Understanding the Fed's "Money Printer" (QE, the Stock Market, and Inflation)
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- Опубликовано: 30 июл 2020
- Meet with PWL Capital: calendly.com/d/3vm-t2j-h3p
If asset prices reflect expectations about the future, the market rising should be viewed with optimism, but there might be less optimism, and there may even be pessimism, about a market that is being artificially propped up by a central bank. What if the central bank can’t print any more money and stock prices drop? And how can all of this money printing be good for the country’s currency?
Referenced in this video:
- Money creation in the modern economy www.bankofengland.co.uk/-/med...
- Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist? www.federalreserve.gov/pubs/f...
- Open Letter to Ben Bernanke blogs.wsj.com/economics/2010/...
- Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison www.federalreserve.gov/PUBS/i...
- A General Equilibrium Approach To Monetary Theory www.jstor.org/stable/1991374?...
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Ben, what a great video. I commented about three weeks ago that I didn’t think your description was 100% accurate. I stand corrected. This video is worth more that a semester at Harvard Business school on macroeconomics. I’ve always been fascinated by the global financial system, but honestly couldn’t get my head around what QE does. After reading one of the books you recommended and other readings I feel like my eyes have been opened. I know you’re 100% against trying to time the market, however after being enlightened by your description I’m convince more than ever that we are in a massive asset bubble driven by false fears that cash is worthless and the false belief the Fed can fix an economy with this much unemployment. Thank you for the great videos and information. You have a gift!
Thanks James. It was good to read this comment. Another book on this topic that I recently enjoyed was _The Case For People's Quantitative Easing by Frances Coppola._
Same here: I watched the video and started wondering whether Ben was really right here. As it turns out, he's right. I can also recommend a lecture on Coursera called "Economics of Money and Banking".
Amen brother!
@@BenFelixCSI which was the other book you had recommended
Ben Felix I suggest you look into how QE is actually deflationary. QE sucks funds out of the on-balance sheet M1 funds and forces banks to increase M0 FED reserve account funds. So the funds are stuck in the reserve accounts and therefore deflationary.
Also no currency is fiat, every single currency unit has an off ledger book entry only asset attached to the credit, this is each unit of currencies Drawing Right, it will also have an Allocation number which refers to purpose of that units creation, a project or program to ledger the funds onto the front side system. This whole fiat currency nonsense has to end, please go research how the global currency system actually works not how you think it works due to the propaganda you read written by an mystical pseudoscience economist.
Excellent video and recommendations at the end of it too. Welcome back Ben, I hope we see more and more of your rational, sensible insights in a time of madness.
This is blowing my mind. I'm going to have to watch this video at least 5 times.
Financial literacy classes teach students the basics of money management: budgeting, saving, debt, investing, and giving. That knowledge lays a foundation for students to build strong money habits early on and avoid many of the mistakes that lead to lifelong money struggles. Thank you for an excellent video.
Thank you so much, Ben, for great explanation!
When I was learning these concepts ten years ago, I could only dream of such a clear, easy to grasp video.
Hi Felix, I've been keeping myself busy learning as much as I can about Common Sense Investing with Index Funds for the past 2 years. Still, I discovered your channel just a couple of days ago and I can't believe you have so few followers. This is by far the best source of information I found so far. You offer great content! Thank you!
Thanks Felix. Finally someone who gets the money creation mechanism right, there are to many "experts" on YT who spread misinformation about the topic.
You Sir are a godsent! You explained in one video what nobody else seem to ever get around to explaining. Thank you. For a finance novice, you really helped me today.
With the quality and information in your videos, you deserve 10x more subscribers. Insightful and well-researched video as usual, eagerly waiting for the next video Ben!
The best video by far that I've seen about this topic. You're just a genious.
Incredible video, Ben. Glad to see you back. Even if the wait was long, the quality of your content is always a good reward. You deserve a wider viewership in the RUclips finance world, as you're simply the best.
Ben. I have been one of the very early supporters/followers of your channel, even one time we talked privately. It is amazing to see how your channel has grown. You are one of the few people who talk about money on RUclips, not out of of thin air, but out of knowledge. So lots of respect!
