This keeps getting repeated all over the internet... but the FED doesn't just "print" money. It creates money, loan it to some counter-party, and that counter-party has to return it. If the counter-party doesn't return the money, the FED losses money. They can print money to themselves, but that doesn't offset the losses.
That sounds like a pointless nitpick to me "ackshually the fed doesn't print money because everything is done digitally and no printing is actually done". What you described can be pretty much summed as "the fed prints money which it then uses to buy assets".
Banks create money by accepting deposits and making loans. Here is a more detailed explanation of the process: http://www2.harpercollege.edu/mhealy/eco212i/lectures/ch13-1...
The uninformed school of internet libertarianism likes to conflate this process of credit creation with the practice of unstable governments realising they'll never be able to raise enough money from taxes or oil sales to pay for the mansions and five star generals they'd like to buy and so printing some more banknotes (not owed to anyone) to be a bit richer.
What’s important to understand to make any sense of this is that when the bank issues you a loan, that sits on their Balance Sheet as an asset, and on your balance sheet as a liability, so when the bank issues you say $50K in the form of a Loan so you can buy a car and it is deposited into your account, USD$50,000.00 was created as money, but that doesn’t mean $50K of notes was printed. What changed is the following: the Bank’s assets increased by $50K balanced against its liability accounts, and your liabilities increased by $50K balanced against your asset accounts until you pay the money back.
There’s a lot more money than there is currency in circulation, and currency represents one type of money. It’s not a difference of one being physical and one being digital because all of it is documented somewhere whether it’s a PDF of a loan agreement and resulting statements or the cocaine-coated bills and coins in your pocket; they’re subtly distinct concepts of put another way, money is intangible but can be created and bank notes and promissory notes are tangible forms of it documenting money and can be printed. Taking it back to the Fed, actual paper money in circulation is considered a liability against the Fed’s assets which are other people’s (well, institution’s really) debts to the Federal reserve, and I think this is the point where I have to stop because I’m already out of my depth and taking it much further will put me way out into the deep end. Corrections and expansions from others welcome.
Also note that somebody replied to me above with a link to the Bank of England talking about money creation. I haven’t had the chance to read it, but it’s probably worth checking out as well.
This is the process. From an actual central bank [0] [0]:https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Accuse me of cherry picking or paraphrasing to miss the subtlety of the distinction, but the subtlety makes little overall difference, as far as my, admittedly limited, understanding goes. And that snippet just ... works so well.
Fed loans are collateralized. So the counterparty has to not return the money and the collateral has to lose more money than the bank has reserves. This would be a credit loss, and the law requires the Fed to avoid it. (It has.) This article is about something else.
Also, if banks go bankrupt and then the individuals and businesses which they made loans to go bankrupt (which is actually not that uncommon; see SVB), the Fed cannot get that money back, the average citizen is the loser again...
So as you can see, the money is not always paid back.
The Fed just prints money, that's a fact. The "it's just loans" narrative is false rhetoric.
If there was no such thing as bankruptcy and debts were always passed on to borrowers' children and the government couldn't just keep taking out bigger loans to pay back their old loans and give huge contracts to big corporations ad-infinitum, then we could talk. Anything other than that and we have money printing going on; paid for by regular, honest, hard-working citizens through inflation and taxes.
You're thinking of interest on excess reserves (IOER): interest paid to banks to encourage them to boost reserves at the Fed. Reverse repos are open-market operations; they're the Fed borrowing money against its collateral, thereby sucking liquidity from the system.
Let's not forget that some of these bankrupt startups were basically tossing suitcases of advertising money at big tech prior to their bankruptcies. This is the people's money they were tossing at Big Tech. Then if they avoid jail (common), the founders of these failed startups will go on to get more funding 'a second chance', then a 'third chance', etc.. from the big VCs as a thank you for propping up their corporate stocks with 'borrowed' money which was never repaid.
Because with IOER, the Fed creates the market. No Fed, no IOER. In reverse repos, the Fed participates in an existing market. There are plenty of people willing to make overnight loans against Treasuries. That's what a repo is.
