Poll - When will the FED taper?

[moda0306]

I feel like every thread with Kshartle in it turns into a variant of this extremely frustrating conversation about firearms that I suspect many of us have had:

http://youtu.be/pWa0dZMHYeE

A lot of our disagreements are frustrating, and I certainly contribute to the frustration. None seem as frustrating as the one about QE though.

Let me suggest how it sounds to me:

Some of us say "Tom ran Bill over last night. Let's discuss the implications such as, who will care for Bill's family now that he's dead and Tom's family since he'll likely go to prison".

The response we get and can never seem to get past is "Tom didn't run Bill over, Tom's car did. Tom wasn't even running, he was driving".

Ok this is what we call a distinction without a difference. It's irrelevant minutia that is getting in the way of the discussion.

The actual QE may just swap one asset for an asset of equal value. The mechanics may not result in any appreciable increase to the money supply, but this is minutia. The effect of QE is a larger money supply.

QE is an artificial increase in the demand for treasuries. It allows the government to issue the bonds at a higher price and thus a lower yield than otherwise. Since they are paying less in interest they do not have to tax more to finance their spending or cut spending. The price of their debt is higher so they produce more of it. It's the same thing in the marketplace. When demand goes up for something the price will go up and suppliers will increase production to meet the demand.

The effect of QE is more debt and more money printing. The money supply is higher with QE than it otherwise would be without it. It doesn't matter whether or not the actual asset swap event is money supply neutral. This is a distinction without a difference.

It would be great if we could ever get past this sticking point and move on.

That being said if anyone disagrees with my pitiful analysis please point where I'm wrong. I am happy to learn and correct my understanding.

Kshartle,

You can't have artificial demand for something that's existence is artificial in the first place.

There was a day when government would borrow gold from people when it didn't want to tax, and it didn't already have this currency, so they would borrow it at a rate set by the market.

As a currency issuer, the government doesn't NEED to borrow money at market rates. It issues money.  To say its rates are artificially low is like saying the price the government would pay us for a nuclear bomb we built is artificially high (you'd probably get put in jail if you built an atom bomb and tried to sell it to the government).

You can't keep building nukes and get pissed when the government puts you in jail instead of pays you $10 million. In fact, most smart players in physics or weapons manufacturing don't try that!!  It's the same in the bond markets.

For a government to issue a fiat currency might be a horrible thing in your eyes, but for said government to have to go into debt is actually a policy decision that has potential to either subsidize savers (1981) or tax them (1979)

Treasuries are just another form of savings for us now.  The market doesn't view them as an arms-length transaction, but a safe way to store cash and get at least some interest.

[Kshartle]

In quantitative easing, the central bank simply purchases bonds from other banks.  The composition of the banks' balance sheets is different after such a purchase (more reserves, less bonds), but, if we look at the size of the broad money supply 5 minutes before and 5 minutes after such a purchase, it is unchanged.

Depending on the definition of "broad money supply" sure, this sounds correct.

[doodle]

Onto property rights......

Do we all agree that we own ourselves, belong to ourselves, are responsible for ourselves and no one else has a higher claim on us than we do?

If anyone sincerely doubts that please say so and maybe say why you doubt it. Then we can try to prove it. If everyone agrees then we'll move onto property.

Ultimately, we might have to go one level deeper and agree on the question of "who am I" before we can address these. But, just to play along...

Do we all agree that we own ourselves, belong to ourselves - What do you mean by "own" or "belong" to ourselves"? I will say that I will defend myself if my life is threatened as any other animal would. We are organisms that are biologically programmed to survive. If by "own" you mean, fight to preserve my genetic code, then yes. However there is no law of nature stating that I have a right to life. The idea of ownership and belonging are concepts. Imagine that instead of having eyes, we had electron microscopes and we viewed reality at the subatomic level. Would you be able to distinguish where one thing started and another ended as you witnessed the cycle of life? Viewed at the atomic level, the chicken that you killed and ate for dinner would suddenly become you...and when you died and were buried you would suddenly become the soil which would then become the trees and grass which would then become food for the next animal. Ownership is a concept that arises when we look at reality through our animal eyes. At another level of reality the concept is complete absurdity. 

