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The treasury issues (sells) bonds and t-bills to banks/asset managers/random people, in order to get money to give away in bailouts and handouts. The Federal Re
by MagnumOpus 6y ago
The treasury issues (sells) bonds and t-bills to banks/asset managers/random people, in order to get money to give away in bailouts and handouts. The Federal Reserve increases its balance sheet ("prints money") and buys bonds and t-bills in order to keep demand high and interest rates low.
(Net net this causes the value of the dollar to drop and to devalue against "real assets" like company shares, real estate and commodities. This "asset price inflation" is a desired side effect.)
- beezle 6y agoThat's not really what has happened here. Asset/fund managers buy all types of fixed income instruments - government bills, notes, bonds, municipals debt, corporate debt, mortgages, bank loans, on and on. During the mayhem in late Feb/early March the secondary market for any and all of that debt for all intents vanished. This left many funds in difficult positions - their cash reserves are low and not sufficient to meet large daily redemptions therefore they need to sell assets they own. Those that also owned equities/commodities (balanced style funds) sold those more liquid assets, adding fuel to that dumpster fire. However, debt only funds were still left with no where to go. Thus the Fed stepped in and agreed to purchase exceedingly large amounts of debt instruments - pretty much anything rated investment grade. Thus the Fed monetized those holdings and we are now seeing that cash pushing up equity prices. The above is a little bit over simplified and leaves out many other players (ie repo problems) Also - the Treasury issues debt every week to meet the regular financial obligations of the US government, not just for special needs (various bailouts)