Iraq is broke so they say

What I wrote was that I failed to see the point of your telling me about M1 when it was quantitative easing (Fed purchases of bonds) that was under discussion. Why the devil would you infer from that observation that I do not know what M1 is? Do you actually read my posts, or are you incapable of understanding the points I am making?

I did have that in mind. So why your wierd question about whether anyone but the Fed can create money? I find your mental processes very difficult to fathom.

Huh? So money can be categorized but one must not refer to categories of money?

First you tell me, in relation to Fed purchases of debt . . .

So it's like: No probs! This is what will/would happen.
But why make this point when in the next post you tell me . . . ?

So now it's like: Anyway, we don't even need to examine the possibility. Have I understood you?

 

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Did you not understand what I wrote? Did I not explain how the Fed buys and sells debt through electronic transactions? I suggest you go back and reread my post.

Why was it "weird"? I previously explained why I asked you the question. I suggest you go back and reread my previous post. The answer hasn't changed.

Huh? Now what have I written that would lead you to that conclusion? I again suggest you go back and reread my previous post. As I previously explained to you there are several definitions of money. And as previously explained to you, the words "category" and "definition are not "synonyms". We have dictionaries to define the words we use. You should try looking at one sometime.

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http://www.merriam-webster.com/dictionary/money

Are you having trouble thinking? Can you not complete a thought?

Because you think it is a problem...remember? You asked the question...remember? As I told you before, there is nothing the Fed has done that it can't undo. Remember, you were concerned the money injected into the economy by the Federal Reserve would cause great economic "disruption"...remember?

Examine the possibility of what exactly? You can examine whatever you want as long as it's legal. And it's legal to examine Fed policy. You can believe whatever you want to believe. You can invest stupidly and ignorantly. It's your right to do so, and no one is stopping you. But when you get hurt as you will and probably have been, don't go scapegoating others for your misfortune.

The bottom line here is there is nothing the Fed has done which would cause great economic "disruptions" (i.e. harm). There is nothing the Fed has done that it cannot undo, and that is something folks like you don't know or understand. So you spend a lot of time worrying about silly things and inventing conspiracies, and that is your God given right to do so.

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Those are facts. There is simply no basis in economics and reason for your beliefs. Now you may not like that fact. But it is a fact nonetheless. And I'm sure none of this will change your beliefs.

 

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In a previous post you stated it would likely not have to perform an undo. ("I doubt the Fed will actually sell any debt it holds,") So thank you for clarifying the matter beyond doubt.

Where did I say that? Please be specific.

So if quantitative easing can cause interest rates on bonds to fall by two-thirds, the reverse policy can equally well cause them to treble. Have I grasped your meaning correctly?
There is no disagreement between us on why monetary inflation (if I am allowed to use that expression to refer to an increase in money supply) has not led to price inflation, as it usually does. In another thread I gave a whole list of reasons why not.
But (as an abstract exercise in economic reasoning) in a situation where a doubling of money supply over a period led to a doubling of prices, would you regard this too as reversible. That is, do you believe that if this were followed by a halving of the money supply over a similar period prices would be halved?

 

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What's your point here? Do you have a point? Yes, I said I doubt the Fed will actually sell any of the debt it holds on its balance sheet and I explained why. I don't think there is a need for it. I don't see that massive aggregate demand (e.g. your previous reference to bubbles) out there that you think is lurking out there somewhere which would cause an overheated economy to manifest itself magically overnight. You have these magical beliefs about economics and in particular inflation. As previously explained to you in another thread, a thread in which you want to reinvent word meanings (e.g. inflation and costivity) with word words you made up, economics isn't magic. A massive increase in aggregate demand would be needed to cause inflation, and I don't see it.

If such demand were to materialize in the future, the Fed can deal with it. As previously pointed out to you, the Federal Reserve has a number of tools it can use to slow the economy (i.e. reduce aggregate demand) including selling the debt it has purchased - the debt that troubles you so much (i.e. reducing the money supply). It can raise interest rates as it has done many times since its inception. It can increase reserve requirements as it has done in the past. It really is that simple. There is nothing the Fed has done that it cannot also undo.

So you don't remember writing, "So you don't think that the sale of that amount of debt would have rather a dramatic and disruptive effect on the economy?"? That says to me you were concerned about the Federal Reserve selling assets on its balance sheet.

Well, you are oversimplifying and misrepresenting issues as is your custom. Bonds are an investment product. Like other products they are sold on a free market. Quantitative easing increased the demand for bonds, because the Fed was buying bonds, and in doing so drove bond prices up. When bond prices increase, bond yields fall basically lowering interest rates on future bonds. But aggregate interest rates fell for a number of reasons, not just because the Federal Reserve was purchasing bonds. The Federal Reserve lowered interest rates on Fed Funds and the discount rate (the interest rates charged for inter-bank loans and the Federal Reserve discount window. Additionally, private investors were streaming into the bond markets seeking safety and returns. Increasing bond prices makes bond investments very attractive to investors, just as a rising stock market attracts new investors.

