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The only thing that changed here is you swapped one type of money-like asset for another. Previously you owned bonds and now you have cash. Anything you could d

by dnomad 9y ago

The only thing that changed here is you swapped one type of money-like asset for another. Previously you owned bonds and now you have cash. Anything you could do before you can still do. (You can pay for stuff like factories with bonds.) I don't see why you think you're suddenly richer. QE has no impact on your wealth because you're just swapping similar assets. Now you can argue that it does send a message to the animal spirits leading to your risk preferences to change (seeing the Fed act so boldly makes you more likely to invest) which leads to a rising stock market and eventually a general "wealth effect" ... But this is kinda voodoo magic and no longer a quantitative analysis even if it's real. (BTW in reality the market for government debt is very liquid. What you're really describing hate it's liquidation risk. It becomes an issue for more think traded instruments but not for bonds.)

nopriorarrests 9y ago
Well, yes. Since Fed is not making pizzas and margaritas, it can only swap one asset for another, it can't mix you a decent margarita. And if Fed will go out and just buy the whole outstanding float of GOOG, AAPL, TSLA, FB and NFLX with freshly minted money, it would be, bingo, "swap of one asset for another". Don't you think that asset swap like that will somehow affect the general economy? EDIT: damn, let's go _really_ extreme. Fed can basically swap all the government debt with dollars. All the 21 trillion of it, in a single asset swap. Click-click and boom, USA is debt free, no more interest payments, hooray. Dont you think such swap will have some real-life repercussions? If it will, how it's different from QE?
cherenkoray 9y ago
> one type of money-like asset for another. If you look at it that way, aren't houses a money-like asset as well? Certainly, people now buy houses which would have in stocks or bonds before. And if so, what does that mean for the value of these assets? Are they independent from inflationary risks?

by dnomad 9y ago

nopriorarrests 9y ago

Well, yes. Since Fed is not making pizzas and margaritas, it can only swap one asset for another, it can't mix you a decent margarita. And if Fed will go out and just buy the whole outstanding float of GOOG, AAPL, TSLA, FB and NFLX with freshly minted money, it would be, bingo, "swap of one asset for another". Don't you think that asset swap like that will somehow affect the general economy? EDIT: damn, let's go _really_ extreme. Fed can basically swap all the government debt with dollars. All the 21 trillion of it, in a single asset swap. Click-click and boom, USA is debt free, no more interest payments, hooray. Dont you think such swap will have some real-life repercussions? If it will, how it's different from QE?

cherenkoray 9y ago

> one type of money-like asset for another. If you look at it that way, aren't houses a money-like asset as well? Certainly, people now buy houses which would have in stocks or bonds before. And if so, what does that mean for the value of these assets? Are they independent from inflationary risks?