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wabuffo

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  1. Got the book. Really enjoying it so far. Good job! Bill
  2. Any recommendations on literature that would help to understand this better? "Understanding Modern Money", by L. Randall Wray is a good start But find papers by the following authors as well: Scott Fullwiler, Mathew Forstater, Stephanie Bell, Peter Stella.
  3. I would not focus too much on short-term price changes. The UK seems to be swinging wildly in terms of govt policy. The last worry about gilts in Oct-Nov 2022 didn’t last long but I don’t follow UK flows. Bill
  4. Is the monetary system in the UK significantly different than in the US? Seems like the bond Vigilantes have been out in force there. It is not - the UK, Japan, Canada are all examples of sovereign currency issuers. The Euro is a bit different since it is a monetary union and individual countries have ceded their currency sovereignty. Individual European countries are more like states or provinces now. Bill
  5. wasn’t the vigilantes a thing in Clinton era in the 1990s. That is well pass the gold standard. Doesn't matter - people still think there are bond vigilantes today. What matters is putting on your tool belt and trying to understand how the US monetary plumbing works. BTW - I don't consider myself an MMT-er. Some of those folks are more interested in policy that I often disagree with. This idea of tax-based money used to be pretty mainstream even a century ago. Instead I pick and choose from among different economic theories and merge them into a framework of what seems to practically work based on the evidence. Bill
  6. Not to get off topic but I never understood the gold standard. Why not a more useful commodity, like oil or steel Too unstable. Gold was useful because its low annual production/above ground inventory made it stable. Unfortunately above ground supply grows too slowly. Bill
  7. Do you think Buffett understands this too judging by his actions? He absolutely does. He has said that he thinks deficits are fine so long as the deficit-to-gdp ratio rises in line with economic growth. I think he believes the real problem is the trade deficit because he thinks that those US dollar assets leaving the country are claim checks that can only be spent in the US economy and will come back some day as inflation. But I could be wrong about his position. Bill
  8. Can you please elaborate on this further? What would happen if there is not enough private sector demand to buy the US Treasuries offered at auction? The US used to be in a fixed exchange rate currency system (where the USD was fixed to gold). In those days & under that monetary regime, government borrowing functioned to protect central bank reserves and keep the government from defaulting on its legal conversion requirements. In other words, the currency of the US was gold & the dollar was subordinate to gold. Since holders of USDs back then had the option of conversion of their USD at the central bank, Treasury securities had to compete with that conversion option since if the market didn't like the rate, it could simply convert its currency to gold. In addition, not borrowing by the Treasury risked excess currency from its spending also being converted to gold. In those days, "bond vigilantes" existed and were simply the private sector buyers who could dictate the term structure of rates. But that's not the monetary system of today (despite Sheila Bair & Paul Tudor Jones mistakenly believing we are still in the old regime of yesteryear). The demand for the government's money is tax-driven. And therefore the power of the US Treasury to impose a tax liability ONLY payable in its own currency is sufficient to create a demand for the currency and give it value. In today's system, if the US Treasury decides not to issue securities, all rates will gradually fall to zero (which is the natural rate for a government that is a monopoly issuer of its currency). Thus there is ALWAYS demand for Treasury securities since the alternative is a zero rate. This is because Treasury security issuance in this regime isn't borrowing but instead acts as a reserve drain. If those reserves aren't removed, rates go to zero (or even negative). Let's use 2021 as a practical example. Due to a combination of factors, from January to October, the US Treasury spent down its reserves in its general account at the Fed by $1.5t but only issued $500b of net new securities due to its debt limit toggling back on. Meanwhile the Federal reserve was also buying $750b causing the private sector to actually be short by $250b. The result of net spending to the private sector of $1.5t and converting another $250b of private sector ownership of Treasury securities to cash caused reserves to surge. The Federal Reserve by March-April began to get alarmed that the growth