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

[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 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

Politician set the economic and tax policy, which influence market, price and pretty much everything we do.

[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

Politician set the economic and tax policy, which influence market, price and pretty much everything we do.

Nah its the other way.  Market forces are stronger than policy.   Govt makes policy in response to market forces. The contradiction is that evreyone expects policy to counteract recessions but nobody demands govt to cockblock the boom times so we gets bubbles and subsequent busts. 

If inflation was constant around 3% it would be very manageable

[21-hater]

Could take even longer..... forever.

[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

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

This is true. A small amount of inflation means that people have an incentive not to put off purchases, but too much inflation means people's savings will be worthless or worth less (LOL)

[DannyElfman]

Could take even longer..... forever.

The Fed portfolio will eventually be able to be shrunk to a more manageable size, it will just take many years and careful planning to ensure that doing so does not create economic chaos.

[Harley997]

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

Politician set the economic and tax policy, which influence market, price and pretty much everything we do.

Nah its the other way.  Market forces are stronger than policy.   Govt makes policy in response to market forces. The contradiction is that evreyone expects policy to counteract recessions but nobody demands govt to cockblock the boom times so we gets bubbles and subsequent busts. 

If inflation was constant around 3% it would be very manageable

Policy is designed to somewhat control the market and to give it incentives to act in certain ways.

[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.

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?

Sorry, I'm not following this thread closely.

What's needed to be understood is that this money supply is not homogeneous. I mean Fed had bought a lot of treasuries, but it didn't really increase the amount of money in the economy.
What it did was actually replacing long-term treasury securities with short-term bank reserves (you can look up the excess reserves which closely correlate with Fed balance sheet).

So while on the paper the amount of money increased dramatically, for the real economy it didn't.

As of another crisis, banks set aside some capital (according to capital requirement rules) for this possibility. The possible consequence of another crisis is likely another deflation event and another dumb QE.

[Erdogan]

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

No, this a common misunderstanding. Even when you pay raise comes timely, is is only neutral for your consumption, not for your savings in money and money denomitated securities. It makes saving in money impossible, and force savers to investments involving risk.

 

[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

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

No, this a common misunderstanding. Even when you pay raise comes timely, is is only neutral for your consumption, not for your savings in money and money denomitated securities. It makes saving in money impossible, and force savers to investments involving risk.

All investments carry some type of risk, otherwise there would be no incentive for others to pay you interest. Traditional "savers" (those who put money in the bank) are risking that inflation will eat away at the buying power of the money they have in the bank.

[Erdogan]

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

No, this a common misunderstanding. Even when you pay raise comes timely, is is only neutral for your consumption, not for your savings in money and money denomitated securities. It makes saving in money impossible, and force savers to investments involving risk.

All investments carry some type of risk, otherwise there would be no incentive for others to pay you interest. Traditional "savers" (those who put money in the bank) are risking that inflation will eat away at the buying power of the money they have in the bank.

Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

[Kluge]

(snipped out some irrelevant stuff from my quotes)

I always figured CPI was tied to M2 and that CPI growth lagged a bit behind M2

(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?

Sorry, I'm not following this thread closely.

What's needed to be understood is that this money supply is not homogeneous. I mean Fed had bought a lot of treasuries, but it didn't really increase the amount of money in the economy.
What it did was actually replacing long-term treasury securities with short-term bank reserves (you can look up the excess reserves which closely correlate with Fed balance sheet).

So while on the paper the amount of money increased dramatically, for the real economy it didn't.

As of another crisis, banks set aside some capital (according to capital requirement rules) for this possibility. The possible consequence of another crisis is likely another deflation event and another dumb QE.

Thanks! I'm assuming there are other ignorant idiots like myself, so it's really helpful.

If I'm understanding you, the banks actually had long treasury bonds, and they wanted those cashed out for... cash, right? Just to hold to meet reserve requirements and prepare for a possible second crisis. Does the Federal Reserve create the money, or is this money the Fed actually had to spend? I mean - is the Fed profitable and have real assets they pay from to these banks selling T-bonds? The Fed's supposed to be a kind of non-profit, where any "profit" goes to the Treasury, so how could they have "real" assets to pay cash to all these banks for T-bonds?

