What is up with Fannie Mae and Freddie Mac? Let's not be afraid to get a little wonky. These are the two "government sponsored entities" (GSEs) that between them backstop much of the home mortgage business in the United States. They don't issue mortgages: in essence they play mortgages as a secondary market. That doesn't mean they are unimportant. Rather, it means that institutions that do issue mortgages depend on the presence of Fannie and Freddie as a risk mitigator. Better than keeping the whole of the risk of every home on their own books! The history is important as we contemplate the Trump II administration's plans for the GSEs. But I won't go through the whole history of the two of them, which would of necessity begin in the New Deal and then spend a fair amount of time with Richard Nixon. I will do neither. I will, though, say something about the crisis of 2008. Then in tomorrow's entry I will speak to 2025's reform impetus. At any...
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I was attempting to explain the creation of money by the Federal Reserve to this young person -- at least he projects youth, one can never know on the internets -- and I was having trouble, He had the idea that the only way the Federal Reserve could inject money into the economy was by borrowing it from somewhere. I think he thought of 'money' in overly physicalist terms, like a stack of bills and/or coins. I'll try the explanation again here. The Federal Reserve injects money into the economy by, in essence, creating it as a matter of law. Most money has no physical form at all. It is the set of the numbers we assign to bank accounts. The Bureau of Engraving creates paper money, but that is only a small portion of the total supply of dollars (I've heard around 8%). But that is the tail not the dog. The dog in this situation consists of the idea of money, and numbers that are re-assigned at the tap of keys or the swipe of a plastic card fr...
On January 13, 2020, the US Treasury Department de-listed the People's Republic of China as a currency manipulator. It is worth our while pausing a bit over this. https://www.reuters.com/article/us-usa-trade-china/u-s-treasury-removes-designation-of-china-as-currency-manipulator-idUSKBN1ZC2FV There are three obvious questions that come to mind: 1) why does the Treasury maintain a list of currency manipulators? 2) why was the PRC on the list? 3) why is the PRC now off the list? The most consequential currency manipulation on the planet of course is that of the United States, arranged jointly by the Treasury and the Federal Reserve. The US dollar continues to serve, through a sort of institutional inertia, as the world's currency OF currencies. And plainly its value IS manipulated for a range of political purposes. But just as plainly the US doesn't want other countries challenging it for the title of master manipulator. And China, which aspired to have its yua...