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Fed says economy needs $600B bond-purchase program...haha
- Thread starter S2007S
- Start date
Quote from sjfan:
... in a shit hole compared to what? Export countries do not benefit from having a strong currency vs the dollar.
And why would the Fed be forced to raise the rate if the dollar tanks?
i'm no expert in finance..i'm dropout from some russian middle school..please forgive me,if i'm wrong....but even i do know the consequences of weak currency:
Effects of Devaluation
A significant danger is that by increasing the price of imports and stimulating greater demand for domestic products, devaluation can aggravate inflation. If this happens, the government may have to raise interest rates to control inflation, but at the cost of slower economic growth.
Another risk of devaluation is psychological. To the extent that devaluation is viewed as a sign of economic weakness, the creditworthiness of the nation may be jeopardized. Thus, devaluation may dampen investor confidence in the country's economy and hurt the country's ability to secure foreign investment.
Another possible consequence is a round of successive devaluations. For instance, trading partners may become concerned that a devaluation might negatively affect their own export industries. Neighboring countries might devalue their own currencies to offset the effects of their trading partner's devaluation. Such "beggar thy neighbor" policies tend to exacerbate economic difficulties by creating instability in broader financial markets.
Since the 1930s, various international organizations such as the International Monetary Fund (IMF) have been established to help nations coordinate their trade and foreign exchange policies and thereby avoid successive rounds of devaluation and retaliation. The 1976 revision of Article IV of the IMF charter encourages policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members." With this revision, the IMF also set forth each member nation's right to freely choose an exchange rate system.
http://www.newyorkfed.org/aboutthefed/fedpoint/fed38.html
When no one wants to buy US Govt debt except the Fed, the world at large would have already been reduced to sporadic settlements of survivalists bartering salted fish, lighter fluids, and women. Not sure we need to worry about interest rate.
Quote from amtrak:
When there are no buyers of US govt debt except the Fed watch what will happen to interest rates then...
US Dollar is the reserve currency (and until such time that another currency actually credibly supplements the dollar rather than vague suggestions like the euro, gold, or special-drawing-rights) and thus faces slightly different set of monetary policy rules.
Further, if weaker dollar stokes domestic consumption and results in inflation, the Fed will raise rates - but that's EXACTLY WHAT THEY ARE LOOKING FOR - growth, inflation, and then control excesses with the standard tools.
Further, if weaker dollar stokes domestic consumption and results in inflation, the Fed will raise rates - but that's EXACTLY WHAT THEY ARE LOOKING FOR - growth, inflation, and then control excesses with the standard tools.
Quote from Bob111:
i'm no expert in finance..i'm dropout from some russian middle school..please forgive me,if i'm wrong....but even i do know the consequences of weak currency:
http://www.newyorkfed.org/aboutthefed/fedpoint/fed38.html
Quote from sjfan:
US Dollar is the reserve currency (and until such time that another currency actually credibly supplements the dollar rather than vague suggestions like the euro, gold, or special-drawing-rights) and thus faces slightly different set of monetary policy rules.
Further, if weaker dollar stokes domestic consumption and results in inflation, the Fed will raise rates - but that's EXACTLY WHAT THEY ARE LOOKING FOR - growth, inflation, and then control excesses with the standard tools.
If they raise interest rates and stop QE the US government will automatically default as interest payments will be above 50% of budget spending very soon
even without raising rates end of QE will result in bonds collapse.
The world can't absorb 1.7 trillion, interest rates will be 10%+ in no time
the only way to avoid the default is austerity and budget surplus right now
Current deficit is 1.7 trillion. Slashing spending by this amount will trigger depression
in case of default dollar will lose reserve status and hyperinflation will happen
if Fed continues to print hyperinflation will happen
they are cornered - no stadard tools will work here
I'm not sure you grasp how the treasury bond market and issuance work. It simply doesn't work the way you think it does;
First off, US treasury bonds are fixed coupon bonds. If the Fed jacks interest rate to 10% tomorrow, it won't change the interest payment of the debt that has already been issued. It's not like all outstanding us treasury bonds are immediately redeemable if the Fed hikes tomorrow. US treasury bonds are not callable.
Second, 1.7 trillion may seem like a big number, but it really isn't. Each treasury note auction is around 30billion in size and it happens pretty often. A *bad* auction is one where the auctioned yield is a few basis points (that's right, basis points) above where the market expected. And this is at historically low yields. Rates go up, there's all sorts of demands - both domestic and international, for US treasury notes.
