Why Debt and Money Created 'Out of Thin Air' Are Necessary, Not Evil. "part of a conspiracy"?

According to this argue, made by PBS's Paul Solman, he is no part of a conspiracy. He rests assures you, with his thought provoking write up..

let me make a general observation addressed to those of you who write in with genuine questions, like those below, and also to those of you who think you already know the answers and call people like me either "ill informed" or "part of a conspiracy"

Gary Barrett -- Conifer, Colo.: Why does federal monetary policy target a 2 percent inflation rate? Why encourage inflation?

Paul Solman: Let me rephrase your question with a dose of skepticism, Gary. "Why encourage inflation of 2 percent a year when that means the U.S. dollar will lose half its value by 2050? How can inflation be a good thing?"

All told, the Fed has newly taken on about $3 trillion worth of loans since the Crash of '08, which it paid for with newly created electronic "Federal reserves." That's the policy known as "quantitative easing," so-called because the Fed increased the quantity of money in the banking system in order to ease ( as opposed to "tighten") economic activity. And to be clear: this is what the Fed has always done when it tried to stimulate the economy. The Fed was blasted by conservative economists Milton Friedman and Anna Schwartz for not having done so in the early 1930s and thus having contributed mightily to the Great Depression by failing to ease.

Yan also asks: "Could [the Fed] give [the Treasury bonds] to the main part of the government? What would the bonds be if that happened? Mad money?"

let me ask a question you didn't pose, Yan: what happened to the nearly $3 trillion dollars the Fed has created between 2008 and today?

Well, look again at the Fed balance sheet. In the second section, entitled "1. Factors Affecting Reserve Balances of Depository Institutions (continued)," the seventh row is labeled "Reserve balances with Federal Reserve Banks." Up until the Crash of '08, that number was in the low billions. Today, as you can see if you look, it's $2.3 trillion.

In other words, most of the money the Fed has created -- "out of thin air," as Fedophobes like to declaim -- is right back at the Fed in the form of deposits by banks.

Janice Bienn -- Dallas, Texas: What are your thoughts on the video "Money as Debt" by Paul Grignon? I sent someone your article, and he fired back with this video, stating that you were either ill informed, or part of the "conspiracy." I don't believe either conclusion is true. But I would appreciate some clarification. Thanks in advance for your time.

Paul Solman: I don't mean to sound defensive, Janice, but if even I am ill informed, after all these decades of time and effort, we might as well go fishing and leave the economy to -- well, whom, exactly? Paul Grignon? His great insight, as near as I can tell, is that money is debt -- true -- and debt is bad. Really? Debt is bad? Money is bad?

Look, debt can be abused. Who would doubt it? The ability to create money can be abused. Again, who would argue otherwise? But for goodness sake, everything of value can be abused, from land to love to food to friendship!

People and larger groups of people (institutions) and even larger groups (governments) take on financial commitments they can't meet. What else is new? This has been happening throughout the entire course of financial transactions. Here's the translation of a message on a clay tablet, in cuneiform, from A. Leo Oppenheim's book, "Letters from Mesopotamia"

Is my thinking that it's not such a good idea for the fed to keep raising up more and more debt, part of my fedophobia? Is Paul correct in saying, it is not big deal to run up the debt?
What gets me the most is Paul defending himself by saying, *sure, debt can be abused, but so can everything of value* a valid argument to Janice>?

Is this guy part of some conspiracy, or just ill informed himself?

What I get from the article, it is ok to create debt as long as no one is abusing it..

My last question would be Paul, does it not look like the government is abusing this privilege?
If they are then his whole argument would be null and void. Correct?

www.pbs.org...

The Fed has been buying both longer-term U.S. Treasury bonds ($1.9 trillion and counting) and mortgage-backed securities ($1.3 trillion and counting), using newly created money. But there has been a simmering debate over how and whether the purchases have much effect.

The authors view one of the significant ways that these purchases affect the economy through a “scarcity effect.” When the Fed buys billions of mortgage bonds, the pair finds, other investors who want to hold some amount of the securities have to pay more for them, pushing down the rates on the bonds, and by extension lowering the costs for homebuyers. By the researchers' math, the Fed’s first round of QE, back in 2009, lowered 30-year mortage-backed securities yields by 1.07 percentage points; its 2011 efforts to buy more of the securities lowered them 0.23 percent; and the QE3 policy now underway contributed another 0.16 percent.

They find similar impacts in terms of lower rates for Treaury bonds, but they argue that, in contrast to MBS, these haven’t helped the real economy. In effect, they argue, Treasury bonds fulfill a unique role at the bedrock of the financial system, allowing investors an ultra-safe place to park money that can be readily used as collateral. When the Fed buys up a big chunk of Treasury bonds, fewer other investors can enjoy that benefit.

