Like, what's its purpose, and why is it so different from normal open-market operations? It seems like its just like open market operations, but just buying longer-term treasuries?
When markets get fucky, piles of money get nervous. The only thing that gives piles of money the right to exist is the fact that they keep growing. If one pile has a worse year than the other piles (even if it still gets bigger!), investors take money away from the pile and put it in others. this can be a death spiral, as investors lose “confidence” in a given pile. It is critical to piles of money that they grow, better than their competitors even.
Frat boys have learned just enough math to figure out how money behaves during “normal” market conditions. It’s pretty safe, there’s lots of money swimming around and everyone feels OK for the most part.
But when they get fucky, that’s when ignorance and ultimately fear overtake the frat boys. They become ghostly pale, because their managers have warned them that the robots are no help during market apocalypses.
So the money freezes up. The frat boys don’t know where to keep it safe. While there’s a lot of upside to be found, there are also horror stories of incredibly wealthy people losing everything during these times.
So, in my head, QE was something to protect against this. Originally it was for markets that were so frightened that frat boys wouldn’t move even a single dollar. There’s probably several ways to do QE, but they boil down to giving the frat guys some money to play with.
I think they end up making it a little less obvious by buying “totally legit and valuable” assets from the dumbest frat guys, which they see as removing some of the most toxic assets (debts that will never in a million years be repaid) from the playing field. So the money moves a bit, frat guys come out of their shell a little more. Eventually they throw grand parties, trading and boofing all around the clock.
I think they used some of this style QE at the real outsets—08,09, when the US realized that Covid was coming for us. You can justify whatever you like during these times of high crisis. And if your job is to keep capitalism functioning, it almost certainly does help. Anything is better than death, even if you look a little silly clinging to life.
But during less flashy times of economic distress, QE’s just there to make sure there’s so much money floating around that everyone keeps going after some; that they don’t let fear (or observably declining profits) paralyze them.
Because in order to skim some money off the top, the moneys gotta be moving. If it just sits there, you can’t use the US a dollar as a battering ram against the world’s peasant farmers and menial laborers.
Since the US shipped productive industry elsewhere in the 1970s, the dollar has decided it will no longer dredge up raw materials or produce goods itself—it will sit at the apex of the supply chain, and make its profits from declaring exactly which parts of the commodity circuit “add value”.
It turns out, a lot of value isn’t added when workers put any screws in or solder on an iPhone, nor where the bauxite is mined. Most if it ends up on accountants’ ledgers when it makes that final journey to the Promised Land, sitting on the shelf at an Apple store or warehouse.
So when the money goes around the leaky-piped Rube Goldberg machine, that’s alright! Through a series of mysteries, the money multiplies. You the worker get a tiny bit more (if it’s not a bad year and you’ve worked really hard and you didnt buy avocado toast etc), while a few people get all the rest.
If market participants aren’t feeling particularly jubilant, they must be compelled to act like they are so that the whole scam to keep running
This almost reads like Hitherby Dragons. I think it's the personification of the money.
If market participants aren’t feeling particularly jubilant, they must be compelled to act like they are so that the whole scam to keep running
seems like LTV and labor alienation still apply to this whole system, even to those whose 'labor' is just moving around piles of money
anyway, great prose you've strung together there
The short explanation is that the federal reserve creates hundreds of billions of dollars and transfers it to rich people who own bonds in exchange for their bonds.
The official role of the central bank is to keep the amount of money roughly at the same level as (or actually around 2% higher than ) the amount of goods and services in an economy. Think if there's a pair of shoes that's 50 Dollars there needs to the printed 50 Dollar Bill for you to be able to buy it. It's not an easy task to figure this out. If there's too much money in an economy you'll have inflation, meaning the nominal value of things gets larger and everything get's expensive. When there's more goods than money to spend you have deflation. Liberal theorists say deflation is bad because it would mean having money and not spending it means you'll be able to buy more things as time goes on, which disinsentives spending it for goods, which would slow down demand and production. So that's why they try to balance it.
In liberal theory the central bank has 3 intruments to control the money supply, one of them being quantitative easing. The mechanism involes the central bank buying government bonds and other securites. To pay for this the central bank need to print money and thus increasing the money supply in the economy.
why is it so different from normal open-market operations?
To directly answer the question: Because QE affects money supply, while open-market operations do not. Open-market operations just shift the money from one agent to another.
I'd recommend looking into MMT as it provides a way better understanding of fiscal and monetary policy and shows how all this fuckery is self-imposed. https://www.youtube.com/watch?v=7sd-ElKMbPI
Simple but wrong might be:
Central bank printer goes brrr: Good, inflation for companies, good
Printing money for people: Bad
sorry this is so late, I've been working all week. What do you mean open-market operations don't affect the money supply? I was under the impression that they did increase/decrease the money supply depending on whether bonds were being bought or sold by the fed.
Ah yes sorry you're absolutely right. I used the term sloppily. I meant it in the way that regular market activity just shifts money from one market participant to another. While the central bank does so money supply when it engages in the market.
Yeah you're right. I mean I just described what the official role of the central bank is and what they are trying to achieve. Not that QE (or the other instruments) are actually working. It's evident that it's not working
It's long term treasuries and also things like corporate debt and mortgage backed securities, both of which are riskier than the normal short term treasuries. The Fed "risks up" to drive down interest rates across a broader set of asset classes to supercharge borrowing/money creation.
Basically is a trickle down bailout. You subsidize Capitalist borrowing in the idea that it will spur ~job creation~ and a rising tide will lift all boats.
This is a good thing overall. New money enters the economy when the feds exchanges US currency for Treasury securities. Money leaves the economy when the feds exchanges the securities for US currency. Introducing new money and causing inflation keeps people from hoarding money under their mattress as the money devalues slowly over time. It hurts people with money the most and happens slowly enough for everyone else to get their employer to give them a raise.
