patrick.net

humanity says

Neither can you, and yet your statement implied they could not sell them at a reasonable price.

correct we both "made up" opinions on what the prices would be but you would probably agree they would be higher than what the fed "sets" the rate at.

smaulgld says

I am glad you can see that I didn't just make something because I am a right winger prone just to make things up!

well, actually this...

smaulgld says

The demand for US treasuries is no longer great enough for the US to fund its deficit spending.

is pretty border line.

The demand for US treasuries is no longer great enough for the US to fund its deficit spending.

"

is pretty border line.

"

If the Fed IS the market for treasuries its hard to say what demand is. But we have seen reduced buying by the Japanese and Chinese this year

The fed is the market at these prices.

I'm aware of how bizarre it is,...that is what they are doing. They are propping up the financial markets in an unprecedented way. And artificially low interest rates are inflationary for gold, real estate and other assets.

MY point simply was that this is not "spending" in the sense of being related to our budget or our budget deficits. In fact, it allows us to finance our current spending at a lower price. So it's the opposite of spending for now.

I believe it's hard to argue that the cost of it is more than what the fed ultimately loses when they unwind their position, which might be years from now.

humanity says

MY point simply was that this is not "spending" in the sense of being related to our budget or our budget deficits. In fact, it allows us to finance our current spending at a lower rate. So it's the opposite of spending for now.

But if the government spends money in excess of what it takes in in taxes, it has to issue bonds to cover the excess.

If the Fed is THE market for bonds, they are in effect helping to fund our deficit spending at a lower than market rates . We would be more retrained in our borrowing if the Fed didn't monetize the debt and our interest payments would be higher.

The concept of creating inflation as if its helpful is ridiculous. The less money you have the higher the percentage of your household budget goes to food, housing and energy which are rising. We would be better off with lower prices!
I

humanity says

How much does the fed lose when they "unwind" those positions ? When do they ?

They will never unwind these positions.
QE is just a way for base money to catch up with the amount of loans in the economy.

But they will have to stop it at some point. And that means all the imbalances they created will revert toward balance.

Ummm...gold is tanking...

freak80 says

Ummm...gold is tanking...

Would be tanking far worse if the fed wasn't seemingly trying so hard to cause inflation.

Heraclitusstudent says

They will never unwind these positions.

I strongly disagree. That's not what they say. And I don't think the market would be as well behaved as it is (especially currency markets) if the perception of the smartest people in finance was that the fed won't unwind those positions.

Also, if they don't unwind them in one way, they must in another, no ?

Do you believe that the U.S. government honers the bonds they sold to the fed, and they pay that money back to the fed ? If so what does the fed do with all of that money then ? Buy more bonds perhaps ?

Oh yeah...austerity...is that what we call ever increasing deficits now?

theoakman says

Oh yeah...austerity...is that what we call ever increasing deficits now?

http://www.cbsnews.com/8301-505123_162-57584449/feds-u.s-goverment-deficit-is-plunging/

http://truth-out.org/news/item/18835-the-us-federal-deficit-continues-to-shrink

http://news.investors.com/blogs-capital-hill/112012-634082-federal-deficit-falling-fastest-since-world-war-ii.htm

http://www.forbes.com/sites/rickungar/2013/02/27/the-best-kept-secret-in-american-politics-federal-budget-deficits-are-actually-shrinking/

Heraclitusstudent says

QE is just a way for base money to catch up with the amount of loans in the economy.

I think I maybe know why you think that. Is it because that collateral was essentially needed to clean up the banks balance sheets ?

The thing is, eventually there will be inflation (they hope). Even if it isn't a lot of inflation, in time all those questionable loans and underwater home owners move "in the the black" so to speak. In which case the extra collateral is no longer needed, because inflation has done its magic, changing all those equity to debt ratios. At that time, the Fed will be holding far more assets than they need.

smaulgld says

But we have seen reduced buying by the Japanese and Chinese this year

China has gifted us $100B YOY

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

Japan could of course buy more, but it's pretty happy where the yen is now. Given their energy situation, they don't actually want that much of a weaker yen.

