
Fed’s Balance Sheet Exceeds $7T for First Time in History - baronmunchausen
https://thesoundingline.com/feds-balance-sheet-exceeds-7-trillion-for-first-time-in-history/
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cletus
In the wake of the Great Depression the US government made it illegal to own
gold (jewelry notwithstanding). At this time, US$1 was convertible to 1/20th
of an ounce of gold. People sold their gold back to the government.

In the 1930s the US government had spiraling debt so how did it solve this
problem? Simple. It simply made US$1 worth 1/35th of an ounce of gold instead.

What this amounted to was a devaluation of US government debt in real terms
but not in nominal terms.

Post-WWI Germany had to pay war reparations denominated in deutschmarks. About
10 years later Germany got into a situation of hyperinflation. This
essentially wiped out any outstanding reparations.

So if you wonder what the end result of all this is, it's probably that: an
effective devaluation of bonds rather than a sovereign default, which is
unlikely in any system where the debt is denominated in the currency you can
literally print.

Interestingly this would also devalue the US government's entitlement
obligations (eg Social Security) too.

~~~
harryh
For the record, inflation is currently _negative_ in the US.

~~~
marcrosoft
They have said inflation has been in check for a long while. Going to the
grocery store and looking at prices shows otherwise. I’m not sure what they
are measuring.

~~~
harryh
They're literally measuring prices at grocery stores, as well as a basket of
other goods and services.

[https://www.bls.gov/cpi/questions-and-
answers.htm](https://www.bls.gov/cpi/questions-and-answers.htm)

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iphone_elegance
I've done this before in a few video games, hopefully things work better here
than when I try it

~~~
Melting_Harps
> I've done this before in a few video games, hopefully things work better
> here than when I try it

I don't know why I found this so funny, given how prevalent seeing hyper-
inflated currencies and countries get destroyed has become in my Lifetime. Its
like I saw a 4 year old hitting the print trillions button on a Sim-City like
game only to see a Game Over appear right away.

~~~
the_why_of_y
Prevalent? I've seen Zimbabwe and Venezuela, but maybe I'm too young.
Certainly debt deflation is more prevalent in recent history.

The US Fed has tripled the MB to fix last decade's financial crisis and
inflation went down, not up.

[https://en.wikipedia.org/wiki/File:MB,_M1_and_M2_aggregates_...](https://en.wikipedia.org/wiki/File:MB,_M1_and_M2_aggregates_from_1981_to_2012.png)

~~~
Melting_Harps
Yes, prevalent, I do/did fintech and I'm now in my mid 30s.

Here is just a number the one's off the top of my head spanning just the 8.5
years I've been doing it or been involved in that space.

Libya, Somalia, Tunisia, Egypt, Venezuela, Ukraine, Argentina (several times),
Brazil.

I vaguely recall the days before the transition of the modern MX peso, because
my family had property in Baja as a kid and I still remember seeing the
obscene amount of zeros on their currency/prices and how much you'd get for
just $50 USD, which to me was a lot of money back then. I remember being able
to spend all day at an arcade in a mall or a corner shop for $10 and still be
able buy chips and soda inside or a fried rice and an ice cream in the food
court while my family got haircuts, massages, manicures, medical treatments or
whatever took so long to do.

The same with the peseta or lira in comparison to the Deutschmark, which was
often used in a certain part of Spain, but I was a child and had no real grasp
of economics beyond 'wow, that's a lot of numbers!' I incidentally had the
same feeling vicariously when I was in the non Euro zone part of E. Europe and
I paid someone with a child in CHF or EUR. Its odd how evocative those short
encounters can be.

Debt based deflation is merely a short term symptom, often of a reserve
currency/SDR currency, but just look at how bad even some Western nations have
gotten destroyed from the capital controls and other restrictions into the
local economy after the Market and currency collapses as result of increasing
the monetary base.

Hell, even the Eurozone has its own perverse localized form of it, look at
what happened to Greece in 2008--they were debating going back to the Drachma
for a while and ultimately issued their own form of script/currency in the
interim [1]because EUR became scarcer and austerity kept claiming victims
after defaulting on the IMF loans. Or the rest of the PIIGS nations for that
matter. Slovenia is another example of what happens to an economy that cannot
maintain with the EUR inflationary practices by the ECB and distorts the local
economy and market dynamics and abandons previously held practices that made
them be able to adequately transition after the fall of Yugoslavia, as opposed
to its other satellite nations which in the case of Croatia and Serbia led to
war.

It's really a matter of how deep you want to look at this, and to be honest, I
sometimes wonder if I did some irreversible harm to myself and my psyche by
living it and breathing for so long. But the truth is you see the best, and
subsequently the worst, of Humanity in those situations and conditions so I
have no real regrets as I lived a very rich Life so far as a result.

1: [https://www.businessinsider.com/greece-local-currency-
networ...](https://www.businessinsider.com/greece-local-currency-
networks-2013-1?op=1)

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marcusestes
For all of the pearl clutching about the fear of inflation or the devaluation
of bonds, I don't see enough consideration of what happened the last time the
money printer went brrr for TARP.

CPI stayed relatively stable, the bond market recovered, the money got
(mostly) repaid. TARP ended up being a really smart move, even though it would
have been better structured if it included a small business / consumer
package.

