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Bank of England Paper shattering common misconcpetions

So why does it say in big letters, FEDERAL RESERVE NOTE?
Power of the US Economy == "Full faith and credit" no collaterol

Because it is backed by the assets held with the federal reserve.
the federal reserve itself cannot print money. that is only allowed by the US treasury department.

So when more money is needed then the Federal reserve makes a request to the treasury to print more bills.
The treasury handles the printing of money and the payment of US debts etc ...

the federal reserve overseas the money supply and creates the money policy.

they are totally separate functions of government.
 
sure it does. but you didn't read it.
deficits can cause inflation.

have a nice day. it was in the 1st or 2nd paragraph since you didn't read it.

I didn't say that deficits can't cause inflation.

I said that we can increase deficits without causing inflation.
 
I didn't say that deficits can't cause inflation.

I said that we can increase deficits without causing inflation.

you need to go back and re-read your own post then.
I countered your claim by saying that deficits can lead to inflation.

the Fed even agree's that deficits can lead to inflation.
so if you have a problem then please take it up with the fed.

I even posted a federal reserve site that supports that same notion.
 
you need to go back and re-read your own post then.
I countered your claim by saying that deficits can lead to inflation.

the Fed even agree's that deficits can lead to inflation.
so if you have a problem then please take it up with the fed.

I even posted a federal reserve site that supports that same notion.

Under either scenario, deficits lead to greater money base growth, which can create inflationary pressure.

That was written in 2004, before QE greatly increased MB with virtually zero resulting inflation. I'm surprised that nobody has changed it to reflect that new evidence that they are wrong.
 
That was written in 2004, before QE greatly increased MB with virtually zero resulting inflation. I'm surprised that nobody has changed it to reflect that new evidence that they are wrong.

To be fair, they say it can result in inflationary pressure, not that it will always do so.
 
you need to go back and re-read your own post then.
I countered your claim by saying that deficits can lead to inflation.

the Fed even agree's that deficits can lead to inflation.
so if you have a problem then please take it up with the fed.

I even posted a federal reserve site that supports that same notion.

I never said that deficits can never lead to inflation.

If you challenge that, find a quote.
 
To be fair, they say it can result in inflationary pressure, not that it will always do so.

But it really calls into question the claim - is it just the fact that MB is greater, or is it the increased government spending (and the resulting increased economic activity) that can result in inflation? And if it's only #2, then why bother blaming inflation on MB at all, when increased MB is just a side effect?

I think QE made clear that the level of MB (which is mostly just increased reserves) means little, or even nothing. And that was a shocker to mainstream economists, who predicted all sorts of trouble.
 
Because it is backed by the assets held with the federal reserve.
the federal reserve itself cannot print money. that is only allowed by the US treasury department.

So when more money is needed then the Federal reserve makes a request to the treasury to print more bills.
The treasury handles the printing of money and the payment of US debts etc ...

the federal reserve overseas the money supply and creates the money policy.

they are totally separate functions of government.

So what you just said is if the Federal Reserve cannot produce tangible assets to prevent default on a Federal Reserve Note, then, of course, as a CORPORATION, it can file bankruptcy. Isn't the Federal Reserve holding the bogus mortgage tranches that precipitated the 2008 crisis? You probably mean some other collaterol, eh?
 
That was written in 2004, before QE greatly increased MB with virtually zero resulting inflation. I'm surprised that nobody has changed it to reflect that new evidence that they are wrong.

Because QE never entered into the money system it was simply an asset swap between banks and the federal reserve.
So that is a horrible example to use. The money supply never expanded because none of it was actually released into the market.

If it had been you would have seen huge inflation rates.

Because they aren't wrong you are.
 
So what you just said is if the Federal Reserve cannot produce tangible assets to prevent default on a Federal Reserve Note, then, of course, as a CORPORATION, it can file bankruptcy. Isn't the Federal Reserve holding the bogus mortgage tranches that precipitated the 2008 crisis? You probably mean some other collaterol, eh?