of reserves was heading to over $5t. There were reports back then that banks would start to push some depositors out and that money market funds would start to charge an admin fee to cover their costs (ie, negative interest rate). The collapse of rates to below zero was about to happen & thus, if the US Treasury couldn't or wouldn't remove those reserves through "borrowing", the Federal Reserve would have to conduct its own "borrowing" to drain reserves. If it didn't, then the Fed would lose control of its target rate of interest. The Fed's "borrowing" was in the form of a huge reverse repo operation that reached $2.2t. So one arm of the govt (Treasury) issues securities to remove reserves - or - another arm of the govt (Federal Reserve) issues securities (reverse repo) to remove reserves. Either way, both have the same goal - to control a policy rate by draining reserves. Both of these assets end up on the balance sheet of US money market funds (T-Bill or reverse repo at NY Fed). But we think of the former as borrowing while the latter is a monetary operation - yet they are the same in result. Note also that the source of the funds to buy the securities or do the reverse repo comes from the deficit spending & thus is pre-funded and does not crowd out private sector wealth. Bottom line - in today's monetary regime, US Treasury securities are not really borrowing (in the conventional way we think of borrowing). They are a reserve drain to control rates and there is always demand for these securities because of the deficit spending that precedes them. The only constraint is possible inflation but that's another topic. The only thing I will say there is that the USD is the world's reserve currency and must supply not just domestic dollar needs but foreign demand for dollars. So perhaps the question isn't should the US run a deficit but what is the optimal size of that deficit as a % of GDP. And given the US is a $30t GDP economy, perhaps a 5-6% deficit is more optimal than a 1-2% one. But 5% of $30T is still a very large number and is "scary" <Sorry for turning a BRK Q3 thread into macro babble - stuff interests me, but I understand that for most people its probably dull & wonky> Bill
  9. … I certainly don't see low rates being offered on long-term U.S. debt, as the amount of debt maturing is going to be far higher than simple demand US Treasury security issuance is always, ALWAYS, pre-funded by the deficit spending that precedes it. As a floating exchange rate sovereign issuer in its own currency, the purpose of US Treasury security issuance is to drain the reserves its deficit spending creates, otherwise rates fall to zero (or even go negative). And now that the Federal Reserve is allowed to pay interest on excess reserves, I’m not sure Treasury security issuance is even necessary (other than due to political constraints that do not permit the Treasury to overdraw its general account at the Fed.) Interest rates are a policy choice to offer safe interest earning assets to the private sector. The term structure of rates is not set by market forces. There are no bond vigilantes. There is no “crowding out”. Bill
  10. Back of the envelope, 7/16 ownership was 54,200,142 HK:1211 shares and I estimate 9/30 ownership was about 22.66m shares. Wouldn't be surprised if that is zero now. I get similar numbers. In addition, DJCO has been a seller of its BYD position over the same time frame. My calculations are that it has sold 65-70% of its original stake since the end of 2020. Bill
  11. CASH, TBBK - best in class BaaS banks. Heading to 3%+ ROAs & 30%+ ROEs which is unheard of in the US banking sector. Strong repurchasers of common shares, to boot! Bill
  12. Here's the portion where the Second Circuit classifies member banks' capital as debt. I forgot to include it in the previous post. Bill
  13. I haven't heard this interpretation of this case. Note that FRB = Federal Reserve Banks in this case. Here it is in clear language. Basically, the member banks' capital contributions are debt, and not, equity. Bill
  14. This is a long way of saying that I still don't understand the purpose of this article other than informational, "Look how cool this is!" Its clickbait for the uninformed. BTW - as an aside, in 2019, a Federal Appeals Court ruled that member banks do not own equity in their respective district Reserve Bank. (See Wells Fargo vs United States, US Court of Appeals for the Second Circuit). The US Treasury owns 100% of the equity. Its a legacy of the Federal Reserve's creation in order to get banks to move from private payment clearing houses to the Fed's payment system - but now a pure relic. Bill
  15. I suppose it is hard to justify to “own” a central bank whose primary mission is probably not aligned with its shareholders all the time. Who owns the "equity" of the Federal Reserve? Bill
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