We’re not printing money

This was such a lie. While the treasury may not be printing dollar bills, they are certainly crediting accounts at the Fed. With so much of our commerce now electronically conducted, the statement is less relevant than ever. The 60 minutes piece was pure P.R.

i guess if printing money means dropping dollars from helicopters into the economic system, then no they are not printing. But if printing means monetizing the debt and purchasing assets from primary dealers with money that did not exist before via electronic mouse clicks that credits the excess reserves of the asset seller, then YES, they printed a heck of a lot

UD, all banks do that, not just the central bank.

It's called the 'multiplier effect.'

The money existed, just not as bank reserves.

"With so much of our commerce now electronically conducted, the statement is less relevant than ever."

WTF? What does electronic commerce have to so with bank reserves? More ignorance spouted by Riversider, who, like Sergeant Shultz, Knows Nothing.

Big reason why m1, m2 & m3 are not relgiously followed by the Fed anymore.

Wow, steve continues to show his misunderstanding of economics and reserve banking. He is also confusing different concepts. He actually thinks that QE2 is not affecting the money supply? LOL!

Not me, LICCdope - Ben Bernake.

What a maroon.

For the maroon:

'Mr. Bernanke offered a retort to critics, saying, “We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.”'

the multiplier effect is most useful in terms of analyzing the extension of credit, willingness of banks to lend and extend credit and general aggregate demand for goods/services. The fed does not control the multiplier effect, rather they attempt to when things get hairy and a) banks wont lend and b) borrowers dont want to borrow.

The extension and creation of credit in our fractional reserve fiat based banking system from deposits is what I think the multiplier effect is telling us. Reserve requirements of banks play a big role.

So, a $10,000 deposit gets multiplied and credit created and this money goes out, then in, then out, etc. to its theoretical max of $100,000 in new credit - thats the multiplier effect working as it should in our system. That is not happening now.

Bernanke is monetizing the debt to the tune of trillions to fill a void in the destruction of wealth in the shadow banking system that fueled the biggest credit expansion in our history for housing. The net net result is not trillions entering the system getting multiplied. In my view, the net net is a papering over of the losses/mismarket assets to fuel a carry trade so banks can recapitalize - in meantime, they are not lending.

Physics of money is intrguing and confusing at same time. I am by no means an expert, and this is my understanding of it. Please correct me if I am wrong

UD, I don't even understand what you're trying to say. Sorry.

"Monetizing the debt" is just plain dumb: the Fed uses open-market operations whether there's a deficit or a surplus.

"Fractional reserve fiat-based banking system" is another white elephant. Even the "gold standard" was a "fractional reserve banking system," and an ineffective one at that.

This is what I don't get: "the net net is a papering over of the losses/mismarket assets to fuel a carry trade so banks can recapitalize - in meantime, they are not lending."

Buying treasuries and MBS's do no such thing: it just means that the banks have more deposits with the Fed, so they can lend more. Then the multiplier effect takes over, IF they lend.

"Printing money," as I've often said, is merely creating deposits in banks without exchanging those deposits for anything. What is currently being done is to buy existing assets. That money isn't created "out of nothing" - it's created in the same way that banks create money though the multiplier effect.

From steve's first post: 'This, of course, being what I've always said - increasing reserves is not "printing money"'

Then when I laughed at steve actually thinking that QE2 is not affecting the money supply, he says: "Not me"

Is steve schizophrenic?

Now steve is calling UD dumb. This guy has issues.

Where is the money coming from to buy the Treasuries?

"the net net is a papering over of the losses/mismarket assets to fuel a carry trade so banks can recapitalize - in meantime, they are not lending."

As a friend and RMBS/CMBS research analyst at Eaton Park always tells me about the real reason of what the fed is doing and the general situation we are in as money searches for yield in this engineered environment: "The carry trade that's on now has nothing to do with the FX carry of old. It's that a US bank can have illiquid assets on it's books at 40 when they are worth 10. They just make $10 a year for 3 or 4 years and write down the investment a little bit more each time around while still able to show a profit. So long as nothing drastic happens eventually they'll have it written down to market. That's why even if you bid 15 for it you can't get them to sell it. Yes the carry trade is on, but if banks can earn their way out then who cares?"

The fed cant stimulate via rates with ZIRP, so they do the nuclear option of buying treasuries/mbs via POMO. Now you have all this liquidity sloshing around that fueled a HUGE rally in higher yield securities - a reflation - a dollar carry trade of sorts. During this reflation, mismarked assets on books of banks are gradually written down, not like they were in the initial phase of the crisis with $20b writedowns. As my boy states, the bid is 10, the bank holds it at 40..it goes:

2008 - Ask 40, Bid 10
2009 - Ask 35, Bid 15
2010 - Ask 30, Bid 20
2011 - Ask 25, Bid 25

Eventually these shit assets are written down to market, banks recapitalize, and it was all because of a fed engineered carry trade that saw trillions of dollars look for a new home with yield.

