Wednesday, October 28, 2009
Like a True Superstar, Bernanke Keeps Breaking His Own Records
Don't worry, kids, Big Ben constantly assures us he has all the tools he needs to withdraw any excess liquidity when the time is right. And if you can't trust the Federal Reserve chairman, who(m) can you trust?
Comments:
I know this is a stupid question and I keep asking this, but...
How exactly is it possible, especially in a case like this, to "withdraw" "excess" "liquidity"? (Yes, all deserve indepedent scare quotes.)
I mean, I layman's terms, there's only one way Bernanke gets holders of this money to part with it, which is to offer them more money later if they part with their money now.
So...doesn't that just delay the time when the money supply (relevantly defined) blows up? Doesn't the inflation have to happen sometime?
How exactly is it possible, especially in a case like this, to "withdraw" "excess" "liquidity"? (Yes, all deserve indepedent scare quotes.)
I mean, I layman's terms, there's only one way Bernanke gets holders of this money to part with it, which is to offer them more money later if they part with their money now.
So...doesn't that just delay the time when the money supply (relevantly defined) blows up? Doesn't the inflation have to happen sometime?
No, it doesn't, because the "monetary base" is pretty much irrelevant. All Bernanke is doing is exchanging one financial instrument for another - bonds, etc. for reserves. Monetary operations are about price, not about quantity.
If the fed goes out into the market and sells some of the instruments back at market prices, people pay the reserves back (which makes them disappear).
Inflation will only happen if demand is greater than supply, and with 10% unemployment and who knwos how much underemployment, we're a long way from that...
If the fed goes out into the market and sells some of the instruments back at market prices, people pay the reserves back (which makes them disappear).
Inflation will only happen if demand is greater than supply, and with 10% unemployment and who knwos how much underemployment, we're a long way from that...
Silas-
There is a chance that catastrophic runaway, hyperinflation, is avoided due to the banks simply burning through the cash to absorb loan losses.
These banks seem profitable right now because of mark-to-myth accounting and the ability to postpone losses on loans held to maturity. However, as those losses come rolling in they are going to need cash to pay the day-to-day expenses. That's one way to "withdraw" "excess" "liquidity" ... just letting things happen on their own.
In my rudimentary understanding, this is essentially what happened in Japan.
There is a chance that catastrophic runaway, hyperinflation, is avoided due to the banks simply burning through the cash to absorb loan losses.
These banks seem profitable right now because of mark-to-myth accounting and the ability to postpone losses on loans held to maturity. However, as those losses come rolling in they are going to need cash to pay the day-to-day expenses. That's one way to "withdraw" "excess" "liquidity" ... just letting things happen on their own.
In my rudimentary understanding, this is essentially what happened in Japan.
# posted by 
: October 28, 2009 at 11:26 AM
: October 28, 2009 at 11:26 AM
Jimbo-
That's all well and good if the Fed were buying assets at market prices ... but they're buying them at inflated prices in order to support the banks.
The MBS on the Fed's balance sheet as well as the CDO's sitting in Maiden Laine aren't worth the paper they're drawn up on. That means that either the banks are forced to buy them back at over inflated prices or the fed eats the losses (much more likely in my opinion).
That's all well and good if the Fed were buying assets at market prices ... but they're buying them at inflated prices in order to support the banks.
The MBS on the Fed's balance sheet as well as the CDO's sitting in Maiden Laine aren't worth the paper they're drawn up on. That means that either the banks are forced to buy them back at over inflated prices or the fed eats the losses (much more likely in my opinion).
# posted by : October 28, 2009 at 11:29 AM
: October 28, 2009 at 11:29 AM
Anyone else noticed how the shaded area end half way through 2009?
The recession is officially over! Whooo!
The recession is officially over! Whooo!
"Anyone else noticed how the shaded area end half way through 2009?
The recession is officially over! Whooo!"
Thank you, sir. You have me laugh and made my day brighter.
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The recession is officially over! Whooo!"
Thank you, sir. You have me laugh and made my day brighter.
# posted by : October 28, 2009 at 2:11 PM
: October 28, 2009 at 2:11 PM Subscribe to Post Comments [Atom]
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