Economics

  • Thread starter Rallywagon
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Dotini
Fed caught in bind?

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This is bizarre. It's like we have a free market broader economy but an increasingly state-controlled finance & securities market. Somehow I don't think this will end well.

Any voices from the capitalist conservative group against further fed incursion? Going once? Going twice? Anyone?
 
Eunos_Cosmo
This is bizarre. It's like we have a free market broader economy but an increasingly state-controlled finance & securities market. Somehow I don't think this will end well.

Any voices from the capitalist conservative group against further fed incursion? Going once? Going twice? Anyone?
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Isn't the Fed a private corporation?
 
Dotini
Isn't the Fed a private corporation?
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Seriously?

"The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act..."

The Fed might have a good deal of autonomy (though...lately, I doubt it) but it is a US Government institution.
 
Eunos_Cosmo
This is bizarre. It's like we have a free market broader economy but an increasingly state-controlled finance & securities market. Somehow I don't think this will end well.

Any voices from the capitalist conservative group against further fed incursion? Going once? Going twice? Anyone?
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I don't know if I'm a member of that group but I certainly hate it. Privatize the upside, socialize the downside is increasingly how the US operates, and that's non-functional.
 
Biggles
Really? I thought your position has always been "if it's not Austrian it's crap"!

Glad to see you're exploring new avenues! I'm always happy to recommend some new reading. :sly:
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I try not to assess people or sources, and instead assess what is being said.
 
Eunos_Cosmo
Seriously?

"The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act..."

The Fed might have a good deal of autonomy (though...lately, I doubt it) but it is a US Government institution.
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Not the whole story. The Fed consists of twelve regional banks(e.g. the Federal Reserve Bank of New York). And these regional banks are owned by their members. So if you would open up a bank in New York you would automatically own a piece of the New York Fed.

Thats not as nefarious as it sounds though. Dividends to the member banks are fixed and any surplus profit goes to the treasury.

... the Federal Reserve Banks are set up like private corporations. Member banks hold stock in the Federal Reserve Banks and earn dividends. Holding this stock does not carry with it the control and financial interest given to holders of common stock in for-profit organizations.
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https://www.stlouisfed.org/in-plain-english/who-owns-the-federal-reserve-banks
 
DaigoD
Not the whole story. The Fed consists of twelve regional banks(e.g. the Federal Reserve Bank of New York). And these regional banks are owned by their members. So if you would open up a bank in New York you would automatically own a piece of the New York Fed.

Thats not as nefarious as it sounds though. Dividends to the member banks are fixed and any surplus profit goes to the treasury.



https://www.stlouisfed.org/in-plain-english/who-owns-the-federal-reserve-banks
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"Like" a private corporation. Just because it's analogous to a private corporation, doesn't mean it is one. Let me try again:

The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.

The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act. This central banking "system" has three important features: (1) a central governing board—the Federal Reserve Board of Governors; (2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and private characteristics.

...

Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.
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https://www.federalreserve.gov/faqs/about_14986.htm#:~:text=The Federal Reserve System is,directly accountable to the Congress.

To go back to the original question, before Dotini tries to muddy the waters, the Federal Reserve is not a private corporation. It was created by an act of congress, it is directly accountable to congress, it's board is an agency of the US government, and it's chairman is directly nominated by the US President and confirmed by the senate.
 
@Eunos_Cosmo All of what you're saying is true. I'm no conspiracy theorist.


The 12 regional Reserve Banks—Located around the country, the 12 Federal Reserve Banks are chartered as private corporations. Employees are not civil service.
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https://www.frbsf.org/education/publications/doctor-econ/2003/september/private-public-corporation/


All I'm saying is that the regional Feds are owned by member banks. This leads to many conspiracy theories. I'm not saying that there's anything wrong with it.
 
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Danoff
S&P is a stone's thrown from an all-time high. I guess the outlook has just never been better.
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"We're so excited that it isn't as bad as we thought it might be so we invested like its never been better"

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I always appreciate Wolf Richter's perspective. The paraphrase at the end (Adam Taggard) here is particularly good I think:



...it does really seem like the fed is getting pushed tighter and tighter into a corner here, where the market has become more and more dependent on the liquidity that's going in there to support these crazy stupid valuations so its very fearful that if it stops the rescue efforts, or putting liquidity in, that prices are going to collapse. Yet at the same time, that very liquidity it's forcing into the market is exacerbating the already pretty horrible wealth gap that we have in this country - which I think in large part was created by fed policy leading up to 2020 over the past couple decades - but their problem is that the more in which they force that divide wider the more likely it is that we are going to see revolution and protests and things that will come back to bite the fed...
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I think more people need to understand that wealth inequality is in large part a direct result of easy money policy.

Also worth mentioning: The buffet indicator (a gauge of the relative price of the stock market vs GDP) was reaching close to it's all time high in Q1.

18CWb2T.jpg


Since then, the stock market has gone up and projected GDP has gone down by half. This could put the Q2 indicator well over 200%...maybe near 300% a truly stunning number.
 
What a massive fail this bailout was, all it has done is inflate the stockmarket while the actual economy is in decline, money would of been better spent creating jobs via infrustructure projects and the like.

To be in a Recession and see the market grow at an unseen rate when no one is consuming and working just looks like alot worse is coming, sooner or later the charade will be up and it will come crashing down in spectacular fashion.
 
mustafur
What a massive fail this bailout was, all it has done is inflate the stockmarket while the actual economy is in decline, money would of been better spent creating jobs via infrustructure projects and the like.

To be in a Recession and see the market grow at an unseen rate when no one is consuming and working just looks like alot worse is coming, sooner or later the charade will be up and it will come crashing down in spectacular fashion.
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I suspect as soon as the Fed mentions turning off the faucet, the bottom is going to fall out. Of course, they're probably aware of that, and as Wolf mentioned...have probably no idea what to do. I doubt even the Fed chairman expected the stock market to jump so wildly after their liquidity infusion. Remember, only 50% of Americans even own stock...all of these gains are going to the top. I think we're approaching a truly two tiered society. The asset holders and peasants, and it is the Fed's doing by repeatedly saving the stock market at all costs.
 
The news is swirling about the potential second stimulus package. Hooray free money. Should more than offset any decrease in the stock market. :boggled:
 

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