The Fed turns over the assets on its balance sheet. Including the real estate and subprime loans - that's all long gone. Most economists believe that the Fed actually made a tidy profit from the 2008 bailout and the subsequent Quantitative Easing.
How does the fed add liquidity to the economy?
- Thread starter RGLD
- Start date
The US Treasury will roll coupons all the time. They will buy higher coupon Notes and Bonds on the open secondary market and will re-issue lower coupon Notes and Bonds. Think of it like the US government refinancing its debt at lower interest rates.
When commercial banks lend money to each other, (like the overnight repo market) they typically demand US Sovereign Debt as collateral. Commercial banks and insurance companies are required by law and charter to hold a certain threshold of their capital in US Sovereign Debt as a security measure. And that right there is trillions and trillions of dollars.
When commercial banks lend money to each other, (like the overnight repo market) they typically demand US Sovereign Debt as collateral. Commercial banks and insurance companies are required by law and charter to hold a certain threshold of their capital in US Sovereign Debt as a security measure. And that right there is trillions and trillions of dollars.
M
morganist
Piezoe's comments below.
I feel compelled to warn you, that "Morganist" , although he promotes himself as an economist, had previously almost no correct understanding of central bank operations in either the U.K. or the U.S.. Perhaps he has learned something in the interim. He gave you a link to Mises.org that has badly out of date information.
Morganist's comments below.
Do you find the information I gave you is more helpful to you? Or the information Piezoe has given you gives you a clearer explanation to your question? Remember my comments are backed up by two supporting links that explain what Open Market Operations are, it is not just my position, explanation and comments there is supporting documentation that adds weight to my descriptions.
Piezoe's comments below.
Don't let all the misinformation traders post on this site confuse you. The Fed and Treasury are one coordinated operation. This can be seen by examining the consolidated books. The Fed has been given, via statutory law, a certain amount of independence, but in the end it has no choice other than to coordinate closely with the Treasury, and vice versa. The fed does not determine fiscal policy; it just reacts to it.
That is what most of us think because that's what appears to going on. But appearances are deceiving in this instance. Remember the Fed and Treasury are both government agencies and really one coordinated operation . The government does not need to sell treasuries to be able to spend, and it doesn't need to borrow. Treasuries are a tool of the central bank used to regulate the amount of outside money in the economy.
Morganist's comments below.
In the United Kingdom most of the Treasuries sold are purchased by pension funds for stability. The treasuries offer a security that other assets find difficult to match. There is a process of stabilising the investment market through the issuance of treasuries that the Treasury performs through issuing more debt. It is not just about economic targets it is about saving investment stability.
Piezoe's comments below.
It will be left with taxation as the sole means of removing excess money from the economy. And if the government spends too much relative to its productivity and leaves too much money in circulation, inflation will soon follow.
Morganist's comments below.
This is not true, there are many other methods of removing excess money from the economy. Increasing pension saving is the main method that has been neglected and has proven effective at controlling inflation in the UK. The velocity of transactions can also be slowed down to reduce the rate of inflation, there are many ways of doing this.
I have responded to Piezoe's comments above. My comments and explanations are backed up with other recognised sources and provide a backed up description of certain central bank operations. If you are questioning which is the most credible source to answer your questions this wider pool of information is in my favour. Do my comments answer your questions better?
I feel compelled to warn you, that "Morganist" , although he promotes himself as an economist, had previously almost no correct understanding of central bank operations in either the U.K. or the U.S.. Perhaps he has learned something in the interim. He gave you a link to Mises.org that has badly out of date information.
Morganist's comments below.
Do you find the information I gave you is more helpful to you? Or the information Piezoe has given you gives you a clearer explanation to your question? Remember my comments are backed up by two supporting links that explain what Open Market Operations are, it is not just my position, explanation and comments there is supporting documentation that adds weight to my descriptions.
Piezoe's comments below.
Don't let all the misinformation traders post on this site confuse you. The Fed and Treasury are one coordinated operation. This can be seen by examining the consolidated books. The Fed has been given, via statutory law, a certain amount of independence, but in the end it has no choice other than to coordinate closely with the Treasury, and vice versa. The fed does not determine fiscal policy; it just reacts to it.
"If they buy US treasuries, it means they're just lending the government money. "
That is what most of us think because that's what appears to going on. But appearances are deceiving in this instance. Remember the Fed and Treasury are both government agencies and really one coordinated operation . The government does not need to sell treasuries to be able to spend, and it doesn't need to borrow. Treasuries are a tool of the central bank used to regulate the amount of outside money in the economy.