Steve is always good conversation, I find. But I do recall a past discussion thread where he argued my comment that the fed is printing, by saying something to the effect - 'no they are not printing, they are monetizing the debt'.

so I dont get his latest comment: "Monetizing the debt" is just plain dumb

Ill try to find the thread, it was a year or two ago I think

here we go: http://streeteasy.com/nyc/talk/discussion/13222-what-did-i-tell-you

stevejhx
about 16 months ago
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"with the fed printing hundreds of billions of dollars out of thin air"

UD, do we have to go through this again? The Fed is NOT printing money. It is monetizing assets. A very different animal.

Can asset monetization cause inflation? Yes, if there is velocity. But right now there is no velocity, hence no inflation.

"Printing money" is depositing money into banks without collateral - that is, a one-sided accounting entry. That is NOT what is happening.

I don't think I ever said "monetizing the debt." I may be wrong, but I don't think I ever did.

I said they are "monetizing assets," which is what they are not doing.

Bernake said the same thing. LICCdope is calling me crazy - WHEN I'M QUOTING BERNAKE!

HAHAHAHA!

Urban, All good points, except that for close to a month now yields have been rising across all assets. Check out CS High yield index. I've also seen the ten year take a hit, and muni yields have been rising.

yes u did say 'assets'..but if the buy treasuries, even though treasuries are an asset, isnt it really monetizing the debt?

R - yea I think since the QE2 announcement there has been a sell the news in high yield; long overdue. But still I would have expected more destruction when the party ends

http://en.wikipedia.org/wiki/Monetization

For example, in the USA the independently owned and operated Federal Reserve banks do this.[1] Such governments thereby disavow the overly convenient 'slippery slope' option of paying their bills by printing new currency. They must instead pay with currency already in circulation, or else finance deficits by issuing new bonds, and selling them to the public or to their central bank so as to acquire the necessary money. For the bonds to end up in the central bank it must conduct an open market purchase. This action increases the monetary base through the money creation process. This process of financing government spending is called monetizing the debt.[2] Monetizing debt is thus a two step process where the government issues debt to finance its spending and the central bank purchases the debt from the public. The public is left with an increased supply of base money.

Urban, Any new issuance (say non-callable munis) has been done with premium offerings. Everyone has clearly been taking a defensive posture seeking low duration as much as possible. Right now, I'd say more market participants view stocks as safer than bonds using the Fed metric of earnings yield using forward earnings. I think this will prove incorrect, since the forward earnings number has been very unreliable. Hussman wrote today that a better metric would be comparing historicla 50 year total return on stocks to the 30 year yield. Stocks have no safety. I think this will all end badly and that stocks will take a bigger hit than Treasuries(this is kind of like a "Morton's fork" being forced to choose between two over-priced assets.

Urban, Despite statements to the contrary, I believe Fed & Treasury "do" want a lower dollar hoping it will stimulate export jobs. Inflation or concern for it, is not even on the radar screen, and when we do have more evidence of it, it will be too late for the Fed to react.

I'm waiting to see the crazy way steve is going to spin his response.

i worry you could be right on the dollar front. no way they come out and say it, so we will never know. But across the world, its a race to debase fiat currency - hence the gold trade..but lets not go there again

Not my response, LICCdope: I was quoting Bernake.

You're quoting - some fool who lives in Long Island City.

steve's exact quote: 'This, of course, being what I've always said - increasing reserves is not "printing money"'

steve 2 hours later: "Not my response . . . I was quoting [Bernanke]"

The madness of steve continues.

I am not quoting anyone, but I agree with urbandigs and Riversider.

The 1919-1920 Weimar was exactly that. Money printing aka monetizing all debts/assets (the assets of the Bnaks are the debts of the borrowers/contractors). And because of the bad economy the velocity of money remained decreasing. So the monetizing increased ...and finally around 1921, almost viciously, people understood what was happening, started to dump the currency for hard assets (increased velocity) and inflation EXPLODED, with the results of hyperinflation.
The US base money has gone from 0.8 Tin aug2008 to 2.5 as of today. The hard asset investors are drowning in USD profits...and the masses will soon find the price of milk doubled.(yet keep their money in bonds; go figure).
As Nassim Taleb recently said."Bernanke is shaking the ketchup bottle harder and harder. And this idiot does not understand why nothing is happening....until ketchup is all over the walls".
Monetizing assets IS the DEFINITION of printing

You can banter this all about...