Does this bond-cash exchange introduce moral hazard to the banks, in that they can buy these long-term assets but have ability to sell them near-immediately and (I'm guessing) without any loss to the Fed, and doesn't this definitely indicate the value of treasury bonds are artificially and significantly inflated since they can be converted to cash whenever a bank needs it to boost their capital reserves (which basically negates all cons of holding T-bonds)? It seems like the Fed is almost forcing them to hold T-bonds instead of cash, since cash is basically worse than useless outside of capital reserves compared to T-bonds the Fed's willing to buy up at/near face value whenever a bank winds up with capital crunch. Maybe it's supposed to be some kind of consolation for reserve requirements?

How does would another HELOC/mortgage crisis cause a deflation event? From assumed decrease in money velocity (assuming a stronger lending freeze, decrease in consumer confidence), or because the money supply is "corrected" if a consumer or business defaults (due literally to lack of funds) and the bank wipes the debt out, basically removing the money from the money supply? (or both?)

[DannyElfman]

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

No, this a common misunderstanding. Even when you pay raise comes timely, is is only neutral for your consumption, not for your savings in money and money denomitated securities. It makes saving in money impossible, and force savers to investments involving risk.

All investments carry some type of risk, otherwise there would be no incentive for others to pay you interest. Traditional "savers" (those who put money in the bank) are risking that inflation will eat away at the buying power of the money they have in the bank.

Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

But why would anyone pay you to hold your money if you were not taking on any kind of risk?

You should understand that anything you do with your money will carry some level of risk. If you spend all of your money then you could lose money in the way of late charges and interest payments if you had an emergency and needed to spend more money then you had. If you invest in the stock market then you risk that the price of your stocks declines more then the amount of dividends paid. If you invest in bonds then you risk that the issuing company is not able to repay their debt.

[tinof]

How does would another HELOC/mortgage crisis cause a deflation event? From assumed decrease in money velocity (assuming a stronger lending freeze, decrease in consumer confidence), or because the money supply is "corrected" if a consumer or business defaults (due literally to lack of funds) and the bank wipes the debt out, basically removing the money from the money supply? (or both?)

It is more like a price adjustment than deflation event. When people buy over price property and if the market can no longer handle additional supply, price will have to adjust to market demand.

[RoadTrain]

If I'm understanding you, the banks actually had long treasury bonds, and they wanted those cashed out for... cash, right? Just to hold to meet reserve requirements and prepare for a possible second crisis. Does the Federal Reserve create the money, or is this money the Fed actually had to spend? I mean - is the Fed profitable and have real assets they pay from to these banks selling T-bonds? The Fed's supposed to be a kind of non-profit, where any "profit" goes to the Treasury, so how could they have "real" assets to pay cash to all these banks for T-bonds?

Does this bond-cash exchange introduce moral hazard to the banks, in that they can buy these long-term assets but have ability to sell them near-immediately and (I'm guessing) without any loss to the Fed, and doesn't this definitely indicate the value of treasury bonds are artificially and significantly inflated since they can be converted to cash whenever a bank needs it to boost their capital reserves (which basically negates all cons of holding T-bonds)? It seems like the Fed is almost forcing them to hold T-bonds instead of cash, since cash is basically worse than useless outside of capital reserves compared to T-bonds the Fed's willing to buy up at/near face value whenever a bank winds up with capital crunch. Maybe it's supposed to be some kind of consolation for reserve requirements?

How does would another HELOC/mortgage crisis cause a deflation event? From assumed decrease in money velocity (assuming a stronger lending freeze, decrease in consumer confidence), or because the money supply is "corrected" if a consumer or business defaults (due literally to lack of funds) and the bank wipes the debt out, basically removing the money from the money supply? (or both?)

Yes, banks hold some quantity of treasuries at almost any time (and recent Basel rules oblige them to do so). It's important to note that treasuries carry price risk, i.e. they can decline in price and bank would suffer, and the longer the maturity, the higher the price risk. The reserve position at Fed doesn't have this risk, it's just cash. That's why banks may prefer reserves in certain situations.

