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26-05-2013, 04:25 PM
Ask an Economist
I teach and hold an advanced degree in Economics.
If you have any questions on economics I'll attempt to answer them.
Always willing to help if I can.
But please, I can't do your take home exam for you.

The old gods are dead, let's invent some new ones before something really bad happens.
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26-05-2013, 04:44 PM
RE: Ask an Economist
How much more money can the Federal Bank make before the monetary system completely collapses and we have to live in a resource based economy instead of a legal tender system?

"All that is necessary for the triumph of Calvinism is that good Atheists do nothing." ~Eric Oh My
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26-05-2013, 05:13 PM
RE: Ask an Economist
Along the lines of Erxomai's question:

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don't know what will happen, but he is concerned. - Fortune magazine

I handle all of my family's investments and have done so for nearly thirty years. I can say with honesty that I've never been so flummoxed by the Fed and the consequences that the unwinding of QE's will have in the future.

My unproffesional take:

Fed wants to stimulate economy by making it painful to invest in fixed instruments.

Drives their prices up with gargantuan buying of treasuries thus driving down yields.

Investors sell their treasuries/bonds and buy other investments such as stocks.

Corporations see their market caps rise and use this, along with cheap money, to borrow for expansion.
*But it has taken many years for demand to materialize so in the meantime corporations have been hoarding cash that is just now being put to work.

The Fed stops buying Treasuries thereby terminating artificial demand.

Prices of Treasuries fall and yields rise.

Now to my question, if all these things are true (please correct me if they're not) what is the effect on:

Rate of inflation
Stock prices
Corporate Bonds

Thanks for any light you can shed on this.

Throughout history conversions happen at the point of a sword, deconversions at the point of a pen - FC

I am quite sure now that often, very often, in matters concerning religion and politics a man's reasoning powers are not above the monkey's. - Mark Twain in Eruption
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26-05-2013, 05:57 PM
RE: Ask an Economist
All of the interest that is owed on every single loan right now. Where is it, does it exist yet within the system... if it doesn't then how is it created/where does it come from?

For no matter how much I use these symbols, to describe symptoms of my existence.
You are your own emphasis.
So I say nothing.

-Bemore.
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19-06-2013, 04:00 PM
RE: Ask an Economist
(26-05-2013 04:44 PM)Erxomai Wrote:  How much more money can the Federal Bank make before the monetary system completely collapses and we have to live in a resource based economy instead of a legal tender system?

Sorry, been out saving the world 34 students at a time.

The Feds are about done. M2 is pegged out. Interest rates are practically zero. It's like the gas pedal is to the floor and the car is just not picking up speed. Monetary policy is weaker than fiscal. The Feds will not cause hyperinflation, panic of the masses could.

The old gods are dead, let's invent some new ones before something really bad happens.
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19-06-2013, 04:22 PM
RE: Ask an Economist
(26-05-2013 05:13 PM)Full Circle Wrote:  Along the lines of Erxomai's question:

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don't know what will happen, but he is concerned. - Fortune magazine

I handle all of my family's investments and have done so for nearly thirty years. I can say with honesty that I've never been so flummoxed by the Fed and the consequences that the unwinding of QE's will have in the future.

My unproffesional take:

Fed wants to stimulate economy by making it painful to invest in fixed instruments.

Drives their prices up with gargantuan buying of treasuries thus driving down yields.

Investors sell their treasuries/bonds and buy other investments such as stocks.

Corporations see their market caps rise and use this, along with cheap money, to borrow for expansion.
*But it has taken many years for demand to materialize so in the meantime corporations have been hoarding cash that is just now being put to work.

The Fed stops buying Treasuries thereby terminating artificial demand.

Prices of Treasuries fall and yields rise.

Now to my question, if all these things are true (please correct me if they're not) what is the effect on:

Rate of inflation
Stock prices
Corporate Bonds

Thanks for any light you can shed on this.


In the short-run you can do many of the things you've mentioned. If you think you can forecast the Feds next move based on reason I have a few friends on Wall Street would like to talk with you. Tongue

The Feds can influence the treasure rates on the supply side, but they are still subject to the market place for investments. Large investors are risk averse. When things get shaky the Feds can offer stability at very low rates. The Feds buy treasuries to increase the money supply. This is all short-term stimulus.

In the long-run you must have real output growth. What we're not doing now in the public and private sector is investing in future production (infrastructure). When we print money we fund social spending (social security, medicare, medicaid, welfare, government employee pensions - salaries). This is all current consumption. Inflation is not being realized because it is being masked by innovation (technology). Economists don't really understand this relationship right now. They are always working with outdated models because the models are based on past empirical data. relationships change as soon as you have the current data. Today it changes faster than in the past.

Stock prices are a reflection of the "relative" best place to invest globally. Right now the US just sucks less than the others. Don't be fooled by the markets perceived "recovery". It's the economy that needs to recover, not the mutually agreed upon relative value of a company's stock.

The economy is organic. The circular flow model. No matter how cheap interest rates are you have to have someone to buy your product. Cheap money and printing money to cause consumption is not a road that can be traveled forever. There is a day of reckoning coming. I couldn't tell you when, but soon.