This doesn't mean I agree with you all the time, but just appreciate that you are informed and then promote knowledge, rather than just blabla to attract subscribers.
Congrats Ben! Your content is valuable, clear, and helpful. You deserve the recognition!
Good to have you back Ben! Been looking forward to your solid insights on investing and personal finance.
I'd been really struggling to understand the money creation process by banks for ages. This is the best explanation I've found. Thank you
gibberish.. misdirection..
you borrow you owe
gvt let banks invest in derivatives.. you pay their losses
ever see rot schild on t v or online ?
smug smiling superior.. they own banking.. you don't 😮
After watching the video I went for your recommended book Pragmatic capitalism by Cullen Roche , am halfway through it and I remember you're explanation while reading the 7th chapter from the book about moneyness, so i come back to watch it only to realise, I understood all that I read in the book after watching this in depth explanation. It is now a much clearer picture for me .
Thank you Mr .Felix I genuinely appreciate your efforts .
Am a business school student who has probably learned more from teachers as yours then from my school ones.
Great job explaining a complicated subject. This is why I always come back for more videos.
I just found this channel. This guy is so incredibly good. No-nonsense and provides studies to back up all of his talking points. On top of that, the graphics displayed to reinforce the concepts are so helpful. Watching this video basically completely dispelled some false beliefs I was holding and made me instantly hungry to learn more about how money works. What more could I ask for from a youtube video?
You don't seem to understand he is mostly perpetuating a self-serving gaggle of establishment theorists and financiers that crashed the global economy in 2008, using circular logic to enrich themselves. Maybe look at the world and see how this stuff is actually working out.
Thanks Ben for the video. I'm a CFO I've been studying finance and monetary policy for about 25 years and you have done the best job that I've seen on how QE works. From what I have learned so far, everything you say is correct. I've had to put the jigsaw together from information that I read and learned along the way to understand how QE works and it took me many years. I wish you did this video 10 years ago and you would have saved me a lot of time. If people got their heads around your video, then they would be miles ahead of most bankers, finance professionals and politicians. You've done a great job in explaining the monetary system in a simple manner, thanks again for your great work.
"im an cfo"
I must agree. It takes time to put much of this information together and have it sink in. This is not “banking 101.” I wonder how many bank clerks even understand this level of finance.
Many kudos to Ben on his research and efforts in compiling this video, it is most appreciated here.
They know what they are doing
always thier decepion and ahead of pesants. The trillion dollar conspiracy. The creature from Jeklly Island. Edward G Griffin
👆⚠️🐍✈🌧🌧🌚☢⚠️
CHEMTRAILS UN is in NY FED ,IMF ,BIS. Banking Cartel runs the show nobody say this the way I do it consumed good portion of my life to know. Once anybody do Lable conspiracy exacly it is all.🤏🧠
Don't make it twist even more Banking Cartel own and run the whole world and create war with thier military and secret servis.
When SLAVE indebted unable keep on paying or disobey.
Ah yes, it's complicated stuff this QE magic. And it would need to be to make the trick work. What to do however ahead of the wide spread wreckage caused by this spell? An internationally diversified asset mix across the major asset classes? Sure, better than holding cash ultimately. And apparently better than gold too. Yet, if only there was an enduring inflation hedge and store of value. There is, in its nascent form at least...but one won't learn much about it here given that Ben, (although he gives brief mention to it) doesn't yet fully see that it is at hand. Anticipate that this will change with time perhaps, but ideology may ultimately stand in the way.
A man of your word! Thank you Ben, exactly the video I was hoping for. Glad you're back.
Much love to you Mr. Ben you’ve taught me so much since I’ve found out about your channel recently. Please keep up the good work, I hope to enlighten others just as much as you have. ❤️
This is extremely informative. I am going to watch it 20 times.
It is a video spreading wrong information..
@@bla-ig4bd what's wrong about it?
