Fed Open Market Operations

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Fed Open Market Operations
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[@stacysmith7387]

What I love about these videos is no music. We can actually learn in peace.

[@ElizabethSolo]

Agreed!

[@summerjune4269]

you're my hero Sal..you explain concepts so nicely and easily!!

[@raymondphilip6232]

This is way entertaining than the other youtuber 9yrs back

[@iamvoodoo]

@etzel33 Austrians are somewhat divided on fractional reserve banking, but they all argue against fiat money. Also, the question posed by Austrians is not who should control the national currency, but whether to have a national currency over a decentralized, market based currency. Pushing a gold (or silver) standard is a general way of promoting market based money since gold has been chosen as the medium of exchange by the market over millenniums.

[@SublimeBay]

Thanks for the video but I've always wondered and no one or no instructors seem to explain this particular detail regarding open market operations: When the Fed is buying bonds or selling them to banks in order to manipulate the money supply, they are buying bonds that banks have already bought previously using their(the bank's ) capital at some point and if a particular banks doesn't possess any bonds to begin with, the Fed is not just going to give out free money to those banks. So looking at just the buying side, the Fed is buying up some of the already existing bonds out in the economy(or held by each bank). And all of those bonds were purchased at some various points with the individual banks own capital(or deposits from customers). Hence, the Fed by buying up those bonds is replacing money that has been spent. Meaning it is not just giving out free money from thin air to various banks; it's just buying up already held bonds that banks have spent money previously. If you look at the economy over a certain time period, say over 10 years and various banks have spent let's just say 100 Billion dollars to buy TBills over that time and at the end of those years, the Fed via open market buys up those 100 Billion dollars, the equation is 100Billion in, and 100Billion out, --net effect is zero? Is it not? Again, it's not as though the Fed is injection 100Billion dollars of free money just giving it out to various banks in the economy-- now that would truly be plus 100Billion in the economy equation. If someone could explain this in detail perhaps I can discover for myself how the sell side works similarly. Thanks much!

[@HGHONDO]

What's really crazy is as individual Americans we can buy treasury securities directly from the federal government, banks, and broker dealers. However, when the American public wants to buy treasury securities they have to go through the primary dealers paying extra costs which is INSANITY!!!

[@musak.4068]

@@HGHONDO Makes no sense...

[@MrLewisMovies]

[Part 1] "Even in my book End the Fed If you read [the book], it doesn't call for the end of the fed because it would be chaotic.... All I want to do is get rid of the monopoly. I want to legalize competition." - Ron Paul said that during an interview on CNBC. I cant find any quote so obvious said by Rothbard, but I have read his book "Americas Great Depression" and he seems to have the same opinion as Paul. Now they are strongly CONFIDENT in private organizations, but wouldn't force it.

[@MrLewisMovies]

[Part 2] As you said before democracy and freedom can both exist. Libertarians don't advocate complete annihilation of government. Rothbard, Mises, Paul, and myself are all strongly confident that privatized services and products will always do better then the publicized version. All of Rothbards books are strongly in favor of private services, but he never mentions using force. He is a fan of democracy.

[@iamvoodoo]

@etzel33 Maybe I'm wrong, but taxes were meant to be paid in gold or silver under Article 1 Section 8 exactly because of the instabilities inherent in fiat money seen in the colonies. Also, I agree banks should not be governing, but governments should not monopolize currencies either. There should be no limit on private banks or individuals from issuing notes of credit backed by whatever they please whereby the value of those notes would fluctuate in the marketplace against competing notes.

[@anjaliverma939]

Really helpful... Thanks!

[@alotan2acs]

How does the Fed choose who to buy treasuries from? There are so many entities that hold treasuries and are thus sources for buying them: 1) ETFs like iShares or SPDR may hold treasuries 2) Mutual funds 3) individuals who bought them from brokerages in the secondary market 4) Banks 5) overseas investors 6) the gov itself sells treasuries directly through the website TreasuryDirect. Does the Fed reach out to all these parties? This seems like a very complicated process because it would have to submit bids all over the place on multiple platforms, and hold treasuries through multiple custodian accounts. On the other hand, if the Fed doesn't reach out to all parties equally, doesn't that unfairly advantage those special few that receive money from OMO? And even if it does reach all treasury holders, doesn't that selectively advantage those people holding these bonds? The general public is not a direct recipient of the cash. Only these holders of gov treasuries are. Everyone else needs to borrow it through a bank. All this seems extremely unfair.

