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Old 12-27-2011, 03:31 PM
Don Zeko Don Zeko is offline
Join Date: Oct 2009
Location: Exiled to South Jersey
Posts: 2,436
Default Re: Katherine's pants are on fire

Originally Posted by badhatharry View Post
As far as how the Fed sets interest rates...usually this is done by buying and selling short term bonds (this affects the money supply, yes?) but when the Fed buys longer term treasuries, this is called quantitative easing, correct? and the idea behind that is that short term interest rates are so low that the Fed wants to boost the economy by buying longer term treasuries and injecting more money into the system. But you say this is different than stimulus. How so?
Parralax and I seem to be mostly in agreement on this, so I'll tell you.

Originally Posted by badhatharry View Post
Or maybe the point you are making is there is a vast difference between fiscal and monetary stimulus and that Ward and CNN are incorrectly lumping the two together.
Bingo! The problem is that Mangu-Ward is lumping together fiscal stimulus, which is money that we have simply spent to buy things, make transfer payments, or failed to collect in tax revenue, with monetary stimulus. This money has to be paid through larger deficits now, meaning higher taxes or lower spending at some point in the future. Monetary stimulus, on the other hand, consists of the Fed creating money out of thin air and loaning it out to banks, so it doesn't increase the deficit. So when people add these loans that must be paid back by the borrowers to spending that must eventually be paid for by the taxpayer that wrongly implies that the government is spending far more money on stimulus than it actually is, since monetary stimulus by the Fed isn't government spending at all.
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