Fed’s QE Unwind Accelerates Sharply

[tiddlywinks]

I don't understand high finance. The Chinese are not buying so if the Fed stops buying US debts, who is?

Couple of things...
1) China (and others) may be NET sellers, but that doesn't mean they have stopped buying. Some portion of debt holdings (eventually) expire.

2) As the worlds reserve currency, USD, US government debt or hard dollars are REQUIRED for a nation to conduct business in the global marketplace. In many/most countries, a reserve is maintained for things like energy and other commodities (to name a couple), as well as other financial conversion and accounting reasons.

3) As long as confidence remains in the full faith and creditworthiness of the USA, as long as the USD is the worlds reserve currency, as long as (civilized) societies exist, there will be some degree of buying.

4) Some nations impose mandatory purchases of their own debt by banks, and other financial operations, and even certain financial vehicles. The USD does not have such policies, but imagine a 401k or IRA being required to hold a percentage of the account in US debt. It is not impossible, nor would it be a first. I'm just saying, not forecasting or speculating such will happen. Just that it could.

 

[Sig]

I don't understand high finance. The Chinese are not buying so if the Fed stops buying US debts, who is?

What ever gave you the idea the Chinese aren't buying Treasuries? It's a structural feature of running a trade deficit while pegging your currency that China has to be a net buyer of Treasuries. Basic macro folks.

 

[piezoe]

Fed response is what you'd expect as counter action against a rising sea of money from Trump deficits. They are trying to prop up interest rates while Trump's deficits are going to hold them down. It seems banks should get squeezed. But it seems too soon for the money Trump is going to dump into the economy to show up.

 

[SunTrader]

This would trim the balance sheet by up to $420 billion this year, and by up to $600 billion in 2019 and every year going forward, until the Fed considers the balance sheet to be adequately “normalized” — or until something big breaks, whichever comes first.

That