The Fed doesn't need assets to create money, it acquires (buys) assets when it creates new money. It's needed to be noted that when the Fed creates money it doesn't add any financial assets (wealth) to the economy, only changes the composition. When the Fed posts operating profit, most of it goes to Treasury. When the Fed posts loss, it's usually also offset by capital injection by Treasury.

Treasury securities are the perfect collateral for the markets. When the Fed buys bonds under QE, it does so for market prices. But it's also possible (and was possible long before the crisis) to sell them to the Fed at a small discount and get reserves in return (so called discount window). This combined with Fed's repo operations makes reserves virtually unlimited and reserve requirements obsolete.

You also have to distinguish between reserves and capital. Reserves can only be used in transactions between banks and Treasury, be converted to cash and be exchanged for treasuries. These operations can't help if a bank has capital shortfall. Capital can only be replenished with external sources (like bailout by Treasury).

Another crisis event will likely cause deflation because of lending freeze, unemployment rise and incomes fall. These consequences together will cause demand slump and in turn price deflation. The alternative option is stagflation, but it's hard to predict.

[DannyElfman]

....
Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

A quick addition to that. If the money isn't a safe store of value then its no longer money, that's what defines money from currency. Major western currencies are closer to scrip than money.

As long as your currency is a stable store of value then it can be considered as money. 4% inflation, would in general be considered stable, especially considering that interest rates on deposits historically tends to be right around the rate of inflation

[Kluge]

Yes, banks hold some quantity of treasuries at almost any time (and recent Basel rules oblige them to do so). It's important to note that treasuries carry price risk, i.e. they can decline in price and bank would suffer, and the longer the maturity, the higher the price risk. The reserve position at Fed doesn't have this risk, it's just cash. That's why banks may prefer reserves in certain situations.

The Fed doesn't need assets to create money, it acquires (buys) assets when it creates new money. It's needed to be noted that when the Fed creates money it doesn't add any financial assets (wealth) to the economy, only changes the composition. When the Fed posts operating profit, most of it goes to Treasury. When the Fed posts loss, it's usually also offset by capital injection by Treasury.

Treasury securities are the perfect collateral for the markets. When the Fed buys bonds under QE, it does so for market prices. But it's also possible (and was possible long before the crisis) to sell them to the Fed at a small discount and get reserves in return (so called discount window). This combined with Fed's repo operations makes reserves virtually unlimited and reserve requirements obsolete.

You also have to distinguish between reserves and capital. Reserves can only be used in transactions between banks and Treasury, be converted to cash and be exchanged for treasuries. These operations can't help if a bank has capital shortfall. Capital can only be replenished with external sources (like bailout by Treasury).

Another crisis event will likely cause deflation because of lending freeze, unemployment rise and incomes fall. These consequences together will cause demand slump and in turn price deflation. The alternative option is stagflation, but it's hard to predict.

Thanks. I'm going to try regurgitating my understanding with some new assumptions and hope I'm getting close to truth.

-So banks don't get to sell T-bonds at face value, just market price or sometimes even below for cash. The Fed allows this both to prevent problems with reserve requirements (and everything going along with banks not having enough) and I'd guess to also prevent large dumps on the T-bond market, which in turn makes T-bonds relatively stable, thus more attractive.

Many large banks are members of the Fed (paying both dues and fees), but the profit goes to the Treasury. The Treasury does create money, but it doesn't create wealth -- banks don't get free wealth from the Fed, while benefits are all fairly well-balanced to keep money-creation powers not fully divested to either the market or the government, permitting a semi-market-based approach to money creation. Since Fed profits go to the Treasury (less overhead, losses, etc), the Treasury is effectively allowed to issue T-bonds and not pay interest, but only for T-bonds sold to the Fed at or below market rates. Discounting debt devaluation (in real terms) from inflation, this scheme of doing things prevents the government from just printing any financial troubles away (if they tried, the uncertainty from breaking this unspoken contract risks complete USD and T-bond meltdown, which could bring a ruinous banking crisis). In times of banking turbulence, like now and in recent history, lots of money is created this way, but banks use this money generally to meet reserve requirements (either those set by gov't or those self-imposed) after taking losses or otherwise over-extending themselves, so it doesn't just go right back into the economy, at least not until the banks recover and a healthy (or dangerously over-permissive, maybe "predatory") state of lending resumes. Everything works in a very complex, somewhat balanced way that usually (except in cases of extreme political pressure?) prevents quick and extreme reactions to short-term or mid-term problems. This permits long-term health for the US dollar.

