Bankrupt you Bernanke III

[flow5]

Now your post doesn't show up.

Dr. Scott Sumner's idea to target nominal-gDp was an outgrowth of Bernanke's contractionary money policy. 

[Virgil Showlion]

Mr. Bernanke's pants are on fire.

I try not to think about it.

[Aman A.K.A. Ahamburger]

It's actually flows pants that are on fire, that's why we are on a third thread about the same topic..... 

 Ben B. took office Feb. 1, 2006 and by Aug of 2007 he lowered interest rates and injected liquid into the markets. That's 17 months, flow has claimed that for 29 months Ben B. "drained" the markets and did nothing to stimulate, which is obviously not true.  To believe that Ben B. caused this all by himself is like saying he should have pumped billions into the market in '07 to keep the housing market bubble going.

 I guess if you believe that the consumer wasn't tapped out, debt wasn't at unacceptable levels, and that people should have continue to get themselves further under because of rising housing prices, then Ben B. did cause this all by himself. He could have, in 2007, injected billions into the markets.  How the general public would have reacted to hearing that the markets were so unstable that billions or trillions of dollars needed to be injected to stop the credit markets from freezing is another topic for discussion, my guess is that the markets would have still crashed and there would have been no way to restore confidence in the economy at all.

 Adjustable rate mortgage's and all these MBS products that were designed to keep the bubble growing came on the market before Ben B. took office.  There were many factors that caused the great recession, the greatest of all being GREED.  Greed by the individual is what drives every asset bubble, and when it pops it's also human nature to look for someone to blame(scapegoat) for their bad decisions.  

Just like right now, all these people that our sour that they didn't get back into the market or sold out at the bottom are looking for a reason to justify why they have missed out on one of the biggest bull runs in history.  Blame Obama, blame the economy, blame the Fed, blame whoever you want, it was your decisions and your decision alone to believe in the "Death March" that was coming in 2009, 2010, 2011, and 2012. 

[flow5]

The absolute volume of our means-of-payment money peaked in 2005. Then it was all downhill until the Great-Recession. 

Stimulation implies a surfeit, not shortages.

The roc in MVt bottomed in March 2009 (along with stocks). 

The only rally I failed to see was that driven by QE2 in the last of 2010.  Then, money didn't expand until Nov.  Vt in & of itself, lifted the roc in real-gDp.

[Aman A.K.A. Ahamburger]

The absolute volume of our means-of-payment money peaked in 2005.  Then it was all downhill until the Great-Recession.

Exactly, the great Recession was already underway before Ben B even took the helm of the FRB.

I don't know what else to tell ya flow, you're going to think what you want because you have math that is about 60% accurate as far as I can tell. Bonds have risen sine u posted a thread about them falling, stocks have rallied longer this year than your math initially said it would. Why? The consumer, which is erratic and in your words the main driver of the economy and they are the reason that stocks continue to rally right now.  How do I know this?  You know as well as I do that the bond market has been rocking it since March.  Nice pick on the 30 yr, btw. 

U have posted that your math doesn't really work when you try to use it going back, it's a forward indicator, yet your trying to use it going back here as evidence to prove a point.

The death march isn't the only problem, you also failed to see the housing bottom in '11 and where one of the ones talking about this massive shadow inventory that would drag out for years. Now you're taking about the housing market driving the markets higher, and I agree that the housing market is back and is adding to US GDP.

The fact is that the Federal Reserve controls about 10% of the money supply and the rest is controlled by the banks. The fact is the for the last 100 years the banks have made up on average, 60% of the trading volume and the consumer has made up about 40%. During the crisis however it was like 90% banks in the market.

The same banks that made up financial products that allowed the consumer to rack up massive debt and get loans without proving income. The reality is that the amount of money needed to stop the money supply from falling was so large that in '07 it most likely wouldn't have instilled confidence in the markets and the economy. How much was truly needed again? Oh yes that's right, 16 TRILLION dollars!

Like I was saying though, believe what you like, it's a free country.

