Money. Doing it Right this Time.

[warpus]

Warpus--Are you sure NOK is up against to CAD? Since May, it looks like NOK has gone from 5.50/CAD to 6.37/CAD today. The Canadian economy may have close links to oil but Norway is much more as a per cent of GDP

OH.. my.. god.. I had this backwards.

I'm an idiot. I'm glad I asked this, because yes, it turns out I will be SAVING $1,500 and not the opposite. I have no idea how it happened that I had this backwards.

THis is amazing. I'm going to celebrate with a drink. Thank you

 

[onejayhawk]

Why ?

The irony is better.

J

 

[Cutlass]

The irony is better.

J

I'm not getting to the other threads regularly. I don't have the time.

 

[El_Machinae]

Where are the central banks getting the money to do QE with? Printing? It violates "money is debt"?

 

[Hygro]

Yes they are creating new fed money out of nothing to buy the treasury money.

 

[Cutlass]

The simplest analogy to picture how the CB works is a very basic double entry bookkeeping. What goes in and what goes out are being balanced. For every debit, there is a credit, and vice versa.

We call it 'open market operations'. What happens is that the CB purchases assets. They pay for it with money. The seller of the asset now has money. The CB now has an asset. The expanded money in the system didn't 'come out of nowhere', which is why it's not by itself inflationary.

The asset most commonly used is that nation's treasury bonds. But nothing forces that to be true. And the CB can purchase whatever assets it wants. Though different nations may have laws restricting that. It could be the bonds of a different nation, it could be lower level government bonds, it could be commercial bonds. It doesn't really matter, except to say that in general CBs buy the safest asset that's on the market. If the CB wants to tighten the money supply, they'll turn that around and sell bonds and take in cash.

When the CB issues a buy or sell order, it will happen. There's no place for the markets to refuse the CBs actions. Banks hold very large quantities of bonds, particularly safe government bonds. The CB is the primary regulator of those banks. If the CB says 'sell me your bonds', that transaction happens. Immediately. No questions asked.

So for all that the term 'printing money' is thrown around a lot, technically that's not what's happening. It's the swap of one asset, bonds, for another asset, cash. Or the digital equivalent of cash.

When governments 'print money', the CB generally isn't really involved in that. That's what happens when a government actually does print money, and pays its bills with that printed money, instead of raising revenue through taxes or borrowing. So as long as all the government spending is coming out of revenue or borrowing, it's not technically 'printing money', and there's little to no inflationary pressure as a result. Again, the American Revolution and Civil War examples hold. As does Zimbabwe.

 

[El_Machinae]

I can't see how they're not creating new money for QE, though. When the tbill first went out, they were double-accounted with cash at the time. But to get the tbill out of circulation with QE, it's being bought with new money?

 

[Cutlass]

It's being bought with money new to the market. But keep in mind that a t-bill is almost as good as cash in the first place. It's not as liquid for transactions, but does serve some of the same roles.

 

[Hygro]

let's say treasuries are only created to match deficit spending for a moment.

Govt spends more than it taxes. Net new dollars. Treasury releases treasuries to match. New money-dollars gone, net new bond-dollars now here. central bank does QE, issues new money-dollars, swaps them for bond-dollars. Bond-dollars gone, money-dollars back.

 

[El_Machinae]

yeah, I'm not worried about deficit spending. I can follow the tbill and dollar trails there.

 

[Hygro]

i just meant to account for why there was a treasury in the first place to talk about QE.

 

[Takhisis]

What are 'treasuries', exactly? Bonds?

 

[Hygro]

Securities, of which some are called bonds, some bills, and some notes, but effectively you can call all of them bonds.

 

[Cutlass]

'Treasuries', as used in the US, means any of a group of debt instruments issued by the US government through the Treasury Department.

 

[Takhisis]

This might sound like a stupid question, but do they need Congress' permission to issue those?

 

[Cutlass]

Yes and no. From time to time you'll here in the news that the federal debt limit has been reached and has to be increased, and some people try to prevent that from happening. Or at least to extract political concessions in exchange for it happening.

What the debt limit is is a law which says that the administration, the Treasury specifically, can issue new debt as needed, up to a specified point. But without new legislation cannot issue new debt beyond that point. So Congress has granted a range of action, rather than open ended action.

 

[onejayhawk]

This might sound like a stupid question, but do they need Congress' permission to issue those?

Anyone can issue a bond. Only the US Treasury to issue "treasuries", at least in USA, hence the distinction.

J

 

[Flying Pig]

Back on the balanced budgets question I'm afraid - I think by now I understand the theory explaining why not balanced budgets (especially for a country that prints the currency it borrows in) are much better than balanced ones. So where does this sort of thing come from? The IMF aren't even France or Germany, who would have an incentive to point to Britain as an austerity 'success story' so as to encourage the likes of Greece and Italy to copy them and save French and German money.

EDIT: Whoops - duly fixed, thanks El Mac.

 

[El_Machinae]

Fix your URL, FP

 

[Cutlass]

The major problem over the years with the IMF (and the World Bank), which were created to help the world develop and become prosperous, is that they are, ultimately, run by bankers. And the first priority of bankers is to get repaid.

Regardless of the consequences to the debtor.

And because of this the IMF has a long tradition of demanding policies on the part of the debtors which are harmful both in the near term and the long term to the futures of those countries, and the people in them. What you are seeing is a conflict of interest. Instead of acting as a development agency, the IMF too much acts as a bank. And a particularly nasty bank at that. And they have a research arm. And so their own research tells them that they do more harm then good. But they do it anyways, because ultimately the bankers are running the show.