The Fed is currently participating in that market to raise the cost of borrowing. If it's helping the rich one way, it's hurting them the other.
(I'm not arguing the Fed is an egalitarian institution. But it's inaccurate to describe its operations, particularly reverse repos, as "printing citizens' money and giving it to rich people just for being rich.")
> when the bank goes bankrupt and a bunch of shell startups which it loaned money to go bankrupt
This is a non sequitur. (Also, if you borrow money from a bank, they don't go away if the bank goes under.)
It misses the point of why Reverse Repos were created. IMO, it's to allow the biggest banks who cannot find a way to effectively and safely put their enormous pile of money to work in the economy to still get a return on it. A risk-free (and literally free) return paid for by citizens.
It artificially props up the entire system and all of its zombie companies. Not to mention the anti-competitive forces it creates.
>> Also, if you borrow money from a bank, they don't go away if the bank goes under
They do if you go bankrupt. Why do banks go bankrupt? Well often it's because a lot of their borrowers went bankrupt. That's literally what 'subprime mortgages' entail. They literally assume that some percentage of the loans will never be repaid.
But in any case, the main issue I have is that the flaws of the system are hidden under layer upon layer of complexity; seemingly designed precisely to avoid scrutiny.
I read into the SVB as fundamentally different from the traditional borrowers bankrupt issue.
> But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates. What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation. When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.
> At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding. That forced companies to draw down on deposits held by SVB to fund their operations and growth....While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances. That set off panic among customers, who withdrew their money in large numbers.
From [1]
Instead, lock in $ at extremely low rates on bonds improperly laddered, then firesales turned theoretical losses into actual losses, which then triggered a loss of faith and a liquidity crisis simultaneous to startup cash withdrawals just for payroll. The bank run on it meant there was no way to make customers whole.
[1] https://www.cnn.com/2023/03/13/investing/silicon-valley-bank...
Most banks would have a variety of bonds, long and short term, with varying yeilds. Esp. given the rise of inflation took a little while and it wasn’t unlikely rates would rise.
SVB putting so much into long-term, low-yield treasuries was a major failure of its risk management.
The history is more complicated [1]. Modern repos are also all about finding non-bank channels through which the Fed can influence the economy. (When done with banks, it's to induce them to not lend their reserves to each other.)
Again, your complaint is much more apt for interest on reserves. Repos aren't unique to the Fed. IOER pays banks for parking money in an account at the Fed.
> seemingly designed precisely to avoid scrutiny
I'd argue it's more about competing interests and anachronisms. (The Fed is, almost to a fault, tremendously transparent.) Why does the Fed have private bank shareholders? Because of irrelevant details from a hundred years ago. Is it confusing? Yes. Is it a priority to fix? No.
[1] https://www.richmondfed.org/publications/research/economic_b...
Saylor just got a nice 22% discount on repaying his loan when his bank went away...
Reserves are assets of banks that can only be held by banks. They can't get rid of them in aggregate.
Loans are also assets of banks, and are created against supplied collateral along with the corresponding advance. The amount of reserves a bank has is irrelevant to that operation.
And in any case, didn't they lower the reserve requirement to 0 at the start of the pandemic?
Reassigning that advance to another person is how we pay for things with borrowed money.
Once it has been reassigned it called a deposit.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
The more important limits to lending are regulatory capital controls which measure both the asset to liabilities mix but also the credit and interest rate risk of the asset mix and loan to deposit ratio.
The latter is a commonly tracked metric by bank investors and they typically view a ratio of higher than 0.8 with suspicion (down from 0.9 post 2008).
The US banking industry ratio is about .63 right now which is up from a pandemic low of .57 but still down from the pre-pandemic ratio of .75.
That banks were not lending enough was the reason the fed removed the reserve requirement.
This is quite wrong.
https://www.federalreserve.gov/monetarypolicy/discountrate.h... https://www.federalreserve.gov/monetarypolicy/standing-overn... https://www.federalreserve.gov/monetarypolicy/bank-term-fund...