are responsible for ourselves and no one else has a higher claim on us than we do? - Again both concepts. The first part is making the claim that we have free will. That is a belief that cannot be proved. How do you know that we are not deterministic creatures whose behavior only seems free and independent because we interact with too many variables on a daily basis to follow the causal chain of events? The second part about no one having a higher claim on us is again just a mind made concept. Logically, it would seem that the universe ultimately lays claim to us unless you are proposing that we come from and return to something outside of the universe.

I don't mean to get too arcane and esoteric on this subject, but you are approaching things with a lot of culturally conditioned beliefs and views on reality that you are attempting to pass off as some sort of natural laws.

[moda0306]

Kshartle,

I would agree that as a fundamental moral ideal, we are intrinsically valuable and do "own ourselves."

However this is my interpretation of a generally ideal and obvious moral position, not having to do with anything "natural" in a biological or ecological sense. 

The overall feeling inside us all that we're individuals worthy of life, alone, doesn't mean we have a "natural" moral right to life... Otherwise chimpanzees and dogs would have that too.  Heck... Maybe I'm wrong and we all do.

[doodle]

Basically, I think the burden of proof should start out on you. We can have a normative discussion, but I think your opening statement should read:

Do we all agree that we should agree to abide by the concepts that we own ourselves, belong to ourselves, are responsible for ourselves and no one else has a higher claim on us than we do?

Now that we realize that we are just talking about a conceptual picture of reality, and not reality itself, we can begin to try to really analyze the effects of these beliefs. Again, all of your statements above are just human concepts and not natural laws of the universe. Maybe we can agree to play by those rules, but it would be a mistake to think that they are immutable.

[doodle]

Kshartle,

I would agree that as a fundamental moral ideal, we are intrinsically valuable and do "own ourselves."

However this is my interpretation of a generally ideal and obvious moral position, not having to do with anything "natural" in a biological or ecological sense. 

The overall feeling inside us all that we're individuals worthy of life, alone, doesn't mean we have a "natural" moral right to life... Otherwise chimpanzees and dogs would have that too.  Heck... Maybe I'm wrong and we all do.

If we were all intrinsically valuable in natures eyes and worthy of life, the process of evolution wouldn't exist.

[moda0306]

Doodle,

I agree 100%.  This is why we have to be very careful when we discuss rights. We all have some feeling or instinct of our own intrinsic value, but it's philosophy designed by man, not the laws of nature, that attempt to give us "rights."

[Gumby]

In quantitative easing, the central bank simply purchases bonds from other banks.  The composition of the banks' balance sheets is different after such a purchase (more reserves, less bonds), but, if we look at the size of the broad money supply 5 minutes before and 5 minutes after such a purchase, it is unchanged.

Depending on the definition of "broad money supply" sure, this sounds correct.

Broad money can be defined with different components, but it typically includes T-Bills held as assets for savings accounts. And, in general, broad money is defined as mostly highly liquid non-cash assets (in addition to base money).

[Kshartle]

The effect of QE is more debt and more money printing. The money supply is higher with QE than it otherwise would be without it. It doesn't matter whether or not the actual asset swap event is money supply neutral. This is a distinction without a difference.

I agree that government deficit spending adds money to the economy.

So it seems you are saying that QE results in more deficit spending by the government.  The plot in my post above says that the relationship between deficit spending and the interest rate is not as straightforward as you claim. 

What about the role of private credit?  In our debt-based money system, money is created by two means: deficit spending and private lending.  If you want to look at the money supply, you need to look at private credit too.

Do you agree with this?

I agree private credit has an impact on the money supply. I wonder why the subject is always changed to this though.

You stated "Budget decisions, and, in particular, decisions about deficit spending don't seem to depend at all on the interest rate."

