How does the Federal Reserve work?

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Quote chilidog:
Quote downix:
Quote chilidog:
Quote Cheesebone:

Downix is explaining this pretty damn well right now, actually.

I would really appreciate a link to a site where I can find this information. And that site about the Treasury's tools is not it.

The Federal Reserve bank of San Francisco has one of the better websites explaining the structure. You then have to look over the various laws and regulatory changes made to the Fed over the years, and work them backwards.

I am looking specifically for a link somewhere that explains QE the way you explained it here.

The way I understood it was offensive enough. The way you explained it is downright frightening.

You won't find a nice neat packaging it up that I know of. It took me months of research to figure it out.

Perhaps I should put it into a book, the complexities of it are deep enough.

downix's picture
downix
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Oct. 12, 2010 10:04 am

Well, there should be a way to back into the activity: The Treasury auctions new debt at specified dates. Let's say it's monthly. So on January 1 the Federal debt is 12 trillion. The next auction date is February 1. The total reported debt should be unchanged (except for interest amorization) from January 1 to January 31. Am I wrong?

So if Bernanke asks Geithner for $100 billion in Treasury notes for QE in January, won't we see that as an increase in reported debt? Won't we see the date? When does the QE debt get reported?

chilidog
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Jul. 31, 2007 3:01 pm
Quote chilidog:

Well, there should be a way to back into the activity: The Treasury auctions new debt at specified dates. Let's say it's monthly. So on January 1 the Federal debt is 12 trillion. The next auction date is February 1. The total reported debt should be unchanged (except for interest amorization) from January 1 to January 31. Am I wrong?

So if Bernanke asks Geithner for $100 billion in Treasury notes for QE in January, won't we see that as an increase in reported debt? Won't we see the date? When does the QE debt get reported?

You find it when the debt cap is raised, because until then it's in a nice novel entry in a budget journal, a "projected debt" model only. Right now the Treasury is ordered to issue a set number of T-bills and T-notes until March, to cover the federal budget. That's what raising the national debt limit does, give the Treasury permission to issue these notes.

But it's the issuing of these notes which is causing the debt to keep going up. The Deficit is already fixed, but not yet spent. You can follow the debt on those debt clock websites.

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downix
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Oct. 12, 2010 10:04 am
Quote downix:

You find it when the debt cap is raised

I'm looking for the QE activity. There was no QE before 2009. We have raised the ceiling on the debt limit for years and years.

chilidog
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Jul. 31, 2007 3:01 pm

The debt can never be paid back.

For every $38 we have we owe the FED $1500. Even if we were to give them back the origibnal $38 we would still owe like 98% in interest charges.

It's a debt slavery monopoly system. The very thing Jefferson warned us about.

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Rebelitarian
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Nov. 15, 2010 1:40 pm
Quote Rebelitarian:

The debt can never be paid back.

The debt need never be paid back.

U.S. Treasury bills, bonds, notes, etc., are proxies for risk free investments. Investors put money into Treasuries when they become concerned about the risks associated with their other investments. Without T-bills, investors would have to find another safe-haven for their money, which they may well have to do if the debt ceiling is not raised in March. At the moment, there are very few alternative, risk free instruments.

As long as the U.S. economy grows faster than the federal debt grows, it can be serviced indefinitely.

Nguarorerue's picture
Nguarorerue
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Jan. 11, 2011 12:44 pm

Brilliant!

chilidog
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Jul. 31, 2007 3:01 pm
Quote Nguarorerue:
Quote Rebelitarian:

The debt can never be paid back.

The debt need never be paid back.

U.S. Treasury bills, bonds, notes, etc., are proxies for risk free investments. Investors put money into Treasuries when they become concerned about the risks associated with their other investments. Without T-bills, investors would have to find another safe-haven for their money, which they may well have to do if the debt ceiling is not raised in March. At the moment, there are very few alternative, risk free instruments.

As long as the U.S. economy grows faster than the federal debt grows, it can be serviced indefinitely.

Precisely. Unfortunately for us, the Bush tax code forced the debt to grow faster than our GDP.

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downix
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Oct. 12, 2010 10:04 am
Quote chilidog:
Quote downix:

You find it when the debt cap is raised

I'm looking for the QE activity. There was no QE before 2009. We have raised the ceiling on the debt limit for years and years.


Oh, just pay attention to reserve t-note purchases. They list them all on treasurydirect.gov.

http://www.treasurydirect.gov/RI/OFNtebnd

They hide the Notes in amongst the Bond and Tips. Now cross-reference with the Fed's own information on Note purchases:

http://www.ny.frb.org/markets/pomo/display/index.cfm?showmore=1&opertype=orig

Paints an ugly picture.

downix's picture
downix
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Oct. 12, 2010 10:04 am
Quote downix:

Precisely. Unfortunately for us, the Bush tax code forced the debt to grow faster than our GDP.