In addition, the Fed also borrows money.
https://www.federalreserve.gov/monetarypolicy/overnight-reve...
My interpretation of "the fed losing money" is "the fed bought some bonds when interest rates were low, interest rates went up, and now they're worth less, so they took a loss". It's true that they can print more money and therefore won't ever go bankrupt from this, but irrespective of that they're still losing money in an accounting sense.
>Who is benefiting from a scary headline like this? or am I totally misunderstanding something?
The headline is "the fed losing money", not "the fed is going bankrupt". You'd really have to be hysterical to think that the headline is scary.
I agree with the GP that it's a scary headline. I wouldn't call myself hysterical; I'm not hyperventilating or anything.
The issue with the headline is not with people who understand finance, it's with people who don't but know enough to see the WSJ as an authority. They won't notice that it's an opinion piece, and they don't really know enough to understand if this is actually a problem or not.
They are paying more than they are taking in and are having a shortfall to the treasury.
This is another interesting dynamic in the Fed’s fight against inflation because ideally they’d like to actively sell some of their portfolio to increase QT but I’m not sure they can because of the losses they would be forced to realize. This is largely why they have taken a “passive” approach to balance sheet drawdown.
For two years everyone bragged about getting 2.5% mortgages and now are loving collecting an easy 4.5% on six month bonds. But people forget there’s always someone on the other side of a trade and now that the tide is going out we are seeing exactly who they are.
And that last point is the 10,000 pound gorilla in the room that almost everyone ignores. The Fed’s primary mandate is not, as is commonly stated, to control inflation and unemployment. Rather, it is maintaining the operational integrity of the payments system. And they absolutely have to do that or people will not be able to transact in dollars. And of course the party that transacts more dollars than anyone else by far happens to be the one that created the Fed and can reorganize or destroy it if the Fed is foolish enough to create the political will to do so.
This would be an actual concern. It would represent a policy constraint on the Fed. The truth is simpler: to the degree this number is problematic, it's in being misinterpreted by the public. But that's true of anything.
Now, with the economy slowing, inflation taking value out of investment vehicles, and interest rates being hiked, their assets are no longer increasing in value. This is just another window into the current inflation/interest crisis.
They have a trading desk.
I can’t find the doc now but early pandemic there was some uproar that the desk started to buy “junk” aka things that weren’t worth the price paid.
Early financial crisis. And they were agency mortgage securities.
Investors buy or sell securities to earn a profit. Not the Fed.
I'd argue that while the fed is not solely or primarily focused on profit, they very much do profit in their operations. That graphic comes from an article where some speculate what would happen if the fed didn't profit:
https://www.brookings.edu/blog/up-front/2022/06/01/what-if-t...
I think you got hung up on the word "investor" and missed GPs actual question "how does the fed buy?"
From the page I linked:
"The New York Fed's Open Market Trading Desk (the Desk) purchases agency MBS to sustain the smooth functioning of the agency MBS market, thereby fostering effective transmission of monetary policy to broader financial conditions."
They have a group of people that are going into the open market and buying and selling. I dunno what those people are optimizing for in their purchases when it comes to MBS, but The Fed interact with "the market" exactly like others do in this case.
And more specifically GP, https://www.investopedia.com/the-fed-s-corporate-bond-portfo...
These are the companies the fed chose to buy in 2020 when Covid was peaking.
And to be clear those were not purchased by the "trading desk" the Fed isolated those purchases into a separate entity which they called "SMCCF": https://www.investopedia.com/secondary-market-corporate-cred... (The result is the same: some humans at "The Fed" went out into the market and selected some securities to purchase based on some criteria)
It's a losing battle to fight this on some basis that these Fed/admin hires are just dumb villains and the whole scheme was poorly thought out by their well connected/educated revolving door who runs it.
