Two things.

1. There’s never a shortage of financial assets. If you are holding a deposit, but would prefer to earn interest, you can convert to a cd, for instance, or just transfer to a money market account. But, to some degree (probably not much, though), yes, there is a market supply effect from no Tsy’s; Warren and Bill Mitchell did a paper on this on CofFEE’s website a number of years ago. This is what we mean when we say bond sales are for interest rate maintenance.

2. Overall, what happens to asset prices in the broader context mostly depends upon whether the Fed pays interest on reserves. If not, then without bond sales by either the Fed or the Tsy, the overnight rate falls to zero. In that case, other rates follow to the degree there is some arbitrage with the Fed’s target rate, and then, yes, there is an increase in these financial asset prices. If the Fed pays interest on reserve balances and sets the remuneration rate equal to its target, then there may be no effect on financial asset prices, since the target rate need not change even with no bond sales.

I’m having hard time understanding the above. Bonds are just another type of asset. If the government deficit spends without issuing bonds, the number of assets to invest in doesn’t change, yet the amount of $ to be invested increases (by the amount of the deficit). So we have more $ chasing the same number of assets = prices rise = inflation. No?

Scott: “excess reserves do not enable more bank lending than without the reserves”.

Agreed, I am concerned about the new excess reserves themselves (= the amount of the deficit spending).

Furthermore SOMBODY recently said I did not know what you are talking about. However that post disappeared?

MACRO level economics, supply and demand of everything needed to sustain life. Bukaka sees it as a fractional reserve system controlled by the “Investor Class” with too many HUMAN MONKEYS greedily basing their status on the number of $$$ in the bank or spread sheet, with the biggest problem being the HUMAN MONKEYS who will do anything to get a bigger number. Including 911, moving jobs to other countries to exploit the weak and unorganized, playing both sides of wars and just about all other problems we see now!

No way should John Q have to take a 30 year loan for a house and pay triple back, or work 20 plus years to pay for his education.

If we need to keep lines on the earth (tribes) I like the GDP numbers controlling the worth of the currency and the profits going to help the underdeveloped and the whole system controlled by an informed public. ( Informed Public YEA RIGHT!)

Those of you who do not understand BUKAKA are stuck in the box, the acronyms before your name have put you there. Dissent? Don’t think it and do nothing, I got a new one (TMI) Too Much Indoctrination!

A lot of what is discussed here is like arguing about art

The next one who says I am the CraZy Dude is going to get a hex put on them! KIDDING!

Peace

My local city council had the local pension funds invested with folks like vanguard and fidelity who then invested in the banks. Police, firemen, pollution control, etc etc. The devil is in the details. Sometimes too much complexity is the evil in network design that needs to be simplified.

How does a college professor in materials science finding new high grade lightweight metals to be used in mosler super cars, or a undercover drug agent stopping gangs from selling crack rock to sada and sole and mia have the time to properly investigate the bad loans that a crappy bank made? Certainly you don’t advocate not bailing out these people do you?

moral hazard comes only when shareholders are bailed out, rather than assume the risks they are getting paid for.

i have also proposed the Fed set rates at 0 and leave them there permanently, and then do only regulation and supervision.

Is the fed irrelevant? Greenspan and Lazear seem to argue that is the case. They both just said that in 2004 they began to raise rates, but investors were willing to take more risk and throw more capital at cheaper rates, so housing prices kept going up. This dumbfounded Greenspan and was not was his historical experience would have predicted.

Reversely, even if the fed goes to NEGATIVE interest rates, if the capitalists are not willing to take any risk, perhaps they will never re-enter the market. So if FED actions are no longer making impacts on the market, why pay all those guys all that money and have all that red tape and bueraucracy sucking up resources? Abolish the fed, abolish FDIC insurance, make them study physics and bioscience instead of how to finance pot farms.