Agreed. The super-wealthy are not paying their fair share of federal taxes.

Nguarorerue's picture
Nguarorerue
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Jan. 11, 2011 12:44 pm

T-bills are just promissory notes to pay back a NOMINAL amount of money. The purchasing power of that money however is NOT what gets paid back.

Yes, it's practically "risk free" in that you'll get teh same dollar amount back, but at the rate things are going, the dollar amount you get back will be worthless compared to when you made the original investment.

Not much of a good investment, really.

Cheesebone's picture
Cheesebone
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Sep. 1, 2010 8:18 am
Quote Cheesebone:

T-bills are just promissory notes to pay back a NOMINAL amount of money. The purchasing power of that money however is NOT what gets paid back.

Yes, it's practically "risk free" in that you'll get teh same dollar amount back, but at the rate things are going, the dollar amount you get back will be worthless compared to when you made the original investment.

Not much of a good investment, really.

I agree. I am at a stage in my life where I'm still willing to accept risk in order to get higher rates of return on my investments.

Anybody who puts everything they have into T-bills are either ill-advised or very, very worried about the future. As part of a risk-adjusted investment portfolio, however, T-bills have their place.

Nguarorerue's picture
Nguarorerue
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Jan. 11, 2011 12:44 pm
Quote downix:
Quote chilidog:

So Quantitative Easing actually increases US Debt? If the reported debt is $12.0 trillion today, and Bernanke prints $600 billion QE dollars tomorrow, the reported debt is then $12.6 trillion?

Yup. It's one of the reasons why Japan's debt is 260% of GDP.

Based on the links you provided to TreasuryDirect and the New York Fed, it seems to me that QE does NOT increase US Debt. The Fed is purchasing debt authorized by legislation. Am I missing something?

"He prints them when Ben Bernanke tells him to, which is backwards from how it's supposed to work."

"No, the cash goes to the various banks. The Treasury issues notes to the Fed, who then print the money to send to the banks, based on their fractional reserve held at the Fed."

chilidog
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Jul. 31, 2007 3:01 pm
Quote chilidog:
Quote downix:
Quote chilidog:

So Quantitative Easing actually increases US Debt? If the reported debt is $12.0 trillion today, and Bernanke prints $600 billion QE dollars tomorrow, the reported debt is then $12.6 trillion?

Yup. It's one of the reasons why Japan's debt is 260% of GDP.

Based on the links you provided to TreasuryDirect and the New York Fed, it seems to me that QE does NOT increase US Debt. The Fed is purchasing debt authorized by legislation. Am I missing something?

"He prints them when Ben Bernanke tells him to, which is backwards from how it's supposed to work."

"No, the cash goes to the various banks. The Treasury issues notes to the Fed, who then print the money to send to the banks, based on their fractional reserve held at the Fed."

QE is when the Reserve "buys" the notes because other countries won't buy them. The debt is being sold in either case.

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downix
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Oct. 12, 2010 10:04 am

Wouldn't Quantitative Easing make more sense if it operated like this:

There is a $1,000 T-bond that is payable today, February 7, 2014, that was purchased on February 7, 1984.

The United States Treasury Department sends this T-bond to Janet Yellon and tells her to pay the holder $1,000.

Janet Yellen prints $1,000 (in either paper bills or ones and zeroes) and tenders it to the holder.

New money is created, and there's no dispute about how much Yellen paid for the asset - no asset was purchased.

chilidog
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Jul. 31, 2007 3:01 pm

Quantitative Easing, filling bank coffers with money, has accomplshed what?

The logistics behind it is to get banks loaning money into the economy again. Instead, they are throwing it in financial paper. Gambling for higher returns than they get from loans.

Sovereign governments using their own currency needn't borrow to increase the money supply. They can simply create/spend it into the economy limited only by economic output capacity. The American Colonial Governments successfully did that.

At least you understand that the new money didn't exist without a debt required to create it under our wacky system. The money supply is much larger than in 1776....every bit of it created with a debt. If Treasury Bonds were bought with existing cash, the money supply wouldn't increase. It would merely be transfered from a lenders account to a government account.

The additonal money created since 1776 didn't exist prior to a debt created by an accounting entry (not cash) by a bank. It's called fractional reserve banking. Banks loan government non-existent money in exchange for a Treasury Bond. Government may then spend the money credited to its account that didn't previously exist.

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