Wednesday, April 25, 2012

Geithner: "We have been very aggressive in protecting the interests of American companies"


Just watched Geithner on an interview on CNBC talking about China and how the Administration has been "very aggressive" (his exact words) in protecting the interests of American companies.

Absent, however, was any mention of protecting the interests of American consumers.

So, companies have benefitted--a lot--in terms of much higher profits, but consumers have been the big losers as prices have increased and jobs have been cut.

Don't ever let someone tell you we've done away with welfare in America, because we haven't...we've just taken it away from the truly needy and given it big corporations and the rich in the form of policies that not only protect their interests, but give them direct government handouts.

13 comments:

Anonymous said...

This crook should be in prison.

Anonymous said...

Interest on government bonds or interest paid on reserves: the more money you have, the more money the government gives you.

Anonymous said...

Just thinking, if all the government stopped issuing bonds, all the money currently invested in bonds would be looking for something else in which to invest. That could mean hundreds of billions or trillons of money no longer wrapped up in bonds. Where would it go? Wouldn't all of this footloose money be pretty inflationary?

Dan Metzger said...

@anon
If not in bonds, then in reserves. Fed would pay interest at target rate to banks on reserves, and much of that would go to depositors.

Anonymous said...

Mike, the idea of the govt looking after consumers is a completely reasonable one (to most), and one that has fairly "static" over time. Politics, on the other hand, has moved soooo far right that this quaint notion makes any proponent seem just sooo "left". Absurd.

Anon, where would the money go? Probably nowhere special. Private investors hold govt bonds for a reason. It's highly unlikely (though possible) that investors would dial up their risk into the shiniest new Investment bank bank megaleveraged product for the sake of it in the absence of bonds. More likely that they invest in something similarly conservative. Banks would be holding onto the cash as well ... They will need it for regulatory requirements without the sovereign bond asset class. Heck, even "sovereign" has to be qualified these days.

You're comment seems to reflect old money multiplier logic. Best to shed that as quickly as possible! There is enough info out there to assist you, on top of the fact that the major central banks, BIS etc have all published research as such. Then there is the real life experience to draw from - it's all pretty clear.

At the very least, there is still the same amount of "net finincial assets" out there. Currently, bonds are issued, then "sterilised", leaving the bonds as the net addition to private sector wealth. So what if it is cash. Treasuries are convertible to cash any time. If private investors sell ALL Treasuries right now, is that inflationary? I would much rather govt spending be targeted toward public purpose in a rigorous way, but that's just me.

Apj

Tom Hickey said...

Anon: "Wouldn't all of this footloose money be pretty inflationary?"

Bonds are saving vehicles. Those with a desire to save would seek out other vehicles in the absence of bonds. There is no reason to think that spending would increase, although it might spur more primary investment.

If a deficit offset were not required, the government could still offer bonds as a public service at a low constant rate with quantity floating based on demand.

Tom Hickey said...

The Neoliberal Paradox: "What's good for America" isn't necessarily good for Americans.

Matt Franko said...

Mike, "Government of the corporation, by the corporation and for the corporation.." ;)

These morons don't even try to hide it...they just talk openly about it in their interviews like 'no big deal' ... What a disgrace.

Right Tom they could put caps on those bonds (or do Beo's consols) and offer them only to US persons (no corporations) who want to save some 'reasonable' amounts of USD balances. Plenty of options visible to the clear-seeing among us... resp

Anonymous said...

When a bank buys a government bond (with reserves), and the govt deficit spends, new NFAs are added to the economy in the form of a) a new deposit, and b) a bond. Reserve levels remain unchanged over all.

However, when an individual or (nonbank) company (inc. pension funds, etc) buys a bond the result is a bit different. The bond buyer's account is debited, whilst the government payee's account is credited (i.e. receives a new deposit). Reserve levels remain unchanged as before.

In the first case (1), deficit spending (with bond issuance) leads to an overall increase of +1 bond and +1 deposit. Overall money supply therefore increases by the amount of the new deposit.

In the second case (2), there is only +1 bond increase overall. Money supply does not increase, as bond buyer's account debit = govt payee's account credit.