I suggest you go educate yourself on this I don't have time to explain every detail as to how the fed operates.
yes the fed holds other assets in it's holdings.
 
Because QE never entered into the money system it was simply an asset swap between banks and the federal reserve.
So that is a horrible example to use. The money supply never expanded because none of it was actually released into the market.

If it had been you would have seen huge inflation rates.

Because they aren't wrong you are.

No, it's a perfect example to use, because their claim was that an increase in base money (MB) can cause inflation. Every transaction by the Fed/govt. affects MB.

And anyway, QE did put some dollars into circulation; any asset purchases from non-bank entities put real dollars into private hands. Yet, no inflation.
 
that was a shocker to mainstream economists, who predicted all sorts of trouble.

Is the "connecting mechanism" or whatever ya might call it, the level of inflation anticipated by actors in the economy? I remember from all those years ago that expectations of inflation are a if not the major predictor of inflation. Or at least that's what a lot of people thought back in the Middle Ages.
 
Is the "connecting mechanism" or whatever ya might call it, the level of inflation anticipated by actors in the economy? I remember from all those years ago that expectations of inflation are a if not the major predictor of inflation. Or at least that's what a lot of people thought back in the Middle Ages.

But then the plow was invented and put 99% of people out of work, causing inflation to subside for a while.
 
You also need to add to that the fact that the BOE was privately owned from its inception in 1684. The British government agreed to buy it in 1946. The sale completed in the 60s, 1967 IIRC, and if you read the parlimentary minutes its amazing how little discussion such a major event attracted. There is also some doubt over how much is owned by the government.

In terms of controlling the money supply though owning the Bank of England is irrelevant. The Basel rules issued by the Bank of International Settlements (BIS) that the bank has to comply with make the MPC meaningless. The BIS tells them what assets and instruments they can consider reserves and what fraction the fractional reserve limit should be (currently zero). This dictates how much money can be issued, and it is a fact that throughout history no recession has occurred that was not preceded by a constriction of the money supply and no constriction of the money supply has not been followed by a recession.

The BIS is a privately owned bank, often described as the central bank of central banks as it similarly dictates to many other countries central banks. It was originally created to handle WW1 reparation payments from Germany and like so many of these institutions survives to this day despite the original justification for its existence having long disappeared.

Who the British people bought the BOE off is still a state secret to this day. The British government has refused all freedom of information requests asking who owned it.

It is ironic, or should that be tragic, that the British taxpayers are still repaying the money loaned to purchase the BOE and that buying it did not give them control of their money supply due to it being legally bound to comply with BIS rules.
 
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No, it's a perfect example to use, because their claim was that an increase in base money (MB) can cause inflation. Every transaction by the Fed/govt. affects MB.

And anyway, QE did put some dollars into circulation; any asset purchases from non-bank entities put real dollars into private hands. Yet, no inflation.

QE didn't put any money into the system the federal reserve bought a bunch of bad debt from banks.
Again you don't know what you are talking about.

It is a horrible example because there was no expansion of the money supply the money supply stayed the same.
The holdings of the federal reserve expanded but that was it.
 
QE didn't put any money into the system

System?

>>there was no expansion of the money supply

John didn't say the money supply expanded (well, not much), but rather that the monetary base did.

US_MB_1984_2015.jpg

>>Again you don't know what you are talking about.

If you want to at least cut down on the number of times you make a complete fool of yerself, and you could use a lot of work in that regard, I suggest that you don't go around saying John doesn't know what he's talking about. There are many, many things he doesn't know anything about, but in my experience he does a good job of realizing that.
 
Is the "connecting mechanism" or whatever ya might call it, the level of inflation anticipated by actors in the economy? I remember from all those years ago that expectations of inflation are a if not the major predictor of inflation. Or at least that's what a lot of people thought back in the Middle Ages.