Morganist's comments below.
In the United Kingdom most of the Treasuries sold are purchased by pension funds for stability. The treasuries offer a security that other assets find difficult to match. There is a process of stabilising the investment market through the issuance of treasuries that the Treasury performs through issuing more debt. It is not just about economic targets it is about saving investment stability.
Piezoe's comments below.
It will be left with taxation as the sole means of removing excess money from the economy. And if the government spends too much relative to its productivity and leaves too much money in circulation, inflation will soon follow.
Morganist's comments below.
This is not true, there are many other methods of removing excess money from the economy. Increasing pension saving is the main method that has been neglected and has proven effective at controlling inflation in the UK. The velocity of transactions can also be slowed down to reduce the rate of inflation, there are many ways of doing this.
I have responded to Piezoe's comments above. My comments and explanations are backed up with other recognised sources and provide a backed up description of certain central bank operations. If you are questioning which is the most credible source to answer your questions this wider pool of information is in my favour. Do my comments answer your questions better?
M
morganist
What do you think of 'Operation Twist'?
As in intentionally causing a recession or intentionally infecting the population with a virus.
What is that process?
M
morganist
Treasuries are fixed income return and secured by the government to guarantee repayment of the debt. Indexed Linked Gilts are even protected against inflation. An increase in issuance of treasuries can provide guaranteed repayments of investments, protection from inflation and fixed income returns. This can stabilise the risk in the market and reduce the fluctuations in income and spending, which can lead to varying aggregate prices and economic growth levels.
Many pension funds have been buying government bonds and Indexed Linked Gilts in the UK. I prefer corporate bonds, which provide secured returns due to their elevated position in the payouts hierarchy if a company becomes insolvent. I think that there will be a movement of funds from treasuries to corporate bonds to get the higher returns for the same level of risk the corporate bonds offer. AAA rated corporate bonds are better than treasuries in my opinion.
The Fed doesn't add anything because it has nothing. It produces no valuable goods or services and has no savings.
All it can do is print dollars, which dilutes the purchasing power of the dollars already in existence. This amounts to redistribution, not creation of anything. Those who spend the newly created dollars are getting a free ride on all others who have dollars. It's like taxation but worse.
All the government can do is take wealth from the people, through direct taxation or indirect inflation. Because the government, including the Fed, has no source of income other than taking it from the people.
It's questionable whether the government and central planning can do a better job than the free market at allocating scarce resources in the most productive way. On the contrary, there was no Fed for the first 120 years of the Union, the dollar was stable, no inflation at all, prices and the stock market were real, interest rates were set by the market and it was the most prosperous time in U.S. history.
All it can do is print dollars, which dilutes the purchasing power of the dollars already in existence. This amounts to redistribution, not creation of anything. Those who spend the newly created dollars are getting a free ride on all others who have dollars. It's like taxation but worse.
All the government can do is take wealth from the people, through direct taxation or indirect inflation. Because the government, including the Fed, has no source of income other than taking it from the people.
It's questionable whether the government and central planning can do a better job than the free market at allocating scarce resources in the most productive way. On the contrary, there was no Fed for the first 120 years of the Union, the dollar was stable, no inflation at all, prices and the stock market were real, interest rates were set by the market and it was the most prosperous time in U.S. history.
Either you are insane, or everyone else is... Corporate bonds to not provide the "same level of risk" as do treasuries. By the way, your first paragraph above is arm waving and gibberish. The second paragraph is misguided. Although bonds are senior to other types of securities, there is no guarantee of 100% repayment of principle if a corporate issuer becomes insolvent.
See, I find this image pretty unsettling:
We know the fed is pumping money into the market, but my question is HOW MUCH are they doing it? Are they making up for 50% of the volume? That sounds absurd, but imagine the fed being the only buyer in the market that matters now. The dollar is getting destroyed as a result.
Even more unsettling, is the fed the only buyer in the fixed income market now? Who else would buy with negative real rates? We'd end up with a Japanese situation where the CB owns 70% of the national debt.
We know the fed is pumping money into the market, but my question is HOW MUCH are they doing it? Are they making up for 50% of the volume? That sounds absurd, but imagine the fed being the only buyer in the market that matters now. The dollar is getting destroyed as a result.
Even more unsettling, is the fed the only buyer in the fixed income market now? Who else would buy with negative real rates? We'd end up with a Japanese situation where the CB owns 70% of the national debt.
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