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The feds adding long term securities to their balance sheet is highly unorthodox, and everyone knows they are doing it only because these are such unusual times. The credit markets still aren't even functioning normally.
Rising Interest Rates Will Crush the Federal Budget
Patrick says
Rising Interest Rates Will Crush the Federal Budget
No they won't. The Fed will just print more money. It will crush the economy.
marcus says
The feds adding long term securities to their balance sheet is highly unorthodox, and everyone knows they are doing it only because these are such unusual times. The credit markets still aren't even functioning normally.
Where has Marcus been ? He stated the above back in 2010 and it is prophetic. Fed has lost money and I wonder how much they will continue to lose money as they continue Quantitative Tightening. They are selling Treasuries at depressed prices due to the increase in interest rates.
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They are holding 'em to maturity and letting them roll off their balance sheet that way,
The Fed is not selling the longer term Bonds they hold. They are holding 'em to maturity and letting them roll off their balance sheet that way, but yeah if they marked to market, they lost about $1 trillion.
The Federal Reserve can make up as much funny money as they want. They'll never go bankrupt.
What is interesting is that QE and ZIRP back in 2008 to 2016 did not cause annual inflation over 3% based on government reported statistics.
If I give you a trillion dollars, and you just bury it, no inflation. I
This along with other policy errors caused the country to have the weakest bounce back from a recession ever.
Yesterday, the US government tried to borrow $24 billion by selling a bunch of 30 year debt.
It was a huge disaster. In order to get enough people to buy, the rate had to dramatically increase. Even then, then primary dealers had to buy 25% of the debt. The primary dealer are the buyers of last resort who have to buy.
China, Japan, Saudi Arabia, Russia ... none of them are buying our debt. In fact, most are selling what they already have.
With few buying, the US government is borrowing more than ever. $1.5 trillion in the past 4 months and they announced another $1.5 trillion in the next 6 months. The US government will have to offer higher and higher rates to attracted lenders.
The US government will have to offer higher and higher rates to attracted lenders.
Schwab has 1 and 3 month CD's at around 5.4%. That beats inflation which is around 3.7%.
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I'm still confused about exactly how the Fed can push long-term interest rates lower.
From http://www.latimes.com/business/la-fi-petruno-20100925,0,6008425.column we have:
If the Fed prints up more dollars and lends them out to big banks at 1% interest long term, that does seem to force other lenders to lower interest rates to compete with the Fed. And it does seem to give retail lenders the ability to lower rates, because their own cost of money is lower if they can get it from the Fed.
But on the other hand, creating more dollars must lower the value of existing bonds, pushing their actual yields higher, not lower.
Which effect wins out?
#investing