@@hman2912 All of it. The idea that the FED's monetary policy has not resulted in increase in cost of living is delusional, and only a rich guy who is invested in financial assets would have a vested interest in convincing you that that BS is true
I'm gonna need to watch it 20 times just to understand it.
@@jtonna1624 Do you have proof?
Welcome back! We've missed you! Congrats on 100K subs
Nice! You are one of the best finance channels on youtube its well deserved!
So much useful information in a single video. Great to have you back Ben!
Great to see you back ben! I agree with everything you've said here, but it's worth noting the recent trend towards OECD governments and central banks buying up corporate bonds and even investing in ETFs in a bid to shore up asset prices. These actions certainly fall outside the specific topics you're addressing in this video but they're worth bearing in mind when discussing the recent asset price recovery, as well as market confidence in general.
Glad you're back! Thanks for the amazing and timely video; I love your content. Congrats on 100K subs!
Stellar as usual. I love how you break things down. Thanks for educating the masses, Ben!
Ben, I am so glad I came across your channel as well as the Rational Reminder podcast. I am studying for my Wealth Management Essentials, and let me tell you this video has changed the way I view many policies and financial concepts. Greatly appreciated.
This is tough. My head is spinning right now. But I've always wanted to understand it, so I'm coming back. Thanks for taking the time to teach that. Everybody talks about it, but no one knows exactly what it is. Here is a suggestion for a later video: MMT; Thanks again.
Cliff Notes version: MMT is a crackpot theory.
@@johnp7739 Based on what though? It not making sense? What within finance capitalism makes sense? None of the financial innovations conjured up make sense to me.
Exactly! Yup CNBC doesn’t have the brainpower or patients to explain something like this...
@@johnp7739 If I am not mistaken, MMT dispenses with the notion of gov't debt entirely. Says the gov't can just create the money it needs as long as it has optimum taxation ?
I’m from Brazil. Ben Felix’s videos are amazing!!
I don’t understand very well that video, to be honest. My english is very poor!
Maybe a portuguese subtitle will help me.
Fantastic breakdown, mate - very comprehensive. Must've taken a while to pull this all together. Many thanks! 🙏
Happy your back. Your pretty much the best econ/finance teacher on the web. Thanks
Thank you Ben, for this very instructive video, that yet requires to be seen 10 times for a beginner like me :)
Indeed, it's good to explain what QE means, a mysterious word used every time and everywhere.
Ben, you are just so good at what you are doing! Keep up the great work.
I say it as Econ PhD student: this video nails it.. it's unfortunate that many economists themselves are not fully aware of how money is created and things started to improve only since the Great Financial Crisis.. the video summarises well the latest academic insights on how (uncoventional) monetary policy works
And excludes every important detail which renders the entire thesis bogus
Google User such as?
@@brido88 Such as the fact that the Federal Reserve has over 7 trillion dollars in government and corporate bonds and other debt securities - securities that were bought on the open market.... and that they have voiced their intention to continue to flood the market with liquidity and keep interest rates artificially suppressed, such that real rates on long-term bonds are negative for the first time in american history.... that the CPI is designed to mask rising consumer prices, as anyone who has studied it knows... need I go on? This video is filled with so much misinformation and outright lies you'd think it came straight out of the FED
Google User But what does that all mean? What is your crystal ball telling you?
@@brido88 No crystal ball. I am stating facts that are verifiable by anyone who wishes to investigate, instead of resting on so-called youtube "experts" with an obvious Keynsian slant. But if you want me to make a prediction, I will: over the next 5 years you will see the dollar weaken considerably (already happening) and prices across the board will consequently rise in ways you never thought possible in America. With the purchasing power of the dollar undermined significantly, you will see many American businesses suffer - especially ones dealing in luxury goods, such as Apple for instance. Apple is the biggest bubble in the American stock market at the moment for my money, and I am personally short as of last week. I expect Apple's Market Cap to be half of what it is today in the next 2-3 years
This video is amazing. Such an articulate video , explaining information in the truest and most applied form. I can't thank you enough. Cheers mate. 👍
Love hearing the tangible actions that you're implementing to make progress towards your dreams!💪
Thumbs up, Ben. Excellent presentation. I'm nowhere near an expert in this field but I'm not sure I can wrap my head around it not leading to inflation. When I look at real assets, such as houses, cottages, cars, commercial RE, stock valuations... prices have skyrocketed. Look at the average family income in Ontario versus the average price of housing in the last 10-12 years. An experienced teacher was making $85K a year, 12 years ago and the average house was $500K, now that same teacher makes $97K and the average house is $1M. There has been massive inflation the last decade, if it's not due to central bank policy and action, what is causing it? Household debt is rising every year breaking records.