Did you see Uncle Ben?
He looked like he had just seen the ghost of Christmas future and it scared the bejesus out of him.
Since when is it a good idea for the Fed Chairman to look so frightened at the apex of the shopping season?

As for the double dip in RE, I think I herd him say," would you like sprinkles on that"?

Wrong, nicercatch: The Weimar Republic at first just "printed money" - deposited it in banks with nothing in exchange. It wasn't until they started to buy mortgage bonds and other assets that their currency stabilized.

LICC: "steve's exact quote: 'This, of course, being what I've always said - increasing reserves is not "printing money"'"

stevejhx quoting the New York Times: 'Mr. Bernanke offered a retort to critics, saying, “We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.”'

Maybe that's why LICCdope didn't read it - it's not in the Post.

HAHAHAHA!

LICC...blinded by his obsession with steve..to the point where he is unable to read ordinary english..sorta flattering, steve, no?

Tweet tweet says Tim Geithner(who thought of this idea)

http://www.treasury.gov/connect/blog/Pages/welcome-note.aspx

Dec. 6 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said the purchases of $600 billion in U.S. Treasuries risk spurring inflation in a few years and may make it harder for the Fed to eventually withdraw the stimulus.

“Further balance sheet expansion now could require more rapid balance sheet reduction later on, complicating the withdrawal of monetary stimulus when it becomes necessary to maintain price stability,” Lacker said today in a speech in Charlotte, North Carolina. “It is appropriate” to regularly review the purchases, he said

The provision of further monetary stimulus at this point in the business cycle is not without risks,” Lacker said. “Historical experience, including the inception of the Great Inflation of the 1970s, suggests that central banks should be careful not to steer monetary policy off course by targeting the unemployment rate.”

http://www.businessweek.com/news/2010-12-06/fed-s-bond-program-may-complicate-exit-lacker-says.html

'Tis flattering, WB.

RS - the whole point is to stoke inflation, rather than deflation or disinflation, both of which are vicious spirals that are very difficult to get out of.

You - who claim to be a monetarist - really should AGREE with Uncle Ben's helicopter policy, as it was what M. Friedman said should be have been done during the Great Depression.

Uncle Ben, you will note, is also BEGGING for fiscal stimulus, because pound per pound, properly targeted, you get more bang for your buck than with monetary stimulus, which causes only asset bubbles in the short-term, if banks do not lend the money on their balance sheets.

The unemployment rate target is a nonstarter from the get-go: it is intertwined with the inflation target: if nobody has jobs or if people are expecting to lose their jobs, they won't spend, which makes all the monetary stimulus in the world worthless.

You Austrian School people really should take Econ 101. Or maybe at least Home Economics, to figure out how stuff works.

And from Bloomberg:

"O'Neill Says He `Clearly' Disagreed With Bush Tax Cuts"

Amazing how help for the poor unemployed through extended unemployment benefits, according to Republicans, must be offset by spending reductions, but tax cuts for those making over $200,000 don't.

Hypocrisy here?

I appreciate monetarism, but recognize that the velocity of money can be difficult to target.

I also believe every situation is different and one needs to look at similarities as well as differences.
The first q.e. was really about a liquidity crisis. We don't have one now. Consumer demand is weak as many of us are repairing our balance sheets(i.e. saving more) and what's really wrong is the big banks are technically in default(Hello...Banc America).

What should have occurred is a restructuring of the banks with bond holders taking a hit. Instead Treasury and Fed are saying bond holders do not bear risk. Because of this capital gets mis-allocated, Fed is intent on propping up asset prices, and the savings rate is non-existent. It would've been far better to restructure the banks.

Just my two cents.

Funny how liberals who wants to raise the tax rates that have been in place for ten years calls keeping the rates the same a "tax cut".

Hypocrisy here?

Raising taxes and/or increasing interest rates have similar effects. They both take money out of circulation. When a country has reserve currency status, the math works differently.

Great exchange between Larry Meyer and David Einhorn.
Guess who I agree with?

http://www.cnbc.com/id/15840232/?video=1684975093&play=1

What's been in place for ten years is a temporary tax cut to actual rates. Extending a tax cut is ... imposing a tax cut. But even you understand that.

I think we're hearing a great deal of political non-sense from all sides. But regardless of whether it's an increase or a decrease, if we are going to pay a higher percentage of pre-tax to the IRS, we'll have less left over and that is not stimulative.

but of course if you make $1 million and over, you already have a bunch left over. so, you might have less left over but so what?