The fed propping up stuff like mortgages and Wall St bankers gambling then repeatedly using the financial might of the general US market to stabilize it in the short term doesn't necessarily mean the markets they manipulate (ostensibly for the public's benefit) is better off long term. But it does make rational sense when everyone these people speak to is losing their shirt in the short term, and the FUDy doomers come out in the obedient media to say there’s no other choice but propping up the last decade’s status quo.
But once you start looking at historical interest rates, critical markets like mortgages/the many markets run by well connected pet oligopolies/etc, with all the subsequent risk glossed over via eliminating moral hazards... Ultimately critiquing the fed as if their economic structure is not well calculated is not the best strategy.
Like a lot of more extreme political opinions the reality is much more boring and harder to confront if all you do is invent caricatures disconnected from reality. The enemy is much more informed and adaptable than some conspiring backroom dealing elite we all just need to expose and it will all be over.
America’s historical stockpile of wealth and talent can be leaned on for only so long… just like Russia leaning on their Soviet arms stockpile the first time they confront a real threat (aka themselves).
So they have deliberately decided to pay out interest by creating money in an attempt to reduce inflation.
Still think putting up interest rates stops prices rising?[0]
[0]: https://economicsfromthetopdown.com/2023/02/04/do-high-inter...
Is there a name for this general type of fallacy where defect A results in mitigating response B, but people see the correlation and wrongly conclude that B causes A instead? Examples:
1. Building more apartments "causes" higher rents
2. Covid lockdowns "cause" more excess deaths
3. Higher incarceration rates "cause" higher crime
You've failed to identify a fallacy.
So his cargo cult "experiment" proves absolutely nothing because his results are exactly what is expected, just as a doctor would also be unsurprised to discover that a someone with a snide tone about and a middle school grasp of statistics had reached the remarkable conclusion that patients with prescriptions tended to be less healthy than those without.
https://economicsfromthetopdown.com/2023/02/19/interest-rate...
Trouble is, there hasn't been any secular "inflation cycle" in the last 30ish years in developed countries that have adopted the policy of managing inflation by downregulating it with interest rate changes. Either you accept that the orthodox policy of announcing that inflation will be managed with interest rate rises has been remarkably successful at containing inflation, or you're scrambling for an alternative explanation for why it appears to have been so successful that doesn't use "inflation cycles". It's certainly telling that he uses hypothetical data to illustrate this theory, and then since the real world time series are so unhelpful to his argument he has to chuck hundreds of data points from different countries, years and interest rate policy regimes into a graph where most of the data points sit near the origin[2] and draw conclusions from the outliers!
I'm going to go out on a limb and suggest that Blair Fix hasn't disproved pretty much the one thing economists who fiercely hate each others' theoretical models and policy recommendations came to consensus on as established fact with a graph which showed exactly the results people familiar with the literature - which Fix clearly isn't - would all expect to see.
As the patient group all went into remission for three decades, it's not even as persuasive a statistical argument as the one for drugs being the cause of terminal illness
[1]ironically, the most plausible explanation for a tendency towards inflation being cyclical as opposed to steady or tending to accelerate would be countercyclical downward pressure on money supply from the Fisher Effect on market credit prices [2]the key bit being that most of the points sit near the origin because the policy has been so successful...
In effect the mythical causations you quote are precisely what economists believe
To them more people in prison does cause more gun crime.
https://economicsfromthetopdown.com/2023/02/19/interest-rate...
My wider, lay understanding of this is that the powers-that-be (hereafter "PTB") do not like the FRB's interest rate hikes, so from the PTBs' perspective:
1. Create fear and more fear and further fear among the public in the hopes of triggering further bank runs ("ohnoes the gov can't bailout savings no more!") and other fiscal destruction.
2. FRB is eventually forced to reconsider their current (read: undesirable) fiscal plans. Ideally go back to zero interest rates?
3. ????
4. PTBs PROFIT once more?
All journalism is propaganda and exist strictly to benefit someone out there, so I would be particularly skeptical if that propaganda is also fearmongering.