Therefore, if the government stops issuing bonds on a large scale and instead deficit spends without 'borrowing', overall money supply (deposit money) will increase faster than it would if the govt issued bonds. Each time the govt deficit spends, new deposits will be added without equivalent debits from bond-buyer's accounts.

(The quantity of reserves held by banks will of course also increase).

Much of the money previously invested in govt bonds will need to be invested somewhere else instead.

If the central bank pays interest on reserves at similar level to that previously received on bonds, then there should be no change in the pattern of investment. Those who previously owned bonds will simply receive interest directly from the CB.

If the interest rate is set at zero however, then previous bond-owners will look elsewhere to invest. A large proportion of what is currently the national debt will start looking for return elsewhere. Up to 15 trillion dollars could therefore be 'on the move'.

Perhaps much of it might flow into foreign govt debt (entailing huge dollar depreciation - inflation), or it could go into other markets, forcing up prices wherever it goes. The fact that it won't necessarily be directly spent on goods/services won't change this. Trillions more dollars moving around the economy or going abroad are bound to have an effect on the price level in one way or another.


"It's highly unlikely (though possible) that investors would dial up their risk"

- They will if non-risk options are only yielding around 0%. Also if inflation rises, tolerance of investment risk will increase (for the sake of higher return).
If the entirety of the US debt were paid off at a stroke, it's difficult to know how people would react.

"At the very least, there is still the same amount of "net finincial assets" out there."

- in example (1) NFAs increase by +1 bond and +1 deposit. In example (2) NFAs only increase by +1 bond. Deposit money does not increase over all. Without bond issuance money supply will therefore increase at a faster rate.

Mike Norman said...

He should read the Preamble: "We the people..." It doesn't read, "We the corporations..."

Tom Hickey said...

Anon "Therefore, if the government stops issuing bonds on a large scale and instead deficit spends without 'borrowing', overall money supply (deposit money) will increase faster than it would if the govt issued bonds. Each time the govt deficit spends, new deposits will be added without equivalent debits from bond-buyer's accounts."

Nope. When govt buys bonds from non-govt, it is an asset swap that leaves non-govt NFA unchanged in amount. All that changes is composition and term. While it may look like saving, it is not in that the tsys market is so liquid and tsys are aslo the best collarteral. So holding tys is virtually the same as deposit money wrt spending power.

Anonymous said...

"When govt buys bonds from non-govt, it is an asset swap that leaves non-govt NFA unchanged in amount."

Actually you're right, but there's a difference between govt buying bonds from banks and buying from non-banks.
(1) When govt buys bonds from banks, bank reserves increase but deposits are unchanged.
(2) When govt buys bonds from non-banks, reserves increase and deposits increase.
In both cases NFAs are unchanged, as in (2) increased bank deposits (assets of bank account holders) entail increased bank liabilities, so add no NFA overall. However, the quantity of deposit money has increased.


If I buy a government bond for $1000, my bank account will be debited by $1000. Whilst I am holding the bond I have $1000 less deposit money in my account than before.
As you say, I always have the option to sell my bond quickly if I want to, so I'm never really constrained from spending or investing elsewhere.

However, if the Fed were to buy back all government bonds and the govt were to stop issuing bonds, then everyone who previously chose to invest in govt bonds would want to invest in something else.

If the Fed pays interest on reserves at an adequate level then most previous bond-owners might just leave their money sitting in an interest paying account.
If however the base interest rate is set at zero, most previous bond-owners will want to invest elsewhere.
Assuming this is the case, this will mean a good part of 15 trillion dollars being reallocated into alternative investments. Stockmarket, corporate bonds, commodity markets, real estate, forex, foreign government debt, direct business investment etc.

That's a good part of 15 trillion or more money moving around than before (as before it was sitting in bonds).

Tom Hickey said...

@ Anon

That is true, and it would result in a rise in demand for other asset classes, as well as primary investment. Asset appreciation is not figured into inflation. However, a rise in commodity price level would get passed through and there would be an inflationary effect.

The 15T would not be closed out immediately though, but as the tys matured, and that would be a moderating influence to the degree composition is across the yield curve. But it is true that there is a great deal short term that would result in a one-off increase to asset prices in a year.