Topic: Could take 5-8 years to shrink Fed portfolio: Yellen (Read 10156 times)

If microsoft or similar can borrow money for five years at 1% it will encourage speculation by them.   Quite sensibly they buy their own shares as this in turn reduces the dividend payable on those shares, sensible refinancing almost.   The idea is they can invest this cheap money for more employment (trickle down is still the hope), in effect they will speculate more and employ outside of rising government cost

Government is altering the bias of business.   They do fix interest rates.   They employ laws to enforce their actions and they do encourage speculation.  In a free market we have elements that would normally short sell bad prices.  The western fiscal economic model is not a free market and it does encourage speculation by fixing cost of money, when 50% of GDP is government this is fair to say QE has eclipsed business and monetary flow in a normal capitalist system.
 QE is a monopoly, a kings charter gifted to a modern day apprentice on the governments wishes



How many institutions can issue federal reserve notes.     It doesn't even qualify as capitalism anymore really.
Too few hands carrying too much power is a problem, its why we have democracy and its why we should have capitalism and the problem is we dont and its causing continual failures to occur that could be stopped if people had the power that government has taken from them.  

 We have centralised capital control.  Capitalism is far closer to peer to peer where each unit is fungible against all others equally.  When the Fed issues QE at their own agenda and timetable they are determining monatary worth and who will receive that benefit of the newly produced money.  Im not calling a conspiracy, they do put that worth into government which in theory passes it onto the people but it is still not capitalism and QE will encourage speculation and unfairly benefit the largest dealers in QE assets which is government debt mostly and also housing debt.
  This is not a free market, prices of the largest units of currency are enforced by laws and please dont kid yourself that people at the FED are not politically biased.  They are not on puppet strings but they are not able to somehow dodge human mistakes we all carry which will have biased them to their origins which is government.

   Timothy Geithner, Obama and Ben B have between them 1 years experience in privately funded businesses and they are not going to bring you anything but what made them successful which is politics, I expect Yellen, etc are similar

I am not sure how you link low interest rates and taxation to encouraging speculation. It is important that the Fed is an independent agency that does not take politics into consideration and since the Fed sets short term interest rates, and recently guides longer term interest rates, this point should not be considered (about the interest rates).

I do agree that the higher levels of regulation do discourage production, but I would argue that companies would be more likely to "sit" on their money instead of speculate with it as there are very few types of companies that can engage in any type of speculation. 

yea i agree . but i think that why this will be long term succesfully giant scam . as you say .

The low interest rates are not laws, it is a result of the forces of the market (yes the Fed has been a major force in this). Taxes of foreign profits encourage money to be spent overseas but not necessarily on speculation, but rather on production overseas.

The low interest rate but high level of regulation cost and taxation discourages actual production business and favours finance and capital speculation especially abroad.    This is self bias, government is aided by debt handled by investment banks.   If the finance fails then government itself is in far more trouble then it suffers from other avenues like unemployment and business migrating abroad

Also the laws stop companies bringing international earnings back home to the USA.  USA has some of the highest tax on companies in the world.  USA is the only country to tax its citizens not living or earning in the country.  [sorry - The other is Eritrea. ]  Basically USA is unique not just now but historically this has never happened to this extreme, that could be celebrated maybe and it makes for 'interesting' times but probably its going to end badly.
   The most positive event for the citizens within its borders anyway would be straight out default much like the USSR turmoil but anyhow until then the USA is the poorest nation that has ever existed, nobody has ever owed so much.
 I dont blame Yellen, she cant even look in the direction of the truth.   The last five years was spent running down hill or freefalling even, to scale back this debt would be like ascending a mountain though I do think it could mean lower unemployment in that task not many would agree less government spending, defecit, size of, laws could make the country better off.
  If spending more didnt work then spending less, running a surplus is a reasonable argument.  The statistics dont favour (in their appearance) a harsh change of course yet but its still required I think

But Yellen wasn't asked if the current system is a scam, she was asked what the relationship is between low inflation and economic activity.