[@MrLewisMovies]

Most don't advocate switching the dollar to the gold standard but having a dual currency.. another one backed by gold to compete with the dollar. This idea of a Dual U.S. currency was championed by Ron Paul in his book End the Fed.

[@nandiniagarwal9040]

Thank you so so much! so helpful

[@ConnorMcLarnon]

Hi, can I ask what program are you using to present? The drawings are very precise. Nice video by the way.

[@GenghisVern]

There was a period of "free market" banking prior to the creation of the Fed, for some 50 years, during which the original Trusts were formed. The Fed was an alternative to shutting all that down and issuing currency directly by the US Treasury as Lincoln did. Fact is, the WERE that big in a "free market".

[@stephfong4577]

Why does this measure does not affect the long-term bond yield?

[@iamvoodoo]

@etzel33 Bill Still is an advocate of revoking the authorization from Congress outsourcing the Fed to perform monetary policy otherwise prohibited under the Constitution. However, his solution is to grant the Treasury this privilege, thus concluding that politicians are more responsible than central bankers in controlling fiat money. I tend to disagree. I also wasn't too compelled by his history lesson, but then again, it's been a while since I've watched The Secret of Oz.

[@wadams19]

@pytube2007 To be sure I understand, do you mean mainstream economists have made good arguments against Austrian economics? If yes, please point me in that direction. I haven't seen anything that really sticks.

[@MrLewisMovies]

I agree, liberty and democracy are amazing ideas. Not too sure where that statement came from. But yes and no, Austrians generally aren't trying to privatize money. They want to legalize competition, so if i wanted to open up a bank and issue my own currency, it should be legal. If people trust the government dollar more, then there currency will be dealt with in the public domain. If people really trusted my dollar for some reason and thought it was safer, they would gravitate towards my bank.

[@GenghisVern]

Liberty and Democracy are not opposing ideas. History backs me up on this.

[@Young10489]

Khan, the great!

[@networth8754]

The Federal Reserve does not "print money" but they influence the money supply in the banking system.

[@Unitas2Berry]

I agree with you that the Fed does not "print money" and I've been trying to figure out why everyone says they do. IMO, whatever influence they have on the money supply is overrated.

[@networth8754]

@@Unitas2Berry Good point. I love your handle and I recall Johnny U hitting Raymond Berry on many a pass play. Berry was not a speedster, but had great hands and route running ability.

[@Unitas2Berry]

@@networth8754 thanks. In truth, it was a bit before my time, but I loved watching highlights and interviews of the old Baltimore Colts (Unitas, Berry, Moore, etc.), and of course Art Donovan.

[@Solingen1000]

I thought the FED gave the banks "bank reserves" not cash?

[@Sonu-pb8ec]

Understood in one go..easy

[@GenghisVern]

@iamvoodoo I understand. The only real issue, of course, is what denomination TAXES should be paid with. If you demand taxes in scarce commodities (gold etc) then those commodities can be easily controlled. This is exactly what happened with the Currency Act of 1764 that killed colonial scrip. Commodity exchange using denominational currency is fine. Barter is fine. Whatever. But currency is a function of government, and banks should get out of the governing business.

[@fequalsmalol]

thank you sir

[@GenghisVern]

@iamvoodoo Fair enough. Consider if you lobbied to put the US on a gold standard, and the law would go into effect 6 months from now. What would happen to the price of gold? Who would buy it? Besides, without an end to fractional reserve lending, there would be no change in who controls the money supply. Right now 97% is commercial credit. Going to full reserve gold standard would impoverish the people. Again, it's what the Brits did in 1764 and for the same reason.

[@GenghisVern]

@iamvoodoo Article 1 sec 8 gives Congress the power to coin money and regulate the value thereof. A privatized currency is not regulated by congress, but by the open market which can be easily manipulated. The gold/silver issue relates to the states and doesn't apply to currency. Coinage includes paper and electronic data. 97% of the US money supply is generated as commercial credit, not "printed" by the government. Look into it a bit. It's fun stuff. Try Secret of Oz on youtube

[@iamvoodoo]

@etzel33 @etzel33 Oops. I meant Article 1 sec 10 making, albeit only to the States like you said, gold and silver a "Tender in Payment of Debts" i.e. Taxes. And I have to take issue with your assertion that currency can "easily" be manipulated in the open market. Suffice it to say I wouldn't trust a handful of "well intentioned" people with monopolistic power over something as important as a nation's currency backed by nothing. I've seen The Secret of Oz but not The Money Masters.

