17
Dec
2012
JP Morgan Says Fed Will Probably Buy “Almost All” New Treasuries in 2013; Market Monetarists Yawn
The fretful von Pepe sends this article, which quotes a JP Morgan analysis saying that with the new policy announcement, the Fed may very well end up adding (“almost”) the equivalent of the entire federal deficit next year to its balance sheet. In other words, the US government is going to spend more than it takes in, and the Federal Reserve will create new money and (indirectly) lend it to the US government to cover this entire shortfall.
But if I understand the views of David Beckworth and other Market Monetarists, this is irrelevant. The only time we need to start worrying about the Fed “monetizing the debt” is when the percentage of the stock (not the flow) of Treasuries owned by the Fed worldwide, falls below above pre-crisis levels.
The only time we need to start worrying about the Fed “monetizing the debt” is when the percentage of the stock (not the flow) of Treasuries owned by the Fed worldwide, falls below above pre-crisis levels.
So we should only start to mention that hey, maybe there’s a problem, when the train is actually located in the air, and not when it was barreling towards the cliff prior, because what matters is where the train is, not where it’s moving?
Is this really about stocks being more important than flows, or is it a refusal to deal with flows when they’re inconvenient, and maybe hoping they’re temporary if only MMs took control of the printing press? Do they believe they can do what no mortal human has ever done, or ever will do, which is make economically sustainable decisions based on no price system for the means of producing money?
All I know is that the solution to a 5% drop in GDP is a 10% inflation rate. The logic of that is undeniable, according to the MM preachers… er, “economists”.
Piffle. The air is soft and will do no damage whatsoever. We should only start to mention that hey, maybe there’s a problem, when the train is actually located on the rocks below.
Even MMs – those who (supposedly) study the Federal Reserve System – don’t seem to want to accept that the Fed is doing what they are doing not for the sake of employment, but for the sake of the Treasury, and the primary dealers who provide logistic and market maker support to the Treasury. The Fed may believe what’s good for the Treasury is good for employment, but that is secondary. If the Fed really wanted to eliminate unemployment, it would instead take the money it uses to buy Treasuries, to offer employment to ALL unemployed people, for make work Fed projects. Perhaps building thicker walls, maybe even bunkers at the 12 regional reserve bank sites. They could even pay people to plant trees, or sweep the streets, or just stand around at Fed branches as not human shields but maybe greeters and security guards.
Of course, the Fed will say “That is up to Congress”, and they know Congress isn’t about to choose reducing unemployment over financing additional debt, if that was the choice. And good thing for the Fed too, because at least Treasury debts earn interest, some of which remains with the Fed.
JP Morgan is probably communicating that the dealers are unwilling to pick up all of next year’s debt load at current bond yields (which the Fed has said it will keep until at least 2015), because of price inflation on the horizon.
As @carney would say “Buy gold!!!”