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Sass aside, none of that is inconsistent with what I tweeted yesterday. Here's a thought exercise: what is the difference between a physical dollar bill, a short term treasury bond, and Fed reserves? All are liabilities of the federal government. 1/n https://twitter.com/_BiggieCalls/status/1341747677696954368
Creating Fed reserves can be considered "printing", but when used to buy Treasury bonds it's swapping one liability for another. If you're going to get alarmist about hyperinflation because of muh printing, you have to explain the transmission mechanism 2/n
If the Fed creates reserves / prints, and just deposits that money in everyone's bank account, and people use it to run out and buy stuff, that is inflationary on the price of stuff. 3/n
4/n But that is not what is happening. Fed is buying treasury bonds from banks. It pays for those bonds with newly created reserves. So say JP Morgan owns $1B in USTs and sells them to the Fed. So now JPM owns $1B less of USTs, but has $1B of reserves on deposit at Fed 4/n
So explain how JPM swapping $1B of USTs for $1B of reserves (both liabilities of the federal gov't) leads to more money chasing goods and services and driving up prices. Explain the transmission mechanism. 5/n
That money/reserves needs to be out there chasing goods and services. JPM could spend it on buybacks or Poland Springs water, but the main way this would get out is via loan growth - borrowing money from JPM (who can loan a ton with such high reserves) and spending it. 6/n
But that's not happening. If it were, the velocity of money would be spiking. Instead, velocity is collapsing (as these newly created reserves are sitting like a brick as Fed reserves): 7/n
Excess reserves have exploded higher. 8/n
The reserves being created have the POTENTIAL to contribute to an inflationary burst - but it would have to come in the form of rapid loan growth and deposit creation. 9/n
The Fed has tools to limit this, such as quantitative tightening, increasing reserve requirements of banks, and moral suasion ("Jamie, slow down the loans, yo". 10/n
Deficit spending is the bugaboo, not "printing" or reserve creation. Whether the Treasury borrows from China, Blackrock, Joe Smith, or the Fed, it doesn't make much of a difference. Main difference with Fed is that the reserve increase has the potential to enable loan growth 11/n
Right now deficit spending is plugging a massive demand hole, preventing massive deflation if the economy were allowed to collapse. When the economy recovers, if the gov't decides to keep enormous deficits (spending money on goods and services), that would be inflationary. 12/n
This doesn't mean there won't be "end game" dynamics at some point - e.g. if the market flat out decides to stop buying USTs. Or if the dollar collapses. But we are a LONG way from that. If someone is going to argue that muh Fed reserves = muh hyperinflation.... then 13/n
The onus is on them to explain why it hasn't happened, and why it hasn't happened in Japan-the Mohammed Ali of money "printing" (and they are even buying equities in size so the reserve growth is less dramatic). About $7 trillion USD of muh "printing" on an econ 25% of USA 14/n
15/15 the path of gov't deficits is 10x more important than muh Fed printing.
