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How do you withdraw the QE money that is already out there? Erase it from the books?

redcalx 10y ago
Reverse the creation process... creation consists of the central bank creating new money, and the government creating a new bond. Central bank buys the bond and the gov gets the money and can spend it on welfare or whatever. To reverse the gov must buy the bond back with money from general taxation, on doing so the bond is redeemed and destroyed, and the central bank erases the money it received back in tandem with the bond. Basically it's all smoke and mirrors, the various obligations (to redeem the bond, to do so with real money, etc. are all legal bindings and mechanisms that can be signed away with sufficient political support, thus reducing the whole process to good old fashioned money printing).
- DominikR 10y ago
  > To reverse the gov must buy the bond back with money from general taxation, on doing so the bond is redeemed and destroyed, and the central bank erases the money it received back in tandem with the bond. Which is never going to happen. (at least in this political system) Currently Western governments can barely keep things running by increasing their debt at an almost exponential rate.
  - redcalx 10y ago
    I agree. In fact if they inflate the money supply they devalue the currency that the debts are denominated in, so there's an incentive to inflate and there's no money to spare to reverse QE anyway, so the bonds remain in existence forever, and all of those legal bindings I mentioned become somewhat academic. Well, technically bonds have a fixed term, but in reality they just issue new bonds to replace the old ones as they reach maturity, so again we're back to smoke and mirrors.
- gozur88 10y ago
  >To reverse the gov must buy the bond back with money from general taxation, on doing so the bond is redeemed and destroyed, and the central bank erases the money it received back in tandem with the bond. But this is already a normal part of the process. The government rolls over its debt as bonds mature, so the Fed can just take the money when the bond matures and not buy new bonds. That would force the government to borrow existing money from individuals and other countries instead of creating new money through the Fed, effectively taking that cash out of circulation at the cost of an increase in interest rates. Also, the Fed bought corporate bonds under QE, so this isn't just a question of the government printing money to cover budget shortfalls.

Reverse the creation process... creation consists of the central bank creating new money, and the government creating a new bond. Central bank buys the bond and the gov gets the money and can spend it on welfare or whatever. To reverse the gov must buy the bond back with money from general taxation, on doing so the bond is redeemed and destroyed, and the central bank erases the money it received back in tandem with the bond. Basically it's all smoke and mirrors, the various obligations (to redeem the bond, to do so with real money, etc. are all legal bindings and mechanisms that can be signed away with sufficient political support, thus reducing the whole process to good old fashioned money printing).

DominikR 10y ago
> To reverse the gov must buy the bond back with money from general taxation, on doing so the bond is redeemed and destroyed, and the central bank erases the money it received back in tandem with the bond. Which is never going to happen. (at least in this political system) Currently Western governments can barely keep things running by increasing their debt at an almost exponential rate.
- redcalx 10y ago
  I agree. In fact if they inflate the money supply they devalue the currency that the debts are denominated in, so there's an incentive to inflate and there's no money to spare to reverse QE anyway, so the bonds remain in existence forever, and all of those legal bindings I mentioned become somewhat academic. Well, technically bonds have a fixed term, but in reality they just issue new bonds to replace the old ones as they reach maturity, so again we're back to smoke and mirrors.
gozur88 10y ago
>To reverse the gov must buy the bond back with money from general taxation, on doing so the bond is redeemed and destroyed, and the central bank erases the money it received back in tandem with the bond. But this is already a normal part of the process. The government rolls over its debt as bonds mature, so the Fed can just take the money when the bond matures and not buy new bonds. That would force the government to borrow existing money from individuals and other countries instead of creating new money through the Fed, effectively taking that cash out of circulation at the cost of an increase in interest rates. Also, the Fed bought corporate bonds under QE, so this isn't just a question of the government printing money to cover budget shortfalls.