I don't put much stock in expectations. Do you pay more for something just because you expect prices to go up? It makes no sense to me. But then again, neither do most of the other mainstream explanations for inflation.

Before QE, when banks kept excess reserves to a minimum, MB moved in sync with M1, because banks used to hold reserves exactly at the level where they had to by law - excess reserves were used to buy bonds. Nobody knew what would happen if banks held excess reserves; then we tried QE, and banks held tons of excess reserves - and nothing happened. But the predictions ran the gamut from far-fetched to simply uninformed (the uninformed predictions usually claiming that all of that money was hitting the economy like rain). But mostly, QE just bolstered the price of assets like MBSs.
 
QE didn't put any money into the system the federal reserve bought a bunch of bad debt from banks.
Again you don't know what you are talking about.

It is a horrible example because there was no expansion of the money supply the money supply stayed the same.
The holdings of the federal reserve expanded but that was it.

Banks weren't the only ones selling assets. If you are a non-bank entity selling assets to the Fed, then you collect dollars and reserves increase.
 
The US Treasury provides a US Treasury Note/bond of 8 trillion dollars and the Federal Resrve prints 8 trillion dollars of Federal Reserve Notes. It used to be a competitive market for those US Treasuries, but now the Federal Reserve is the buyer, ergo we would owe the Federal Reserve Interest on 8 Trillion Dollars because savvy buyers are suspect of the ability to honor continuously growing debt. The "full faith and credit" debt is not a good or service. Helicopter money, don't ya' know? Perhaps if one could accumulate enough of those debts, they could purchase a National Park, eh? If you can overwhelm World currency markets with huge volumes of this money, you can buy up anything of real value around the World, and control many economies and perhaps prevent the collapse of the debt. or not?

You need to brush up on monetary economics post 1971. That all ended when Bretton Woods collapsed.
 
When it comes to inflation and money supply you actually see an inverse, or negative correlation.

And it makes sense to see that, as more money = more sales = more competition = lowered prices (assuming this happens in industries where production can increase, think the opposite of housing and oil).

change-in-inflation-gdp-oil-and-money-supply-69-thru-921_zps096b573d.jpg

https://hereticaldruthers.wordpress.com/2012/12/31/how-does-inflation-occur/

You can read the linked article where I explain how inflation occurs, and also read a good one by John Harvey on Forbes.
 
I don't put much stock in expectations.

Well, you might wanna at least consider moving some of yer bond portfolio into them.

>>Do you pay more for something just because you expect prices to go up?

I'd say you don't. But if you expect costs to go up, does that put more pressure on you as a worker to increase yer earnings and as a business to increase yer prices?

This sounds like it might be an idea for a thread. Let me test the waters.

Modern economic theory says that inflation expectations are an important determinant of actual inflation. How does expected inflation affect actual inflation? Firms and households take into account the expected rate of inflation when making economic decisions, such as wage contract negotiations or firms' pricing decisions. All of these decisions, in turn, feed into the actual rate of increase in prices. Given that central banks are concerned with price stability, policymakers pay attention to inflation expectations in addition to actual inflation. — "Inflation Expectations Are Important to Central Bankers, Too," FRB STL, Apr 2016​

You can read the linked article where I explain how inflation occurs

Yer not another hobbyist, are ya? MR has warned me about them.
 
You need to brush up on monetary economics post 1971. That all ended when Bretton Woods collapsed.

Bretton Woods, a time when the dollar, silver certificate, was redeemable in metal and had real value. The USA defaulted when DeGaulle wanted to cash in millions of dollars for that metal. The USA describes that as going off the Bretton Woods agreement. And now. No collaterol.
 
Banks weren't the only ones selling assets. If you are a non-bank entity selling assets to the Fed, then you collect dollars and reserves increase.

Non bank entities didn't apply as the federal reserve only deals with banks.
Again you are wrong.
 
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