U.S. Monetary Policy

[ThereIsNoSpoon]

I got sick of hijacking Vern's thread so I started a new one. U.S. Monetary policy. Broken or good to go? If it's busted, what's wrong with it? Asset backed or fiat? Central Bank or not? Talked to me. I'll be back tomorrow.

[zephyp]

US Monetary policy? Thats a simple one...Congress abdicated their Constitutional duty to set monetary policy and gave it to the Fed in 1913...the Fed btw is a private institution which Congress has no control over other than endorsing the presidents pick for the Fed Head...the Fed sets US monetary policy...

Here's a good one for ya:

The Fed recently announced that they will purchase $600B of debt...that means they will buy $600B of US Treasury instruments on the open market...

QUESTION: Where does the money come from to finance this buy for the Fed?

My guess is only about 1% of you know the answer without doing some research...

[Tweaker]

I'll guess...from big machines located in Denver and Philadelphia?

[zephyp]

I'll guess...from big machines located in Denver and Philadelphia?

Buzzzz! Wrong answer. Phillip, give Tweaker 120 volts for 10 seconds...

[Taggure]

Our Taxes?

[zephyp]

Our Taxes?

Oh no, sorry. Wrong Again. Phillip, please give Taggure his consolation prize...240 volts for 20 seconds...

Btw contestants, the next wrong guess recives 480 volts for a full minute. Any takers? Ah, there's a bright soul...Mr. Gunderwood...I bet you know the answer...

[Mindflayer]

Mortgage securities.

Back to the OP - the Federal Reserve sets monetary policy. Now, there are some that say monetary theory and the application thereof (policy) has little impact on economic growth or contraction. They point to individuals (human behavior) or to fiscal policy (government spending). The truth is that it is not that simple.

The existence of the Fed is a mixed bag. First off, it's a commonly held belief that they are totally independent. That's not correct. The POTUS selects the BoG and the chairman, and they have to be confirmed by Congress. There is a de jure oversight function by Congress - whether that's de facto is a matter of debate.

Secondly, there is the question of theory itself. Now, I studied Hayek so if you're an economic theorist keep that in mind. If not, bear with me. Monetary theory revolves around a purely mathematical and simplified view that easy money (translated best as a low rate) will yield higher spending and expenditure, expanding the economy. The inverse is also held to be true. This simplified view - in my view - results in issues like the bubble in the dot.bomb era and the current crisis we're in now.

[more to come if interested - I have a meeting to get to...]

[totes6]

Btw contestants, the next wrong guess recives 480 volts for a full minute. Any takers?

Well since it is the Amps that kills, and Voltage only stings.

The money comes out of "thin air" for the Fed.

[gunderwood]

US Monetary policy? Thats a simple one...Congress abdicated their Constitutional duty to set monetary policy and gave it to the Fed in 1913...the Fed btw is a private institution which Congress has no control over other than endorsing the presidents pick for the Fed Head...the Fed sets US monetary policy...

Where is the delegation clause for Congress in the Constitution?

How can Congress delegate powers to other legitimate or illegitimate branches of government unless they first were given the power to delegate? E.g. Congress was given the power to declare war. No where are they given the power to delegate that authority to the President, a bureaucracy, or even me.

The executive branch only has authority to execute. Just as a LEO can not make up the law and then enforce it, no entity besides Congress should be setting our monetary policy.

[gunderwood]

I got sick of hijacking Vern's thread so I started a new one. U.S. Monetary policy. Broken or good to go? If it's busted, what's wrong with it? Asset backed or fiat? Central Bank or not? Talked to me. I'll be back tomorrow.

I would suggest your answer lies in the study of money. I.e. What are the requirements for good money? IMHO, fiat currencies perform terribly when evaluated against those criteria.

[Kreutz]

I got sick of hijacking Vern's thread so I started a new one. U.S. Monetary policy. Broken or good to go? If it's busted, what's wrong with it? Asset backed or fiat? Central Bank or not? Talked to me. I'll be back tomorrow.

1) Broken by design. The unholy marriage of the federal reserve and for profit banks is a major drain on working Americans.

2) Backed really only by our nuclear arsenal, you can throw any other asset or credit in the garbage where it belongs. Our fiat currency literally is worthless. Trust me, China will never collect on its debts because it can't.

[Taggure]

Ah now China, that is an interesting topic to bring up in this thread. Does anyone know just how much of the U.S. debt they hold? I am not sure but I am sure that it is a considerable amount.

I heard today that California is up to their eyeballs in debt, so what happens when a state needs to borrow $40,000,000 a day to keep their unemployment going

http://caffertyfile.blogs.cnn.com/2010/ ... -benefits/

Let me ask this of all the folks that are a lot smarter then this dumb redneck. If California goes under financially and I mean Flat A$$ broke, what is the FED going to do, for that matter What is Obama Going to do to stop the ripple effect across our beloved nation?

I do not have an answer to it. Maybe some big foreign corporation may come in and buy up all the debt for California. Wouldn’t that be a hoot?
Buy the state outright and set their own corporate board of directors and run it like a business.

[Kreutz]

Let me ask this of all the folks that are a lot smarter then this dumb redneck. If California goes under financially and I mean Flat A$$ broke, what is the FED going to do, for that matter What is Obama Going to do to stop the ripple effect across our beloved nation?

I do not have an answer to it. Maybe some big foreign corporation may come in and buy up all the debt for California. Wouldn’t that be a hoot?
Buy the state outright and set their own corporate board of directors and run it like a business.

States are not allowed to declare bankruptcy, they will have to cut spending, issue bonds, etc. If that doesn't work, the feds take over (receivership) until things are righted.

[Mindflayer]

Other countries owning our debt is not at all a bad thing. It is, in fact, a good thing. It is the staggering amount of debt that becomes (and is, in my opinion), the issue.

[ThereIsNoSpoon]

QUESTION: Where does the money come from to finance this buy for the Fed?

Mine and your future production in the form of government Treasury Bonds

[Tweaker]

Do we wait to page 2 for da answer DK?

[Kreutz]

Other countries owning our debt is not at all a bad thing. It is, in fact, a good thing. It is the staggering amount of debt that becomes (and is, in my opinion), the issue.

This is actually true, we get goods and commodities, they get paper and promises. Debt can work in our favor, but some austerity is a must to maintain solvency.

[CCFan]

Asset backed with no Fed.

The Fed came into being by a bunch of the large bankers creating a method for keeping their banks (money) safe.

I've mentioned it before but anyone who wants a history of the Fed should read "The Creature from Jekyll Island" - it'll blow your mind....

[Diomed]

Other countries owning our debt is not at all a bad thing. It is, in fact, a good thing. It is the staggering amount of debt that becomes (and is, in my opinion), the issue.

This is actually true, we get goods and commodities, they get paper and promises. Debt can work in our favor, but some austerity is a must to maintain solvency.

My hazy recollection is that we initially sought to maintain our foreign debt under the belief that being indebted to other countries would make them more sympathetic to us and less likely to try to invade or see us toppled, lest they never be repaid.

That could be one of the many fallacies of early education.

[zephyp]

Btw contestants, the next wrong guess recives 480 volts for a full minute. Any takers?

Well since it is the Amps that kills, and Voltage only stings.

The money comes out of "thin air" for the Fed.

Absolutely correct on both parts. When the Fed buys securities they credit the sellers account with the money. Its all an electronic transaction and the money is indeed created from thin air or in this case electrons...