Marky got with Sharon
And Sharon got Cherese
She was sharing Sharon's outlook
On the topic of disease
Mikey had a facial scar
And Bobby was a racist
They were all in love with dyin'
They were doing it in Texas
Tommy played piano
Like a kid out in the rain
Then he lost his leg in Dallas
He was dancing with a train
They were all in love with dyin'
They were drinking from a fountain
That was pouring like an avalanche
Coming down the mountain
I don't mind the sun sometimes
The images it shows
I can taste you on my lips
And smell you in my clothes
Cinnamon and sugary
And softly spoken lies
You never know just how you look
Through other people's eyes
Some will die in hot pursuit
And fiery auto crashes
Some will die in hot pursuit
While sifting through my ashes
Some will fall in love with life
And drink it from a fountain
That is pouring like an avalanche
Coming down the mountain
I don't mind the sun sometimes
The images it shows
I can taste you on my lips
And smell you in my clothes
Cinnamon and sugary
And softly spoken lies
You never know just how you look
Through other people's eyes
(In Reverse:
I don't mind the sun sometimes
The images it shows
You never know just how you look
Through other people's eyes)
Another Mikey took a knife
While arguing in traffic
Flipper died a natural death
He caught a nasty virus
Then there was the ever-present
Football player rapist
They were all in love with dyin'
They were doing it in Texas
Pauly caught a bullet
But it only hit his leg
Well it should have been a better shot
He got him in the head
They were all in love with dyin'
They were drinking from a fountain
That was pouring like an avalanche
Coming down the mountain
I don't mind the sun sometimes
The images it shows
I can taste you on my lips
And smell you in my clothes
Cinnamon and sugary
And softly spoken lies
You never know just how you look
Through other people's eyes
Used without permission.
Friday, February 25, 2011
Monday, February 14, 2011
What does it do?
Today I'm going to talk about the other thing in my blog's subheader. You know, economics. If you just read this for toy soldiers, it may bore you, but I hope not. The other day I found occasion to explain what the Fed does. I thought I'd repost that here and expand a bit.
Basically, I was asked why I think Ron Paul's idea to abolish/audit the Fed was a bad idea. My response was that a central bank needs its independence to prevent pressure from lawmakers to pursue a pro-cyclical monetary policy at the expense of the nation's financial stability. The response to that was two pronged: first, that the board of managers of an independent Fed could "print money" for themselves; and second, that they could loan money to the government for bad projects. I tried to address both angles here.
The Federal Reserve controls the money supply through open market operations. What that basically entails is buying and selling government bonds on the open market. Imagine the government wants to expand the money supply. Why might they want that? Well, if the economy is booming, demand is rising. That is, people are buying more, making more loans to each other, etc. Prices rise due to increased demand, which is inflation. We don't want that, let's say. Some inflation is not a bad thing, but too much is really bad. Usually there's a target rate. In order to get the inflation rate to this target rate, the government will buy a bunch of bonds. People give the fed bonds, and the fed gives them money; that's how buying things works. By "people" here I mean banks. This injects money into the economy-- that's what "printing money" means in this circumstance. The increased supply of money counteracts the increased demand and inflation slows.
Say on the other hand the money supply is growing TOO fast. There's deflation, which is just as bad or worse. The Fed sells bonds, that is banks buy government bonds and give the Fed money. This money goes out of circulation. The money supply drops, which helps.
Basically, the Fed wants to affect the Federal Funds rate, the rate at which banks loan to each other. This is effectively the "cost of money," since lots of people will take up a low-interest loan but not many will want a high-interest loan. In that way the Fed can make the market speed up or slow own. The "price of money" for banks, that is, how much they have to pay to have access to more money to loan out, is the rate at which they can borrow. This depends on the supply of money available for loan. By using OMOs to increase or decrease the amount of money banks have on hand to loan to each other, the Fed can control this rate. Most of its transactions are what we call "repos," that is, they are agreements to buy and later sell back (or sell and later buy back) which can be renewed, so the Fed can make micro-adjustments to just how much is out there day by day.
Note that all this money goes to banks. Banks have what is called a "leverage requirement," that is, they have to keep a certain amount of capital on hand. They loan out the rest. If the reserve requirement is 10%, then for every $10 a bank loans out they have to hang on to $1 in reserve. This means that by buying $10 in bonds from a bank the government increases the available money supply by $100. This makes more loans available, which is called increasing liquidity in the market. The market is more liquid, there's more money around to spend on stuff.
The central bank conducts the aforesaid open market operations to change the money supply. It also (rarely) changes the reserve requirement-- the 10% mentioned above. Finally, it changes the discount rate, which is the rate at which banks can borrow from the Federal Reserve in an emergency. Not so important. Those are its three functions.
So a person can't just walk home with their pockets full of money. When the Fed is "printing money" what it is really doing is "buying securities" which are debt instruments and worth money anyways. Usually the banks sell them to each other to make loans but sometimes the government buys them and that adds to the amount of money in circulation. A Fed chairman could sell a bunch of securities to the Fed but that would be impossible to hide and he'd quickly be fired.