[flow5]

"Bonds have risen sine u posted a thread about them falling"

Ahamburger this is what that thread said:

"From the middle of March until the next contractionary inflection point on 5/1 (bank squaring day), bonds should rise on a seasonally adjusted basis (as the volume of RRs almost always rises during this period)"
----

"stocks have rallied longer this year than your math initially said it would"

That is true. But roc's in MVt do not correspond to stock prices, but are a proxy for roc's in gDp (noting that Vt is underweighted). Actually only roc's in bank debits correspond to roc's in nominal-gDp (excluding money center banks). But you can only compare apples to apples & gDp is reported quarterly & Vt was reported weekly, then monthly (applies to oranges).

So over the last 17 years I watch the seasonal patterns. If for example stocks rally against the biweekly maintenance period, then this signifies strength, etc. I.e., only in a marginal way do RRs reflect how fast money is being spent. That is referred to as using non-conforming data.

Stocks are currently rallying against a period where legal reserves are usually drained. A recipe exists for a strong market – lower gasoline, end of drought, housing rebound, low borrowing rates, etc. You can also use “real money” as a tool to forecast with (the roc in m1 vs. the roc in inflation).

You like to find flaws, but give me credit for predicting a big stock rally on Dec 16.
-----

"you also failed to see the housing bottom in '11

I've never studied the supply & demand factors for housing, so I have no model to forecast the direction of housing prices. But I did just buy one last Aug & it is for sale now @ 1.6x my cost.
-----

Sure the proliferation of financial engineering vastly accelerated the rate money was being spent. But you misunderstand how monetary policy works. The Fed can control both M & Vt. If the Fed drains RRs, then Vt will fall ceteris paribus, & vice versa.

Bankrupt you Bernanke is totally responsible for the Great-Recession. The only mandate the Fed can control is trend of inflation.

libertystreeteconomics.newyorkfed.org/2013/05/uncertainty-liquidity-hoarding-and-financial-crises.html

“One policy is that central banks can provide liquidity to markets in general through open market operations (OMOs); liquidity then is transferred to institutions in need through the interbank market”

I.e., Bankrupt you Bernanke drained liquidity.

[flow5]

The reality is that the amount of money needed to stop the money supply from falling was so large that in '07 it most likely wouldn't have instilled confidence in the markets and the economy.
-----

Bankrupt you Bernanke didn’t ease monetary policy in 2007 (M1 grew less than 1% in 2007). Bankrupt you Bernanke was still draining commercial bank liquidity. In fact, M1’s growth was zero from Dec 2005 until Dec 2007. Bankrupt you Bernanke just lowered its policy rate (credit easing, not quantitative easing).

Monetary policy objectives should be formulated in terms of desired rates-of-change in monetary flows [ M*Vt ] relative to rates-of-change in real-gDp [ Y ]. Rates-of-change in NOMINAL-gDp [ P*Y ] can serve as a proxy figure for rates-of-change in ALL transactions [ P*T ]. Rates-of-change in real-gDp have to be used, of course, as a policy standard.

[flow5]

"because you have math that is about 60% accurate as far as I can tell"

The theory & math work so long as the data is conforming.  But reporting errors aren't part of the equation.  The recent (extraordinary) $19b swing has a $5b reporting error.

[flow5]

"because you have math that is about 60% accurate as far as I can tell"

The theory & math work so long as the data is conforming. But reporting errors aren't part of the equation. The recent (extraordinary) $19b swing has a $5b reporting error.

2012-11 ,,,,,,, 0.10 ,,,,,,, 0.55
2012-12 ,,,,,,, 0.15 ,,,,,,, 0.50
2013-01 ,,,,,,, 0.17 ,,,,,,, 0.59
2013-02 ,,,,,,, 0.16 ,,,,,,, 0.61
2013-03 ,,,,,,, 0.16 ,,,,,,, 0.49
2013-04 ,,,,,,, 0.15 ,,,,,,, 0.50
2013-05 ,,,,,,, 0.21 ,,,,,,, 0.64
2013-06 ,,,,,,, 0.17 ,,,,,,, 0.62
2013-07 ,,,,,,, 0.18 ,,,,,,, 0.53
2013-08 ,,,,,,, 0.15 ,,,,,,, 0.38

Had a reversal (uptick), in May. I.e., contrary to the seasonal's, reserves have been added (not drained).