Money is like equity. Raising the rates is essentially a way for them to consolidate more equity. They distributed more equity than they were comfortable with as stimulus during covid, and now they're calling it back. The pattern has been going on since the 70s at least. They made up the BS idea of "natural rate of unemployment" to justify it and gave a nobel prize to the guy who said to keep the unemployment at 5% to keep down "wage inflation"... a.k.a.. people getting paid more. Pay hasn't tracked productivity ever since. Look at the unemployment vs fed rate charts.
Letting your currency inflate is a populist move for a reason. It's not because people are dumb, it's because it while it devalues people's savings, it puts money in the pockets of people without savings, and devalues debt as well. It was used previously in Portugal, Italy and Greece to spur exports whenever the economies were hitting a rough spot. Once they got on the Euro and the powers that be wouldn't inflate, they were screwed, and Germany was able to buy up a bunch of their assets and essentially takes tribute via interest rates on their loans now. It skims off the productivity of their economies. Raising the rates helps them skim more.
Libertartian types tend to have savings. They like to spin a story that justifies what they sense... that raising rates is good for them. It is good for them. People are really good a sniffing out their incentives, even if they don't quite know why. It's also good for the powers that be though.
The reason the wages don't rise with the prices is because that 5% are getting hired, and the under-employed are getting more hours, and they jack up the rates as quickly as possible as soon as they sense that wages are rising. However with the increased hours, and fewer under-employed there are people who couldn't afford toilet paper who are finally able to, and that increase the prices. That's not a bad thing. More overtime has a much bigger effect than increased egg prices to most people in low wage jobs. And lower unemployment improves their working conditions as well. It's still essentially a transfer of shares to the broke, even if the wages don't directly increase. Also, a lot of the inflation that was happening this go-around was due to rich people with their PPP loans being able to speculate. Taxing the rich at a more progressive rate as was done in the 50s and 60s would be an alternative way to stem inflation besides using the fed rate. But of course they haven't touched that one in a while.
It's not just trump and sanders that are populists looking for lower fed rates from the central banks. In most countries I think you'll find that the populist parties (i.e. the party with most representation among the poorest) tend toward pushing for lower interest rates and more government spending. You'll also find that those representing the rich tend to push for austerity. There's a reason for that. And it's not that the populists are all working together. You can tell they have much more disparate values than the centrist globalists who want high rates.
Source? The natural rate of unemployment, like the neutral interest rate, floats with economic conditions and cannot be directly estimated.
Anyway, as for a source, the 2nd paragraph of the wikipedia article on NAIRU states it's generally 5-6%. You can pretty readily google it and see that it's been between 4-6%.
https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c7551... "Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent." Guess which one they picked. Economics, as it intersects with politics, is not a science at all. Not even close. It's the result of people with agendas funding grants with hopes that someone will show the results they want, and then them cherrypicking those results. If you throw enough money into it, you can find a "scientific" justification for anything. The more academic side of it has some merit... but for the most part it gest brushed aside because it's not telling the people making the policy what they want to hear.
I think both of these are probably roughly true-ish but by brief Googling I couldn't verify either one.
https://commons.wikimedia.org/wiki/File:Federal_funds_rate_v... <-- that's a graph like what I'm talking about. Notice how the blue tends to go up sharply before the grey recession bars. And this tends to happen right as the red line starts to approach 5%. There's an exception recently because trump was in office demanding that they keep the fed rate low, and I guess they decided to listen to him because he was cutting their taxes. But you can tell they didn't love the guy by the way the media covered him. I'm no fan either, but for different reasons.
It's akin to saying that coughing causes lung cancer. Smoking causes coughing and lung cancer. One cause, multiple effects.
I’m not sure if poor or “working class” demographics have enough exposure to fixed rate debt to make inflation a net gain.
If they are homeowners, likely it is: most people knew better to take out ARMs this time around.
Not a homeowner? Tough to conclude that rising rates is a net win here …
The reason they currently support higher rates is twofold: 1) The Fed has kept rates artificially low for an irresponsibly long period of time, leading to inflation and other economic distortions, and 2) The only way to get inflation (which is pernicious) under control is with higher rates.