Look, the US is a little unhinged about how it's spending its money. No argument from me. But the bond market simply doesn't work the way you think it does. The US might 'default' (if ever) when the dollar is no longer a relevant reserve currency for whatever reason; But a default won't be the cause of it losing that status because it simply can't if that's the case.
First off, US treasury bonds are fixed coupon bonds. If the Fed jacks interest rate to 10% tomorrow, it won't change the interest payment of the debt that has already been issued. It's not like all outstanding us treasury bonds are immediately redeemable if the Fed hikes tomorrow. US treasury bonds are not callable.
Second, 1.7 trillion may seem like a big number, but it really isn't. Each treasury note auction is around 30billion in size and it happens pretty often. A *bad* auction is one where the auctioned yield is a few basis points (that's right, basis points) above where the market expected. And this is at historically low yields. Rates go up, there's all sorts of demands - both domestic and international, for US treasury notes.
Look, the US is a little unhinged about how it's spending its money. No argument from me. But the bond market simply doesn't work the way you think it does. The US might 'default' (if ever) when the dollar is no longer a relevant reserve currency for whatever reason; But a default won't be the cause of it losing that status because it simply can't if that's the case.
Quote from kashirin:
If they raise interest rates and stop QE the US government will automatically default as interest payments will be above 50% of budget spending very soon
even without raising rates end of QE will result in bonds collapse.
The world can't absorb 1.7 trillion, interest rates will be 10%+ in no time
the only way to avoid the default is austerity and budget surplus right now
Current deficit is 1.7 trillion. Slashing spending by this amount will trigger depression
in case of default dollar will lose reserve status and hyperinflation will happen
if Fed continues to print hyperinflation will happen
they are cornered - no stadard tools will work here
Quote from sjfan:
I'm not sure you grasp how the treasury bond market and issuance work. It simply doesn't work the way you think it does;
First off, US treasury bonds are fixed coupon bonds. If the Fed jacks interest rate to 10% tomorrow, it won't change the interest payment of the debt that has already been issued. It's not like all outstanding us treasury bonds are immediately redeemable if the Fed hikes tomorrow. US treasury bonds are not callable.
Second, 1.7 trillion may seem like a big number, but it really isn't. Each treasury note auction is around 30billion in size and it happens pretty often. A *bad* auction is one where the auctioned yield is a few basis points (that's right, basis points) above where the market expected. And this is at historically low yields. Rates go up, there's all sorts of demands - both domestic and international, for US treasury notes.
Look, the US is a little unhinged about how it's spending its money. No argument from me. But the bond market simply doesn't work the way you think it does. The US might 'default' (if ever) when the dollar is no longer a relevant reserve currency for whatever reason; But a default won't be the cause of it losing that status because it simply can't if that's the case.
it works exactly as I think
most of debt short term 2 years or less
in addition to new 1.7 trillion US needs to roll 5 trillion of old debt
now short term debt is below 0.1-0.5% which is basically free
now let's pretend Fed raises rates to 3%
so expenses go up 150 billion in the first year and 500 billion in 3 years
if rates go up 5% it will be 750 billions every year in 3 years
if current deficit is not reduced dramatically interest will be north of 1 trillion in 5 years
which will make deficit 2.5 trillion or 16% of GDP
there is no way out - print a trillion every year or default
first result in hyperinflation the second one depression
If the Fed's objective is to prop up the equity market, I believe it has been pretty succesful in the last year.Quote from S2007S:
HAHA. keep purchasing those securities and see what happens, nothing!!!
Maybe, they don't care (see above).Quote from shortie:
my question: why is Fed purchasing shorter-terms bonds since it apparently is hurting the housing market?
For comparison, in the UK investing in residential property is considered an essetial part of retirement planning. For the last 20 years the growth of property prices on annualised basis was close to 50% of GDP. All well-off people (including ministers) are heavily invested in residential property. So, both the previous Labour government and the current coalition one go out of their way not to allow property prices to fall dramatically.
Quote from sjfan:
US Dollar is the reserve currency (and until such time that another currency actually credibly supplements the dollar rather than vague suggestions like the euro, gold, or special-drawing-rights) and thus faces slightly different set of monetary policy rules.
Further, if weaker dollar stokes domestic consumption and results in inflation, the Fed will raise rates - but that's EXACTLY WHAT THEY ARE LOOKING FOR - growth, inflation, and then control excesses with the standard tools.
Consumption is not growth.