Original_Intent
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FED: Fed announces QE3
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youngbuck
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Can someone please explain why this is inflationary? They are buying bonds - I get that - but that doesn't mean the money is flowing back into the economy. Or is it assumed that whomever get's the payoff will turn around and invest it in other things which are in demand... like food, oil, etc?
Wonder if Romney is elected if they will cut off this program...
Also wonder who is actually on the hook for these bonds if the FED is buying them - FED owner banks or U.S. taxpayer..
Wonder if Romney is elected if they will cut off this program...
Also wonder who is actually on the hook for these bonds if the FED is buying them - FED owner banks or U.S. taxpayer..
torchbearer
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the government is spending the money into the economy. the fed is allowing them to do so without limit.
They are buying MBS. MBS are securitized loan portfolios. The money from their buying is likely to go right back into refinancing more loans to free up consumer income. I don't see how that is the govt. spending money into the economy... maybe indirectly so.
Who ever is selling the MBS (likely Fannie/Freddie), can't be making much on their portfolios.
Does that sound right... cause I still don't see how this money is getting into the economy... trying to understand.
Who ever is selling the MBS (likely Fannie/Freddie), can't be making much on their portfolios.
Does that sound right... cause I still don't see how this money is getting into the economy... trying to understand.
torchbearer
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our assumptions are different.
i'm assuming, that are freeing up the banks of risky assets so they can buy t-bills, which give the government the ability to keep printing t-bills at low rates.
smithtg
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the money spent buying garbage MBS goes right into the guys they bought them from - hmm Goldman, BOA, etc and all those UTR hedge fund guys who bought the MBS cheap from someone else. Probably Fannie and Freddie too
Its market manipulation. As RP always has preached, we have got to let the market(s) correct THEMSELVES, instead of allowing interventions like this whether it be from the FED or the USGOVT with stimulus et all.
Its market manipulation. As RP always has preached, we have got to let the market(s) correct THEMSELVES, instead of allowing interventions like this whether it be from the FED or the USGOVT with stimulus et all.
dbill27
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Why would the fed want banks buying t-bills? Doesn't the fed already buy them every day making it unprofitable for banks to buy them so that they have to lend if they want to make money?
if that is the case than there is alot less "liquid" money flowing around from this than appears on the surface... because these places have to retire the debt on payoff. i know, i know... they are scum sucking manipulators but when the fed buys 40 billion a month it's not like that frees up 40 billion. i guess these guys could technically borrow cheap and loan cheap forever.. maybe this is just the plan to keep the ponzi going longer.
T Bills are a tier 1 banking asset. More tbills = more ability to create loans via the money multiplier.
Zippyjuan
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The Fed has not been a net purchaser of T-bills since June, 2011. They have used money from maturing notes to buy replacements since then.
Zippyjuan
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A possibility. In either case, it does free up more money- whether that is to be made available to make more home loans (which is the announced goal) or if it goes into some other place like T-bills.
gonegolfin
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With the latest announcement, they are "net new" buying MBSs, which introduce substantially more risk to the Fed balance sheet than treasury bills/notes/bonds. Last November I came to the conclusion that this would be their next QA move ... principally because the spread between long term treasuries and MBSs was increasing ... which translates to very little help for the housing market. The Fed needed to close this spread. There was definitely an investment opportunity here.
These purchases increase reserves in the banking system, which means an increase in the monetary base. Money supply is then increased when these excess reserves are put to use (invested or lent into the economy by the banks). I have maintained for years (see my articles at FinancialSense here) that a principal goal of the Fed is to recapitalize the banking system while attempting to minimize leakage of these reserves into the economy (a stealth re-capitalization if you will). This continues to be true as evidenced by the balance sheet expansion coupled with the interest rate paid on reserves (which has not moved). As bank reserves increase, banks become more comfortable with their damaged balance sheets (which are somewhat more healthy than they were in 2008 ... but significant problems still exist). More comfort translates to more risk taking and investment. Some of this investment is in more lending ... but most of it is speculation with treasuries (buying the long end over the past 18 months) and to some degree equities. As explained in prior posts, the continued increase in required reserves is evidence of this increased investment (and risk taking) by banks.
As a side note that I have addressed many times before, there are situations where Fed purchases of securities result in a direct increase in the money supply (in addition to bank reserves), this is only in the case where the end seller is not a depository institution. It is actually a little more complicated than this, but I can expand if anyone is interested.
Romney cannot directly do this. He can bring in his own man ... but I would not hold my breath on any significant change in policy should Romney obtain office. The Republican establishment (not addressing the real conservatives) holds this position (hawks) because they are not presently on the hook and want power.
Well ... our currency of course. The assets on the Fed balance sheet is what backs our currency. And it is not just the quality of the assets, but the interest rate risk that is important. The composition of the Fed balance sheet has been changing over time ... average maturity has been steadily increasing. This increases interest rate risk and thus increases currency risk.
Brian