Are you stating that the amount of money borrowed is not affected by interest rates?

[Kshartle]

You can't have artificial demand for something that's existence is artificial in the first place.

What do you mean?

Are you stating that QE does not increase demand for Treasuries? If so that would be in opposition to what I said. Are you making that argument?

[Kshartle]

I thought we were talking about the money supply.

I laid out a case for why the money supply is larger with QE than it would be without QE.

To over-simplify, it:

Increases demand for treasuries.
Raises their price.
Lowers the borrowing cost to the government.
Permits them to spend more without raising taxes than they otherwise would.

I said if you don't agree with my logic please point out where I'm wrong.

Moda disagreed that it increases demand if I understood his post correctly but did not say why except to say something atrificial cannot have it's demand artificially increased. I don't know what that means, maybe he has since clarified. Getting hung up on the word artificial is digression or misdirection, just like deliberately misunderstanding is. Hopefully that's not the case here.

The bank stuff and other points that I saw are just red herrings. The charts that discuss deficits as a percentage of GDP aren't evidence that the logic is faulty.

It's tiring going over the same stuff guys. I'm ok with you guys believing QE has no impact on the money supply. I really am. It's astonishing to me that anyone can think that, but hey, that's not proof of anything except my astonishment.

[Kshartle]

Kshartle,

I would agree that as a fundamental moral ideal, we are intrinsically valuable and do "own ourselves."

However this is my interpretation of a generally ideal and obvious moral position, not having to do with anything "natural" in a biological or ecological sense. 

The overall feeling inside us all that we're individuals worthy of life, alone, doesn't mean we have a "natural" moral right to life... Otherwise chimpanzees and dogs would have that too.  Heck... Maybe I'm wrong and we all do.

If I say "nothing is certain", would you say that is possibly a true statement? How about, "There is no such thing as truth"? What about "All disputes require violence or the threat of violence to solve them" or "You can't trust your senses"?

Do any of these seem plausible? No trick, I think we need to go here if we are going to prove self-ownership...as a natural right or actually existing.

[Kshartle]

Basically, I think the burden of proof should start out on you. We can have a normative discussion, but I think your opening statement should read:

Do we all agree that we should agree to abide by the concepts that we own ourselves, belong to ourselves, are responsible for ourselves and no one else has a higher claim on us than we do?

Now that we realize that we are just talking about a conceptual picture of reality, and not reality itself, we can begin to try to really analyze the effects of these beliefs. Again, all of your statements above are just human concepts and not natural laws of the universe. Maybe we can agree to play by those rules, but it would be a mistake to think that they are immutable.

Do mathmatics exist? What about science? The scientific method? Love, Hate? Do any of these exist?

Since we're discussing the principle of human self-ownership the question implies the existance of humans (which are a part of nature).

[moda0306]

I thought we were talking about the money supply.

I laid out a case for why the money supply is larger with QE than it would be without QE.

To over-simplify, it:

Increases demand for treasuries.
Raises their price.
Lowers the borrowing cost to the government.
Permits them to spend more without raising taxes than they otherwise would.

I said if you don't agree with my logic please point out where I'm wrong.

Moda disagreed that it increases demand if I understood his post correctly but did not say why except to say something atrificial cannot have it's demand artificially increased. I don't know what that means, maybe he has since clarified. Getting hung up on the word artificial is digression or misdirection, just like deliberately misunderstanding is. Hopefully that's not the case here.

The bank stuff and other points that I saw are just red herrings. The charts that discuss deficits as a percentage of GDP aren't evidence that the logic is faulty.

It's tiring going over the same stuff guys. I'm ok with you guys believing QE has no impact on the money supply. I really am. It's astonishing to me that anyone can think that, but hey, that's not proof of anything except my astonishment.

Kshartle,

So what economic triggers or indicators are you using to determine if some price is "artificially low" or "artificially high?"  Isn't the fact that there's very little inflation and miniscule demand for loanable funds an indicator that the price of debt is NOT artificially low, or at least not to a significant degree?

