Vox Rationalis

How The Federal Reserve Is Monetizing Debt

On Aug 26 01:29 PM MinAkkar20 wrote:

> You educate yourself with this basic article on why governments prefer
> inflation in a fiat-currency regime.
> Then you can use logic to see that maintaining interest rates at
> zero % and boosting excess reserves at banks to $1 trillion dollars,
> Congress passing new home-buyer credits, increasing purchases of
> GSE bonds all promote inflation.

I don't need to read anything to understand the argument. Unfortunately for folks like you who prefer theories to reality, we have actual pricing data which shows that all of these extreme measures undertaken by the Fed over the last year have resulted in a price level which is pretty darned close to where it was a year ago. In case you're in need of a basic education, inflation relates to prices; if prices are flat, there is none.

By the way, the Fed didn't boost excess bank reserves. Banks did that on their own, in the face of losses they couldn't quantify. And for the record, it was very much DEflationary.

> Or you can believe that the boom-bust cycles that have been created
> since the existence of a central banker in the US occur in the pursuit
> of price stability and only believe what you read on government websites.

I know you won't believe me since it doesn't fit into the storybook world in which you live, but the boom-bust cycle was MUCH worse before the Fed than it has been since, especially since the U.S. began to abandon the gold standard in 1933.

How The Federal Reserve Is Monetizing Debt

On Aug 26 11:18 AM MinAkkar20 wrote:

> I think the real estate bubble and resulting collapse, followed by
> the official goal of reinflating asset prices is evidence enough.

Please provide a link to the government website describing the "official goal of reinflating asset prices."

> I don't need a Fed policy statement as proof - actions speak louder
> than words.

Of course you don't need a policy statement - it's part of your assumptions. Facts be damned.

During the last year, when the actions under your umbrella of the "official goal of reinflating asset prices" have occurred, what has happened to prices? Basically flat.

The Zimbabwe comparisons are the work of ignoramuses.

How The Federal Reserve Is Monetizing Debt

"the fundamental picture concerning the dollar has not changed since I first became wary of its fortunes in 2002."

Wait, you're admitting that you've been singing the same song related to the dollar for the last seven years? You're saying you think the situation for the dollar today is the same as it was in 2002, when it was some 50% higher?

"The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt."

Pretty much nonsense, since the government agreed last year that it would stand behind agency debt. If the government stands behind agency debt in the same way it stands behind Treasury debt, what you are describing is a wash.

"This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves."

No, the difference is that Zimbabwe abandoned price stability as a goal. There is no evidence -- not the tiniest bit -- that any relevant government official has even considered such a thing.