He's alive!
I have already watched this 20x. This is basically a class on economy for me. God Bless You!
Awesome to see you back! Absolutely love your content
QE isn't strictly printing money, but what if the government is collecting poor performing or risky assets that the government won't be able to collect their value back?
Don't worry, that's not what they're doing. They're buying assets from certain people with political influence at inflated prices, to transfer wealth to the elite knowing the public won't complain because they forget we have to cover the cost later through increased taxes.
Then it's money printing because they're effectively transferring reserves to the private banks of the individuals who held the junk debt that they've now sold to the Fed reserve. Same thing happening to equities but the conduit are global central banks and the primary banks.
Credit worthy borrowers LOL, is the US credit worthy with 30T in debt going to 150T in 20 years? The signal of higher interest on US bonds is broken if the Fed puts them on their balance sheet.
There is a risk of loss on individual bonds, but consider the scale of the purchase and that the Fed will sell back in a less uncertain environment. This is how the Fed was able to make a net profit off of the commercial paper it bought following 2008. Not to say losses are impossible, but it seems pretty unlikely without some sort of catastrophic economic failure.
Great to see your videos again. I didn’t knew the way Canada and USA money creation works, I thought they had the usual % retention on deposits like in my country in order to control the multiplier. Great video as always!! 💯
He always looks like someone is trying to make him laugh just off camera and, personally, I am all for that!
Fantastic - As a lawyer and PhD (abd) in finance I’m combing through the federal reserve act to double check the transparency issues, but as far as I can see, to date, you are spot on and one of the few money managers who understand this. Thanks for sharing!!
Congrats on 100k. You deserve it.
Thanks for this! This was a nice reiteration of the podcast topics which helped the slightly more confusing bits click.
Such a shame, schools need to be teaching this stuff, so important.
They won't it's international
@@SentinalBais1 I learned most of this in second year macro.
I agree!
Then more conspiracies would be discovered and inquired about hence they dont teach it
@@fredliu168 Second year macro...high school or college?
Hi Ben, thank you for the video. I have some questions as it contradicts my current understanding.
1. How is it able to counter deflation if the Feds assets purchage is not inflationary?
2. In 2008 Fed purchased sub prime mortgage backed securities which were toxic. When Fed buys those assets at a value that market is not ready to pay due to their quality being known, is it not more than changing the composition of the reserves? like changing fake gold with real gold seems to me like injecting money.
sumcse wow great second question. Really hope Ben responds to this!
Great second question
I’ve always been wondering the second question. And now I’m curious to know the answer to the first question too. Ben, if you’re reading this, please answer these 2 questions!
Great questions!
Great question. For the second question, as you would know, we had inflation during and after the 2008 conundrum. Since the loans were being made out to consumers, not in the reserves. Banks had little reserves.
Best video I seen for a long time. I need to watch it again. Thanks
This is certainly informative and I will watch multiple times. It is comprehensive and a bit over my head so I will watch slowly.
If interest rates are lowered you'd expect more borrowing so there is an inflationary effect of reducing rates even if it only acts to reduce deflation.
A double whammy on this timely topic! The RR podcast episode was great as well. Thanks Ben!
I had been waiting to see a new video from you! Thank you and I appreciate your time. 🙏
Really informative video! I never realized how in-depth the financial system is until I watched this video! Keep up the great work!