What has true intrinsic value? Things that make things that people need. Put your eggs in that basket.

The old gods are dead, let's invent some new ones before something really bad happens.
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19-06-2013, 04:25 PM
RE: Ask an Economist
What will the Euro/$ do next ?
Inquiring minds want to know.
Tongue

Insufferable know-it-all.Einstein Certified Ancient Astronaut Theorist and Levitating yogi, CAAT-LY.
Yeah, for verily I say unto thee, and this we know : Jebus no likey that which doth tickle thee unto thy nether regions.

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19-06-2013, 04:39 PM
RE: Ask an Economist
(19-06-2013 04:22 PM)Thomas Wrote:  
(26-05-2013 05:13 PM)Full Circle Wrote:  Along the lines of Erxomai's question:

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don't know what will happen, but he is concerned. - Fortune magazine

I handle all of my family's investments and have done so for nearly thirty years. I can say with honesty that I've never been so flummoxed by the Fed and the consequences that the unwinding of QE's will have in the future.

My unproffesional take:

Fed wants to stimulate economy by making it painful to invest in fixed instruments.

Drives their prices up with gargantuan buying of treasuries thus driving down yields.

Investors sell their treasuries/bonds and buy other investments such as stocks.

Corporations see their market caps rise and use this, along with cheap money, to borrow for expansion.
*But it has taken many years for demand to materialize so in the meantime corporations have been hoarding cash that is just now being put to work.

The Fed stops buying Treasuries thereby terminating artificial demand.

Prices of Treasuries fall and yields rise.

Now to my question, if all these things are true (please correct me if they're not) what is the effect on:

Rate of inflation
Stock prices
Corporate Bonds

Thanks for any light you can shed on this.


In the short-run you can do many of the things you've mentioned. If you think you can forecast the Feds next move based on reason I have a few friends on Wall Street would like to talk with you. Tongue

The Feds can influence the treasure rates on the supply side, but they are still subject to the market place for investments. Large investors are risk averse. When things get shaky the Feds can offer stability at very low rates. The Feds buy treasuries to increase the money supply. This is all short-term stimulus.

In the long-run you must have real output growth. What we're not doing now in the public and private sector is investing in future production (infrastructure). When we print money we fund social spending (social security, medicare, medicaid, welfare, government employee pensions - salaries). This is all current consumption. Inflation is not being realized because it is being masked by innovation (technology). Economists don't really understand this relationship right now. They are always working with outdated models because the models are based on past empirical data. relationships change as soon as you have the current data. Today it changes faster than in the past.

Stock prices are a reflection of the "relative" best place to invest globally. Right now the US just sucks less than the others. Don't be fooled by the markets perceived "recovery". It's the economy that needs to recover, not the mutually agreed upon relative value of a company's stock.

The economy is organic. The circular flow model. No matter how cheap interest rates are you have to have someone to buy your product. Cheap money and printing money to cause consumption is not a road that can be traveled forever. There is a day of reckoning coming. I couldn't tell you when, but soon.

What has true intrinsic value? Things that make things that people need. Put your eggs in that basket.

Thanks for the reply. If I could predict the hysterics of the masses I'd be a gazillionaire.

Utilities and oil have intrinsic value. But oil is priced in dollars so that moves price outside of demand. Utilities pay a comparitively decent rate plus they are a necessity. I own utilities. I also own corporate bonds as a hedge.

I certainly did not anticipate the continued equity run now going on four years. Treasurys worked well for a while then they didn't. They helped limit my portfolio volatilty but have long ago stopped appreciating and are no longer in the portfolio. I anticipate inflation but so far all is quiet. As Keynes said "Markets can remain irrational longer than you can remain solvent."

Tell me more about your Day of Reckoning.

Throughout history conversions happen at the point of a sword, deconversions at the point of a pen - FC

I am quite sure now that often, very often, in matters concerning religion and politics a man's reasoning powers are not above the monkey's. - Mark Twain in Eruption
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19-06-2013, 04:50 PM
RE: Ask an Economist
(26-05-2013 05:57 PM)bemore Wrote:  All of the interest that is owed on every single loan right now. Where is it, does it exist yet within the system... if it doesn't then how is it created/where does it come from?

Erm.... you forgot this question. Why does nobody answer this question?

For no matter how much I use these symbols, to describe symptoms of my existence.
You are your own emphasis.
So I say nothing.

-Bemore.
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24-06-2013, 02:52 PM
RE: Ask an Economist
Because you don't understand the answer.
Seriously, the amount of times I have given you the exact answer to that exact question and you blatantly refuse to even think about the answer before claiming it doesn't answer the question.

Or is DL? Consider No I'm 90% sure it was you.
Seriously though, it's because you don't understand the answer.

I'll explain it one more time for you if you insist, but only if you pinky swear like a 5 year old little girl, to actually use that brain of yours to actually think about the answer this time.

I don't talk gay, I don't walk gay, it's like people don't even know I'm gay unless I'm blowing them.
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