It seems to me that you're forgetting that when people bought those treasuries (as they know when they still do), they know that interest rates (and therefore the price of their bonds) are going to be set based largely on two driving forces... 1) The rate of inflation, and 2) the rate of unemployment.

And how long can you claim things as artificial?  If government touches anything, by an anarchist definition, it's artificial.  The secure nature of our contracts, the security of our borders, the ease of transportation, universal healthcare for those 65 and older, free education for all, or entire currency.

It's ALL artificial, right?  So why come in and focus on one thing and point it out as having an overweighted affect on the economy?  I mean, this is the entity that has a military of massive size, able to destroy the entire GDP of the world 5 times over.  There isn't much maneuvering around that.  However, we CAN maneuver around inflation or unnaturally low interest rates... in fact, the fed and government HOPE we maneuver around it, that's what prevents the economic Mexican Standoff that is a depression. 

Usually, real investment is the effect of artificially low rates (as it encourages borrowing and investment), but we're not really seeing much of that, either.

So what's the trigger?  What in the economy are we supposed to be looking for that indicates that rates are unnaturally low?  Because any time a price is unnaturally low as overtly dictated by government, usually you have shortages since demand the demand/supply curve meets at a price higher than what the current price is, meaning that you have excess demand and a shortage of supply.  We don't have those shortages, Kshartle.  Demand for loanable funds goes way down when you don't have a new factory to build and your revenues are below capacity.

So I guess I'm asking how you know rates are artificially low when the market is telling us that they're not.  Neither investment nor inflation expectations are indicating anything you state.

And do you mean all rates, or just rates to the government, because let's remember here, the fed is mostly using treasuries as the interest-rate targeting mechanism.  Willing lenders and borrowers are setting rates amongst each other based on predictions of future inflation, growth, income (of the borrower), etc.  Until the fed mentioned it might raise rates, I could get a 30-year mortgage from a willing lender at a rate of 3.5% for the next 30 years.  This wouldn't be possible if the market thought rates were grossly artificially low, or if there was a likely steep increase in either 1) interest rates or 2) inflation, would they not?

If I thought either interest rates or inflation were going to spike, I'd be a FOOL to borrow someone money at 4% for 30 years.  I'd be a FOOL not to borrow money long to invest in other assets.

Sorry for the long ramble...

[Kshartle]

So what economic triggers or indicators are you using to determine if some price is "artificially low" or "artificially high?"  Isn't the fact that there's very little inflation and miniscule demand for loanable funds an indicator that the price of debt is NOT artificially low, or at least not to a significant degree?

Voluntary vs. Involuntary. As an example, demand for car insurance is artificially high in my state because the law requires me to buy it if I want to legally drive a car. If purcahsing was voluntary, all things being equal, there would be less demand for car insurance in my state. This is obvious I hope. People do not need to be forced to do what they want to do and they do need to be forced to do what they wouldn't do absent the force.

The FED has the protection and violent force of the government to give it cover to purchase as much as it wants. They aren't volunteering their own property, they are counterfitting/replicating what everyone else has and diluting the purchasing power of dollars. Pushing a button to give them the ability to purchase T-bonds is not the same as me working and creating and trading to gain the purchasing power. They are stealing it through a violent monopoly.

Does that make sense? Do you disagree with that assesment of "artificial"? Perhaps there's a better word. I take it to mean either more or less with the use of, we'll say agressive force vs. what their would be absent the agressive force.

Can we agree that the FED creating dollars is not them actually earning the dollars also?

[moda0306]

Basically, I think the burden of proof should start out on you. We can have a normative discussion, but I think your opening statement should read:

Do we all agree that we should agree to abide by the concepts that we own ourselves, belong to ourselves, are responsible for ourselves and no one else has a higher claim on us than we do?

Now that we realize that we are just talking about a conceptual picture of reality, and not reality itself, we can begin to try to really analyze the effects of these beliefs. Again, all of your statements above are just human concepts and not natural laws of the universe. Maybe we can agree to play by those rules, but it would be a mistake to think that they are immutable.

