Comments on: Can the Fed’s helicopter drop money on Treasury?

By: wmnilly

wmnilly — Thu, 23 Sep 2010 19:21:53 +0000

Is there any limit to how much U.S. treasury securities the fed can purchase?

By: nbywardslog

nbywardslog — Wed, 01 Sep 2010 07:19:39 +0000

There are always problems when the capital is in one place and the income/expenditure thing in another. It raises the possibility of yet another ruse whereby jargon can be employed (and the poor citizen bamboozled) in order to rationalise emptying the bank – in order to afford a repair to the yacht.
In Spain at the moment, this process has alighted upon the State pension pot – which is busy buying the government’s bonds to keep the market buoyant. The next on their list is the Health budget. Once you start doing this, there’s no end to it: the family silver, the car, grandma…
The desire by Governments to get people consuming again is like a serious drug habit. Once you get hooked on that single, obsessive idea, all bets are off: you’ll steal from your wife, rob a store, get a gun, shoot a cop…and empty the Fed.
The insoluble problem with the growth model of capitalism is that without materialist hysteria and massive personal debt, it doesn’t work. People are more important than any system, and if people think the time has come to hunker down, then I go with the people – not some poxy trickle-down theory being peddled by a member of the super-rich.
There is no staving off Crash 2 – it’s too late now. We should use the time for reflection on what’s wrong and how to fix it. We should’ve done that in 2008; we MUST do it this time.
http://nbyslog.blogspot.com/2010/08/brea king-gold-breakthrough-forecast-as.html

By: DarkMath

DarkMath — Wed, 01 Sep 2010 02:06:48 +0000

“This should show you again, that something is substantially different here from the way a household, US state or country in the EMU funds itself.”

How many times do I have to hear this ruse about the Treasury not being like a household. The difference is there is one more step. The Treasury has to go to the Fed to borrow and the Fed has to go to the Market. Whereas a household just has to go to their credit card (or house) to borrow money.

The end result is the same, if you borrow too much you go bankrupt. Households go bankrupt when the hire a lawyer to start bankruptcy proceedings. Countries like the U.S. will go bankrupt when the dollar tanks. There’s little difference. In order to borrow again after a bankruptcy you will have to pay more.

See, I’m not even an economist and I can figure that out.

By: STORYBURNthere

STORYBURNthere — Wed, 01 Sep 2010 01:55:39 +0000

We need 1-2% inflation, so Big Ben needs to keep printing money

By: Mastropiero

Mastropiero — Tue, 31 Aug 2010 20:46:17 +0000

I think ‘right’ is right. You are confusing Fed profits (increase in Net Worth, then transferred to the Treasury) with financing the Treasury with money printing (increase in Assets and Liabilities), this being Caballero’s proposal . But I also think that the Congress appoval of such an increase in deficit and T-bills issues IS a limit.

By: right

right — Tue, 31 Aug 2010 19:11:18 +0000

I think you’re overcomplicating this issue. The “remittances” from the Fed to the Treasury are just the coupons on the US T-bills and bonds that the Fed is holding. If the Fed wants to finance deficit spending it can do that literally without limit, simply by buying all the bonds Treasury wishes to issue. No special approval or structure needed.

By: Skep41

Skep41 — Tue, 31 Aug 2010 18:19:07 +0000

Remittances to the Treasury! That sounds swell. I’m only a high school graduate and you’ll forgive me if I confuse these ‘remittances’ with printing money without anything behind it. The only surprise I have is that the numbers are so small. Are the Chinese still dumb enough to be buying our debt and then kicking back a tiny percentage to the Clinton Global Initiative just in case Barry becomes unviable when the economy collapses? But these geniuses at the Fed would never give us a bum steer. God I wish I hadnt gotten that ‘D’ in PE that kept me out of Wharton; I’d be rubbing shoulders with the wise.

By: mutant_dog

mutant_dog — Tue, 31 Aug 2010 18:16:07 +0000

Ah, I see.. Caballero’s original idea is to fund a temporary tax cut, without raising the public debt, through this mechanism. Two problems with that; First, that action would have to be authorized by Congress, and second, the party in power has no interest in even maintaining the current tax structure (the “Bush tax cuts”).

It may well be that the end of those “Bush tax cuts”, as a substantive tax raise, would be the trigger for the much-anticipated double dip. That is Political Economy 101, if memory serves…

By: yr2009

yr2009 — Tue, 31 Aug 2010 17:49:39 +0000

That is of course, under the assumption that more government spending is going to benefit the economy.
But has it, so far?

By: corcoran310

corcoran310 — Tue, 31 Aug 2010 17:43:20 +0000

“Treasury would still need to spend that money, though, and I do wonder whether it might need some kind of Congressional approval to do so. Anybody care to weigh in on the constitutional implications of this idea?”

Therein lies the rub re: the helicopter drop.

Treasury needs enabling legislation from the Congress, because the Constitution doesnt give the executive branch the power of the purse. The minute the Fed transfers that money to Treasury, you need Congressional authorization to use it to buy paper clips. Let alone any kind of stimulative efforts.

By: bmk2323

bmk2323 — Tue, 31 Aug 2010 17:17:26 +0000

Specific to what Caballero suggests – does something like this need Congrssional approval? Bernanke knows that the chances of success, eg economic recovery, are greater if monetary & fiscal policy can be institutued in tandam. But b/c the Republicans & Democrats refuse to work together, its unlikely he’ll get any fiscal help.

By: dWj

dWj — Tue, 31 Aug 2010 16:51:46 +0000

I would think the point of monetary policy at this point would be to raise inflation expectations, but that requires an institutional desire to do that, and much of the fed (mostly regional bank presidents, I gather) deny that easier monetary policy is necessary. I think that if it were announced that, say, next year’s 3-year note auction had been entirely allocated to the Federal Reserve at a 0% interest rate, you might see private hoarding of low-interest government liabilities lose its attraction.