This is probably the most rational financial explanation I have heard since the start of this pandemic. When I speak to colleagues and friends about the situation in the stock market, it seems like everyone else is smarter than the FED and financial experts. I keep hearing ''We are hearing towards inflation doom'' and '' the only reason stock prices are up is because the FED is buying stocks ''. Its nice to have some rationality. Thanks, Ben.
If you sub to the channel you can call him Ben.
Yes fed has nothing to do with current stock boom, and there will never be any inflation except when you start looking at houses prices
Alexander Hamilton haha yes, thanks for pointing it out (modified)
@@azapray I hope you rethink how you think about the fed and the market =) The repo market almost died in 2019 before corona. Corona save it because it allowed more 'emergency measures' - spending. So now we're kicking bigger cans down the road
“Borrowing is the money-creating process that allows for saving, not the other way around”. Really cool concept to understand, thank you so much for this video.
Thank you. So much clearer than anyone else I've seen.
Best explanation of QE on RUclips so far! Thank you very much!
Hey Ben, from the sound of it looks like you are referring to QE we've head in the aftermath of 08 crisis. How about the current situation with Covid 19? Do you factor in helicopter money from the government and its effect on inflation? Also, why do you think USD has recently started losing its value to gold and other reserve currencies?
The currency reflects the strength of the economy and the US is having virus problems more than europe or Japan. Remember depressions are deflationary events. They print in order to keep prices stable in aggregate. Powel said there should be more ongoing fiscal stimulus (helicopter money)to avoid further contraction and lay offs.
WHEN THE WORLD IS ON FIRE WE THOUGHT HE LEFT US. BUT NOW BEN FELIX RETURNS TO EDUCATE THE MASSES ON THE TRUTH ABOUT QUANTITATIVE EASING!
I was missing my guidances trough these dark times.
I consider myself a dunce in economics, but you’ve explained the FED like no one has to me. Well done!
I enjoyed this presentation for its verbal clarity. I expect to view it repeatedly and let it guide me on what subtopics I need to gain a grasp of. I like that it stated unequivocally that most money is created by banks out of thin air. The citizenry, at large, needs to be taught this.
Glad to have you back man! We butted heads over gold a year ago. I'm glad I went all in (plus leverage via options) in April, up big time.
Facts, the average lifespan of all fiat currencies that have ever existed is 50 years; no fiat currency has ever lasted for more than 100 years. Meanwhile, gold has always been seen as a store of value everywhere. If you think about the great diversity between all the different societies all throughout the world all throughout history, and the different ethics and values they all hold, one would expect to find very little agreement/consensus among them. Gold as a store of value is one of those few things they all agree on. I think that says something remarkable about its endurance and power that won't change anytime soon.
I'm not claiming gold is superior to equities or real estate, only that it's superior to holding fiat which is guaranteed to lose value in the long run. Especially in times like this when governments and central banks become totally unhinged and reckless, hell-bent on destroying the value of their currency. How can you say that all this money printing and deficit spending will lead to deflation rather than inflation? The US government is doing major deficit spending to give out generous unemployment benefits and business loans (that will likely be forgiven) to people and businesses. In other words, we are doling out borrowed money to people who aren't producing anything. More currency units + less production = inflation no?
Anyway though we often disagree and have different perspectives, I always find your analysis and perspective invaluable. Keep it up man!
Thanks Edric! I have more gold research that I need to turn into a video. We may butt heads again soon :)
I agree with this comment... Love to hear this new perspective on money printing, but it still doesn't add up for me. This video left me with a lot of questions. If the money the banks recieve when the central bank buys their bonds doesn't get loaned out, then where does it go? Does it get used by banks to buy things? If so, it IS entering the economy and will cause inflation long term. If it just sits there and doesn't get loaned out that just seems unlikely. Is that what you're saying? It just sits in the banks? Personally since covid happened my bank started offering me 2.2% interest (down from 3.7%) on my line of credit so you know what I did? I borrowed a ton of money to buy stocks and precious metals (and have made a great profit doing so). The banks created a bunch of money and I used it to buy things and the prices of those things went up incrementally when I put my bid in (inflation). Please explain what happens to the money that is given to banks in exchange for their bonds cause I'm still confused
@@logansept The deflationary effect from people getting unemployed (and not borrowing) is greater than the inflationary effect from you borrowing money because the interest rate is lower.