What laws encourage speculation? I would argue that in the US the law encourage workers to sit idle (in the form of UI, and other social programs).

It will take a lot longer then 5 years to shrink the Fed portfolio as it has taken them that long to build it up to the level that it is at now, and they would not be able to shrink it to normal levels at the same pace.

production is important in order to be able to create value however companies need land in order to produce their product.

I still don't get how it relates to the point I made.

But I'll reply.

When a bank makes a loan, it distracts the risk-weighted loan amount from the available capital. There's a thing called capital requirement which sets how much capital reserves must be held against the loans made.

When a loan is paid back by the borrower, then the opposite happens. The risk weight of assets is improved, capital is freed, thus available capital is actually increased. Also consider adding profits the bank made with this loan to capital.

You are confusing completely different things: capital requirement and reserve requirement. The first is meant to limit the risks associated with lending, while the second is mean only to support the bank's liquidity in its operations (and actually doesn't limit lending).

This is correct... The limit to credit creation in banks is their capital, so when the bank credit creation multiplier is exhausted, there is no more credit creation. Traditionlally the multiplier is about 10, depending on reserve requirements, and that's it.

But... two other things. The capital in a bank is not an absolute number. A loan can be marked bad, reducing the bank capital with an amount, and then the credit is reduced ten times that. But the loan can also be market as maybe bad, maybe not bad. There can also be mark to fantasy. This means real undercapitalization, with risk of bank collapse. Then the bad loans can be parked in a bad bank that is spun off, and the party can continue. There is a strong unwillingness to just regard the loan as lost and write it off.

Second but... Government credit creation, credit money more or less given to the banks, this is regarded as reserves. Multiply by 10, more credit. This is for example QE. When this becomes politically depressing, invent new methods of credit creation with new names. There is no limit.

As long as people want to hold the money (including the credit money that appears on your account statement), they will have value. Currently people want to hold the money, because of growth, phantastic innovation, military force (and there is no better alternative).

Real value are from production. When they law discourage production and encourage speculation, real wealth will eventually leave the country.

If a bank has all of their capital deployed then unless they earn money they cannot make additional loans. If a bank has some extra amount of capital then they are able to make additional loans.

The same is true for the overall banking system. If there is no excess capital in the banking system then banks are not able to make additional loans. If there is excess capital in the overall banking system then banks can make more loans.

When someone pays back a loan then money is essentially taken out of the banking system. If the banking system did not have excess capital then it would need to "call" some of the loans in order to have the proper amount of capital on hand. If the banking system does have excess capital then the banking system would simply have less excess capital after the loan is paid off.

I don't get your point, care to elaborate?

If banks have any excess capital then this would not be the case. This is only true when all of a bank's money is deployed, which pretty much never happens.

Additional borrowing economy-wide.
Asset prices are in dollars, can you explain how they contribute to money supply?

Once the borrower had paid off their loan with profits they would be able to spend an equal amount of money that they were using for debt repayment on other investments. Additional borrowing would not necessarily need to take place for this to happen, only higher asset prices.

Do you know where does this additional cashflow come from? From borrowings as well. The money that banks issue is always backed by  the liability of equal size. This is called 'double-entry accounting principle'. The process of expanding credit can only continue until interest burden becomes too heavy, then credit starts to collapse, so does the economic activity and money aggregates. Unless the gov't starts to fix private sector's balances by deficit spending.

Not necessarily as now the borrower would have additional monthly cash flow (that they previously used to repay the loan every month) to use to invest in the economy. The bank would then also have additional capital to lend to others who need a loan.

Paying back the loan destroys money as it either destroys the electronic deposit at the bank or withdraws cash from the economy to the bank's balance sheet (cash vaults e.g.).

Paying back the loan is not what creates the money, it is the additional deposits in the banking system.