Do mathmatics exist? What about science? The scientific method? Love, Hate? Do any of these exist?

Since we're discussing the principle of human self-ownership the question implies the existance of humans (which are a part of nature).

Kshartle,

All those things exist, but if we "own ourselves," we have to accept the possibility that animals "own themselves," too.  Observations about the nature of physics, and moral assertions are two different things.  Moral assertions are a lot tougher to back.

If your ideal moral assertion is that "we are sovereign beings of intrinsic value, and it is immoral to force another sovereign being to do something he/she doesn't want to," I'd pretty much agree with you.

I think we have to differentiate what nature dictates, and what morals dictate, because nature is NOT moral by most definitions.  In fact, we usually build moral architectures to try to teach people that it is frowned upon to act like an animal would... to rape a woman... to get angry and kill a competitor... to beat a misbehaving child... to kill someone because you want to eat them and you're physically superior.

So moral codes are almost the opposite of nature.  I'm not saying you NEED government to enforce them (though I do believe a lot of people would act very seflishly with the right stimuli that seem like "good people"), just that morals are very specifically NOT natural.  If they were natural, we wouldn't have to think so hard about them and where they came from... we'd just see the lion hunting the gazelle and say "see, it's each man for themself, now give me all your wealth and I'll lead you at gunpoint to this firing line where you and your (insert

However, certain things in nature, in my view, make it nearly impossible to not act in a forceful manner, even if that is painting trees orange around a chunk of land you'd like to claim as your own and shooting "trespassers."

We are all stuck on this island together!  Against our will!  If a bunch of people landed on a deserted island, and there was a fish-laden lake in the middle, but little else in terms of resources, and I found the first gun and can of spray paint and made it abundantly clear that it was MY LAKE, this would be an act of force against other fellow islanders.  It may just have felt like a rat-race to me, but for everyone else, I'd be a real @sshole.  Even if I granted guns and lake-shore property to some of the other stronger members so they didn't lead a coup against me, I'd still be a real @sshole.

This is the paradox we have.  We've got a moral framework that is ideal for if we were just conscious nebulous entities floating through space.  But we're not.  We're stuck on a rock together, and have to find some way of splitting up resources.  Nature has FORCED us to abandon some amount of our ideal moral framework.  The question is no whether we do that, but how.  Where do we push, and how hard, against each other, to make this an acceptible society?  In a world with no choice but force others in some way, can we push in just the right ways to get as much freedom and prosperity as possible for as little force as possible?

[Kshartle]

I thought we were talking about the money supply.

I laid out a case for why the money supply is larger with QE than it would be without QE.

To over-simplify, it:

Increases demand for treasuries.
Raises their price.
Lowers the borrowing cost to the government.
Permits them to spend more without raising taxes than they otherwise would.

This is what I was starting to lay out in my prior post.  Thanks for summarizing.

I disagree with your last point: The data does not support your hypothesis that the Federal government increases deficits when interest rates are low.

If interest rates were 20% right now do you think the goverment would have the same trillion dollar deficit (or whatever it is right now)?

They would either have a larger deficit (an additional 200 billion or so of interest required) or they would have to cut spending by 200 billion or they would need 200 billion more in taxes to prevent the deficit from increasing.

Please point out where I'm wrong. The chart is neither relavent nor is it neccessary if I'm wrong. If I'm wrong then teach me. I am happy to learn. The chart does not address my argument.

[Kshartle]

This is what I was starting to lay out in my prior post.  Thanks for summarizing.

I disagree with your last point: The data does not support your hypothesis that the Federal government increases deficits when interest rates are low.

If interest rates were 20% right now do you think the goverment would have the same trillion dollar deficit (or whatever it is right now)?

They would either have a larger deficit (an additional 200 billion or so of interest required) or they would have to cut spending by 200 billion or they would need 200 billion more in taxes to prevent the deficit from increasing.

