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QE for Dummies

For reference to the November Fed minutes (not Jerome Powell):

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer's rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage‑backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.
 
He's not talking about the stock market lol.

I'm sure he doesn't want equity markets to crash, but Fed policy is not directed towards the stock market.

You have no idea what you're talking about, and this thread is a testament to your partisan ignorance.

WHAT market is he talking about then?
 
WHAT market is he talking about then?
:ROFLMAO:

The U.S. is a market driven economy. In the very beginning of the Fed minutes, it states:
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
 
:ROFLMAO:

The U.S. is a market driven economy. In the very beginning of the Fed minutes, it states:

I think you interpreted the words wrong. When Powell said "smooth market functioning" he did not mean the economy in general. If he did, he would have said "smooth economic functioning."

In any case, I have seen other similar quotes by him.
 
I think you interpreted the words wrong. When Powell said "smooth market functioning" he did not mean the economy in general. If he did, he would have said "smooth economic functioning."
First of all, this is a Fed minutes release. It's not a direct quote of Jerome Powell.

Secondly, you are the one who is assigning meanings to words in an attempt to justify your confusion.
In any case, I have seen other similar quotes by him.
And you didn't bother to provide any quotes.... Imagine that!
 
First of all, this is a Fed minutes release. It's not a direct quote of Jerome Powell.

Secondly, you are the one who is assigning meanings to words in an attempt to justify your confusion.

And you didn't bother to provide any quotes.... Imagine that!

Not my fault if you don't keep up with the financial news.
 
Not my fault if you don't keep up with the financial news.
You are attributing Fed policy to propping up equity markets. That's nonsense. Pretending to be knowledgeable isn't going to work given i've literally been wiping the floor with you for a few days now.
 
You are attributing Fed policy to propping up equity markets. That's nonsense. Pretending to be knowledgeable isn't going to work given i've literally been wiping the floor with you for a few days now.

Everyone (except you) knows that the stock market is inflated mostly because of low interest, and no safe alternatives for investing. Everyone knows that if the Fed raises interest, the stock market could crash. Everyone knows that even though the Fed needs to taper and allow interest to rise, to control inflation, they also want to keep stocks inflated.
 
I am not a financial professional, ...

Independents, conservatives, libertarians, might see it differently. They have been predicting out of control inflation, for years. Creating nearly infinite amounts of money has to eventually inflate the money supply, and when there is too much money in circulation that contributes to inflation. There are other factors, like low supply, but it's multiple factors, not just one.

"Lots" of printed money needs to be kept in perspective, and "lots" is not nearly infinite. Actually nothing is nearly infinite, it's a meaningless phrase.

M2 money supply is 21 trillion so the money created by QE is hardly even lots.

(I'm disappointed your weren't going to explain Quantum Entanglement to us ...)
 
"Lots" of printed money needs to be kept in perspective, and "lots" is not nearly infinite. Actually nothing is nearly infinite, it's a meaningless phrase.

M2 money supply is 21 trillion so the money created by QE is hardly even lots.

(I'm disappointed your weren't going to explain Quantum Entanglement to us ...)

You actually deny that the Fed created "lots" of money since 2020?
 
Everyone (except you) knows that the stock market is inflated mostly because of low interest, and no safe alternatives for investing.
The earnings picture tells another story, as valuations aren't that out of line. The federal government dropped $6 trillion into an economy weakened by a global pandemic.

Companies have earned these valuations.
Everyone knows that if the Fed raises interest, the stock market could crash.
Nobody knows that, and neither do you.
Everyone knows that even though the Fed needs to taper and allow interest to rise, to control inflation, they also want to keep stocks inflated.
Again... nobody knows... even you.
 
The earnings picture tells another story, as valuations aren't that out of line. The federal government dropped $6 trillion into an economy weakened by a global pandemic.

Companies have earned these valuations.

Nobody knows that, and neither do you.

Again... nobody knows... even you.

Everyone knows the stock market is in a gigantic bubble. Except you.

And it's because YOU are in a bubble, of mainstream news propaganda. Everything is wonderful because the central bank and central government saved the day with their clever central planning.
 
Everyone knows the stock market is in a gigantic bubble. Except you.
False. You're just fear mongering because that's all you have to offer....
 
False. You're just fear mongering because that's all you have to offer....

Read almost any financial experts. Hardly anyone agrees with you.
 
You actually deny that the Fed created "lots" of money since 2020?

If "lots" is comparable to "nearly infinite" then yes I do. Not even the number of particles in the known universe is "nearly infinite".

It's not really a lot compared to 2008, 2010 and 2012 which overlapped each other. The 2020 round was $7,000 billion (or $2 trillion) depending on whether you want to measure costs (the lower number) or assets held (the higher number.)

Don't look at me for explanations though. I just know a lot more money was "printed" after the Great Recession than is being printed now. It worked out pretty good last time?
 
I am not a financial professional, and this is just my amateur understanding of the convoluted logic of QE. Most people probably don't even know what QE is, so hopefully this will be useful to someone.

