Could take 5-8 years to shrink Fed portfolio: Yellen

[STT]

I think you will find standard of living rose mostly from widely available technology and mass production.  Its arguable with so many imports this is reliance on efficiency outside USA but some will say loose monetary policy and endless gov spending is what enabled growth 'you didnt build that' et al
http://en.wikipedia.org/wiki/You_didn't_build_that

What inflation??

Ties into the same thing via hedonics.     Of course prices have risen over decades, we know thats obvious but the cpi is mitigated by saying well the product has improved therefore a 5% rise this year is in line with a better product.   Are cars now better then they were in the 1970's?  Sure, though I prefer old cars but Im not sure even nicer products nullify the price rises.
  Personally as Ive studied stats, I would prefer the raw figure and then let an audience and press interpret the ongoing effect themselves but we dont have that, most gov stats are adjusted for better digestion in some way
http://en.wikipedia.org/wiki/Hedonic_regression

[InwardContour]

They do need reserves or need to lie about it like Lehmans did.

They do need reserves at the Fed but that's not important as they can always obtain them.
What they need more is capital, and the capital requirement is far more important to lending.

The Fed does not need capital or reserves because they can simply "print" additional money to satisfy any capital needs  or when member banks withdraw money from the fed

I was talking about commercial banks reserves which they are obliged to have at Fed.

Commercial banks reserve can be "raised" by having the Fed buying up all the useless securities from them.

Yep, the Fed doesn't even have to buy anything from them. There's a mechanism that has been used for ages - repo operations. It's a part of normal central bank functioning.

Repo operations have a much shorter term effect then outright buying bonds/assets. Repos usually last a day (or other short periods of time) while bonds that the Fed is buying mature on average in 5 years

[STT]

I read a few years ago now that on average all the trillions of USA debt rolling over in bonds has a weighted average span of about 4 years.   One of the lowest terms in the world, UK for example comes to 13 years to refinance the debt.  That is a result of the UK being bailed out by the IMF in the 1970's and policy since

Further more, this is a deliberate policy in play since Clinton.  Obviously we know base rates are low, so by keeping the debt terms low it actually causes the debt cost to be as small as possible.  Clever but also more dangerous as it can become a bad juggle

I cant find a wiki for debt term reduction policy, its out there somewhere but this is an impressive chart.  Think of all the debt added in recent years and yet theres no more interest payable -

[InwardContour]

I read a few years ago now that on average all the trillions of USA debt rolling over in bonds has a weighted average span of about 4 years.   One of the lowest terms in the world, UK for example comes to 13 years to refinance the debt.  That is a result of the UK being bailed out by the IMF in the 1970's and policy since

Further more, this is a deliberate policy in play since Clinton.  Obviously we know base rates are low, so by keeping the debt terms low it actually causes the debt cost to be as small as possible.  Clever but also more dangerous as it can become a bad juggle

I cant find a wiki for debt term reduction policy, its out there somewhere but this is an impressive chart.  Think of all the debt added in recent years and yet theres no more interest payable -

This policy is to make it so that other social programs can appear to be cheaper then they really are. There have been several budget agreements that used "interest savings" or "lower interest costs" as a way to cut spending.

[DannyElfman]

interest rates are manipulated to try to keep inflation low

In theory, but not in practice. For the last 25 years, interest rates have been kept low to benefit the wealthy, and the result has been inflation that has destroyed the wealth of the poor and middle class.

What inflation??

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades. 

[transient858]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades. 

Do you really believe the graph and what you just said?

[RoadTrain]

Just so no question of graph bias for ending where it did, 2009-2014 adj. CPI-U still avg 2.08% annually. Over ten years, would be ~23% inflation, which is pretty reasonable looking at the past. I'm sure I'm not understanding how inflation works after seeing lack of effect on CPI from QE. I always figured CPI was tied to M2 and that CPI growth lagged a bit behind M2, but doesn't seem to be the case or we're on the verge of hyperinflation, but I'm not sure how long I can buy "we're on the verge of hyperinflation" without seeing it.

At the grocery store, beef & pork's prohibitively expensive, but it doesn't really translate elsewhere from my unscientific observations. Looks in line with BLS CPI-U numbers. Milk, grain, and soy products are all still reasonably priced. Chicken a bit high, but reasonable. Rice and potatoes still about as cheap as topsoil. Fruits haven't exploded in price, but are somewhat expensive-seeming. Packaged foods and restaurants have become terribly expensive, but "real food" hasn't exploded in price even though rented acreage out for farming here at near-record prices. High prices for pre-made food maybe a result of skyrocketing minimum wages throughout the states, where farms don't necessarily need to pay it.