It'd be interesting if this crisis taught us that the harmful effects of
monetary creation aren't as harmful as we thought. Looks like it's time to see
if this Modern Monetary Theory thing might hold water. It's terrifying but
also kind of exciting.

~~~
selecsosi
I think it's important to note that while there were a very high number of
repayments, the purpose of that bailout was to transfer asset risk to the
larger taxpayer body. Regardless if the initial payment price was repaid, the
risk profile still is sitting somewhere.

\- You value a car on your sales lot on your books: $10,000

\- Real value is probably, $5,500, the spoiler and crappy tint doesn't 2x the
value

\- Your car is currently on fire (act of god) so value is scrap

\- Buddy who runs a bank (you pay on the side because, o this ins't the first
on fire car you tried to sell trash for cash) offers you $9,500, a bargin

\- You are in

\- 2 years later, pay off bank buddy (maybe political donation) b/c you are
the one of the 9 people who can sell cars

\- Throw press conference because you saved tax payers 10k + horrible risk if
I failed

\- Bank share holders (Tax payers) own pile of scrap

he incentives are mismanaged because the calculated risk of a bank failing is
evaluated purely on the chaos induced, not the existing status quo which for
joe schmoe is crazy but HFT guy can make bank off of (so sold as all upside if
you are smart, but is restricted in apparent but fog like ways). Maybe said
bank is actually terrible, but we won't know because they are a rise together,
never fall together cartel (malicious or not, fact of reality)

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heliodor
Any <dollar_amount> "first time in history" event is not very interesting news
because of inflation.

~~~
chickenpotpie
Calendar shows highest date in history

~~~
ISL
It wasn't the year 1298 two months ago.

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chroem-
What is the point of a privatised economy, when all these inefficient
businesses are still subsidized by the state?

~~~
harryh
COVID19 represents an extraordinary circumstance where otherwise perfectly
healthy businesses would fail due to revenue, quite literally, dropping to
zero due to an external shock.

When businesses fail and employees are fired real value is destroyed: working
relationships are severed & institutional knowledge lost.

It is in all of our interests to do what we can to preserve these businesses
until the external shock ends.

~~~
economicslol
They should have had an emergency fund of 6 Months of expenses for
emergencies. Maybe they should stop eating so much avocado toast.

~~~
trcollinson
Brilliant analysis. Thank you for your insightful words.

In reality, there are very few economists who believe that a company should
have 6 months of expenses in the bank for emergencies. I realize you are
probably about to explain to me how those economists are wrong and companies
are wasteful and whatnot. Frankly, they have their reasons and their reasons
aren't do bad.

More importantly, most companies are not spending their money on frivolous
things, like avocado toast. This isn't an HBO shocking sitcom/drama. Do
companies make mistakes with their money, of course. But in my experience
working with VC's, most companies are using all of their money on either
marketing and sales, or R&D. Period. Maybe a bit on parties and morale but by
percentage, 99% goes to sales and marketing or R&D. Large companies, on the
other hand, spend their cash on all sorts of other things. Huge amounts of
cash have still gone into sales and marketing, R&D, but also stock buy back,
and investment.

~~~
thephyber
> there are very few economists who believe that a company should have 6
> months of expenses in the bank for emergencies

Economics is largely a study of game theory. When The Federal Reserve and
Congress throw money at all companies, no matter the risk, doesn't this erode
the future incentive for companies to be self-reliant and increase the
expectation of similar monetary policy in the future?

Also, I read your comment's parent as if it was on The Colbert Report,
dripping with sarcasm.

~~~
harryh
It's not at all clear that we would want most companies to be self-reliant
enough to weather a coronavirus level storm. That self reliance would come
with a very high cost that probably isn't worth it.

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cft
Ray Dalio thinks we are approaching the end of Bretton Woods monetary system
[https://youtu.be/yrxYhv2O3wU](https://youtu.be/yrxYhv2O3wU)

It's likely that this or subsequent rounds of QE with already 0 interest rates
will blow some unexpected fuse, but the exact scenario will come as a
surprise.

~~~
panarky
_> will blow some unexpected fuse_

It's easy to stoke fear of an ambiguous and nonspecific threat, or contribute
to a general feeling of ambient dread. This kind of thinking doesn't help me
much.

It's a lot harder to work through a rigorous model of how the economy actually
works, that's consistent with historical and geographic precedent. That kind
of thinking would help me a lot, but I'm not sure where to find it.

I've heard people crying wolf about hyperinflation for the 30 years that I can
remember, and it keeps not happening.

Instead, we have contemporary examples like Japan, which has been at zero
interest rates with high levels QE for literally decades, and there's no hint
of collapse there.

Is this time any different for some reason?

~~~
cft
That's a multitrillion dollar question. One difference is that the US is
printing the global currency, while Japan was creating local convertible
currency. We are also seeing the stock market decoupling from the underlying
economic reality. The dynamics could be different. I am personally becoming
worried about the USD cash (large) part of my portfolio.

~~~
Blueskytech
I agree with your assessment, the yen is a small fraction of the global
reserve currency pool compared to the USD, dollar denominated debts destroy
the competitiveness of other economies which can be seen when you graph the
DXY against emerging market etfs. There is no alternative to the dollar right
now but there is also no real alternative to the manufacturing and materials
base in China. Domestically alone China can source a significant amount of
material and in many sectors they supply the majority of mining output for the
world, next after them is usually Russia. The US's purchasing power and GDP
only exists because the world trades using dollars. It amazes me that more
people that post on hacker news aren't as concerned as I feel about the
current situation. Whether you own crypto or not you would be crazy to hold
bonds or debt as an investment over precious metals with the state of the
world being what it is.

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csomar
Let's see. Are you holding these "precious metals" in your hardened safe or
it's just numbers in any of these brokers?

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dolphin1986
I personally purchase and hold precious metals at home and then play miner
stocks and precious metal etf options for more exposure.

~~~
csomar
Fair enough.