@@DiamondTear ok that's interesting I could see that making sense short term while there's a recession and job loss, but then once people get their jobs back wouldn't that long term cause inflation? They always try normalizing interest rates but they never get up before the next recession hits and they have to lower them more and more and more each time.
Logan Sept - yes. Long term inflation is coming as they want it to inflate away the debt...
When is the updated model portfolio coming out? I feel like a kid on Christmas morning!
As always, great video! So many misconceptions about how banking works are cleared up from this video.
Awaiting the new model portfolio eagerly as well! Any updates Ben?
Where will that be? on this channel?
@@evanlebzu1 I believe either on the rationalreminder or pwlcapital websites.
Just like any other basic RUclips channel. Tells the peasants the basic mechanizations of the system but no actual advice on where to use/put your money and no information on what the maker of the video IS doing with there money. They all just repeat the same basic things
@@Ryan-nm2si joseph carlson has a channel that does exactly what you say is lacking. His portifolio is open and he discusses his choices weekly. I find it extremely helpful, manly to see and observe another investor.
Glad to see you back as I came across your channel last month and I immediately sub cause of your unique content.
I rewatch this vid on occasion. Timeless info here. Great work. Thanks you!
Just wish I had understood it.
When fed printer goes BRRRR, you buy stocks
I’m brazillian and I wish I could understand better. My english is very poor. 😅
In summary, the Fed reserve has been printing money over the last 50 years by buying mortgage backed securities and junk debt plus equities and property via banks and Blackrock.
Great video! But I always get stuck on "the Fed buys treasury bills from a bank." WHERE did the bank get the T-bill? From depositors' money, right? What's the bank's motivation to sell to this particular buyer, the Fed?
I rewatched this several time, full of solid points and insights
Now that I watch this video a third time. It's funny how he hold up the silver award like it means nothing to him while staring deep down onto our souls and thank us. It's kinda creepy and cool at the same time
Today it's not about return ON capital. Today it is about return OF capital.
Hi, I am from Brazil ( the country where everything can happen even the impossible ). Glad you are back. You help me a lot. I watched all your videos, excellents.Thanks.
Fantastic video Ben, great to see you back and congrats on the RUclips milestone.
Do you think you would be able to create a similar video as it relates to the mechanics and theories out there on Modern Monetary Theory? There was an interesting note I saw which spoke about governments 'capacity to spend' and how central banks could 'buy' the new debt/bonds as issued by its government. Seen also lots of confusion on it, I feel it would be a hit!
Really well done Ben!! You are one of the few RUclipsrs that is not spewing one of the long rejected money multiplier / fractional reserve banking / QE = printing myths. Keep it up!
Just discovered you and absolutely loving the in depth expertise holy shit I feel smart after watching this stuff. And trust me I’m dumb as shit
We trust you. 😂
Great video! Would be great if there is a part 2 of this video addressing some of the concerns in the comments ! Amazing content Ben :)
I was smart enough to get about half of that. I'm gonna research some more fundamental topics and then watch again. Thank you!
I think you make a pretty good case on the neutral impact of the fed's action. But here is a premise that I think you are missing. When the feds acquires assets from the financial banks its only a neutral transaction if you assume a pre-acquisition positive value of said assets. However these assets are usually junk, like the CDLs of the 2008 crisis. So by the fed acquiring these assets, it saves the banks from going down with their junk bonds or assets and in turn failing to fail. On the other hand, you can't deny the impact that governments are having on inflating the stock market, e.g the US treasury has been giving liquidity in the form of loans to companies that would be have struggled or failed with or without the pandemic (among many, Boeing comes to mind). To deny the inflation of the stock market evaluations by governmental policies is to deny the reality and the spirit that is causing these unwavering evaluations in the midst of uncertain future economic performance
Inflation is not only how much money is out there which of course works towards to spending , but also how much people and companies spend. Yes by indirectly increasing credit Feds increase the money supply which can be spent. Say someone buys $350K house by feds help then refinances and has cash in the bank and can spend. but that's indirectly. While it is contributory it does not mean it creates. Inflation is in general price of consumer basket going up, and it cannot go up if people are in recession or depression because they don't want to spend shit. At the same time feds are coming with their money printing tricks during those recessions and depressions not to allow economy to completely freeze and stock market completely collapse. What else do you want them to do? Yes, let's make bitcoin our money which will become $100K during these times, everyone will start growing their lemon trees and there will be no economy?