QE stands for "quantitative easing," which is Fed speak for money creation. How does the Fed (Federal Reserve bank) create money, and why does it create money?

The Fed was created in 1913 and its job has been to prevent bank runs, and to control the money supply (not too much, not too little, just the right amount of money in circulation).

(Please don't get upset if I don't get every detail perfect, I am going on memory and this is supposed to be a rough outline).

Then we had the 2008 crisis, and the Fed decided it need to do more than just prevent bank runs and control the money supply. It also needed to prevent major crashes.

So we had the big bank bailouts that we all loved so much. And the Fed began doing QE on a massive scale, supposedly to keep the economy afloat.

What is QE? The Fed creates money by buying bonds -- government bonds, corporate bonds, mortgage-backed securities. Now, normally bonds are bought by private investors, because they think the government or company selling the bonds is worth something. They think owning the bonds will pay off.

But the Fed is not a private investor. What is the Fed? Well no one really knows, it is not part of the government but not exactly private either. Well that's complicated. Federal Reserve banks are privately owned, but the central "Fed" bank isn't.

Ok, so ... the Fed buys tons and tons of bonds, of various kinds. It doesn't care if these bonds are a good or bad investment, just buys whatever it wants. Based on what? Well maybe it prefers bonds issued by banks or corporations it likes for some reason. This is an example of crony capitalism.

Now, tons of bonds have been bought up by the Fed. That reduces the supply of bonds, which raises the price. The price of bonds is inversely related to their yield, so as the price of bonds rises, the yield (interest) lowers. That's how we got ultra low interest rates. At least that's one reason.

The Fed believes low interest rates are good for the economy, since they encourage businesses to borrow money, and consumers to buy houses and cars. Low interest also forces everyone to invest in risky assets (equities) thereby keeping the stock market blazing. And low interest makes it less impossible for the government to pay its debt.

So all that is good, right? The Fed keeps the economy humming along, instead of periodically crashing and burning and leaving us in a depression.

That is what mainstream news, and especially Democrat-leaning news (which is most of the mainstream) wants you to think. Interfering with the "natural" economy is perfectly fine, because experts are smarter than "nature." No need to worry about unintended consequences resulting from tampering with natural complex systems.

Independents, conservatives, libertarians, might see it differently. They have been predicting out of control inflation, for years. Creating nearly infinite amounts of money has to eventually inflate the money supply, and when there is too much money in circulation that contributes to inflation. There are other factors, like low supply, but it's multiple factors, not just one.

So now, the Fed promises to start "tapering." That is Fed speak for decreasing the bond purchases, or QE. NOT stopping the purchases, NOT selling any bonds, just decreasing the rate of increase. This is to, hopefully, prevent inflation from spiraling. Will it cause interest rates to rise? I don't know, but if it does the stock market could suffer, and the Fed might react by turning QE up again full force.
1929 and the resulting depression might have a slightly different opinion.

Complex systems do often act in unexpected ways. But that also means that the intuitive understandings about them is often very wrong.

The economy grew faster this year than it has since 1984. Wages are way up, employment is up. Companies are investing billions building and upgrading manufacturing in the US. The new buzzword is insourcing. We’re in the middle of a historic economic boom.

QE isn’t responsible for inflation. If you want to blame a policy, blame tariffs and the trade war with China. Tariffs are definitionally inflationary as it increases the cost of imports.

The only way to get inflation on consumer goods is for average consumers to have more money and or chasing after less supply.
 
Biden’s alleged ability to herd congress critters into unity (bipartisan compromise?) has been grossly exaggerated. Borrow, print and spend federal ‘budgeting‘ has allowed congress critters to be re-elected at a rate of over 90%, so that (politically successful) policy is highly unlikely to change.

Well, let's face it... Biden isn't exactly LBJ - he doesn't have the ability to shift the legislative terrain. But he is damned good at reading it. He strikes me a lot like Reagan in that way.... of course they've got different strength and weaknesses... but what they have in common is that they're both most effective when playing the "good cop"... and good cops are most effective when they've got a "bad cop" to play off of. Reagan had Jim Baker. Biden has... Ron Klain? Not exactly in the same league. He's smart and all... but he's not the type to knock heads together.

I think he needs someone along the lines of Chris Dodd as WH Chief of Staff to be the "bad cop" . Biden and Dodd made a good team in the Senate... just imagine what they could do in the White House.
 
I am not a financial professional, and this is just my amateur understanding of the convoluted logic of QE. Most people probably don't even know what QE is, so hopefully this will be useful to someone.

QE stands for "quantitative easing," which is Fed speak for money creation. How does the Fed (Federal Reserve bank) create money, and why does it create money?

The Fed was created in 1913 and its job has been to prevent bank runs, and to control the money supply (not too much, not too little, just the right amount of money in circulation).

(Please don't get upset if I don't get every detail perfect, I am going on memory and this is supposed to be a rough outline).