If the Federal Reserve began selling the debt it holds on its balance sheet, the opposite would occur. Bond prices would fall and bond yields would rise, assuming the Federal Reserve sold enough of the debt it holds to make a material impact in the bond markets. The primary reason the Fed purchased debt wasn't to move interest rates down put to ensure liquidity in the markets, to increase the money supply and in doing so stimulate the economy. (i.e. increase aggregate demand)).

As I said before, several times now, there is no reason for the Federal Reserve to sell the debt/assets it holds on its balance sheet. But for people like you who are concerned, the Federal Reserve can sell the debt purchased during its program of quantitative easing just as easily as it purchased said debt. There is nothing the Federal Reserve has done that it cannot also undo.

I don't recall that thread. But if you want to agree on the reasons why there is no inflation, fine. The reason why there is no inflation is because aggregate demand is insufficient to cause inflation. And as long as that is the case, there will not be an inflation problem.

The Federal Reserve, the US central bank, can and does manage the money supply. It can increase the money supply as it has done and it can also shrink the money supply. Whither it decides to do either and the degree to which it does either depends upon economic circumstances. As previously pointed out to you, you have a penchant for oversimplification.

That's why the Federal Reserve actively and frequently monitors economic circumstances. That's why the Federal Reserve meets frequently to review the latest economic data. For your "bubble" to materialize, you would need the Fed to not do its job, to not honor its charter, and I don't see any evidence of that given the Fed has recently raised interest rates in order to reduce aggregate demand. That's why the Federal Reserve recently raised interest rates, to slow aggregate demand. And it could do much more. It could raise reserve requirements, or sell or purchase debt (e.g. bonds).

The unfortunate fact for you is there is nothing the Fed has done that is also cannot undo. The effect those actions have on the economy are dependent upon economic circumstances. If the Fed needs to sell more debt or less debt or no debt to maintain price stability it will do so and it has the ability to do so. If it needs to raise interest rates or increase banking reserve requirements, or purchase debt as it has done, it has the ability to do so. There is no "bubble" of demand hiding somewhere as you believe and you cannot point to a "bubble". Those are just the unfortunate facts for you. If such a "bubble" were ever to materialize, the Fed has the ability to deal with it. That's why they meet frequently to manage monetary policy. That's why they recently raised interest rates to prevent a "bubble" from forming.

 

It is possible because here is a much larger volume of dollars outside of the US than inside the US. Just those held by various "mafias" exceed the paper dollars in the US.

What do you think would happen if significant inflation started (dollar losing purchasing power more rapidly than ever before)? I think holders of dollars would want to spend them as quickly as possible - that demand surge would just make inflation accelerated - a self amplifying feed back which has some unknown threshold needed to spring into action.

 

A couple of things, do you have any evidence to support your claim the larger number of dollars resides outside the US? The US Dollar is certainly the world's most dominate currency. It is the largest largest and most common world reserve currency. But all of that is irrelevant to this discussion. Just having currency doesn't in and of itself create demand. While there can be a relationship between money supply and demand the two are not synonymous. It matters little where the currency resides, inside or outside the US, nor does it affect the ability of the US to control the money supply. That's one reason why the Federal Reserve has a plethora of economic measures it reviews regularly and frequently.

PS: As of, February 18. 2016 there was 1.4 trillion US Dollars in circulation. How does the Federal Reserve know this? It knows it because each dollar it creates and each dollar it destroys is serialized and recorded. It doesn't matter if the dollar bill is in Kenya or Boston. Keep in mind, US GDP is about 18 trillion dollars.

https://www.federalreserve.gov/faqs/currency_12773.htm

Well, this fits in with your dearly held belief in the demise of the US Dollar. For many years now you have been predicting the demise of the US Dollar complete with dates, and you have been consistently wrong. First, if inflation were to become problematic, as has been pointed out many times before, the Federal Reserve would toss a little cold water on the economy (e.g. interest rate hikes, increasing reserve requirements, and bond selling). As repeatedly pointed out, there is no sign of or reason to believe that a massive bubble of demand is hiding somewhere. People wouldn't be selling dollars, because inflation would be controlled and tame (e.g. the Fed's 2% inflation target). Even if there was this massive demand bubble hiding under a rock out there which no with any degree of subject matter cannot see, the Fed and key central banks around the globe have more than sufficient abilities to suppress it and maintain pricing stability (i.e. to fulfill their charters).

As I have told you many times before, the only things which could cause a systemic breakdown which could lead to massive inflation or deflation would either be a significant supply disruption a la the Arab Oil Embargo of the 70's or significant political instability within the US and/or elsewhere (e.g. a US debt default courtesy of Canadian Ted and the Republican Party) or a liquidity crisis a la The Great Recession. A liquidity crisis wouldn't cause inflation, but rather a recession or depression. What troubles me most are the fiscal policies advocated by the so called American "conservative" movement which basically want to take the US back to the era which existed before The Great Depression.