Einhorn makes great points. Governments have decided nobody fails, which is contrary to capitalism.

There's no beauty without ugliness
and no success without failure

actually the real quote is
"Capitalism without failure is like religion without sin—it just doesn’t work."

http://www.cnbc.com/id/15840232/?video=1684860266&play=1

The tax rates have been the same for ten years. You now increase them. That is raising taxes. Keeping the same rates as they have been for ten years is . . . keeping the same rates. Even alan can understand that.

So you must be pleased.

LIC,
You are wrong. Because of inflation and AMT, more people are paying more than ever.

Riversider, I agree. Because of AMT, if rates do go up I may not even be paying much more than I do now. However, keeping rates the same is sure not a "tax cut."

And Inflation pushes us into ever and ever higher tax brackets. It's insidious.

What part of "temporary tax cut" don't you understand, LICcomm?

RS, what part of "stimulative to China, India and Brazil but here, not so much" don't you understand?

Explain.

Have you forgotten the rules?

In alan's mind, ten years is temporary.

No, moron, in Bush's mind ten years is temporary. That's why it had an expiration date on it. There's nothing to argue about it -- that's what it was, that's what it is.

And it doesn't grow on trees either!

"but recognize that the velocity of money can be difficult to target."

I've never heard of "targeting" the velocity of money. Who does that?

"What should have occurred is a restructuring of the banks with bond holders taking a hit."

That did happen, in some cases.

"And Inflation pushes us into ever and ever higher tax brackets."

Wrong again. Tax brackets are indexed to inflation, and have been since Ronald R.

"ten years is temporary."

Then "ten years" is permanent in LICCdope's opinion?

That's right - in LICCdope's bizarro world, "a long time" = "permanent."

Long Island City has been a dump for 10 years. Thus in LICCdope's opinion, it is a PermaDump.

not sure i can agree with this

it is however unarguably an eternadump

In steve's world of the inane, keeping tax rates the same that they have been for ten years is a "tax cut", and $600 billion of asset purchases by the Fed does not increase the money supply.

Welcome to the ridiculous world of liberal logic. And the craziest part is that steve is oblivious as to how much of a fool he makes himself to be with his comments. A guy renting in a dumpy building in the Theater District is criticizing waterfront condos in Long Island City. Ha!!

In LICCdope's insanely bizarro world, "expire" doesn't mean "expire" - it means "RENEW!"

"$600 billion of asset purchases by the Fed does not increase the money supply."

According to Ben Bernake it doesn't. Of course LICCdope knows more than the Fed chairman.

"A guy renting in a dumpy building in the Theater District is criticizing waterfront condos in Long Island City. Ha!!"

So not only are you next to the Newtown Creek & the Queensbridge Houses & the rail yards, you are even nearer to the wonderful world of the East River?

Don't know where you got this "liberal logic" thing, LICCdope - I'm lots of things, including well-educated, but I'm hardly a liberal.

Maybe you should spend your evenings at LaGuardia Community College studying something, instead of reading The Post and watching "Freedom Watch" on Fox. Just so you don't sound as dumb as you really are.
Pray tell, do you ever go water skiing on it?

Bad editing!

"Pray tell, do you ever go water skiing on it?"

was (at one point) under "East River."

Seems even writing about Long Island City makes the words want to migrate.

HAHAHAHA!

"We’re not printing money" - uhhh... "Government Prints $110 Billion in Unusable Money, Hides It"

http://gizmodo.com/5707573/government-prints-110-billion-in-unusable-money-hides-it

;)

Typical steve, making up things that other people really didn't say.

What did steve make up?

LICC: "Typical steve, making up things that other people really didn't say."

steve: "In Interview, Bernanke Backs Tax Code Shift

http://www.nytimes.com/2010/12/06/business/06bernanke.html?ref=business

Typical LICCdope, pretending that people aren't saying what they're really saying.

pulaski, good call! THAT is printing money!

More typical steve. When he loses the argument on the merits, he cites to someone else then hurls insults.

kablooie steve, because that is what happened to his credibility long, long ago.

"he cites to someone else"

Ben Bernake, PhD, Fed Chairman, tenured economics professor at Princeton, has now been demoted to the title of "someone else" by LICCdope.

OMG!

HAHAHAHAHAHA! The Court Jester of Water Taxi Beach Strikes Again!

Yet another non-substantive response from steve.

kablooie!

HAHAHAHAHAHA! The Court Jester of Water Taxi Beach Strikes Again!

Stewart nails Bernanke(check out the video). No! We're not printing money!!!

http://www.businessinsider.com/jon-stewart-ben-bernanke-2010-12