QE is not “printing money” as it does not increase the amount of money in circulation. Handing out $100 bills would be printing money. By purchasing Treasuries and MBS, the Fed raises the price of those securities and thus lowers interest rates. And lower rates can certainly result in an increased desire to borrow. But that increased demand will only lead to money supply growth if private banks make loans.
Tag Archives: housing economist
Moving Money
The velocity of money is the number of times a unit of currency is used to buy domestically produced goods and services during a fixed period of time. The velocity of M1 (cash and checking accounts) has fallen by 38% since the start of the Great Recession, while M2 (M1 plus savings accounts, CDs and money market accounts) has declined by 19%. Note, QE has not substantially altered these numbers.
Deficient Data
The CPI is based on 83,300 price quotes/month, but because the government was closed for 11 working days in October, the sample will be based on 40,000 price quotes. Because price quotes for some items are collected bi-annually, it will take six months for inflation data to fully recover from the small October sample. Worse, estimates for GDP, productivity and consumption which are based on CPI, will be similarly harmed.
Presidential Path
With the debt ceiling fast approaching, President Obama is caught between borrowing no more than Congress will allow him, or paying what Congress has instructed him to do, but not both. Either way, he breaks the law. Given the huge economic consequences of not paying our bills, President Obama must breach the debt ceiling. Should Congress take him to court over this, the judge would side with Obama.
Furlough Farce
With federal workers averaging $108,500/year in salary and benefits, if all 820,000 furloughed federal workers never came back, the total savings to the Treasury would be $90 billion/year. In a budget of roughly $3.5 trillion, that’s just 2.6% of all spending. Even as a percentage of the $642 billion FY13 deficit, a reduction of $90 billion is just 14%! Entitlement reform, and nowhere else, is where savings will be found.
Spectacular Sailing
In a remarkable comeback, Team USA reeled in eight straight wins to capture the America’s Cup competition 9 to 8. They actually won 11 races but were docked two wins for infractions before the series began. The $300 million US entry, Oracle Team USA, which sailed at speeds of 50 mph, was financed by Larry Ellison, the world’s eighth richest man. Sadly, just one of the 11 crewmen was American.
Pricey Policy
To save lives, Congress requires all new cars and trucks to have backup warning systems to prevent the killing or injuring of pedestrians while driving in reverse. If installing a camera (the cheapest solution) costs $75/vehicle, the cost/life saved is $65 million!! It’s so expensive because all 250 million cars will need a camera before all 288 of these deaths/year are prevented. While I’m special, I’m just not that special.