[Aman A.K.A. Ahamburger]

I actually understand how monetary policy works fairly well flow. IDK if you noticed, but when literally everyone was calling for the end of the EU, I was the one outlining basically exactly how the Central bankers would set up the New EU, hence the thread on here about it.

I give you lots of credit flow, I think you're a super intelligent person and I have learned a lot from listening to you over the years, and I think that you're math proves the fundamental basis of my biggest theory.

However, on this thread thread topic I know you are just flat out wrong. You said so yourself that you haven't studied the real estate market and that you're math works as a forward indicator only. I can tell you that history is my first love, followed by RE. The Great Recession was caused by RE, terrible, terrible, investment products, the consumer, and a complete lack of money in the banking system all together. Why was there no money on the banking system?  Not because of one man, but because of RE, terrible investment products, and the consumer.

 I have already stated that if you think that the RE bubble should have, and could have, kept growing from its completely unsustainable level, then Ben B. did in theory cause the Great Recession. He could have put the trillions needed into the banks so they could have kept lending to unqualified buyers, allowing the "banks" to continue to sell crap products. AKA, make the housing bubble so big that it WOULD have collapsed the entire world regardless of what actions were taken when the bubble did eventually pop.  You have to realize that this is what you're saying, don't you? Like, the premise of this entire thread is based on the idea that the housing market was healthy and that the housing bubble wasn't inevitably going to burst. 

I apologize if my rant came off harsh, I always enjoying reading what you have to write sir. 

[flow5]

x

[flow5]

Total transaction based accounts fell 22% from their high 6/27/2005 ($717b to $561.6b), until right before the FOMC (the Fed’s policy making arm) first lowered the FFR from 6.25% to 5.75% on 8/17/2007.

[flow5]

But "no one in the Fed tracks reserves…” V.P., Fed’s technical economic staff…. & "There is general agreement that, for almost all banks throughout the world, statutory reserve requirements are not binding" (the conventional wisdom).

Manmohan Singh, Peter Stella also denigrate monetarism (see Central Bank reserve creation in the era of negative money multipliers). S&S point out that from 1981 to 2006 total credit market assets increase by 744%. But Inter-bank demand deposits owned by the member banks held at the District Reserve banks fell by $6.5 billion.

The BOG’s reserve figure fell by 61% from 1/1/1994-1/1/2001. The FRB-STL’s figure (& RAM), remained unchanged during the same period. CBs ceased to be reserve “e-bound” c. 1995

Legal (fractional) reserves ceased to be binding because:

(1) increasing levels of vault cash/larger ATM networks (in 1959 liquidity reserves began to count),
(2) retail deposit sweep programs (beginning 1994),
(3) fewer applicable deposit classifications (including the "low-reserve tranche" & "exemption amounts"),
(4) lower reserve ratios (since 1980), &
(5) reserve simplification procedures

have combined to remove most reserve, & reserve ratio, restrictions.

[flow5]

In the field of economics, instructors write their own books, make up their own test questions, & edit dissenting comments on their blogs. Passing a course at MIT or Harvard doesn’t guarantee you will pass the same one at Chicago, etc. That kind of dispersion allows the non-professionals (e.g., gold bugs) to pre-empt the field.

And it’s not as the Vice Chairman of the FOMC William Dudley stated: “Money & banking textbooks written before 2008 are "now obsolete", as the Fed now has the ability to pay interest on excess reserves”. NO, it’s that virtually all economic textbooks written before 2008 were wrong to begin with.
-----

Singh & Stella:

(1) “the “risk-free” repo-rate will arguably continue to trade below the rate banks receive on excess reserves (IOER) at the Fed, a fact which will only discourage real-world lending” The era of the ‘negative money multiplier’ – Part 2, &

(2) “Post-Lehman, there has been a dis-intermediation process leading to a fall in the money multiplier. This is related to the shortage of collateral (Singh 2011). This is having a real impact—in fact deleveraging is more pronounced due to less collateral” - -“Money and Collateral” - Manmohan Singh & Peter Stella
-----

As the authors used it, the term dis-intermediation is mud pie. There are credit creators, & there are credit transmitters. There are liquid assets, & then there is money. There’s the supply of money & then there’s the supply of loan-funds, etc.

