Someday you might want to ponder commercial real estate prices. They fell ~40% back in 2008-10.
Obviously, that is not related to easy money for homebuyers.
Stray thought: How does the US money supply actually expand (except possibly for QE)?
Through commercial bank loans...which are usually backed by collateral, meaning property.
So, a commercial bank "prints" up money, and gives it to a buyer, who buys property with it.
The buyer really doesn't keep the money. It goes to the seller.
So, when the Fed "expands the money supply" it essentially directs a lot of new printed (digitized) money to property sellers.
Less, when tightening up.
This is because central banks followed the private-sector creation of fractional reserve banks. They piggy-based on commercial banks.
From scratch, would anyone design the expansion or contraction of an economic system's money supply this way? That is, to expand the money supply you print up money and give it to property sellers?
Then to "tighten up" you put a noose around the property sector.
Would not money-financed fiscal programs make more sense?
In the old days, of course, the Fed kept reserves on a leash, and banks could only lend as much as the reserves would allow.
Nowadays, the banks have the reserves, but the Fed is pushing up interest rates, which limits the demand for bank loans.
Relatively less bank lending means relatively less money expansion. In fact, bank lending is the traditional mechanism through which central banks effect monetary policy.
The exception is when the Fed (or any central bank) directly finances government outlays, called "money financed fiscal programs." This happened in Indonesia through the C19 period, and a few other nations too. The central banks prints (creates) money and gives it to the national government.
Depending on who you ask, it is standard operating procedure in Japan.
Michael Woodford said that in the US, when you have QE concurrent to federal deficits, then that is essentially a money-financed fiscal program. Scott Sumner said no, it is not.
For me, the interesting huge question is:
Can a government, instead of borrowing, go to money-financed fiscal policies?
To date the US has primarily relied on the property sector as the mechanism through which to effect monetary policy. So you get very strong property markets (see the Green St. chart, to eliminate the tight-housing noise), and then you get "busts," when the Fed tightens up.
I posit a better way (in theory) is to expend or slow expansion of the money supply through money-financed fiscal programs.
BTW, Stanley Fischer agrees with me.
Of course, in reality, it is elected leaders who control federal spending. If they think they can print and spend with abandon....
Still, think about Japan. Half of the national debt is owned by the Bank of Japan. So are Japanese taxpayers truly indebted?
Inflation has been very moderate in Japan for generations.
The use of money-financed fiscal programs, rather than reliance on bank-lending to control the money supply, does offer a pathway to more stable results in property markets, less boomy-busty.
https://www.greenstreet.com/insights/CPPI
Someday you might want to ponder commercial real estate prices. They fell ~40% back in 2008-10.
Obviously, that is not related to easy money for homebuyers.
Stray thought: How does the US money supply actually expand (except possibly for QE)?
Through commercial bank loans...which are usually backed by collateral, meaning property.
So, a commercial bank "prints" up money, and gives it to a buyer, who buys property with it.
The buyer really doesn't keep the money. It goes to the seller.
So, when the Fed "expands the money supply" it essentially directs a lot of new printed (digitized) money to property sellers.
Less, when tightening up.
This is because central banks followed the private-sector creation of fractional reserve banks. They piggy-based on commercial banks.
From scratch, would anyone design the expansion or contraction of an economic system's money supply this way? That is, to expand the money supply you print up money and give it to property sellers?
Then to "tighten up" you put a noose around the property sector.
Would not money-financed fiscal programs make more sense?
I’m not sure I see an important distinction. Banks lending isn’t really that dependent on the monetary regime, is it?
Well, sure it is.
In the old days, of course, the Fed kept reserves on a leash, and banks could only lend as much as the reserves would allow.
Nowadays, the banks have the reserves, but the Fed is pushing up interest rates, which limits the demand for bank loans.
Relatively less bank lending means relatively less money expansion. In fact, bank lending is the traditional mechanism through which central banks effect monetary policy.
The exception is when the Fed (or any central bank) directly finances government outlays, called "money financed fiscal programs." This happened in Indonesia through the C19 period, and a few other nations too. The central banks prints (creates) money and gives it to the national government.
Depending on who you ask, it is standard operating procedure in Japan.
Michael Woodford said that in the US, when you have QE concurrent to federal deficits, then that is essentially a money-financed fiscal program. Scott Sumner said no, it is not.
For me, the interesting huge question is:
Can a government, instead of borrowing, go to money-financed fiscal policies?
To date the US has primarily relied on the property sector as the mechanism through which to effect monetary policy. So you get very strong property markets (see the Green St. chart, to eliminate the tight-housing noise), and then you get "busts," when the Fed tightens up.
I posit a better way (in theory) is to expend or slow expansion of the money supply through money-financed fiscal programs.
BTW, Stanley Fischer agrees with me.
Of course, in reality, it is elected leaders who control federal spending. If they think they can print and spend with abandon....
Still, think about Japan. Half of the national debt is owned by the Bank of Japan. So are Japanese taxpayers truly indebted?
Inflation has been very moderate in Japan for generations.
The use of money-financed fiscal programs, rather than reliance on bank-lending to control the money supply, does offer a pathway to more stable results in property markets, less boomy-busty.