Prices fall because there isn't enough money circulating to support the level of production. That puts contractionary pressure on the economy. Gee, falling prices, contraction of the money supply, 25% decrease in the economy, 20% unemployment, I wonder when that occurred.
The general price level can fall for either or a combination of essentially two reasons: An increase in the supply of goods and services, and/or a decrease in the supply of money. Your implicaton that the money supply needs to be increased in order to "support" production is totally and completely unfounded, even as it serves to justify activist monetary policy by every central bank in the world under the premise of "price stability" mandates. To quote economist
George Selgin on the topic of deflation:
"It is the stability of nominal spending (domestic final demand), and not that of the price level per se, that is crucial to general macroeconomic stability."
- Selgin
Of course, there is something to be gained by central bank price stability mandates. Some (usually friends of central bankers) get to spend the newly created money without producing anything! In fact, spending without correspondent production is precisely the reason why the economy is failing.
The money supply, of course, has gone parabolic (I won't bother to link any charts, as its been done here many times before), which means your only possible rationalization for this poor economy is that we haven't debased the currency enough! Of course, the Fed has been busily trying to prop up deflating asset prices at the onset of the Kondratieff Winter. While it may succeed long enough for its cronies to get out, it will fail the majority of us. Any collapse in the money supply will be the direct result of a collapse in credit, thanks to the instability of the fractional reserve system.
The total money supply isn't on the Fed's balance sheet and it doesn't have to be. It is accounted for money circulating through the economy which is deposited, withdrawn, spent, borrowed, etc. etc.
My question was, where did it come from and how is it accounted for? I would also like you to comment specifically on what I wrote in post
#1412. I will quote it here:
Tippit said:
So we know that the member bank's deposit with the Fed is a liability of the Fed. But since the fed is "holding" that ethereal deposit on behalf of the member bank, it is also an asset of the Fed. Since it also has bonds in the asset column that correspond to the amount incremented, where is the corresponding liability on the other side of the ledger? We can't have 2x the number of assets than we do liabilities, as balance sheets have to balance. The ethereal fiat money for the initial bond purchase has to be recorded either as a "liability" (to which no one is owed), or equity, as distinct from the member bank's deposit. What it's called is purely semantic, but what it certainly doesn't represent, is anything owed. It is simply money by decree.
Maybe you can shed some light on this.
It would eventually get circulated. However, portions that are used to pay down debt, if Congress would ever do this, might simply be withdrawn from circulation. Regardless, it would take time for the money to be spent and then deposited by the recipients into various banks and some may even go overseas. Through purchases on the open market, it goes directly into the reserves of banks operating in the U.S. and more directly influences the overall money supply.
No. There is absolutely no difference, what-so-ever, between, the Fed monetizing bonds directly through Treasury, or through the Wall Street primary dealers
other than Wall Street obtaining a pound of flesh from the taxpayer as it is now. The government spends the money into the economy in both cases. In order to get the bonds from Treasury to then flip to the Fed, the PD has to first buy them from the government.
If Congress actually decided to pay down debt (and partially destroy the money supply in the process), only that portion of debt that is held by the Fed would result in money being taken out of circulation (extinguished by the Fed). Principal paid to private bond holders would simply be deposited somewhere else in the system.
To the best of my knowledge, I have never said that the Fed was moral or right or the government was right. I only said what was legal. You have the annoying habit of failing to see that.
By responding to all criticism of the Fed with the equivalent of "It's legal, shut up", you are apologizing for the Fed. Therefore, you are a Fed apologist. We know it's legal. The legality is completely irrelevant. Some of the most heinious crimes in history were legal. The Fed and central banking in general is no exception.
There is no contradiction. The account on the Fed's balance sheet for circulating printed FRNs IS SEPARATE from the depository institutions deposit accounts. When the Fed buys bonds from a PD, there is an increase in a liability, but there is NO INCREASE IN PRINTED FRNs. Just as I stated.
Fair enough. I wasn't clear that you were referring to printed currency in one case, and member bank deposits in the other.
I don't think you understand it as well as you think you do. Especially since you thought there was a contradiction in my earlier post.
This, coming from someone who claims there are benefits to the Fed monetizing bonds through the Wall Street PD oligopsony, as opposed to directly from Treasury. How the Fed accounts for
printed currency is virtually irrelevant in the grand scheme of things.
Ok, obsessive and monomaniacal to the point that it creeps into everything even when inflation isn't even mentioned until you mention it.
That's because it is a subject that is highly misunderstood, and of paramount importance. Most of banking, central or otherwise, revolves around its profits.
I direct responses to those who post obvious fallacies or exaggerations. I do make mistakes, I'll admit that. However, a discussion is useless unless reality and facts are used. To the best of my knowledge, that is all I have ever attempted to do here. Exaggerations, like "the Fed loaned $16 trillion to foreign banks" does nothing to support any side of a discussion.
It's really hard to apologize for secret Fed loans amounting to $16 trillion, a figure which exceeds both the US national debt and US annual GDP by a couple trillion, but I give you credit for trying. This included some $35,000,000,000 to a proxy for the Bank of Libya, a country which we subsequently bombed and then sent US Marines to. You managed to fool a lot of people in that thread, with talk of credit duration, and the fact that
most of it was paid back. Of course, you managed to put me on ignore before you had to address the question of why the Fed's 25 basis point inflation-subsidized loans to its cronies around the world is nothing less than a massive theft of the US taxpayer, and anyone who holds US dollars, anywhere in the world.
Loan me sixteen
trillion overnight at 25bp and I will be worth billions by tomorrow, simply by flipping it into the "risk-free" rate of ~200 basis points (it was even higher, then)! Apparently lending to Wall Street and Fed insiders all over the world is less risky than a government bond.
Consensus, learning, and understanding can only occur through learning the facts. A person may think they have learned something by reading some erroneous information online, but in reality, all they have done is expanded their ignorance.
Facts are funny things. Legal facts presented out-of-context in an effort to dismiss moral arguments and apologize for corrupt, bankrupt institutions actually serve to discredit the truth, which is exactly what you're doing.
If you believe that attempting to provide some facts into a discussion is equivalent to being a "shill for the fed", then I feel sorry for you.
I take that back. I'm pretty sure you're not a "shill" since it's not likely you're actually paid by the Fed. I think you're a shameless apologist for the status quo.
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