As for "irresponsibly low" and "(which is pernicious)"... these are your value judgements that you've arrived at based on your perspective. That's fine, but other people have other perspectives. To someone with debt who wants a well-lubricated economy, or to someone who makes money off of exports, it's not irresponsible at all.
If you look at the history of fed rates vs unemployment and recessions, it's a very clear trend that the fed rate has to stay lower longer for a recovery, and it takes less raising of the rates to put us back in a recession. Why would this be? Maybe because it's not the appropriate tool to be using to control inflation. Maybe it's not because the fed is being irresponsible, but it's doing what it has to to keep the economy afloat and that's less and less effective because the country refuses to do what it has to, which is raise taxes on the rich.
This is an unusual claim, to say the least.
Not "the rich" per se, but he is speaking of MMT[1] which maintains that the government of a sovereign printer (sorry, Argentina) does not need taxes at all because they don't "need" the money.
MMT purports that money is created by "printing" it into existence and money is destroyed by taxing it away.
When the federal government pays its debt to the federal reserve, where does that money go?
There is an interesting and compelling theory that you can control inflation with taxes (broadly, MMT[1]) but the cautious and (in my opinion) warranted skepticism that you voice, upthread, about prevailing economic theories should be extended to MMT as well.
We don't really know if money supply creation via "printing" and the corresponding destruction via taxation will work just as MMT suggests it will.
If by "PTB" you mean the market, then of course it hates rate hikes. Also just hates uncertainty.
Actually the fed has a dual mandates: price stability and unemployment. Price stability can also be achieved by taxation.
And in this case the massive inflation we saw was mostly due to supply chain issues. So many businesses shut down during the pandemic. Others were hanging on by a thread. Which sounds like it will help supply chains recover? Increasing interest rates for loans? Or keeping access to lots of liquidity? Hmmm, seems like if we're wanting to expand capacity again, we want liquidity. Then prices can go back down due to capacity going back to normal, rather than artificially reducing demand by getting everyone fired.
If we need critical immediate measures to stem inflation, then we can raise taxes. Get some of that PPP money back. Make everyone who was speculating on housing sell their investment homes. That will drive inflation back down without starving the recovering supply chains.
>then we can raise taxes
I totally agree that raising taxes is the right thing to do (as do my smart friends and most economists ;) ). But that's not the lever the Fed has. And of course it's politically untenable.
> Make everyone who was speculating on housing sell their investment homes. Agree there too. But that's not the lever the Fed has.
If you want to see what they’ve specifically adopted as a wedge issue to divide people, look at what they disagree on.
It’s not the businesses that are the powers that be but their board members. They’ll tank one company if it will help the others
Such a derogatory statement detached from reality. It's like saying all health professionals are out there to get your money by keeping you as sick as possible. Or all teachers are out to indoctrinate your kids. Or all firefighters are arsenists.
I have quite a few journalists as friends or acquaintances, and many of them are the most honest people I know, with strong ethics and admireable ideals.
Of course there are bad apples out there. In any profession. But your statement is just ridiculous.
A few bad apples spoils the bunch. You can have thousands of apples in a barrel, but a couple of bad ones can quickly make the whole barrel worthless.
For example, the New York Times makes the right call on integrity vs profits, access, etc dozens of times a day for years. Then one time 20 years ago they make the wrong call vis a vis Iraq weapons of mass destruction, and they've almost completely destroyed their integrity. Seems unfair, but as a consumer we can no longer trust them, and probably never should have.
This is probably one of the most commonly-used fallacies I see people used to deal with cognitive dissonance caused by information that might make them uncomfortable.
I just scanned his twitter feed and I don't see anything terribly problematic, so I'm not even sure what you're referring to that would make you ignore him.
Are you claiming that none of us has integrity in our professional work?
Articles are not written by institutions. They are written by individuals. Just like the code I write every day. For money.
I would say 99% of them want to be paid.
