Money and the State: Domestic

FT: Quantitative Easing and the Fed

Two charts, top chart is Fed assets and bottom chart is Fed liabilities.

Timeline:

  1. Aug 2007, Fed lowered interest rates
  2. Mar 2008 (first vertical line)
  3. Bear Stearns collapsed.
  4. Fed started selling off treasuries bills.
  5. Sep 2008 (second vertical line)
  6. AIG and Lehman Brothers collapsed.
  7. Fed expanded liabilities and balance sheets (doubled in a week).
  8. $600B (orange section in assets chart) was lent to European banks and Japanese Central Bank.
  9. Nov 2008: QE2 -- Fed bought Mortgage Backed Security (cyan section in assets chart)

Allyn Young: Money and Economic Orthodoxy

  • vs Economic orthodoxy
  • Barter
  • Growth
  • Currency principle
  • vs Chartalists
  • vs Efficient markets
  • vs Populists

National Banking System Before the Fed

  • Deposits (liabilities)
  • New York / Chicago / St. Louis: 25% minimum reserve
  • Layering
  • Other important cities can hold some of their reserves as deposits in New York
  • Country banks (small banks) can hold their reserves as deposit in their local money bank

Civil War Finance, Bonds, and Loans

Bond Sale

Government

Assets Liabilities
+ Deposits (G) [1] + Bonds [1]
+ Deposits (G) [2] + Loan [2]
- Deposits (G) [3]
+ Gold [3]

Private Sectors

Assets Liabilities
- Deposits (PS) [1]
+ Bonds [1]

Banking System

Assets Liabilities
- Deposits (PS) [1]
+ Deposits (G) [1]
+ Loan [2] + Deposits (G) [2]
- Gold [3] - Deposits (G) [3]
  • Case [1]: Private sectors bought bonds from government.
  • Case [2]: Banking system loaned directly to government.
  • Case [3]: Government withdrew gold from bank reserve, to buy stuff from abroad.

Government

Assets Liabilities
+ War goods + Legal tenders ($400MM)

Private Sectors

Assets Liabilities
- War goods
+ Legal tenders ($400MM)
- Legal tenders ($100MM)
+ Deposits ($100MM)

Banking System

Assets Liabilities
+ Legal tenders ($100MM) + Deposits ($100MM)