Since not one professional economist understood the 1966 S&L credit crisis, it is highly unlikely that anyone, including Bankrupt you Bernanke, understands the payment of interest on excess reserve balances. The IOeR policy induces dis-intermediation (a term that since 1933, is applicable only to the non-banks). Dis-intermediation is where the size of the shadow & non-banks shrink (there’s an outflow of funds or a negative cash flow), but the size of the CB system remains the same. I.e., currently the “Mexican Hat Dance” is actually between the CBs & the NBs (despite the NBs not being the CB’s competitors).
-----

[flow5]

Another joke is the “flow rate” (pace of purchases). The pace of purchases can’t “stay the same” because QE reserve or liquidity injections impact the economy with a lag. And future lags have to be married with the current lag (e.g., oil peaked in Feb 2013 as money flows peaked).

S&S never understood the money multiplier, or the “monetary base”, or what “money” is for that matter (that’s why S&S used the BOG’s reserve figures). Still they have the credentials to publish an article for the IMF (& elicit copious citations).

[flow5]

Neither bank reserves nor money ever leaves the commercial banking system (unless currency is hoarded).  Paying interest on reserves & eliminating Reg. Q ceilings simply prevents savings from being transferred thru the non-banks (where savings are matched with investment).  This fallacy is derived from the Keynesian macro-economic persuasion that maintains a commercial bank is a financianl intermediary:

In the General Theory, John Maynard Keynes gives the impression that a commercial bank is an intermediary type of financial institution serving to join the saver with the borrower when he states that it is an “optical illusion” to assume that “a depositor & his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no savings corresponds.”

In almost every instance in which Keynes wrote the term bank in the General Theory, it is necessary to substitute the term financial intermediary in order to make the statement correct. Perhaps this is the source of the pervasive error that characterizes the Keynesian economics, the Gurley-Shaw thesis, the elimination of Reg Q ceilings, the DIDMCA of March 31st, 1980, the Garn-St. Germain Depository Institutions Act of 1982, the Financial Services Regulatory Relief Act of 2006, the Emergency Economic Stabilization Act of 2008, sec. 128. “acceleration of the effective date for payment of interest on reserves”, etc.

[flow5]

If earning assets are allowed to serve as a part of a commercial bank's legal reserves - the only raison d’être for having legal reserves is eliminated.

Neither reserves (IBDDs), nor the money stock (unless  currency is hoarded), can be removed from the commercial banking system (depending upon monetary policy). But the volume, distribution, & mix of "eligible securities" purchased by the FRB-NY can permanently alter & impair the non-banking sector's balance sheets.

“Safe-assets” (or high credit quality liquidity buffers), are used in both public & private collateralized transactions contracted across the entire yield curve. But aren’t runs (shortages), on “safe-assets” concentrated at the short-end segment of the yield curve? Aren’t runs perpetuated by the higher turnover associated with shorter-term maturities (the proceeds of which require immediate reinvestment/rollover)?
Isn’t that why Operation Twist consisted of: selling short-duration securities & buying long-duration securities? (LSAPs similarly target the long end of the spectrum)

The distinction is now between the IOeR rate & the return on "safe-assets", not the system’s excess, required, or total reserves.  Neither bank reserves nor the money stock can be summarily affected. But Vt obviously is (e.g., M3).

Are SBs functionally equivalent to CBs?  No, because the CBs can out bid the NBs for “specials” (& not the other way around).  It's called dis-intermediation (where the size of the NBs shrink, but the size of the CB system remains the same, a.k.a., 1966 S&L crisis).  The CBs are still credit creators & the SBs (NBs) are still credit transmitters (as “specials” aren’t "simultaneously monetarily liquid for society as a whole").

