but you claim that creating money out of thin air to buy MBS and
agencies was not printing.
You can't make the term "printing" precise and you do so to obfuscate the hole in your own knowledge. You see, I'm the world's premier expert in all this, and I can see what you don't know merely by the choice of words you use. You purposefully use "printing' to keep it vague. Reminds me of my students.
Treasuries went to SOMA account as well, that's where they are sitting.
That's irrelevant to the discussion we're having but I can tell here also you don't quite have it right.
So, how are treasuries different from MBS or agencies if they all wind up on SOMA,
There have been books written about the difference. Indeed, the whole financial crisis orbits around the perceived and actual difference. FED buys MBS toxics which are only toxic because they impair their marketability due to the balance sheet state of their holders and due to the detestable condition of the economy. FED relieves the holders by direct purchase. This adds and subtracts from source and use base, but the net of it is zilch, zed, since eventually toxic will turn into nontoxic. It is real property. It only has the problem of an inability of the indirect of final holder to service. That will be rsolved. It is REAL property. Then FED makes a killing for Treasury. Don't you have any faith in full faith and credit? I do. The private sector will always operate and gumment will always be able to tax it.
here?
SOMA = System open market account. The open market account is closed although some stuff must surely dribble through. Don't you recall my Taccount explanation? FED creates nominal value out of thin air! It's belief paper. You don't believe, but I do. You will never make money unless you believe. That's the oft lost core lesson of history.
The Fed can print and buy stocks,
WHy bother doing that? Why not create the real stuff, the money, by buying Tpaper? Because FED doesn't want to set up horrible inflation. Aftyer all, once you got the real stuff, currency, deposits, upon which you can write a check, you can buy stock, and, at a discount!
as Bernanke Doctrine states.
Ho hum. McChesney Martin would have told you that that is totally irresponsible, even to say it. Look up him. Unfortunately, the wiki authors don't have a clue about him, but his FED didn't engineer a rise in monetary base during the booming '50s.
It will still be printing. They will be added to SOMA account.
I think the mistake you're making is not understanding the difference between source and use base. Also, you don't understand that the banking system for the most part creates the money. FED only creates reserves. The banking system on its own can cause SOMA to change, simply bvecause it can end up with excess reserves and FED has to "clean them up". This changes SOMA. When did FED last "print"? 20 years ago? when they bought Treasuries to support the dollar and sterilized. Net printing = 0.
Now, I agree with you, if all that just sits in reserves,
we'll see no inflation, but that does not mean the amount
was not printed.
The reserves are abstract. Only exist as computer entries. They don't become bank balances until borrowed. Let's say they're all borrowed. The M1 money supply rises by the multiplier. Maybe this is worth $3 trillion. That won't cause inflation. It will represent a good economy though.
Now, the Fed can REVERSE the process and SELL MBS, agencies, or treasuries from their SOMA account. That would be reduction of the monetary base,
Nope.
and like shoving dollars back into the printing press.
Nope.
If that ever happens, then yes, monetization will reverse and the effect was temporary.
Nope. Temporary doesn't mean "temporary". It means temporary reserves which have the property that they self extinguish. Have a time limit. This is how FED effects monetary policy without slam banging. Since the reserves under temporary, RPs and RRPs, et al, buys and sales, disappear from the system, from SOMA, within anywhere from 1 day to 28 days or so, FED can fine tune monetary policy.
Monetization only occurs when FED buys Tpaper and it has to do so under certain macroeconomic conditions related to the dollar and other factors. No other action will monetize. Is monetization so bad? No. Sometimes, it's critically necessary. For example, even I, a staunch supporter of free market in money, have no criticism of FED stabilizing gyrating markets using, say, Tpaper purchases, as long as they stop once things settle down. In some sense they never stopped intervening ever since they went off on this '60s Keynesian theory of crap. They still believe they have to control to create eternal prosperity. Indeed, that's the core culprit behind the RE inflation, effectively too easy money, that FED didn't think was all that easy. The RE inflation led to the financial crisis that almost gutted FED's ability to control. That is not acceptable to them. |