Article

The Fed has become such a large player in the MBS sector and in Treasury Bonds that in of itself creates problems. Eventually the Fed will want to unload those MBS, that should cause problems for consumers.

If the Economy stays stagnant, The Fed doesn't have any more arrows in it's quiver, QE will eventually have to stop and that will have big repercussions.

If the Economy heats up and inflation does too, the Fed will probably be forced into selling mode of both MBS and Treasury Notes to dampen inflation. This will have the net effect of the Fed losing lots of money. They started buying MBS because no one else would (remember those "toxic" loans), which were basically valueless, that's why no one else wanted to buy them. When they sell them, they will lose tons.

What the Fed has been doing is trying to keep the economy treading water till it (the economy) reaches shallow enough water to walk on it's own.

One could contend that the Fed actions have caused the swimmer to head out to even further deep water by creating yet another "bubble" of imaginary growth.

If QE doesn't work.....take a look at history to see what will happen next. The Government tried to influence the economy in a different way in the 30's and ran out of options to control things.

QE hasn't never been tried on the scale it has currently. It's an experiment.

Yeah.

Let me get an unlimited credit card where Mr. Solman and his decendants pay the bill. I promise not to abuse the debt I create.

Typical liberal hogwash spin. They used to say it was necessary to prevent a tight money supply (not enough cash available for circulation because people were saving), this was when they actually printed the cash. Now they simply do it electronically.

But, the same thing is true now, this debases every existing dollar and so we get $6 boxes of cereal and $4 milk. And, to cook the so-called low inflation rate they simply stopped calculating the things we all must buy, everyday, from inflation.

It would be laughable if it wasn't so harmful (to everyone except the "banks").

reply to post by starfoxxx


danielamerman.com...



here's a pretty well written piece about what happens if 'debt' needs to be lassoed in...

the Fed is buying the bad mortgage papoer created by the 'systemically important' banks or TBTF banks...

the government retirement/pensions system are wayyyy in the red ink zone
about all the fed can do is to QE the banks so they don't go bankrupt....
the Treasury will need to capture a lot of private pension wealth in a variety of ways...IRAs, 401Ks, personal accounts at banks...

this seizures (bail in) will likely be synchronized by both the banks that need their derivatives balances collateralized and the federal government to finance pensions & retirements=medicare entitlements & State governments that are in the same unsustainable Debt trap as the federal govt.


cyprus, Poland, Canada were the 1st operations of a Debt holocaust

St Udio
reply to post by starfoxxx

 

danielamerman.com...



here's a pretty well written piece about what happens if 'debt' needs to be lassoed in...

the Fed is buying the bad mortgage papoer created by the 'systemically important' banks or TBTF banks...

the government retirement/pensions system are wayyyy in the red ink zone
about all the fed can do is to QE the banks so they don't go bankrupt....
the Treasury will need to capture a lot of private pension wealth in a variety of ways...IRAs, 401Ks, personal accounts at banks...

this seizures (bail in) will likely be synchronized by both the banks that need their derivatives balances collateralized and the federal government to finance pensions & retirements=medicare entitlements & State governments that are in the same unsustainable Debt trap as the federal govt.


cyprus, Poland, Canada were the 1st operations of a Debt holocaust

WOW, great posting guys! I am getting the vibe here everyone thinks Mr. Pauly is full of crap, atleast.
At best he is part of a conspiracy, hooked up with PBS pushing some agenda.

Two systems - Britian's tally sticks, and Venice's silver certificates, operated for over twice the duration of the usuall rothshilds type debt currency without degradation (silver bullets and stakes through the heart)...

they were taken down to make way for what we have now:
"Give my control of the currency...."

there's your sign

ps
who majorly funds PBS?

reply to post by starfoxxx

[...] the Fed increased the quantity of money in the banking system in order to ease (as opposed to "tighten") economic activity.

So this "Business and Economics Correspondent" doesn't know the difference between money and currency? Money cannot be "created out of thin air"... that's what makes it money!

they were taken down to make way for what we have now:
"Give my control of the currency...."

there's your sign

ps
who majorly funds PBS?

Good folks, like you and me, donating out hard earned money, to watch their fantastic content. Grandma mammy, who loves to see the kid's watch pbs, I mean at one time THEY DID have Mr. Rogers, Reading Rainbow, and Shining time station!

Nice parents who believe Sesame Street is the end all be all in educated childrens television.

The intellectuals of our time are donating Paul Solamon's salary. Who else would be funding it>? I mean you can't say the government, thats insane, they would never push an agenda.

DP