutting staffs or the total demand can not going down further. With today's high speed development in software and automation, the process to cut staffs and replace them with software can go on for a long time before any major resistance showing up. And the total demand can also going down for decades since people can find cheaper and cheaper products and cut spending, sell assets etc...

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August 20, 2011, 10:26:41 PM
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companies' sells going down -> cut staffs -> more people becomes jobless or threatened by jobless possibility and spend less -> total demand going down -> companies' sells going down -> cut staffs -> ......

This is an economic fallacy. This "model" supposes that there is only one type of good being produced.

This does not happen in the real economy. Its only inflationist propaganda.
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August 20, 2011, 11:23:56 PM
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The fed should stop buying things if he doesn't want the dollar to hyperinflate.


Printing more money must be coped with increasing demand to make inflation possible, only printing money will not create inflation.

In a recession and post-recession era, many people are saving, excessive money supply will simply convert to savings, thus not pushing any price up. Only after they have accumulated enough cash, they will start to feel safe and spend, then inflation will start to appear

Speculation will also cause inflation, for example the gold, but that is more controllable if banks do not provide gold backed loan

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August 21, 2011, 12:00:43 AM
 #10

The fed should stop buying things if he doesn't want the dollar to hyperinflate.


Printing more money must be coped with increasing demand to make inflation possible, only printing money will not create inflation.

In a recession and post-recession era, many people are saving, excessive money supply will simply convert to savings, thus not pushing any price up. Only after they have accumulated enough cash, they will start to feel safe and spend, then inflation will start to appear

Speculation will also cause inflation, for example the gold, but that is more controllable if banks do not provide gold backed loan

What? So you're telling me that if bernanke prints 50 Trillion USD and puts them in stocks he's not going to create price inflation?
Note that monetary inflation is just that, printing money.
Also, won't the savers use a better way of saving (say hoarding goods, investing or lending) than a currency that is being printed at an exponentially growing rate?
Will the sellers of stocks just keep the newly created money or spent it in anything else?

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
johnyj
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August 21, 2011, 12:33:38 AM
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The fed should stop buying things if he doesn't want the dollar to hyperinflate.


Printing more money must be coped with increasing demand to make inflation possible, only printing money will not create inflation.

In a recession and post-recession era, many people are saving, excessive money supply will simply convert to savings, thus not pushing any price up. Only after they have accumulated enough cash, they will start to feel safe and spend, then inflation will start to appear

Speculation will also cause inflation, for example the gold, but that is more controllable if banks do not provide gold backed loan

What? So you're telling me that if bernanke prints 50 Trillion USD and puts them in stocks he's not going to create price inflation?
Note that monetary inflation is just that, printing money.
Also, won't the savers use a better way of saving (say hoarding goods, investing or lending) than a currency that is being printed at an exponentially growing rate?
Will the sellers of stocks just keep the newly created money or spent it in anything else?


Any kind of investing involve certain degree of risk, in a post-recession era, people are not risk taker, they'd rather hold the cash. If you just been hit hard by a financial crisis and many of your investments are wiped out in one night, then Bernanke print 50B USD and lend it to you, will you just save it and spend it carefully, or spend it like crazy? (I think if you spend it like crazy, we are out of recession then)

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August 21, 2011, 12:41:49 AM
 #12

Why would you borrow to hoard?

EDIT: And you were talking about the fed buying bonds, not lending.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
johnyj
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August 21, 2011, 12:50:49 AM
 #13

Why would you borrow to hoard?

EDIT: And you were talking about the fed buying bonds, not lending.


In my understanding, FED first produce 1B money to buy bonds, and these bonds will become FED's reserve and enable FED to loan 10B money to commercial bank at 0 interest. Commercial banks are happy to borrow at 0 interest (free money), but they have a difficulty to loan out these money due to many of the companys already scared by financial crisis and are not willing to take loan due to uncertain business condition

johnyj
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August 21, 2011, 12:54:50 AM
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Wrooong!!!

The should buy mining contracts.


+1  Cool

CurbsideProphet
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August 21, 2011, 01:32:56 AM
 #15

And which stocks get this lucky prop-up for nothing?  Let me guess, Goldman?

S&P 500 index

Oh good.  It's about time those big corporations get a bailout!

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gareth69
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August 21, 2011, 02:13:49 AM
 #16

Fed buys bonds = no price discovery on bonds

HFC Algos front run and buy shares = no price discovery on stocks

Private Fed now monitezes over 70% of US debt = basically a default since in buying a US bond, you end up being paid back in monopoly money.

Wonder why the debt ceiling needed to be raised to avoid a debt default? They just needed to borrow more money to pay back what they had already borrowed = Ponzi Scheme.

