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The literal definition of QE, AFAIK, is "injecting money supply into the market." What the Fed is doing here is swapping one risk free asset for another. Thes

The literal definition of QE, AFAIK, is "injecting money supply into the market." What the Fed is doing here is swapping one risk free asset for another. These are very different. There was a hiccup in the repo market, so the Fed is "buying" extremely short term (e.g., O/N repo) instruments. There is no net injection into the market. In contrast, during actual QE, the Fed was buying across the curve so that actually available interest rates for economic actors were depressed (again across the curve), encouraging economic activity. The effect is VERY different. The effect was supercharged with operation twist but that is another story.

nwah1 7y ago
QE is also just swapping of assets, which is why it wasn't noticeably inflationary any of the times it was done.
- fbonetti 7y ago
  It’s swapping an existing asset (a treasury) for an asset that was created completely out of thin air (reserves). It increases the monetary base. If you don’t believe me, look at the Fed’s own data. https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE QE has not caused excess inflation in terms of the consumer price level, but it has dramatically increased the price of interest-rate sensitive assets like real estate, equities, and bonds.
- hcknwscommenter 7y ago
  "QE is also just swapping of assets" Sort of. It was a swapping of short term liquidity for assets across the curve. Which is why it was fundamentally different from what the FED is doing today. "which is why it wasn't noticeably inflationary any of the times it was done" This is quite a strong statement. I would disagree. My model says it was inflationary. The counterfactual is "what would the inflation/deflation rate be in the absence of QE all else being the same?". Such counterfactuals are hard to come by, which is why this is such a dismal "science." At any rate, it cannot be denied (IMHO) that actual QE depressed interest rates available to economic actors.
  - resource0x 7y ago
    Fundamentally different from QE? Then what this guy is talking about? "Kudlow says that ... the Fed's T-bill purchases are "basically" QE". How something fundamentally different from QE can be "basically QE" at the same time? :-) https://www.fxstreet.com/news/kudlow-feds-t-bill-purchases-are-basically-qe-202001211710 https://www.fxstreet.com/news/kudlow-feds-t-bill-purchases-a...
    - hcknwscommenter 7y ago
      Kudlow is a political appointee clown who does not know what he is talking about. He has a master's degree in "politics and economics". This is not an economics degree. If you are going to appeal to authority (which I really don't have a problem with), then appeal to someone who has a relevant educational background to actually be an authority.
  - nwah1 7y ago
    The reason Carlyle called it the dismal science is because so many classical economists were abolitionists, and Carlyle favored the institution of slavery. I agree that counterfactuals are almost impossible to know in economics, but if predictions on one side repeatedly turn out wrong, then that side is probably wrong. You can find innumerable doomsayers that predicted hyperinflation, and a loss of faith in the dollar and bonds. All of those people were completely wrong, and in fact the dollar strengthened, yields plummeted, and consumer prices were stable.
sputknick 7y ago
I know very little about economics, but If there is no net injection into the market, why did the Fed's balance sheet start to expand at the same time? Are they separate things and this is a coincidence? https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
- hcknwscommenter 7y ago
  They are not separate things. It is not a coincidence. However, you are not taking into account the very real difference in the composition of the balance sheet. Buying a short-term risk free instrument (and thereby expanding the balance sheet) in order to increase liquidity in that market is very different from what was happening during QE.
chrisjc 7y ago
> There was a hiccup in the repo market, so the Fed is "buying" extremely short term (e.g., O/N repo) instruments. Would you say this is now the new norm? Or something that will come and go as the trends change in the repo markets?
JDiculous 7y ago
Regardless of the maturity length of the debt instruments the Fed is buying, it is an increase in the money supply unless you're literally defining the money supply to include what the Fed is purchasing. So yea if U.S. government debt is defined as money, then I guess the U.S. government buying its own debt back with printed money is just "swapping assets". Surely however there are implications of a country indefinitely buying back it's own fiscal debt with printed money, even if they tend to be exaggerated since we're not exactly seeing hyperinflation now.
- appstateguy 7y ago
  The United States has a substantial advantage in that the dollar is considered the world's reserve currency. This is in large part due to the "petrodollar" as the vast majority of oil is only sold in dollars. This puts a large demand on US Treasuries from foreign countries & banks so that they can meet this dollar demand. The dollar's dominance is slowly weening as Iran now sells oil to China using the Yuan. The IMF also has a potential replacement reserve "currency" called Special Drawing Rights (SDR). Though it's not technically a currency but instead it's more an index based on basket of currencies. That basket includes US Dollars, Japanese Yen, the Euro, Pound Sterling, and most recently the Chinese Yuan.
  - toomuchtodo 7y ago
    SDR sounds like Facebook’s Libra without them blockchain nonsense.
    - c0restraint 7y ago
      How do you draw that conclusion?
      - toomuchtodo 7y ago
        Basket of currencies without a blockchain or digital ledger component. Although the Libra Wikipedia page indicates that idea has been deprecated: > As of January of 2020, Libra is said to have dropped the idea of a mixed currency basket in favor of individual stablecoins pegged to individual currencies.
baryphonic 7y ago
This isn't really accurate, because it would describe any "expansionary" monetary policy. QE involves adding liquidity (i.e. cash) to the financial system directly when interest rates are already low and so the normal tools (open market operations and to a lesser extent the discount rate) are ineffective. QE thus typically involves very large expansion of the Fed's balance sheet (the assets are the securities they buy, and the liabilities are the cash issued), compared to small fluctuations when they are using OMO. The ultimate effect is an increase in the money supply just like normal expansionary Fed operations, just through different means. Also QE1 and QE2 involved the Fed buying "non-traditional" assets like mortgage-backed securities that were toxic at the time and some of which "fade away" over their lifetimes (e.g. an MBS is not worth anything once all of the loans composing it are paid).