And that 99%ish of them realize that they need to at least look like they have integrity to be paid.
And if asked, I’m sure 99% of them would admit that the best way to keep getting paid and look like they have integrity is to actually have integrity.
usually where the problems happen is when they can’t see the disconnect between their day to day actions and the long term goal, or when they hit a challenge where they can’t do what they need to do - and then can’t take ownership of what they did and instead hide/project/deny, etc.
I’m guessing less than 90% would really have actual integrity, and the rest should hopefully be kept in check by fear of discovery or whatever. But things slip through regardless.
Otherwise you're saying "can't trust the status quo, can't trust the alternative" - noise, at best.
If you think about the Iraq war whenever your read a piece by a journalist in the NYT, even if that journalist wasn't even out of their diapers at that time, then you may need to re-adjust your grudges.
This doesn't follow. I'm not a fan of the mainstream media by any means, but trust is not an all or nothing thing. It is entirely possible to develop a relatively sophisticated relationship with news media and to assign different levels of trust to different elements of what is encountered. Indeed, one might even vary their level of trust on a sentence by sentence basis!
The idea that the media must be entirely correct and entirely unbiased is jejune. It isn't the world we live in, has never been the world we live in. Take a little epistemological responsibility.
Lets try again: almost all journalism is written to influence readers. No hyperbole, no derogatory term, still what GP (I think) wanted to say. Thoughts?
That is to say, every human act is political whether you acknowledge it or not because it either maintains the current system or attempts to change it. So we should question the motives of anyone who is structurally incentivized to give you information that benefits the owners of the periodical.
There obviously is propaganda here and there, but not every person having a bias is engaging in propaganda.
But now those bonds have gone massively underwater because of their own policy- they have drastically raised interest rates on shorter duration bonds while simultaneously stopped buying bonds. So the value of the assets they hold is drastically diminished.
But the fed also borrows money on the short end from banks through the reserve program. Banks keep excess reserves at the fed and the fed pays them interest. In a normal environment that’s not a problem because long bonds usually yield more than short bonds. But because the fed loaded up on low yield bonds they have a negative carry so they are losing money now. Normally they would pay the excess to the treasury but now they have to borrow from it.
The interesting thing is that this is basically what sank svb but on a much larger scale. The difference is obviously that the government can print its own money.
The Fed doesn’t borrow reserves. That it even pays interest on them is at its discretion.
The book value represents the net investment made by the owner of Federal Reserve banks.
That's a great solution for everything as long as one doesn't care about inflation.
It is important, even very important, to realize that this merely changes the laws of economics to which they are subject, at least as people generally imagine them. It does not immunize them against the laws of economics. It does not mean they can just do anything without consequence, or with the full power to select the consequences.
This is in the class of "things that sound obvious when I say them", but I can see that a lot of people seem to throw an exception here and terminate all execution. Having negative equity matters, even if you can print money. It just may matter differently.
"or am I totally misunderstanding something?"
I would say, you're not so much "misunderstanding" something as not realizing that there's a whole complex of interacting systems hiding behind your "but they can just print money" that needs understanding. Whether those systems are deliberately obscured is a matter of some debate, but they certainly don't go out of their way to educate you about these systems. Everything is far more complicated and interconnected then you appear to be seeing.
They can print reserves, which is only usable with-in the Fed's inter-bank settlement system.
The actual money in the economy is created by banks through issuing credit:
> Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans.
* https://www.bankofengland.co.uk/explainers/how-is-money-crea...
> the Federal Reserve has suffered operating losses of about $42 billion since September 2022
Between 2020 and 2022 they quantitatively eased $2TT+, and then over the last 12 months have actively quantitatively tightened $0.500 TT [0].
$0.042 TT is literally change to them. They can chose at any time to pay it off by stopping the quantitative tightening. Even a quantitative easing at this level would be inconsequential.
Who is benefiting from a scary headline like this? or am I totally misunderstanding something?
[0] https://www.statista.com/statistics/1121416/quantitative-eas...