@@arrrryyy I did not make any case for or against inflation at the feds hand. But if you admit that without the feds action the market would have tanked, then inherent in that premise is that the feds have affected (may we say bloated) the current evaluations. And thats all I am saying.
@@jojoplacide I agree with you. There is really naive assumption going on here that all investments which are funded by private banks are good investments. There are tons of zombie giants at this point like Boeing you mentioned. Because will Boeing bounce back? Everyone is taking it for granted - but lets take this example to extreme for the sake of this argument - Boeing stops doing anything. It just exists with it's loans, grants and assets. Now the giganting commercial papers issued by boing are being bounced back and forth between private banks and FED. New bonds are being added to repay old bonds. FED and Private banks keep jugling, consolidating and re-packaging those loans. At the back of it there is Boeing stock which basically is backlog of loans to repay. Gov bails out Boeing so it can pay back the loans which was given basically by the same entity. It only creates illusion of adding value. We have a saying where I come from - stirring tea doesn't make it sweeter.
Fed isn’t buying junk debt. That’s absolutely false
@@miketorse yes in the literal sense they might not be junk grade bonds. The point is that the fed is buying bonds and assets that would other investment institutions deem less valuable. Otherwise other funds would buy these bonds.
I'm gonna need to watch this 5 more times and take notes.
It's complicated because it's legal fraud.
I am saving this video in my favorites list, not just the video but the amazing comments below from some very intelligent people
This explanation is a gem! I passed my A-level exam in economics in 1988 but never understood this topic at this level 😂.
I consider myself to be a fairly smart engineer. I understood zero amount of this video.
You're not alone
I believe it's a part of your brain you don't exercise often. Therefore, these concepts seem foreign to you. Another analogy is Democracts and Republicans don't understand each other's points of view.
come on guys, make an effort! I have an arts degree and got it all in the first go!
Quite normal, you should read an introduction to modern economy
you need some understanding of basic accounting.
I still don't understand everything clearly but as an economics major, I can only hope Ill get there.
The truth about the economy will not ever be taught in a government school. You will be indoctrinated.
@@BeepBeep_773 Lol, dude he literally cites academic articles to support his explanation...
H The thing is that you should not heavily rely on “scientific data” in economics as it is often misleading or just outright bs. That’s because economics is not the same science as, say, physics or mathematics. You can’t repeatedly perform an experiment to test your hypothesis. That’s why theory and logical reasoning is the best way to understand economics.
@@zygi22 Ok and people can construct a theory that is pro-MMT & logically rationalize it. People can do the opposite, theory & ones own "logic" may also not be reflected in reality.
Research the truth about the Federal Reserve.
Your videos are my education tool. Welcome back from your break
i really like your style of enunciation, it makes a difficult topic like this much easier to follow by easily maintaining my attention.
The error in Mr. Felix's thinking is that money is loaned only to "credit worthy investors." At the present time, this is untrue. Both banks and the Federal treasury directly have made huge loans to credit unworthy companies. These are the "zombie companies that we hear about By buying these "junk bonds," the Federal reserve system acquires credit-unworthy securities from the banks that are extremely unlikely to be paid back. The Federal treasury has also made huge outright "grants" to various companies to develop vaccines, pharmaceuticals, etc. Mr. Felix's assumption that banks are the only entities that are pumping money into the economy, and that banks only lend to "credit worthy" companies, are dangerous fallacies. He also fails to take into account the effect that very low interest rates to depositors that result from the Fed's keeping its interest rate to banks and other financial instituions extremely low. The extremly low interest rates paid to depositors makes savings nearly impossible, which severely hurts people's retirement prospects.
