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If asset prices reflect expectations about the future, the market rising should be viewed with optimism, but there might be less optimism, and there may even be pessimism, about a market that is being artificially propped up by a central bank. What if the central bank can’t print any more money and stock prices drop? And how can all of this money printing be good for the country’s currency?
Referenced in this video:
– Money creation in the modern economy
– Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?
– Open Letter to Ben Bernanke
– Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison
– A General Equilibrium Approach To Monetary Theory
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Ben, what a great video. I commented about three weeks ago that I didn’t think your description was 100% accurate. I stand corrected. This video is worth more that a semester at Harvard Business school on macroeconomics. I’ve always been fascinated by the global financial system, but honestly couldn’t get my head around what QE does. After reading one of the books you recommended and other readings I feel like my eyes have been opened. I know you’re 100% against trying to time the market, however after being enlightened by your description I’m convince more than ever that we are in a massive asset bubble driven by false fears that cash is worthless and the false belief the Fed can fix an economy with this much unemployment. Thank you for the great videos and information. You have a gift!
Ben, I’m sure you will really enjoy the following papers: “A System with Zero Reserves and with Clearing Outside of the Central Bank: The Canadian Case” and “The Bank of Canada and the Modern View of Central Banking”, by Lavoie and Seccareccia. Exogenous money is the single most frustratingly obsolete theory (and there’s no shortage of them) that still lingers in most Economics programs. Congratulations on such an excellent explanation. Excerpt from the first paper: “I was present at a meeting in Ottawa, held at Carleton University in September 1987, when two officers from the Bank of Canada, Donna Howard and Kevin Clinton, presented for the first time a rough draft of how the central bank could manage to control overnight interest rates or the Treasury bill rate in a monetary system without any reserves. I very much remember the vague glaze and the total incomprehension of my neoclassical colleagues during the presentation. Because they had been trained in the arcana of a monetary theory based on the money multiplier and its fractional-reserve system, they could not conceive how monetary policy could be pursued without the imposition of bank reserves. Only Mario Seccareccia, Tom Rymes and myself seemed to understand what the two presenters were up to, and showed sympathy to their endeavor.”.
The reserve requirement in the U.S. is 10% if I’m not mistaken
New to trading and still taking more losses than wins. Staying focused, but it’s tough. Any real advice on how to finally turn things around and trade profitably?
Does the fed only buy assets with bank reserves? That is to ask do they only buy treasuries from private banks?