Reuters: 6/5/2013 GC rates fell below zero for the first time since 2011. Bill Gross attributes: "freeze in collateral caused by the Fed's asset purchases". & SOMA securities lending moved up to $19B/day. Dodd Frank legislation & tax receipts to blame? Talk of reintroducing TALF (expanded lending terms).

[flow5]

Did you see:

(1) “CBs held 2.5T assets in May 2008 & now hold 2.75T”.

(2) “Fed increased securities by 2.6T”.

(3) Ergo, the Fed bought most of its assets from the non-banks?


NO, contra wise, CB credit (& the money stock) failed to confirm this macro trend (POMOs between the FRB-NY's "trading desk" & the non-bank public increase the money stock - not the CB's excess reserve balances). 

CB credit was actually reapportioned (more gov'ts, less private sector investment). 

But where then did the SB's (NBs) "safe-assets" go? 

LOL

[jarrett1]

The federal reserve reported last week that the US households had recouped their bear market loses helping net worth eclipse the previous peak set in 2007 ...aren't you happy now?

In the quarterly report entitled "Flow of Funds Accounts"...households net worth the margin of assets over liabilities-ZOOMED by $3 Trillion in the first 3 months of this year...just so ya know that's a 19% annualized rate and THE best quarterly rate since the dot com daze of 1999...

stocks have climbed $1 Trillion...while residential rose $800 billion...at the VERY SAME TIME...debt shrank by $59 billion... in this last quarter....and add $53 billion in decreased mortgages....

WITH HOUSEHOLDS NET WORTH AT A RECORD $70 Trillion....
Their overall wealth rose 586% of disposable income from 550% in the previous quarter and is at the highest level since the first quarter of 2008...but below the prerecession peak of 656%

just say'n

[flow5]

Nikolai Lenin once pontificated "The best way to destroy the capitalist system is to debase the currency.” Bankrupt you Bernanke found other avenues:

(1) drain required reserves for 29 consecutive months (Dr. Daniel Thornton: "The close relationship between the growth rates of required reserves & total checkable deposits reflects the fact that reserves requirements apply only to checkable deposits") Note: 93-96% of all bank debits clear thru transaction based accounts (not M2).

(2) Established too late, & then underfunded, reciprocal currency arrangements (the prudential reserve E-D market imploded in July 2008)

(3) Introduced the payment of interest on excess reserve balances (just as liquidity vanished in the 4th qtr of 2008, Bernanke induced dis-intermediation within the NBs (where the size of the NBs shrink, but the size of the CB system remains unaffected). No one learned the lesson from the 1966 S&L crisis.

(4) Countercyclical increase in bank capital requirements

(5) Exacerbated the widespread "flight-to-safety" by temporarily providing unlimited deposit insurance coverage for non-interest-bearing transaction accounts (Dodd Frank Act) The reversal of this policy in Dec 2012 sparked a stock market "zinger" (as predicted).

If you can't predict what will happen, you don't understand what is happening.

[Aman A.K.A. Ahamburger]

Jun 13, 2013 12:19:57 GMT -5 jarrett1 said:

WITH HOUSEHOLDS NET WORTH AT A RECORD $70 Trillion....
Their overall wealth rose 586% of disposable income from 550% in the previous quarter and is at the highest level since the first quarter of 2008...but below the prerecession peak of 656%

just say'n

Welcome, "jarrett1"  ....

I hear ya jarett... Not only that..

Jun 14, 2013 7:05:59 GMT -5 flow5 said:

 Without any big interruptions in the roc's in RRs, this looks to be a long-term bull market.

So Bankrupt is not really the word that comes to my mind....   

Oh, and never mind that some economists are now saying what I have been saying for four years now; slow and steady growth built on solid banking structures(capital requirements) means that this expansion can go on much longer than most think possible at this point. 