(Bold) That's not the case. According to monetary equation M*V=P*Q, the price level P is one of four variables, so it doesn't make any sense to imply it correlates only with money quantity M.
On the left side of the equation there's a very volatile variable called money velocity (V), that also greatly influences price level.
I'm not calling this equation as the only true, but even this one doesn't let you equate monetary inflation with price inflation.

[InwardContour]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades. 

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

[Kluge]

Just so no question of graph bias for ending where it did, 2009-2014 adj. CPI-U still avg 2.08% annually. Over ten years, would be ~23% inflation, which is pretty reasonable looking at the past. I'm sure I'm not understanding how inflation works after seeing lack of effect on CPI from QE. I always figured CPI was tied to M2 and that CPI growth lagged a bit behind M2, but doesn't seem to be the case or we're on the verge of hyperinflation, but I'm not sure how long I can buy "we're on the verge of hyperinflation" without seeing it.

At the grocery store, beef & pork's prohibitively expensive, but it doesn't really translate elsewhere from my unscientific observations. Looks in line with BLS CPI-U numbers. Milk, grain, and soy products are all still reasonably priced. Chicken a bit high, but reasonable. Rice and potatoes still about as cheap as topsoil. Fruits haven't exploded in price, but are somewhat expensive-seeming. Packaged foods and restaurants have become terribly expensive, but "real food" hasn't exploded in price even though rented acreage out for farming here at near-record prices. High prices for pre-made food maybe a result of skyrocketing minimum wages throughout the states, where farms don't necessarily need to pay it.

(Bold) That's not the case. According to monetary equation M*V=P*Q, the price level P is one of four variables, so it doesn't make any sense to imply it correlates only with money quantity M.
On the left side of the equation there's a very volatile variable called money velocity (V), that also greatly influences price level.
I'm not calling this equation as the only true, but even this one doesn't let you equate monetary inflation with price inflation.

Thanks. Does increasing M create a kind of "potential energy effect" when V is low? M2V was much higher before '08 recession and is at lowest point in recorded history (well, by FRED, going to 1960).

Otherwise phrased, if M increases dramatically while V is low, isn't "realized inflation" (or P*Q) severely understated and demanding a harsh, "multiplied" correction when V picks up to pre-'08 levels?

[twiifm]

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

Not after Volcker took over

[Harley997]

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

Not after Volcker took over

Once inflation was lowered to ~4% annually, I would argue that it was under control and remained under control up until the financial crisis when it became too low.

[Kluge]

Just so no question of graph bias for ending where it did, 2009-2014 adj. CPI-U still avg 2.08% annually. Over ten years, would be ~23% inflation, which is pretty reasonable looking at the past. I'm sure I'm not understanding how inflation works after seeing lack of effect on CPI from QE. I always figured CPI was tied to M2 and that CPI growth lagged a bit behind M2, but doesn't seem to be the case or we're on the verge of hyperinflation, but I'm not sure how long I can buy "we're on the verge of hyperinflation" without seeing it.

At the grocery store, beef & pork's prohibitively expensive, but it doesn't really translate elsewhere from my unscientific observations. Looks in line with BLS CPI-U numbers. Milk, grain, and soy products are all still reasonably priced. Chicken a bit high, but reasonable. Rice and potatoes still about as cheap as topsoil. Fruits haven't exploded in price, but are somewhat expensive-seeming. Packaged foods and restaurants have become terribly expensive, but "real food" hasn't exploded in price even though rented acreage out for farming here at near-record prices. High prices for pre-made food maybe a result of skyrocketing minimum wages throughout the states, where farms don't necessarily need to pay it.

(Bold) That's not the case. According to monetary equation M*V=P*Q, the price level P is one of four variables, so it doesn't make any sense to imply it correlates only with money quantity M.
On the left side of the equation there's a very volatile variable called money velocity (V), that also greatly influences price level.
I'm not calling this equation as the only true, but even this one doesn't let you equate monetary inflation with price inflation.

Thanks. Does increasing M create a kind of "potential energy effect" when V is low? M2V was much higher before '08 recession and is at lowest point in recorded history (well, by FRED, going to 1960).

Otherwise phrased, if M increases dramatically while V is low, isn't "realized inflation" (or P*Q) severely understated and demanding a harsh, "multiplied" correction when V picks up to pre-'08 levels?

