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American Capital Agency Corp. Message Board

  • snidelywhiplash425 snidelywhiplash425 Dec 28, 2012 12:07 PM Flag

    REITS competing with the federal reserve

    The feds print phony money and buy financial assets. Primarily MBS's of late. They earn interest on from all americans who who work and have mortgages. How are REITS suppose to compete with this malfunction?

    Sentiment: Strong Sell

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    • I have toured more than one Federal Reserve District Bank_never saw a printing press. Money is printed by the BEP in D.C. and Texas a division of the U.S. Treasury.

      I assume by "phony money" you are referring to a fiat currency. Between the Treasury and the Federal Reserve working in concert there are multiple ways to increase/decrease the monetary base utilizing the fractional reserve banking system. That macroeconomic purpose was not envisioned in the original Federal Reserve Act that function was added in the 1935 Banking Act.

      • 1 Reply to mmichaelr
      • Michael ...

        Yes, these days money is created primarily by electronic means ... little is actually printed money. Most printed money is used to replace worn out printed money which is then destroyed.

        The Fed is buying MBS and treasuries by adding to the bank's reserve account. This recapitalizes the banking system, but doesn't add to money in circulation. Ergo, no inflation.

        The Fed is trying to get banks to lend. The low short-term rates have the same benefit to banks that they do to MREIT's: take free short money, and buy long paper. Known as the "carry trade" this technique allows banks to take customer deposits and buy Treasuries. Banks make a guaranteed return, but it doesn't help the economy. The Fed is trying to reduce the profitability of the carry trade so banks will lend. Unfortunately for us, it hurts the MREIT's also, but that's our problem.

        Most people don't even know that there is a "fractional reserve banking system." That is, the bank only needs to have about 10% [or so] of deposits actually on-hand. Adjusting the 10% is a principle means of regulating the money supply. The bank takes $10 in deposits, and lends $100 ... creating money. People who think Ben is wrecking the economy with phony money usually don't know that money is being created and destroyed in large amounts continuously. It has nothing to do with printing money; it has to do with things like "reserve requirements" as described in this paragraph. And, that is not what the Fed is doing to fight the carry trade.

    • Snidely ...

      What is phony money? Do you know what M1, M2, M3 and M4 are? Do you know where the Fed's phoney money is? Is it in general circulation? Do American's pay more for their mortgages due to the Fed purchases, or do they pay less? Is it worse if the Fed buys MBS, or if they are sold to foreign countries/banks/investors? Should the Fed set policy in a way that maximizes MREIT profits? Do you actually know anything factual about your post?

      • 1 Reply to ray858945
      • 1. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.

        2. M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Seasonally adjusted M2 is constructed by summing savings deposits, small-denomination time deposits, and retail money funds, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

        p preliminary

        M2 was 8,822.5 billion on Dec 2010

        M2 at 10,306.3 billion on Nov 2012

        Source data obtained from the federal reserve website

        Federal reserve statistical release 12/27/2012

        of not is then 100 billion increase from Oct to Nov. Thats a big printing press...

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