I have tried to explain that bad loans and bad investment products lead to the financial crisis, not one man. That the financial crisis mixed with a negative savings rate is the answer to his question of where did the money go. However, he obviously believes that the housing market was not unsustainable before the housing crisis, and that Ben B that caused the great recession all by himself, what ya gonna do... 

[jarrett1]

I think the Fed has shot itself in the foot with the communication and miscommunication of the past couple of weeks. My Bernanke says one thing, other Fed directors say another. Is 6.5% unemployment the trigger point, or not? It’s a long-held dictum that the markets don’t like uncertainty, which is what they’re getting these days.

Long-term Treasury yields actually fell a few basis points this past week, despite the talk of tapering off from QE3. Yes, they’re up about a third of a percent since the beginning of the year, but that doesn’t seem like that much to me. Mortgage rates have also moved higher, but the conventional 30-year loan is still under four percent on a national average.

There’s another old saying that goes, “When all is said and done, more is said than done.” That may turn out to be the case with the Fed and QE3. The P/E ratio and dividend yield on the S & P 500 were both unchanged for the week, implying some stability as far as investors were concerned.

There’s been a lot of talk lately about the Federal Reserve tapering off its so-called “quantitative easing” (QE3) program. Just in case you’ve been meditating in a cave somewhere for the past couple of years, that program involves the Fed buying $85 billion of Treasury securities and mortgage-backed bonds each month.

The objective of the program was to drive down long-term interest rates, to encourage corporate and personal borrowing, to increase spending, to boost economic growth, and to lower unemployment. Economists will be debating whether it’s been successful for years to come. That’s not my purpose here.

I’m concerned with the market’s reaction to even the mention of a possible end to the program. Even the possibility of lessening purchases, let alone ending them, has sent chills through the bond market and worried stock prices as well. I believe those draconian fears are not well-founded, and I’d like to share some data to back up my thinking.

My understanding is that about half of those monthly purchases went to buy some of the bonds sold by the U. S. Treasury to finance the national debt. For a nice round number, let’s assume the Fed bought around $500 billion each year of new Treasury debt.

In the years following the Great Recession, our national debt increased by almost $1.5 trillion each year. Even last year, fiscal 2012, our budget deficit was -$1.087 trillion, according to the Congressional Budget Office (www.cbo.gov). That means the Fed has been buying about one-half to one-third of our new debt annually. The rest has been going into private hands, or the coffers of foreign governments.

For fiscal 2013, however, the CBO estimates the deficit at -$642 billion. And, the projections fall to -$560 billion and -$378 billion for fiscal 2014 and fiscal 2015, respectively. If those figures are anywhere near accurate, do we need the Fed to continue buying $500 billion of bonds each year?

My answer is an emphatic NO! The private sector should have first call on those securities, with the Fed stepping in only if private demand isn’t enough. Applying the percentages of the past couple of years, the Fed should consider tapering off to $25 billion per month ($300 billion annually) this year and just $10 billion to $15 billion per month, or even less, in the following years.


What do you think?

[flow5]

There was absolutely no growth in the volume of M1 from 12/04 (1401.2) thru 8/08 (1401.0), representing our "means-of-payment" money supply. That (other things equal), is a very contractionary or deflationary money policy.

It is the Fed's responsibility to control the volume of commercial bank deposits, & the rate at which the banks are creating new deposits (in terms of the rate-of-change in real output, & fluctuation in the high money velocity required just to maintain existing prices).

Whereas the non-bank public determines its own needs for currency. All currency gets into circulation, directly or indirectly, thru time deposits, by the cashing of demand deposits.

The volume of money created by private profit financial institutions is not self-regulatory. It was in that vital economic role where Bernanke failed.

[flow5]

The level of taxable income & the volume of taxes required to service a cumulative debt now exceeding $16 trillion will increase. Both higher interest rates & higher taxes induce stagflation, thus eroding the tax base & increasing the volume of future deficits. We are living on borrowed time & borrowed money.

