patrick.net

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.