Please point out where I'm wrong. The chart is neither relavent nor is it neccessary if I'm wrong. If I'm wrong then teach me. I am happy to learn. The chart does not address my argument.

I find mental models useful. But to invest so much faith in them while ignoring actual data is too "out there" for me.

If you are unwilling to consider actual data, then for me it is fruitless to continue the conversation, because I don't know how to relate to such a world view.

Is it a world view to use logic? When I use logic, have made a bad investment of my faith?

What world view do you not know how to relate to?

Incidently Browne has a graph on page 217 of "Why the Best Laid...." in which he proves inflation is caused by people going to the movies. Anyone denying this is true is just ignoring the data that proves it, all right there in the graph.

Fruitless is an excellent description.

Cheers!

[moda0306]

So what economic triggers or indicators are you using to determine if some price is "artificially low" or "artificially high?"  Isn't the fact that there's very little inflation and miniscule demand for loanable funds an indicator that the price of debt is NOT artificially low, or at least not to a significant degree?

Voluntary vs. Involuntary. As an example, demand for car insurance is artificially high in my state because the law requires me to buy it if I want to legally drive a car. If purcahsing was voluntary, all things being equal, there would be less demand for car insurance in my state. This is obvious I hope. People do not need to be forced to do what they want to do and they do need to be forced to do what they wouldn't do absent the force.

The FED has the protection and violent force of the government to give it cover to purchase as much as it wants. They aren't volunteering their own property, they are counterfitting/replicating what everyone else has and diluting the purchasing power of dollars. Pushing a button to give them the ability to purchase T-bonds is not the same as me working and creating and trading to gain the purchasing power. They are stealing it through a violent monopoly.

Does that make sense? Do you disagree with that assesment of "artificial"? Perhaps there's a better word. I take it to mean either more or less with the use of, we'll say agressive force vs. what their would be absent the agressive force.

Can we agree that the FED creating dollars is not them actually earning the dollars also?

I'd say that the US government issuing currency could be dubbed as "artificial," but it's tough for me to think of where interests on US government debt should be given that framework, because the unnaturality has already occured.

Realize, issuing something, and controlling an aspect of the pricing of the debt market denominated in that asset, are two different things.  Now it just so happens our system combines the process of issuing currency with our debt market, so both might just be "artificial," but the nice thing for savers is that it's also "artificially" secure due to government guarantees.  Savers can weigh how they want to use and "be abused" by this system by either participating, or investing their savings in ways that cut-out the "being abused" part, at the risk of some of the safety provided by government guarantees.

But just because the government participates in a lending scheme, doesn't necessarily mean it's participating to one side's benefit or the other's.  One could say that it's both, but if we're going to assume that everything the government does is a zero-sum-game, then we have to, at any given time, decide whether the government's involvement in banking is artificially setting a high or low price of debt to itself (and to others, if applicable), and, therefore, if it's setting an artificially high or low benefit to savers for the safety they get by the system's design.

I don't think that's entirely clear.  Savers arguably see huge benefits by the "artificial" nature of the FDIC insured banking system, and rigged treasury bond market.  I mean even Austrians will admit this sometimes if the argument sounds a certain way.

So the best method is to look at other economic indicators... and if the best indicator for artificially low or high prices is shortages or surpluses, then we have a pretty good tool to decide what kind of truly distorting effect the government is having on the economy.

[Kshartle]

So what economic triggers or indicators are you using to determine if some price is "artificially low" or "artificially high?"  Isn't the fact that there's very little inflation and miniscule demand for loanable funds an indicator that the price of debt is NOT artificially low, or at least not to a significant degree?

Voluntary vs. Involuntary. As an example, demand for car insurance is artificially high in my state because the law requires me to buy it if I want to legally drive a car. If purcahsing was voluntary, all things being equal, there would be less demand for car insurance in my state. This is obvious I hope. People do not need to be forced to do what they want to do and they do need to be forced to do what they wouldn't do absent the force.

