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Author Topic: To infinity and beyond!
G3
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quote:
Ben Bernanke, the Chairman of the Federal Reserve, announced today that the Fed will embark on another round of Quantitative Easing, beginning immediately. The Fed will purchase en estimated $85 billion per month in securities, about half of which will be long-term Treasury bonds, and the remainder will be agency mortgage-backed securities.

There is no ultimate target amount or end date specified for this round of easing. Essentially, the Fed will buy $1 trillion in securities per year, until chairman Bernanke says to stop. It is completely open-ended.

<snip>

The Fed will print $1 trillion per year in new money, and inject it into the economy buy buying securities. That new money is not based on any realistic estimate of economic growth, or economic requirement to expand the money supply.

As has been pointed out in more than one blog, " It is pure, Keynesian monetary stimulus." So the good times are here again if this Keynesian madness works .... like it has so far. Yay! Ultra prosperity as far as the eye can see for everyone! We're in the money now!

One thing that may be a problem:
quote:
... the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don't think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless). It means easing is now effectively priced into infinity. Now rewind back to that one certain paper by the New York Fed, which laid it out clear for all to see, that if it wasn't for the expectation of easing in the 24 hour period ahead of the FOMC meeting, the market would be 50% or lower than where it is now, and would have been effectively in negative territory in the aftermath of the Lehman collapse. What Bernanke did is take away this key drive to stock upside over the past 18 years ...
Unlimited easing, it's the new normal and it's all downhill from here.

[ September 13, 2012, 03:28 PM: Message edited by: G3 ]

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Pyrtolin
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Can't expand without actually growing the money supply. ON the other hand, all he's doing is buying existing securities; that creates just about the same amount of money as you do when you transfer funds from your savings account to your checking account. That's exactly what's happening here- he's dumping money from savings (securities) to checking (reserves) for a net balance of no actual money created. We need to couple this by applying the extra space for fiscal action that it allows to inject the money we need in the from of incomes and spending that will actually begin to drive real growth.
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cherrypoptart
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Will the stock market act as a hedge against/with inflation?
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G3
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Depends on the rate of inflation and the economy in general. If we get hyperinflation, no. If the economy continues to circle the drain, no. If both continue, there is really no hedge against what will happen.
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G3
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quote:
Originally posted by Pyrtolin:
That's exactly what's happening here- he's dumping money from savings (securities) to checking (reserves) for a net balance of no actual money created.

Eh, no. You have only half the story, maybe not even that.
quote:
The Fed will print $500 billion per year in new money, and inject it into the economy by buying agency paper (Freddie Mac, Fannie Mae, et al.), while also flooding the market with $500 billion of short-term paper in exchange for long bonds.

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Pyrtolin
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quote:
Originally posted by G3:
quote:
Originally posted by Pyrtolin:
That's exactly what's happening here- he's dumping money from savings (securities) to checking (reserves) for a net balance of no actual money created.

Eh, no. You have only half the story, maybe not even that.
quote:
The Fed will print $500 billion per year in new money, and inject it into the economy by buying agency paper (Freddie Mac, Fannie Mae, et al.), while also flooding the market with $500 billion of short-term paper in exchange for long bonds.

"Paper" and "Bonds" are existing money in the form of savings. The Fed buying them (and depositing the corresponding amount into the reserve accounts of the institutions that hold them) is essentially just moving money from one account to another. No new money is produced in the process, because those bonds and other forms of securities directly represent money that's already been created. It's just an asset swap that balances to 0 as far as the net supply of money goes, especially when financial institutions are already sitting on excess reserves.

Unless Congress steps up to the plate and offers some real spending to drive growth, the only direct effects we're going to see is will be further undercutting the incomes of retirees that depend on resonable bond return rates and more money being dumped into the stock casino in the short term as gambling it there becomes more attractive, until instability drives them back into lower return safe assets, with little net effect on consumer purchases and the real capital investments that come from anticipating the need to service them.

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Pyrtolin
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quote:
Originally posted by cherrypoptart:
Will the stock market act as a hedge against/with inflation?

It will act like a casino that only really profits the high rollers at the expense of the little guys, just like it does now.

Investing in real assets, particularly ones that generate direct income potential are the best bet against inflation (since income grows to match inflation)

But in general deflation is still a bigger worry as we continue to sit on idle resources without spending enough to keep them employed.

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G3
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quote:
Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.

In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.


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G3
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Related news:
quote:
Following a two-day meeting to discuss the country's continually disappointing employment numbers, officials from the Federal Reserve announced Friday that if jobs are really meant to be with the American people, they’ll return of their own volition. "Listen, if it's meant to be, it’ll happen," said Fed chairman Ben Bernanke, adding that there’s no point in purchasing new mortgage-backed securities or keeping the federal funds rate near zero percent "if both parties don't want this to work." "We can't spend all our time and energy trying to force this. We have to let them do their own thing, and if they don't come back, then maybe we were just never meant to be together." Bernanke confirmed that, while he is realistic about the slim chance of jobs ever actually returning, Americans should "always leave the door open" in case things change in the future.
[Razz] Yeah, the Onion. It's funny because it's so true ...
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Pete at Home
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quote:
Originally posted by Pyrtolin:
quote:
Originally posted by cherrypoptart:
Will the stock market act as a hedge against/with inflation?