Is my question really stupid? I've asked it a couple places, now, without satisfying response (which usually means my question's stupid). It's really bothering me. Money supply is soaring at historical rates, but we shouldn't expect hyperinflation because money velocity is at a historical low - but isn't it reasonable to assume velocity will pick up when/if the US economy picks back up and consumer confidence increases?

Was also wondering what the implications of another HELOC/mortgage crisis within the next two years would bring. US banks are beefing up their reserves across the board in preparation. When a large portion of those reserves are wiped by forgiving debt, what is the inflationary impact of that, if any? Does it effectively become a deflationary force since money which the end-user doesn't have is basically erased, but which only existed from QE/TARP/etc and was ultra-low-velocity "money"? It's almost like a correction for systemic bad lending practices, isn't it? Nobody really wins or loses since banks were only artificially being allowed to limp on with ultra-low interest rates and intentionally bad Fed purchases, anyway. Those presumptions and assumptions off-base?

[ShakyhandsBTCer]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades. 

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

[InwardContour]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades. 

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

[arbitrage001]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades. 

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

4% inflation is very high. Losing 40% of your saving every 10 years compounded to financial elite on top of taxes mean no ordinary citizen will be able to have any saving.

[twiifm]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades.  

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

4% inflation is very high. Losing 40% of your saving every 10 years compounded to financial elite on top of taxes mean no ordinary citizen will be able to have any saving.

Only if your income doesn't keep up.   If you sell goods or services those prices rise w inflation

[arbitrage001]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades.  

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

4% inflation is very high. Losing 40% of your saving every 10 years compounded to financial elite on top of taxes mean no ordinary citizen will be able to have any saving.

Only if your income doesn't keep up.   If you sell goods or services those prices rise w inflation

Salary lag inflation by months if not years while good are service are very sensitive to market and monetary policy.

Fix wages income,where most people belong to this category, can not keep up with inflation.

[twiifm]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades.  

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

4% inflation is very high. Losing 40% of your saving every 10 years compounded to financial elite on top of taxes mean no ordinary citizen will be able to have any saving.

Only if your income doesn't keep up.   If you sell goods or services those prices rise w inflation

Salary lag inflation by months if not years while good are service are very sensitive to market and monetary policy.

Fix wages income,where most people belong to this category, can not keep up with inflation.

The thing everyone should fear is deflationary spiral or runaway inflation.  You want a little inflation now to get us out of recession.   Otherwise unemployment gets worse

[arbitrage001]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades.  

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

4% inflation is very high. Losing 40% of your saving every 10 years compounded to financial elite on top of taxes mean no ordinary citizen will be able to have any saving.

Only if your income doesn't keep up.   If you sell goods or services those prices rise w inflation

Salary lag inflation by months if not years while good are service are very sensitive to market and monetary policy.

Fix wages income,where most people belong to this category, can not keep up with inflation.

The thing everyone should fear is deflationary spiral or runaway inflation.  You want a little inflation now to get us out of recession.   Otherwise unemployment gets worse

I would rather have price stability and let free market decide which companies survive than letting government plays god.

Remember, innovation means finding a new way to do things more efficiently and cheaply. In the process, that will kill off old industry and inefficiently run companies. Labor law needs to be more flexible to allow re-training and re-tooling workers.

[twiifm]

the fed has done a pretty good job of minimizing inflation with interest rates over the past several decades.  

Do you really believe the graph and what you just said?

I would argue that 4% inflation (the ~rate after the 70's) is a good target to try for in reference to inflation.

During the 70's and the oil crisis the Fed did a very poor job handling inflation.

4% inflation is just above what the Fed would like it to be at as of now, and is much higher then it is now.

Exactly! 4% is a happy medium between everyone's life savings is rapidly declining in value and that inflation is so low that there is serious risk of wide spread, long term deflation and economic contraction

4% inflation is very high. Losing 40% of your saving every 10 years compounded to financial elite on top of taxes mean no ordinary citizen will be able to have any saving.

Only if your income doesn't keep up.   If you sell goods or services those prices rise w inflation

Salary lag inflation by months if not years while good are service are very sensitive to market and monetary policy.

Fix wages income,where most people belong to this category, can not keep up with inflation.

The thing everyone should fear is deflationary spiral or runaway inflation.  You want a little inflation now to get us out of recession.   Otherwise unemployment gets worse

I would rather have price stability and let free market decide which company survive than letting government play god.

Remember, innovation means finding a new way to do things more efficiently and cheaply. In the process, that will kill off old industry and inefficiently run companies. Labor law need to be more flexible to allow re-training and re-tooling workers.

What does that have to do w inflation? Or the topic.   Why is this the "economics" subforum when everyone keep talking politics