The FED has the protection and violent force of the government to give it cover to purchase as much as it wants. They aren't volunteering their own property, they are counterfitting/replicating what everyone else has and diluting the purchasing power of dollars. Pushing a button to give them the ability to purchase T-bonds is not the same as me working and creating and trading to gain the purchasing power. They are stealing it through a violent monopoly.

Does that make sense? Do you disagree with that assesment of "artificial"? Perhaps there's a better word. I take it to mean either more or less with the use of, we'll say agressive force vs. what their would be absent the agressive force.

Can we agree that the FED creating dollars is not them actually earning the dollars also?

I'd say that the US government issuing currency could be dubbed as "artificial," but it's tough for me to think of where interests on US government debt should be given that framework, because the unnaturality has already occured.

Realize, issuing something, and controlling an aspect of the pricing of the debt market denominated in that asset, are two different things.  Now it just so happens our system combines the process of issuing currency with our debt market, so both might just be "artificial," but the nice thing for savers is that it's also "artificially" secure due to government guarantees.  Savers can weigh how they want to use and "be abused" by this system by either participating, or investing their savings in ways that cut-out the "being abused" part, at the risk of some of the safety provided by government guarantees.

But just because the government participates in a lending scheme, doesn't necessarily mean it's participating to one side's benefit or the other's.  One could say that it's both, but if we're going to assume that everything the government does is a zero-sum-game, then we have to, at any given time, decide whether the government's involvement in banking is artificially setting a high or low price of debt to itself (and to others, if applicable), and, therefore, if it's setting an artificially high or low benefit to savers for the safety they get by the system's design.

I don't think that's entirely clear.  Savers arguably see huge benefits by the "artificial" nature of the FDIC insured banking system, and rigged treasury bond market.  I mean even Austrians will admit this sometimes if the argument sounds a certain way.

So the best method is to look at other economic indicators... and if the best indicator for artificially low or high prices is shortages or surpluses, then we have a pretty good tool to decide what kind of truly distorting effect the government is having on the economy.

I'm good. You're right. You've proven to me that QE doesn't affect the money supply.

I was wrong all along. I mean even Austrians will admit this sometimes if the argument sounds a certain way.

[Gumby]

KShartle, it's pretty obvious by now that QE does not have much effect on the broad money supply. The broad money supply is what economists care about when looking at how the money supply affects inflation (when they care to look at all). Your failure to properly discuss broad money is one of the main reasons your arguments aren't very convincing. That and the fact that you lack data to support what you are saying. Sorry man.

[Kshartle]

Your failure to properly discuss broad money is one of the main reasons your arguments aren't very convincing. That and the fact that you lack data to support what you are saying. Sorry man.

Yes, that and the use of logic and reason. I know my crimes.

Have you seen Browne's chart on the movies and inflation? He proves it right then and there. No thought required.

[moda0306]

Voluntary vs. Involuntary. As an example, demand for car insurance is artificially high in my state because the law requires me to buy it if I want to legally drive a car. If purcahsing was voluntary, all things being equal, there would be less demand for car insurance in my state. This is obvious I hope. People do not need to be forced to do what they want to do and they do need to be forced to do what they wouldn't do absent the force.

The FED has the protection and violent force of the government to give it cover to purchase as much as it wants. They aren't volunteering their own property, they are counterfitting/replicating what everyone else has and diluting the purchasing power of dollars. Pushing a button to give them the ability to purchase T-bonds is not the same as me working and creating and trading to gain the purchasing power. They are stealing it through a violent monopoly.

Does that make sense? Do you disagree with that assesment of "artificial"? Perhaps there's a better word. I take it to mean either more or less with the use of, we'll say agressive force vs. what their would be absent the agressive force.

Can we agree that the FED creating dollars is not them actually earning the dollars also?

I'd say that the US government issuing currency could be dubbed as "artificial," but it's tough for me to think of where interests on US government debt should be given that framework, because the unnaturality has already occured.