Yes very important points to consider. Maybe it falls outside Mr.Felix's purely economic perspective, but the social and political implications of this should be important to every citizen.
This.
If any of the bonds or securities the fed hold gets defaulted on, it will garner inflation as if the fed just gave it away...
They even gave grants (i.e made a loan) to shit tier companies like Kodak, and it's unlikely Kodak will be able to repay that loan in full.
Many more errors than that, such as: Currency is not money. Yes, fractional reserve still exists... the reserve is ZERO, So it is even Worse. A word he avoids is Counterfeiting. And the historical fact that the central bank cartel successfully impoverished the world and compromised its governments. Central Banks, fractional reserve, tied to a progressive income tax, is NOT remotely capitalistic, it is marxist (as even Senator Aldrich himself said). Every dollar the FED creates steals value from existing ones, and they then hand it out to whom they chose. It is controlled wealth transfer. A blatant corrupt system and anyone supporting it is either blind, or a criminal... like all the thieves that masterminded it.
The fed does not generally buy anything below investment grade. The exception to the rule is that they will buy so called "Fallen Angels" which are companies that were downgraded to "High Yield/Junk" status as a result of the pandemic but would otherwise be investment grade.
Yet here we are in 2022 and 2023 facing a hyperinflation crisis and a banking crisis.
This is one of the best corners of RUclips
It always comes down to low cost index funds. Love it.
Thanks for the video, really great information.
It pains me to admit I've criticized the Fed a lot for this practice without fully understanding what they are even doing. This is an explanation that i needed to hear. Thank you.
Don't be pained......the Fed deserves to be criticized.
Love the videos on this channel. I think the level of research-based inputs is unmatched on RUclips. Most finance channels talk about general theories and "feelings".
That said, the Rational Reminder podcasts are terrible. While I don't mind small talk, hate that it takes minutes to get to a point, which should take seconds. I bet, that you could take any 30 minutes, condense it down to 10, and NOT lose any content.
Absolutely disagree. Rational Reminder podcasts are great, and the length and amount of small talk is good too.
Erm no, please, I have many hours of runs, cycles, gym sessions, household chores to get through. Please keep the podcasts long and detailed, thank you.
Kudos for a very well structured and informative video. You cover a lot of ground.
Great video. Had to watch twice to understand all of it. What blows my mind is how much (or all?) of our financial system is based on debt. The fact that we need more and more debt to keep the economy moving is scary. This doesn't seem sustainable in the long term, yet more than 10 years after 2008 we are still here. I'm still wrapping my head around that 😐
*What's stopping any of us from writing a big cheque without any reserves in order to purchase treasury bonds from the government and then collect the interest **_below_** the rate that any central bank can do, effectively undercutting them and getting the government's business in the long run?*
It seems like a lot of these articles and videos about American monetary system are speaking for the banks, saying how printing money is done in the name of "public good and stimulation of economy". But they never mention the beneficiaries of this system who gained money out of thin air on interest.
Is people gaining (even to an obnoxious level) a bad thing for the whole economy?
Someone told me that it's the best time to buy because there will be a huge pump
The cost of living is making people go into different businesses anyways, but my problem is that the rate at which money gets finished on little purchases is so surprising
OMG I though you gave up like so many RUclipsrs. Very glad you are back!
Spectacular! Thank you so much. This information is actually pretty hard to find usually.
If QE pushes down long term rates by adding liquidity, and you say lower rates results in more money creation then doesn't QE result in more lending indirectly?
Sentinal72 that’s assuming that there is demand for loans. If there is no consumer confidence, a business isn’t going to go to the bank and ask get additional loans to invest in things like capex, even if the interest rate is down to 2%. If anything, they’d be cutting overhead as opposed to adding to their liabilities.
Well thats the purpose for QE no? Encourage loans and spending
@@AForEh But in order to stimulate the economy, by lowering interest rates there will be demand for borrowing. Is that not the case?
So what was the cause of inflation?