I'm still not sure why M2 increase doesn't eventually mean we'll feel inflation from it when lending fully un-thaws, especially if the effects are suppressed/delayed by low money velocity. It doesn't factor in debts written off by banks for things like mortgages or LoCs, so maybe that acts as a deflationary force, reducing money velocity (lower home prices, less money circulating, especially lent money) and reducing the money supply (houses aren't counted in M2, but banks do have to write off the debts occasionally and usually take large losses in trying to sell the mortgaged property - consumers and businesses taking LoC probably aren't buying CDs, T-bonds, or making demand deposits). -But the housing market's had a huge uptick over the last couple years, unemployment's stabilized, and real wages are on the way up, so if M2 had any impact at all, why hasn't it effectively turned the value of our dollars to ash? Conservative banks?

(side-question: is money for repos also created or even significant compared to Fed T-bond purchases?)

[Erdogan]

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

No, this a common misunderstanding. Even when you pay raise comes timely, is is only neutral for your consumption, not for your savings in money and money denomitated securities. It makes saving in money impossible, and force savers to investments involving risk.

All investments carry some type of risk, otherwise there would be no incentive for others to pay you interest. Traditional "savers" (those who put money in the bank) are risking that inflation will eat away at the buying power of the money they have in the bank.

Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

But why would anyone pay you to hold your money if you were not taking on any kind of risk?

You should understand that anything you do with your money will carry some level of risk. If you spend all of your money then you could lose money in the way of late charges and interest payments if you had an emergency and needed to spend more money then you had. If you invest in the stock market then you risk that the price of your stocks declines more then the amount of dividends paid. If you invest in bonds then you risk that the issuing company is not able to repay their debt.

No one would pay you interest for holding money. With good money, why would you want to? The money you hold is the compressed value of the work you have done, but not yet traded for other goods. With good money there is no risk, it is the definition of good money.

[Erdogan]

....
Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

A quick addition to that. If the money isn't a safe store of value then its no longer money, that's what defines money from currency. Major western currencies are closer to scrip than money.

Currencey is something that holds value....at least for the immediate future.

[Erdogan]

....
Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

A quick addition to that. If the money isn't a safe store of value then its no longer money, that's what defines money from currency. Major western currencies are closer to scrip than money.

As long as your currency is a stable store of value then it can be considered as money. 4% inflation, would in general be considered stable, especially considering that interest rates on deposits historically tends to be right around the rate of inflation

No, that is not stable. It means that every dollar you save in your first productive year, is reduced to 0.18 after 40 years, when you need it.

[kerafym]

....
Savings in money do not carry risk - when the money is good. I mentioned also money denominated securities, because they loose value to inflation just like money. It is basically loans - you lend money for others to invest, but still take a share of the risk.

Old advice for prudence is to save some money - which is risk free when the money is good, when you are comfortable with saving in money you can invest. With bad money, this is inpossible. Please distinguish saving in money from investment, it is not possible to discuss these things in a constructive way if the wrong words are used.

So inflation in both consumables and wages is neutral to consumption, but kills savings in money.

A quick addition to that. If the money isn't a safe store of value then its no longer money, that's what defines money from currency. Major western currencies are closer to scrip than money.

As long as your currency is a stable store of value then it can be considered as money. 4% inflation, would in general be considered stable, especially considering that interest rates on deposits historically tends to be right around the rate of inflation

No, that is not stable. It means that every dollar you save in your first productive year, is reduced to 0.18 after 40 years, when you need it.

That is right. People who advocate inflation don't seem to understand compound rate.