It will act like a casino that only really profits the high rollers at the expense of the little guys, just like it does now.

Investing in real assets, particularly ones that generate direct income potential are the best bet against inflation (since income grows to match inflation)

But in general deflation is still a bigger worry as we continue to sit on idle resources without spending enough to keep them employed.

Can you give some example of what would work as a system?

[ September 14, 2012, 11:06 PM: Message edited by: Pete at Home ]

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philnotfil
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quote:
Originally posted by Pete at Home:
quote:
Originally posted by Pyrtolin:
quote:
Originally posted by cherrypoptart:
Will the stock market act as a hedge against/with inflation?

It will act like a casino that only really profits the high rollers at the expense of the little guys, just like it does now.

Investing in real assets, particularly ones that generate direct income potential are the best bet against inflation (since income grows to match inflation)

But in general deflation is still a bigger worry as we continue to sit on idle resources without spending enough to keep them employed.

Can you give some example of what would work as a system?
Not allowing people to invest without paying for their investment up from. A minimal tax on transactions to discourage high frequency trading. Basically anything that encourages actual investment in companies rather than gambling or profiting from technical characteristics of the system.
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Pyrtolin
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quote:
Can you give some example of what would work as a system?
As an investment system? My recommendation would be to invest first in things that you can use to improve your income in the present day or the near future, either directly for your self or through someone that you thing has good potential to generate enough to give you a cut of what they make. (Personally, I'm working on buying sound equipment to do recording work and aiming to eventually pick up a PA system to be able to either hire out to people that need it or be able to perform either on my own or with a group)

If you don't have any direct prospects, stick to index funds and other managed assets so that you at least have some protection in numbers.

On a general market level, the things phil suggested are good. (I'd say that the transaction tax should increase incrementally on each successive transaction within a give period, say 10 or 15 minutes, and some portion of it could even be paid back to the originating company, so that they're actually seeing some benefit from the trading of their stock instead of simply serving as a gambling platform after then initial sale)

Another important thing that we should enact, though, is a jubilee trading system. If you buy a stock directly from its issuer (the only time the issuer actually gets the money) then the stock lasts indefinitely and you can collect dividends on it for as long as you like as a reward for direct investment. Once it's changed hands a couple of times (no more than six or seven, though I think even once or twice would be enough) then that share gains an expiration date after which point if becomes invalid (up to about 50 years from the issue date or that trade date, per the original jubilee, per the name, though I think that the later of 20 years from the issue date or 10 from the last trade would be more than enough time, given our current markets)

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Pete at Home
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I've thought the same thing with copyrights and patents. The benefit period should be shorter if the beneficiary isn't the living breathing person that came up with it, that person's spouse or offspring.
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JWatts
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quote:
Originally posted by Pete at Home:
I've thought the same thing with copyrights and patents. The benefit period should be shorter if the beneficiary isn't the living breathing person that came up with it, that person's spouse or offspring.

Patent length isn't a really big issue (20 years). I think all patents should be unique and non-obvious and I wish the Patent Office would cut down on its rubber stamping, but that's a different issue.

On the other hand current copyright length is ridiculous (95 to 120 years).

Current US law.

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Pete at Home
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Patent length is a huge deal, especially since it was raised to 20 from the previous seven, after lobbying by pharmaceutical companies. A change which probably knocked up health care costs in our country about 30% now above what it would have been.
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JWatts
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quote:
Originally posted by Pete at Home:
Patent length is a huge deal, especially since it was raised to 20 from the previous seven, after lobbying by pharmaceutical companies. A change which probably knocked up health care costs in our country about 30% now above what it would have been.

Good grief. Pete, I expect better of you than this kind of comment.

First, patents in the US were never 7 years, they started out at 14 years:

quote:
The original patent term under the 1790 Patent Act was decided individually for each patent, but "not exceeding fourteen years". The 1836 Patent Act provided (in addition to the fourteen year term) an extension "for the term of seven years from and after the expiration of the first term" in certain circumstances.[7] In 1861 the seven year extension was eliminated and the term changed to seventeen years. The signing of the 1994 Uruguay Round Agreements Act then changed the patent term from seventeen years from the date of issue to the current twenty years from the earliest filing date.
And second, it's ridiculous to claim that this was driven by the pharmaceutical companies or that this has added 30% to health care costs. The US adopted the 20 year standard to synchronize their patent law with the majority of the developed world.

Indeed, pharmaceutical companies don't generally get anywhere like 20 years of patent protection.
quote:
In the US, drug patents give 20 years of protection, but they are applied for before clinical trials begin, so the "effective" life of a drug patent tends to be between seven and 12 years
Wiki
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Pete at Home
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Ah, perhaps that's where I got the 7. So precious effective drug patent laws lasted 1-5 years?
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