As far as the debt goes:
When the Fed creates money, as seen above, that money is used to buy securities. These securities are actually the national debt: they are US government bonds. So when money is printed, it is being used to pay down the debt. Because the Fed can safely print X number of dollars per year (because the economy is expanding at X rate, so it can print them without risking inflation) the government can run a deficit of X dollars per year but not actually gain any new debt. Of course we are running deficits far above X, so we have some foreign debt as well, but that's a completely separate issue (and technically a fiscal and not a monetary one). The Fed doesn't loan money to any particular part of the government, they just buy securities and hence reduce the size of the debt, which has roughly the same effect (e.g. gov't can spend more). But you can't steal that money if you're a corrupt government dude because it's not being sent to you.
Now, some more thoughts I had since writing this:
The economy is growing at a steady rate. It's not important what the rate is, just that it's positive (which it pretty much always is). As the economy grows, demand for money increases, since people are buying more stuff. The government can safely increase the supply of money (by printing it) at this rate without causing inflation. This does not cause the dollar to lose value, because the increased demand for dollars offsets the increased supply. Inflation is frequently considered to be a Serious Problem by Very Serious People, but the fact is it's simply not right now. The fact is inflation is near its lowest ever level right now. We can afford a bit more, it's only hyperinflation that causes problems.
The thing is, the Fed's hands are sort of tied. The federal funds rate is really, really, really low. In fact it's not really possible to slash interest rates any more. Thus, the Fed can't really increase the amount of loanable money (liquidity) in the economy by reducing the rate and making loans more attractive. That's why we have things like a quantitative ease, where the Fed simply buys a bunch of government bonds with printed money. That increases the amount of liquidity out there, but there's no guarantee that banks will lend it, because in a climate of financial uncertainty they may just sit on the extra capital reserves. Remember, for this money to create jobs and stimulate activity it has to be loaned out to people who start companies, buy houses and cars and boats etc.
The idea of fiat currency is scary to people. The idea of a small group of economic technocrats making the decisions about how much money is in the economy is also scary (I'm paraphrasing a friend here). The Fed sometimes seems to be very opaque in its practices and very arcane. They do a very difficult job and they have to walk a tightrope of people trying to influence them. An audit only makes their job harder and is not likely to uncover deep dark secrets. It is also dangerous because economics is all about confidence, and sometimes self-fulfilling prophecies will cause problems that wouldn't otherwise exist.
Ron Paul doesn't know anything about economics. He's a fearmonger who has a bunch of ideas that sort of make sense if you don't think hard about them but don't hold up to scrutiny. The people in power are not stupid. If something seems like a common sense solution to you, but still hasn't happened, it's probably because there's a hidden cost you haven't thought of.
Basically, I was asked why I think Ron Paul's idea to abolish/audit the Fed was a bad idea. My response was that a central bank needs its independence to prevent pressure from lawmakers to pursue a pro-cyclical monetary policy at the expense of the nation's financial stability. The response to that was two pronged: first, that the board of managers of an independent Fed could "print money" for themselves; and second, that they could loan money to the government for bad projects. I tried to address both angles here.
The Federal Reserve controls the money supply through open market operations. What that basically entails is buying and selling government bonds on the open market. Imagine the government wants to expand the money supply. Why might they want that? Well, if the economy is booming, demand is rising. That is, people are buying more, making more loans to each other, etc. Prices rise due to increased demand, which is inflation. We don't want that, let's say. Some inflation is not a bad thing, but too much is really bad. Usually there's a target rate. In order to get the inflation rate to this target rate, the government will buy a bunch of bonds. People give the fed bonds, and the fed gives them money; that's how buying things works. By "people" here I mean banks. This injects money into the economy-- that's what "printing money" means in this circumstance. The increased supply of money counteracts the increased demand and inflation slows.
Say on the other hand the money supply is growing TOO fast. There's deflation, which is just as bad or worse. The Fed sells bonds, that is banks buy government bonds and give the Fed money. This money goes out of circulation. The money supply drops, which helps.
Basically, the Fed wants to affect the Federal Funds rate, the rate at which banks loan to each other. This is effectively the "cost of money," since lots of people will take up a low-interest loan but not many will want a high-interest loan. In that way the Fed can make the market speed up or slow own. The "price of money" for banks, that is, how much they have to pay to have access to more money to loan out, is the rate at which they can borrow. This depends on the supply of money available for loan. By using OMOs to increase or decrease the amount of money banks have on hand to loan to each other, the Fed can control this rate. Most of its transactions are what we call "repos," that is, they are agreements to buy and later sell back (or sell and later buy back) which can be renewed, so the Fed can make micro-adjustments to just how much is out there day by day.
Note that all this money goes to banks. Banks have what is called a "leverage requirement," that is, they have to keep a certain amount of capital on hand. They loan out the rest. If the reserve requirement is 10%, then for every $10 a bank loans out they have to hang on to $1 in reserve. This means that by buying $10 in bonds from a bank the government increases the available money supply by $100. This makes more loans available, which is called increasing liquidity in the market. The market is more liquid, there's more money around to spend on stuff.
