We have an entity which literally fixes the interest rate through a variety of methods and yet we're talking about why rates are the way they are. Boggles the mind.
It'd be like arguing about why rents aren't going up in a rent controlled neighborhood. "Because there's excess housing and not enough renters" doesn't seem to really explain the process.
T bond yields are determined by auction, so the Fed does not have full discretion over long term interest rates. That's why the 30yr yield has fluctuated between 1.6-2.5% this year even though the overnight rate has not changed.
The Fed is a participant in that auction with a large ($80B/month) budget and a target interest rate of 0-0.25%, though. You don't have much of an incentive to bid low if you know the Fed is going to swoop in and buy the bonds anyway.
You seem to be implying that Central Banks are lowering interest rates just because.
I think the point of the FT article is that inequality is causing there to be a need for lower interest rates, which causes more inequality, which causes even lower interest rates, which...
Virtuous / vicious cycle, depending on which side you're on.
It’s only virtuous until the money runs out. Then we will see far worse poverty than ever would have been.
When the US prints money we steal from every person in the world who uses a Dollar backed currency. I’m not sure how much longer they will tolerate this. They’re already not buying our bonds…
According to the US Treasury, the Chinese are not dumping bonds at all. [0] [1]
Side-note: The Chinese have to own treasuries because the US buys so much stuff from them. If they hurt the US currency relative to their own, then Chinese goods would become more expensive for Americans, and the US would buy less. That would not be good for an economy like China's that has a trade surplus with the US in the range of hundreds of billions of dollars per year. [2]
The vast majority of money that is created in modern credit-based economies is via bank loans, not central banks. Cullen Roche the very informative paper "Understanding the Modern Monetary System" ten years ago, and it's still relevant:
> In many market based systems such as the USA, the money supply is essentially privatized and controlled by private banks that compete to create loans which create deposits (money). Contrary to popular opinion, governments in such a system do not directly control the money supply nor do they create most of the money.
The US Dollar M1 money supply increased by 66.5% and M2 by 25.4% between Dec 2019 and Dec 2020 [0]. I'd give you more current data, but the Fed stopped reporting the overall changes and M2 in general in early 2021. The ostensible reasons for that depend on how tight your tinfoil hat is, but plenty of money is created by the Fed, and that number hit trillions in the last 18 months.
It's "only" up 31.76% since Fed 2020 / before they started messing around.
It was already regularly increasing by ~7% per year - so you'd expect close to a ~10% difference. So we've got about ~20% more M3 than you would otherwise expect.
If they're trying to cover up data, they're doing a bad job.
Thanks for the info. I had been referring to the Fed's weekly releases, which didn't include that. I went to look into why, and found "Since 2006, M3 is no longer tracked by the Federal Reserve. ... However, the Federal Reserve Bank of St. Louis and some other sources still publish M3 figures for economic data purposes"
Regardless, 7% is already ridiculous, and over 20% beyond that is absurd.
> […] but plenty of money is created by the Fed, and that number hit trillions in the last 18 months.
No: it, at most, creates bank reserve deposits:
> The story usually says that the Fed sets a quantity of reserves and banks then multiply those reserves into loans meaning that the Fed has a direct control over the quantity of money being created. But the financial crisis proved that this theoretical view is precisely backwards. In fact, banks make loans first and find reserves after the fact. In other words, the Fed accommodates the quantity of loans by supplying the necessary quantity of reserves. As a result, the money multiplier that we all learn in school is wrong and the Fed has no direct control over the quantity of loans/deposits issued meaning that the predominant form of money (deposits) is controlled almost entirely by private banks and not the Central Bank.
Just because the Fed reports on things like the various 'M' statistics does not mean that they have a large effect on them.
The private banking industry, through credit/loans, is where the majority of money is created. I direct you to Cullen Roche's paper "Understanding the Modern Monetary System", which is explains how things work in 2021, and not how they used to work in like 1921:
> In understanding inside money and outside money, one must also understand that it is the banks who “rule the monetary roost” so to say. That is, banks issue almost all of the money in circulation today in the form of loans and the government is designed primarily to support this privatized money creation source. Contrary to popular belief, the government does not issue or “print money” (except in the most literal sense, ie, the US Treasury prints notes to meet demand for use at private banks by bank customers who have accounts in inside money). The government is only the issuer of outside money which is designed to facilitate and support the use of inside money
But the government can almost literally print money and did this time.
If the government sends people stimulus checks, pays for that with deficit spending, and that debt is monetized by the Fed purchasing it...
You had money that did not exist, that the Fed created on its spreadsheet to buy Treasuries to finance the Federal government... Sending people checks, unemployment, and businesses paycheck protection.
AFAIK, this was >$2T of the Federal Reserve's ~$7T balance sheet increase (~30%).
In normal times, the Federal government deficit spends, but the Federal Reserve's balance sheet does not increase to finance that.
Although the deficit is not paid for by taxes, the money created is not coming from the Federal Reserve.
Honestly I think they will continue to tolerate it as there is not really much of an alternative. The world needs a unit of exchange, if it is not the dollar then what would it be? Maybe eventually something like BTC / ETH serves as the unit of exchange and is then converted back into the countries native currency?
China is producing their state owned e-yuan. They are rolling it now and in 2 years that will be the currency most transactions they do will require. 200 million has already been issued as a pilot. When e-yuan becomes the de facto reserve currency of trade, the dollar will suffer thge same tragedy as iceland.
The US will need to take out loans from the IMF, from China, from other nations in ASIA to buy e-yuan. China will pay us back in the dollars they have but will demand e-yuan for anything we want to buy from them. Now the Fed is enjoying its last hurrah. Printing money like its going out of style (which in fact it is) (Actually the Treasury prints the money but they wouldnt print unless the Fed issued bills and bonds to sell.)
When austerity hits home, the rich and privileged classes will have a new 'news bite' with which to beat the 'lazy unemployed'. Helicopter money will disappear. Austerity measures will include wage and price controls (like Nixon did in 1970s), sky high interest rates. And a booming underground economy as Americans learn to dodge taxes like the Greeks do. We will become like England. They were the host state to Arab oil money. We will see China buying up valuable parts of the US simply because we will have nothing else they want. Dont fool yourself, their weapons have reached parity withours. Their chip industry is at most 5 years behind ours. Their ML is at parity with 'ours' -facebook, google. OTOH, facebook and google might just move to china for the free-er capitalism they will have.
To whomever downvoted this comment: Half the worlds transactions are now conducted in currencies other than the US dollar. The world has cottoned to the idea that we are inflating their economies by printing dollars.
I think that in that case the US would just move manufacturing back on shore. It would result in a massive investment boom in the US and the us government would likely print money and provide very low interest loans to fund it. Would result in massive jobs program. I think China would fall in that case as they are massively reliant on the US manufacturing everything there.
> Austerity measures will include wage and price controls (like Nixon did in 1970s), sky high interest rates.
^This is my biggest concern.
Thus far real estate has been my favorite investment. I assume though if interest rates go up peoples buying power and hence prices will go down. If I liquidate my investments I will owe taxes and I fear inflation will eat up the cash value.
> We have an entity which literally fixes the interest rate through a variety of methods and yet we're talking about why rates are the way they are. Boggles the mind.
If you'd read just a tiny bit into macro economics (every intro textbook will work), it stops doing so.
It'd be like arguing about why rents aren't going up in a rent controlled neighborhood. "Because there's excess housing and not enough renters" doesn't seem to really explain the process.