Bellingham Bill says

China has gifted us $100B YOY

LOL, what else are they going to do with the payments for their junk that we buy from them?

Oh yeah, buy overpriced grain/commodities and now a pork packing house. I find it funny that the same politicians that used to rail on and on about communism now work for companies or lobby China to get companies off shored to China. If we wouldn't have off shored so much there so that their beaurocrats and leadership stayed in power, they would have had a revolution there by now.

I guesss the moral of the story is that those politicians actually love communism when they are on the recieving end of the perks from it's oppression.

humanity says

freak80 says

Ummm...gold is tanking...

Would be tanking far worse if the fed wasn't seemingly trying so hard to cause inflation.

Gold would be $300 an ounce and nothing more than a rare shiny metal for jewlery and light industrial use if not for excessive printing of currencies around the world. A good part of gold's value stems from its perceived monetary value

upisdown says

I guesss the moral of the story is that those politicians actually love communism when they are on the recieving end of the perks from it's oppression.

It's all about the money. It's the "theory of everything" that works.

smaulgld says

Gold would be $300 an ounce and nothing more than a rare shiny metal for
jewlery and light industrial use if not for excessive printing of currencies
around the world. A good part of gold's value stems from its perceived monetary
value

That, and the severe hype and fear mongering to the gullible mopes that obviously believe it.*

*Morons that try to induce fear or stroke peoples' sense of paranoia are not financial "experts", they're con artists/grifters, especially when those same people couple those fears/paranoia with ideology. (Note to Mush, why people would entrust you with anything more than pocket change is an indicator of the total lack of intelligence of some people in this country and also the lack of personal responsibility of their own life and future.)

humanity says

I strongly disagree. That's not what they say. And I don't think the market would be as well behaved as it is (especially currency markets) if the perception of the smartest people in finance was that the fed won't unwind those positions.

Just talking about *buying less* caused rates to jump 1%.
Now how much do you think rates would jump if they were selling bonds? The market would try to front run them. Rates would jump to a level that would kill growth. So no. They can't sell, or reverse repo, their way out of it.

And btw, QE bring them to a more conventional position in terms of ratio base money to wider money. They can just keep the bonds they have and raise fund rate as needed to deal with inflation, and go back to more traditional central banking.

humanity says

Do you believe that the U.S. government honers the bonds they sold to the fed, and they pay that money back to the fed ? If so what does the fed do with all of that money then ? Buy more bonds perhaps ?

Traditionally the bonds are rolled over to keep a stable level of base money and interests received are returned to the treasury.

The Feds say they own government bonds, but the reality is this is not debt: It doesn't work like debt. It's never actually paid back and collects no interests. So in reality it's just a quantity of money that has been issued by the Feds through the government.

It shouldn't even be counted in the national debt.

Heraclitusstudent says

It shouldn't even be counted in the national debt.

And it isn't.

Or you mean the money that was borrowed from the Fed should not be considered debt ?

Well, wow. Then that would mean deficitts are REALLY dropping.

I believe it is debt and will be(needs to be) treated as such. Can you point me to some reading that supports your point of view ?

Please also point me to some evidence of this. It makes no sense to me.

Heraclitusstudent says

And btw, QE bring them to a more conventional position in terms of ratio base money to wider money. They can just keep the bonds they have and raise fund rate as needed to deal with inflation, and go back to more traditional central banking.

humanity says

Or you mean the money that was borrowed from the Fed should not be considered debt ?

Well, wow. Then that would mean deficitts are REALLY dropping.

Well yes. I repeat: the bonds are not paid back, just rolled over, and the interests are returned to the borrower.

So it doesn't work like a debt. It works like an amount of money given to the government, and injected into the economy.

And this is what they want to do: They want this money to circulate into the economy and increase demand, increase GDP and eventually increase tax revenues, and bring down the debt to GDP ratio.

They don't need to withdraw it. Today it doesn't create inflation, and it won't as long as it percolates slowly enough into the economy.

The only case where they would withdraw it is if it suddenly starts being spent, but that would also assume a jump in growth and inflation. Then of course they would clamp down.

Interesting conjecture. But that's not what they say they are doing.