The Fed does not exist
Twitter: @rpgoyal_
The Fed has its tools backwards. The Fed sets policy by altering the price of safe assets (like cash, Treasuries) in an attempt to change the incentives for the private sector to create risky assets, but the Fed does this in a way that treats safe and risky assets as the same, when they’re opposites. As opposites, raising the value of safe assets via rate cuts and QE results in less risky asset production by lowering the value of risky assets. The way to stimulate risky asset production is to make safe assets abundant, which the Fed can accomplish via rate hikes and QT, not rate cuts and QE, giving the system the free lunch of diversification (between safe and risky assets) and the necessary collateral to add risky assets on top of.
With its tools backwards, the Fed has to conduct policy through narrative, jawboning, and psychology, rather than mechanics, and hope that the private sector carries out the Fed’s vision despite the mechanics working in the opposite direction. Today, that’s showing up as the Fed trying to convince the economy to slow down by raising rates, when raising rates is in fact stimulating the economy, getting us further away from a recession, not closer. Any analysis that makes the Fed central and imbues it with the mechanical tools of a real central bank is subject to unexplainable and unanticipated outcomes in economic conditions, because the Fed ceased to be a real central bank around 2013.
Companion Presentation:
A pictographic walk through the Fed Does Not Exist:
A quotational walk through the Fed Does Not Exist:
Links to chapters:
Hey Ritik.
You mentioned market (and general) prices working as complements to other assets with value (such as bonds). And therefore, the fed does not "print money". In fact, they only regulate rates and try to benefit from market asymmetries. This reminds me of the principles of double entry accounting, which all of the big companies, including banks have to follow. According such a standard, money can also not simply be "printed".
George Robertson from the Monetary Frontier suggests that the actual creation of "money" happens when commercial banks grant a loan, therefore creating a new pair of asset-collateral.
Now,
1. with the assumption of money as an asset being a pair
2. And the standards of double entry accounting applying to all banks
do you think that there is a so-called "collateral account" for each citizen of a country from which the money is "created", once the bank agreement for a certain loan or credit is signed? This would be an account which already holds enough money for a lifetime and probably beyond but cannot be accessed as a normal person.
This point is enforced by the fact that so-called "money" is only legal tender as printed on the dollar note (a means to alleviate future debt) according to the bills of exchange act. Therefore, the real money is the collateral to which the legal-tender-money (USD) is tied.
Do you think I am onto something or am I missing something?
Reading through your articles and thus far it's excellent stuff. Nowhere seen a treatment of inflation with such clarity. Will Ch 9 be written out in the future, and Ch 7 still has to be written?