Then we had the 2008 crisis, and the Fed decided it need to do more than just prevent bank runs and control the money supply. It also needed to prevent major crashes.

So we had the big bank bailouts that we all loved so much. And the Fed began doing QE on a massive scale, supposedly to keep the economy afloat.

What is QE? The Fed creates money by buying bonds -- government bonds, corporate bonds, mortgage-backed securities. Now, normally bonds are bought by private investors, because they think the government or company selling the bonds is worth something. They think owning the bonds will pay off.

But the Fed is not a private investor. What is the Fed? Well no one really knows, it is not part of the government but not exactly private either. Well that's complicated. Federal Reserve banks are privately owned, but the central "Fed" bank isn't.

Ok, so ... the Fed buys tons and tons of bonds, of various kinds. It doesn't care if these bonds are a good or bad investment, just buys whatever it wants. Based on what? Well maybe it prefers bonds issued by banks or corporations it likes for some reason. This is an example of crony capitalism.

Now, tons of bonds have been bought up by the Fed. That reduces the supply of bonds, which raises the price. The price of bonds is inversely related to their yield, so as the price of bonds rises, the yield (interest) lowers. That's how we got ultra low interest rates. At least that's one reason.

The Fed believes low interest rates are good for the economy, since they encourage businesses to borrow money, and consumers to buy houses and cars. Low interest also forces everyone to invest in risky assets (equities) thereby keeping the stock market blazing. And low interest makes it less impossible for the government to pay its debt.

So all that is good, right? The Fed keeps the economy humming along, instead of periodically crashing and burning and leaving us in a depression.

That is what mainstream news, and especially Democrat-leaning news (which is most of the mainstream) wants you to think. Interfering with the "natural" economy is perfectly fine, because experts are smarter than "nature." No need to worry about unintended consequences resulting from tampering with natural complex systems.

Independents, conservatives, libertarians, might see it differently. They have been predicting out of control inflation, for years. Creating nearly infinite amounts of money has to eventually inflate the money supply, and when there is too much money in circulation that contributes to inflation. There are other factors, like low supply, but it's multiple factors, not just one.

So now, the Fed promises to start "tapering." That is Fed speak for decreasing the bond purchases, or QE. NOT stopping the purchases, NOT selling any bonds, just decreasing the rate of increase. This is to, hopefully, prevent inflation from spiraling. Will it cause interest rates to rise? I don't know, but if it does the stock market could suffer, and the Fed might react by turning QE up again full force.
bond purchasing (creating funny money, bailouts etc etc) is the government's way of avoiding revolution......revolution by economic depression begets revolution at the ballot box.......the nasty underbelly of capitalism is peaks and valleys in the economy......one would say 'well if people would just think, the way to deal with the P&V's is to let the marketplace rule and everything will be ok.....next year...or the next year''........and it probably would.....reality is people ain't gonna wait that long.....reality is capitalism works better when the population is not diverse.....reality is poor people outnumber the rich......and the reality is one day the bonds will be worthless and we will have revolution by depression

maybe someday we as a species will really get smart and acknowledge that we are our brothers keeper......that we do have a responsibility to each other's well being......that war and suffering and religion and stupid pride are bulsht that keeps us angry and greedy......we may even figure out that this bond buying is necessary....because we really are stupid.......maybe one day...well nah.....nevermind
 
bond purchasing (creating funny money, bailouts etc etc) is the government's way of avoiding revolution......revolution by economic depression.
😐

Although you don't know it yet... you've just advocated for economic depression. Just think about that for a little while.
 
😐

Although you don't know it yet... you've just advocated for economic depression. Just think about that for a little while.
I absolutely can see why that conclusion could be made.........actually only pointing out the inevitability of depression......if we don't change our way of thinking......so.....inevitable depression
 
bond purchasing (creating funny money, bailouts etc etc) is the government's way of avoiding revolution......revolution by economic depression begets revolution at the ballot box.......the nasty underbelly of capitalism is peaks and valleys in the economy......one would say 'well if people would just think, the way to deal with the P&V's is to let the marketplace rule and everything will be ok.....next year...or the next year''........and it probably would.....reality is people ain't gonna wait that long.....reality is capitalism works better when the population is not diverse.....reality is poor people outnumber the rich......and the reality is one day the bonds will be worthless and we will have revolution by depression

maybe someday we as a species will really get smart and acknowledge that we are our brothers keeper......that we do have a responsibility to each other's well being......that war and suffering and religion and stupid pride are bulsht that keeps us angry and greedy......we may even figure out that this bond buying is necessary....because we really are stupid.......maybe one day...well nah.....nevermind

You think war and suffering and religion and stupid pride are the problem. No, the "problem" is complex systems work the way they work. And Fed interventions, as you know, make it worse and worse and postpone the inevitable.

Get rid of religion, and it's quickly replaced with something like Stalinism. Get rid of war -- haha, they kinda already did that by inventing weapons that can't be used. Stupid pride? As opposed to what, intelligent pride? You want everyone to be totally without any kind of pride, good luck.
 
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