[@pytube2007]

@wadams19 i know it is hard if you are biased towards Austrian econ but you can not ignore the other side. you can look up Austrian school on Wikipedia and go to criticism section. a lot of people spin Austrian econ like it is a holy grail of economics.

[@MrLewisMovies]

Also the only reason JPM is so big is because of low government monetizing/corporate welfare/bailouts. They would never be this big in a free market.

[@MrLewisMovies]

Well the Fed is probably the least private out of all private groups. Supporters of a dual currency are against the government having the ability to contract or expand the money supply. And not so much for morality but to allow currencies to have a better market place. If Ron Paul is right, then the gold backed dollar will gain more value in comparison to the fed backed dollar. If he is wrong, then value will gravitate towards the Fed backed.

[@GenghisVern]

@AlanMathewPolson Bill Still has a better presentation than the Austrians do. Check out the Secret of Oz for some honest history behind the gold standard and the Fed.

[@GenghisVern]

States are not sovereign, hence the clause to prevent them from issuing money. Prior to the formation of the US, many states had their own sovereign fiat currency. According to Franklin, it was loss of this power that was the root cause of the Revolution, not taxes. Sorry, but Austrians don't understand the history of money very well, or even what it is.

[@zo9608]

why you understand everything

[@GenghisVern]

@iamvoodoo Sorry, I went the wrong direction with that last comment. I'd like to ask why you feel that taxes should be paid in gold rather than debt-free credits issued by government? Is it necessary for a government to accumulate gold to pay for infrastructure and civil protection? Why can't currency simply circulate as a utility of commerce? US Notes could be issued legally, now, to pay off the national debt and raise reserve rates to 100%, ending the Fed and currency manipulation :)

[@GenghisVern]

You want to un-privatize the Fed then? Why a dual currency? Morality?

[@GenghisVern]

@iamvoodoo His position is rather compelling historically. If it's an ideological issue you're worried about, consider that fractional reserve lending is "fraud" by definition of fraud. I wouldn't want the military privatized, nor the roads, nor the national currency. Ludwig von Mises was sponsored by Rockefeller throughout his career. It's no wonder he advocated the gold standard.

[@pytube2007]

@wadams19 Austrian economics is not accepted by mainstream economists not because they are dumb but because they know the problems with it.

[@loveormoney786]

The Federal Reserve needs to stop doing this. There are key reasons as to why. Mainly it is starving yield in the country and hurting savers. The risk free rate of return as I write this in the 10 year bond is .77%. This is a failed experiment their ultimate goal in this was to eventually inflate asset prices and thus stir up inflation as well. They have inflated the underlying value of bonds way more than that of equities and inflation is non-existent. This is a cycle that has now not been allowed to blow up which it naturally should. The Federal Reserve needs to honestly needs to pop the bond bubble and let the value of bonds plummet. The economy is strong and lending/banks ultimately do better when the rates are higher and they can make more money in net interest margin and savers can earn a return on their savings in a bank versus nothing.

[@donbeckham]

Khan Academy... you have absolutely no clue how Fractional Reserve Banking nor Open Market Operations work. Banks are prohibited by law from loaning out the money from on-demand accounts. i.e. checking and savings You should read Modern Money Mechanics (published by the Federal Reserve Bank of Chicago) before trying to teach a subject you know nothing about.

[@NazrulIslam-so6cn]

This video is 11 years old,,(:

[@lawrencetyndall4631]

I really like the content of Khan Academy. But they have a HORRIBLE habit. In order to speak Khan Academy English, you must, once every two sentences repeat what you said V-E-R-Y S-L-O-W-L-Y while you write what you said. I know this sounds petty. I don't care. It would take only a series of edits to remove the segment while you are writing (and repeating yourself) to make these videos much more watchable. I will nearly always choose another video because I don't want to hear this habit.