I think it's not a question of whether the fed has it in control or not. The difference lies in the attitude towards financial markets of Jay Powell and Janet Yellem. Though its true that Jay Powell is faced with a unique circumstance of the pandemic but they are trying too hard to prevent a crises or prevent recession rather than allowing the economic cycle to run its course and taper it. There is a difference in tapering and prevention. Historically, preventive measures have led to an exacerbation of a crises in the long run. The economic cycle is supposed to run its natural course.
The federal reserve is a private entity despite the name and despite how they control the economy.
The idea of the fed was fought long and hard by true patriots of our country until eventually the right votes and politicians were purchased and the fed was created in 1913.
The fed influences the US dollar and US monetary system by providing a centralized command center for banks that unilaterally have huge impact on the overall economy, eg. Interest rates, purchase or offering of bonds, etc.
The feds influence on the US economy has grown over the decades and the power it has continues to grow as stock investors say “dont fight the fed”, etc.
Google a little bit to get to know the federal reserve, despite what you are told or led to believe. Eg. Is a governmental part of the system, owned by noone, answers to noone, has no influence in the market, is here to help people not banks, etc. is a good google, trust me.
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Ive asked myself this a lot too. And basically, I think the way things are going is essentially a transition to a nationalized banking system, with all money being basically lent from the fed, whether its digitally printed or not, but basically the amount of lending will be proportional to the amount of inflation (the key here is how inflation is measured, but thats a different story).
The problem with the FED is they don't have the capacity to determine who is "credit worthy" or not, and cannot issue loans on an individual basis, so they rely on banks to issue loans. The obvious problem here is that banks no longer have any risk, so they are basically just lending to everyone at this point IMO and it's becoming a game of just how much $$ can you get.
But the true reason for banks has always been to finance commerce. They served as a safe haven to store wealth (vestigial at this point) and as a means to channel wealth from the idle rich to the industrious poor (ascent of money). And they did this efficiently because defaults on loans ran the risk of a bank run or going out of business. But now the risk has vanished so I can only imagine the amount of $$ being misappropriated right now.
I would guess UBI would look like a savior to the free market in this context? Credit worthiness assessment flies out the window and acts as a money spout to the people and becomes a tool in the toolbox to manage inflation? If ubi becomes too much a part of a person's income and they stop working their employer could raise pay and prices accordingly. You could also determine creditworthiness on a blockchain smart contract via decentralized identity if you were the fed. That would work. I'm just kind of thinking out loud here.
That's how mortgages typically work. The bank where the mortgage is issued is just a loan originator. These loans are then sold on a secondary market to aggregators who securitize them and sell them as bonds to investors. The originating bank doesn't hold onto a loan for very long even in normal circumstances.
I had to read this a few times over and research some terms to be able to understand it. It makes sense now why The Fed own so much of the mortgages, thank you for the resource.
Now what does this mean for the future? It doesn't seem inherently bad, wouldn't this be a safe way for The Fed to generate a return from this pandemic (assuming the economy recovers and the companies they own bonds with are able to pay their debts)? Am I missing something?
It’s not terrible but we really won’t have an answer to your question about the future until... the future.
I don’t think the fed is trying to generate a return in as much provide liquidity.
They’re giving you cash so you can buy oil for your car so it doesn’t blow up on the highway.
They dont own the mortgages... they own MBS, which means if the underlying mortgages default, whatever banks hold the actual deeds end up with the property and owe the money to whomever holds the MBS... instead of AIG providing insurance which caused them to go bankrupt, this time the FED/taxpayers will be left holding the bag.
It will probably be a very empty bag.
And it pays its revenue to the us government. “The federal government sets the salaries of the board's seven governors, and it receives all the system's annual profits, after dividends on member banks' capital investments are paid, and an account surplus is maintained. In 2015, the Federal Reserve earned a net income of $100.2 billion and transferred $97.7 billion to the U.S. Treasury”
“Although an instrument of the US Government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms."
Looks like a duck.
Walks like a duck.
Calls itself a turtle.
The FOMC consists of the 7 governors from the Board of Governors and the 12 Reserve Bank presidents. The President+Senate selects the 7, and private banks select the 12. So it's 37% government, from that point of view. And beyond FOMC, the Fed is governed solely by the Board of Governors, which is 100% government.
No, not that either, it's capitalism. Elections and government owned businesses existed when Karl Marx was alive, not once did he refer to those things as socialism. They are part of the capitalist system. Elections in a capitalist system are where we determine who will oppress us.
I don't get how you don't know this. You talk about socialism like youl know everything about it, yet you don't know what one of the most famous socialists had to say about government, democracy, and government owned bussiness in capitalism. It would be like knowing everything there is to know about physics yet somehow not knowing what Einstein had to say about it.
Capitalism that has the government bailing out banks, supporting banks from failure (and risk) with the FDIC, installing those who adjust interest rates, subsidies for industries like corn and oil, is in no way capitalism.