The central bank conducts the aforesaid open market operations to change the money supply. It also (rarely) changes the reserve requirement-- the 10% mentioned above. Finally, it changes the discount rate, which is the rate at which banks can borrow from the Federal Reserve in an emergency. Not so important. Those are its three functions.
So a person can't just walk home with their pockets full of money. When the Fed is "printing money" what it is really doing is "buying securities" which are debt instruments and worth money anyways. Usually the banks sell them to each other to make loans but sometimes the government buys them and that adds to the amount of money in circulation. A Fed chairman could sell a bunch of securities to the Fed but that would be impossible to hide and he'd quickly be fired.
As far as the debt goes:
When the Fed creates money, as seen above, that money is used to buy securities. These securities are actually the national debt: they are US government bonds. So when money is printed, it is being used to pay down the debt. Because the Fed can safely print X number of dollars per year (because the economy is expanding at X rate, so it can print them without risking inflation) the government can run a deficit of X dollars per year but not actually gain any new debt. Of course we are running deficits far above X, so we have some foreign debt as well, but that's a completely separate issue (and technically a fiscal and not a monetary one). The Fed doesn't loan money to any particular part of the government, they just buy securities and hence reduce the size of the debt, which has roughly the same effect (e.g. gov't can spend more). But you can't steal that money if you're a corrupt government dude because it's not being sent to you.
Now, some more thoughts I had since writing this:
The economy is growing at a steady rate. It's not important what the rate is, just that it's positive (which it pretty much always is). As the economy grows, demand for money increases, since people are buying more stuff. The government can safely increase the supply of money (by printing it) at this rate without causing inflation. This does not cause the dollar to lose value, because the increased demand for dollars offsets the increased supply. Inflation is frequently considered to be a Serious Problem by Very Serious People, but the fact is it's simply not right now. The fact is inflation is near its lowest ever level right now. We can afford a bit more, it's only hyperinflation that causes problems.
The thing is, the Fed's hands are sort of tied. The federal funds rate is really, really, really low. In fact it's not really possible to slash interest rates any more. Thus, the Fed can't really increase the amount of loanable money (liquidity) in the economy by reducing the rate and making loans more attractive. That's why we have things like a quantitative ease, where the Fed simply buys a bunch of government bonds with printed money. That increases the amount of liquidity out there, but there's no guarantee that banks will lend it, because in a climate of financial uncertainty they may just sit on the extra capital reserves. Remember, for this money to create jobs and stimulate activity it has to be loaned out to people who start companies, buy houses and cars and boats etc.
The idea of fiat currency is scary to people. The idea of a small group of economic technocrats making the decisions about how much money is in the economy is also scary (I'm paraphrasing a friend here). The Fed sometimes seems to be very opaque in its practices and very arcane. They do a very difficult job and they have to walk a tightrope of people trying to influence them. An audit only makes their job harder and is not likely to uncover deep dark secrets. It is also dangerous because economics is all about confidence, and sometimes self-fulfilling prophecies will cause problems that wouldn't otherwise exist.
Ron Paul doesn't know anything about economics. He's a fearmonger who has a bunch of ideas that sort of make sense if you don't think hard about them but don't hold up to scrutiny. The people in power are not stupid. If something seems like a common sense solution to you, but still hasn't happened, it's probably because there's a hidden cost you haven't thought of.
Tuesday, February 1, 2011
Argh
It's been far too long since I updated, and it hasn't been substantial stuff, either. I do apologize to my reader, if he or she even exists. The fact is that I've been busy, but probably not too busy to update. I'm studying finance now, which is interesting to me, so maybe I'll do the inevitable economics post soon. I've also been playing TF2, and believe me, I have some thoughts on THAT.
Let's just do a nice simple post everyone can agree on: in games that are paid for and played online in a competitive fashion (that is, against other people), it is wrong to give people who afford to pay more an advantage. I'm not talking about the Mann Co. store. Valve has done a good job of balancing the add-on weapons and in any case they all drop randomly if you play long enough. I'm talking about servers that allow people to pay for "premium." That shit has got to stop. It's unbelievably frustrating, especially given the significant advantages it grants.
I will be more articulate about this later, but it's bedtime. Just wanted to get something off my chest. Real, informative blog posts returning soon, I promise.
Let's just do a nice simple post everyone can agree on: in games that are paid for and played online in a competitive fashion (that is, against other people), it is wrong to give people who afford to pay more an advantage. I'm not talking about the Mann Co. store. Valve has done a good job of balancing the add-on weapons and in any case they all drop randomly if you play long enough. I'm talking about servers that allow people to pay for "premium." That shit has got to stop. It's unbelievably frustrating, especially given the significant advantages it grants.
I will be more articulate about this later, but it's bedtime. Just wanted to get something off my chest. Real, informative blog posts returning soon, I promise.
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