[flow5]

Sleuthing involves knowing who all had their hands in the cookie jar. The gov'ts the NBs held (that the FRB-NY purchased), either were nearly all bought by the CBs before being sold to the FED (or allowed to mature).

I.e., the amount of securities purchased, would be equal to the volume of excess reserves added, only if the "trading desk" bought all of them from a commercial bank (within the system). If the "trading desk" bought the securities from the NBs (outside the system), then the money stock & CB credit would have expanded simultaneously (but, e.g., CB credit continued to fall until 2010).

Remember that purchases & sales between the non-bank public alters the money stock (loans=deposits). Ergo, theoretically, the CBs replenished their short-term obligations by out bidding the NBs & arbitraging between the IOeR rate & money market rates (hence this induced dis-intermediation - a term applicable to only the NBs).

[flow5]

See: "Low Inflation in a World of Securitization" FRB-STL

"U.S. credit conditions may not drastically improve until sources of market funding start to recover. The Bank of England has moved away from asset purchases toward incentivized lending schemes that loan high-quality collateral (gilts) to banks, which can then be used to obtain cheap funding in repo markets. Given the U.S.’s reliance on market-based credit, similar policies to subsidize repo borrowing may have more impact than continuing to increase bank reserves"

bit.ly/101eSiC

Raising Reg. Q ceilings caused stagflation in the 60's & 70's. It blindsided economists. Money grew at less than a 2 percent rate in the decade ending in 1964. Then, in the subsequent years, money grew at a rate in excess of 6.5 percent.  Increasing the proportion of CB assets to NB assets necessitated that the FED increase reserve bank credit just to generate the same inflation adjusted dollar amounts of gDp. In the end, the Phillips Curve was denigrated.  Remunerated excess reserve balances do the same. I.e., the welfare of the CBs (& the entire economy), is dependent upon the non-inflationary growth of non-bank lending.

[flow5]

Given continued Congressional fiscal mis-appropriations (virtually all of the current deficits are attributable to defense spending, military & civil service pensions, interest on the debt, & welfare & unemployment benefits, etc.), along with the average interest on marketable & non-marketable debt, & the average maturity of Treasury debt, & the amount of debt coming due within the next few years -- the trajectory of the interest burden on our Federal debt is mathematically unsustainable.

I.e, the Interest expense on the Federal debt is untouchable (without some form of “concealed greenbacking”).

Any recovery in the economy will present a “Catch 22” situation. An upturn in the economy will add increased private demand for loan-funds, to the insatiable demands of Federal, State, & Local Governments. The consequent rise in interest rates will effectively substantially retard, or abort, any recovery.

[flow5]

"Gross has three main sticking points in his argument against QE:

1.Low interest rates discourage investment and “capitalism as we know it doesn’t function as well,” he says.
2.Small savers are disadvantaged and consumption is limited.
3.Business models that operate on a spread – such as banks, insurance companies and investment management firms – “can no longer generate sufficient carry” and are forced to close branches and lay off employees as margins tighten and profitability falls"

See:
yhoo.it/11nRddf

The "key" to understanding the "system" is identifying the use & non-use of savings. Macro economics concerns the rate-of-change in the flow-of-funds. And there is no such thing as "pushing on a string". The Gov't is the CB's best credit worthy borrower. But the Gov't is not the best user of savings.

[flow5]

And to think we pay the FOMC's members for this bs. If the the FED's policy arm knew anything at all, OMOs would not be conducted in absolute terms. CB credit would be allowed to grow pari passu with the growth of real-gDp. Anything less would be contractionary. Anything above 2-3 percentage points inflationary.

Now you know. They're all lost.

[flow5]

Never are the CBs intermediaries in the savings-investment process. Every time a CB makes loans or buys securities from the non-bank public it creates an equal volume of new money somewhere in the system. The gross volume of savings does not equal the gross volume of investment.

And the CBs, as a system, pay for what they already own. Reg Q ceilings inevitably resulted in stagflation (denigrating the Phillips Curve), & likewise, remunerated excess reserves result in high unemployment & high underemployment (the IOeR rate induces dis-intermediation within the non-banks).