Realize, issuing something, and controlling an aspect of the pricing of the debt market denominated in that asset, are two different things.  Now it just so happens our system combines the process of issuing currency with our debt market, so both might just be "artificial," but the nice thing for savers is that it's also "artificially" secure due to government guarantees.  Savers can weigh how they want to use and "be abused" by this system by either participating, or investing their savings in ways that cut-out the "being abused" part, at the risk of some of the safety provided by government guarantees.

But just because the government participates in a lending scheme, doesn't necessarily mean it's participating to one side's benefit or the other's.  One could say that it's both, but if we're going to assume that everything the government does is a zero-sum-game, then we have to, at any given time, decide whether the government's involvement in banking is artificially setting a high or low price of debt to itself (and to others, if applicable), and, therefore, if it's setting an artificially high or low benefit to savers for the safety they get by the system's design.

I don't think that's entirely clear.  Savers arguably see huge benefits by the "artificial" nature of the FDIC insured banking system, and rigged treasury bond market.  I mean even Austrians will admit this sometimes if the argument sounds a certain way.

So the best method is to look at other economic indicators... and if the best indicator for artificially low or high prices is shortages or surpluses, then we have a pretty good tool to decide what kind of truly distorting effect the government is having on the economy.

I'm good. You're right. You've proven to me that QE doesn't affect the money supply.

I was wrong all along. I mean even Austrians will admit this sometimes if the argument sounds a certain way.

Did I offend?  Certainly didn't mean to.

That comment about Austrians probably sounded more insulting than I meant it to.

I do believe that they often comment along the lines of FDIC making our deposits "artificially safe," and therefore lending "artificially cheap."

[Gumby]

Your failure to properly discuss broad money is one of the main reasons your arguments aren't very convincing. That and the fact that you lack data to support what you are saying. Sorry man.

Yes, that and the use of logic and reason. I know my crimes.

Have you seen Browne's chart on the movies and inflation? He proves it right then and there. No thought required.

If you simply took five minutes to apply your elementary school "logic and reason" to the broad money supply, you'd see that QE is pretty much a non-event.

[Kshartle]

I'd say that the US government issuing currency could be dubbed as "artificial," but it's tough for me to think of where interests on US government debt should be given that framework, because the unnaturality has already occured.

Realize, issuing something, and controlling an aspect of the pricing of the debt market denominated in that asset, are two different things.  Now it just so happens our system combines the process of issuing currency with our debt market, so both might just be "artificial," but the nice thing for savers is that it's also "artificially" secure due to government guarantees.  Savers can weigh how they want to use and "be abused" by this system by either participating, or investing their savings in ways that cut-out the "being abused" part, at the risk of some of the safety provided by government guarantees.

But just because the government participates in a lending scheme, doesn't necessarily mean it's participating to one side's benefit or the other's.  One could say that it's both, but if we're going to assume that everything the government does is a zero-sum-game, then we have to, at any given time, decide whether the government's involvement in banking is artificially setting a high or low price of debt to itself (and to others, if applicable), and, therefore, if it's setting an artificially high or low benefit to savers for the safety they get by the system's design.

I don't think that's entirely clear.  Savers arguably see huge benefits by the "artificial" nature of the FDIC insured banking system, and rigged treasury bond market.  I mean even Austrians will admit this sometimes if the argument sounds a certain way.

So the best method is to look at other economic indicators... and if the best indicator for artificially low or high prices is shortages or surpluses, then we have a pretty good tool to decide what kind of truly distorting effect the government is having on the economy.

I'm good. You're right. You've proven to me that QE doesn't affect the money supply.

I was wrong all along. I mean even Austrians will admit this sometimes if the argument sounds a certain way.

Did I offend?  Certainly didn't mean to.

That comment about Austrians probably sounded more insulting than I meant it to.

I do believe that they often comment along the lines of FDIC making our deposits "artificially safe," and therefore lending "artificially cheap."

No offense it just seemed like there were about 4-5 new topics introduced and I just get tired trying to bring it back. It's cool. No big deal.