nwah1 7y ago

QE is also just swapping of assets, which is why it wasn't noticeably inflationary any of the times it was done.

fbonetti 7y ago
It’s swapping an existing asset (a treasury) for an asset that was created completely out of thin air (reserves). It increases the monetary base. If you don’t believe me, look at the Fed’s own data. https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE QE has not caused excess inflation in terms of the consumer price level, but it has dramatically increased the price of interest-rate sensitive assets like real estate, equities, and bonds.
hcknwscommenter 7y ago
"QE is also just swapping of assets" Sort of. It was a swapping of short term liquidity for assets across the curve. Which is why it was fundamentally different from what the FED is doing today. "which is why it wasn't noticeably inflationary any of the times it was done" This is quite a strong statement. I would disagree. My model says it was inflationary. The counterfactual is "what would the inflation/deflation rate be in the absence of QE all else being the same?". Such counterfactuals are hard to come by, which is why this is such a dismal "science." At any rate, it cannot be denied (IMHO) that actual QE depressed interest rates available to economic actors.
- resource0x 7y ago
  Fundamentally different from QE? Then what this guy is talking about? "Kudlow says that ... the Fed's T-bill purchases are "basically" QE". How something fundamentally different from QE can be "basically QE" at the same time? :-) https://www.fxstreet.com/news/kudlow-feds-t-bill-purchases-are-basically-qe-202001211710 https://www.fxstreet.com/news/kudlow-feds-t-bill-purchases-a...
  - hcknwscommenter 7y ago
    Kudlow is a political appointee clown who does not know what he is talking about. He has a master's degree in "politics and economics". This is not an economics degree. If you are going to appeal to authority (which I really don't have a problem with), then appeal to someone who has a relevant educational background to actually be an authority.
- nwah1 7y ago
  The reason Carlyle called it the dismal science is because so many classical economists were abolitionists, and Carlyle favored the institution of slavery. I agree that counterfactuals are almost impossible to know in economics, but if predictions on one side repeatedly turn out wrong, then that side is probably wrong. You can find innumerable doomsayers that predicted hyperinflation, and a loss of faith in the dollar and bonds. All of those people were completely wrong, and in fact the dollar strengthened, yields plummeted, and consumer prices were stable.

sputknick 7y ago

I know very little about economics, but If there is no net injection into the market, why did the Fed's balance sheet start to expand at the same time? Are they separate things and this is a coincidence? https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

hcknwscommenter 7y ago
They are not separate things. It is not a coincidence. However, you are not taking into account the very real difference in the composition of the balance sheet. Buying a short-term risk free instrument (and thereby expanding the balance sheet) in order to increase liquidity in that market is very different from what was happening during QE.

chrisjc 7y ago

> There was a hiccup in the repo market, so the Fed is "buying" extremely short term (e.g., O/N repo) instruments. Would you say this is now the new norm? Or something that will come and go as the trends change in the repo markets?

JDiculous 7y ago

Regardless of the maturity length of the debt instruments the Fed is buying, it is an increase in the money supply unless you're literally defining the money supply to include what the Fed is purchasing. So yea if U.S. government debt is defined as money, then I guess the U.S. government buying its own debt back with printed money is just "swapping assets". Surely however there are implications of a country indefinitely buying back it's own fiscal debt with printed money, even if they tend to be exaggerated since we're not exactly seeing hyperinflation now.

appstateguy 7y ago
The United States has a substantial advantage in that the dollar is considered the world's reserve currency. This is in large part due to the "petrodollar" as the vast majority of oil is only sold in dollars. This puts a large demand on US Treasuries from foreign countries & banks so that they can meet this dollar demand. The dollar's dominance is slowly weening as Iran now sells oil to China using the Yuan. The IMF also has a potential replacement reserve "currency" called Special Drawing Rights (SDR). Though it's not technically a currency but instead it's more an index based on basket of currencies. That basket includes US Dollars, Japanese Yen, the Euro, Pound Sterling, and most recently the Chinese Yuan.
- toomuchtodo 7y ago
  SDR sounds like Facebook’s Libra without them blockchain nonsense.
  - c0restraint 7y ago
    How do you draw that conclusion?
    - toomuchtodo 7y ago
      Basket of currencies without a blockchain or digital ledger component. Although the Libra Wikipedia page indicates that idea has been deprecated: > As of January of 2020, Libra is said to have dropped the idea of a mixed currency basket in favor of individual stablecoins pegged to individual currencies.

baryphonic 7y ago

This isn't really accurate, because it would describe any "expansionary" monetary policy. QE involves adding liquidity (i.e. cash) to the financial system directly when interest rates are already low and so the normal tools (open market operations and to a lesser extent the discount rate) are ineffective. QE thus typically involves very large expansion of the Fed's balance sheet (the assets are the securities they buy, and the liabilities are the cash issued), compared to small fluctuations when they are using OMO. The ultimate effect is an increase in the money supply just like normal expansionary Fed operations, just through different means. Also QE1 and QE2 involved the Fed buying "non-traditional" assets like mortgage-backed securities that were toxic at the time and some of which "fade away" over their lifetimes (e.g. an MBS is not worth anything once all of the loans composing it are paid).