However, as long as the people at the top don't lose money (they won't since they get fist dibs on the "hot money"), this madness will continue. Expect to lose purchasing power, also expect the economy to get *worse* due to **malinvestment** (no real price discovery to know where the money/investment needs to go).

Basically most of the West are now running a Ponzi Finance - crony capitalism system (command/socialist if you prefer) style of "economy". This is utter BS, we're living under a financial Oligarchy or Plutocracy. In Europe they are now talking about setting up a Pan-EU economic system run from Brussells (don't let a good crisis got to waste.....). Hey in 4-5 years you get to choose between 2 preselected establishment turds who have no power to do anything (even if they wanted to...). Enjoy the shit sandwitch, there's dog poop or cow poop the "choice" is yours!
jtimon
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August 21, 2011, 09:27:59 AM
 #17

Why would you borrow to hoard?

EDIT: And you were talking about the fed buying bonds, not lending.


In my understanding, FED first produce 1B money to buy bonds, and these bonds will become FED's reserve and enable FED to loan 10B money to commercial bank at 0 interest. Commercial banks are happy to borrow at 0 interest (free money), but they have a difficulty to loan out these money due to many of the companys already scared by financial crisis and are not willing to take loan due to uncertain business condition

In my understanding, when the fed buys 1B in bonds, the government then spends this 1B in bonds and the money enters the economy.
The bonds are the "reserve" for those 1B.
When the fed lends to commercial banks 10B, the "reserve" is an IOU from commercial banks stating "IOU 10B plus interest". But if the inflation is equal to the nominal interest, then the real interest is zero.
The fed doesn't use fractional reserve, because all its "reserves" are always debt .
You talk like if creating price inflation was a hard thing to do, but is the simplest thing in the world. Is the government of zimbawe made of geniuses because they reach hyperinflation?
No.
M * V = P * Q
You increase M, P will increase. Period.
Creating price inflation is just as easy as print (creating monetary inflation).


2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
fiatpirate
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August 21, 2011, 10:29:44 AM
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In my understanding, when the fed buys 1B in bonds, the government then spends this 1B in bonds and the money enters the economy.
The bonds are the "reserve" for those 1B.
When the fed lends to commercial banks 10B, the "reserve" is an IOU from commercial banks stating "IOU 10B plus interest". But if the inflation is equal to the nominal interest, then the real interest is zero.
The fed doesn't use fractional reserve, because all its "reserves" are always debt .
You talk like if creating price inflation was a hard thing to do, but is the simplest thing in the world. Is the government of zimbawe made of geniuses because they reach hyperinflation?
No.
M * V = P * Q
You increase M, P will increase. Period.
Creating price inflation is just as easy as print (creating monetary inflation).
Jjtimon, You are right. The Fed does not practice fractional reserve banking (the Ten to one stuff). Instead, they loan to banks who are allowed to practice Fractional reserve banking.

Now regarding the Fed directly buying stocks... Very bad idea. The last thing we need is a front organization for the private banking cartel creating money to purchase parts of other companies.

Even if you subscribed to the idea that the Federal Reserve is a government run institution (which it is not - it is sort of a hybrid-ish monster), it would still be a bad idea for government to buy up parts of companies. This would be a defacto move from socialism on the part of government.

Since the Fed is actually a government protected private organization (see The Creature from Jekyll Island book), this would be akin to a fascist (state controlled expansion and control of industry) move in US government policy. This is a road that may have small "advantages" early on, but has grave consequences if pursued to its ends.
jtimon
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August 21, 2011, 12:14:06 PM
 #19

@fiatpirate

I think the fed buying stocks is a terrible idea, you don't have to convince me.
I haven't read "The Jekyll Island monster" book but I know the story. For example, it is in "the money masters". The documentary is interesting but I don't like the conclusions (going back to greenbacks issued directly by the government). Money should be a free market.
I pretty much agree with the austrian views but I think their theory of interest is not correct. I prefer the "free money theory of interest" developed by Silvio Gesell.
I guess I'm an austrian-gesellian hybrid. Kind of free market anti-capitalism anarquist. I think the basic interest on money (not the risk or the inflation premium) is the source of capitalism, not free market by itself.
If in a free market we use a money without interest, capitalism is gone (capital yields would drop to zero like other sustained profits do). Probably business cycles too.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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August 21, 2011, 05:55:46 PM
 #20

The biggest criticism about austrian economists is that they described lots of problem, but solved none (Just wait until the worst happens and then it will correct itself? What if the worst really happened and it does not correct itself?)

It's difficult to discuss economic without numbers.  10% income debt and 1000% income debt are totally different thing. Without numbers any kind of talk is just pure talk and not convincing at all

A simple view: FED is the biggest end customer, if they start to buy, everyone will make money, if they buy too fast - inflation, if they buy too slow - deflation


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