4 ms·

If you are a bond holder, and the Fed buys $1000 worth of bonds from you for $1000, how is this causing everything to go up in price? Notice that your purchasi

by lottin 5y ago

If you are a bond holder, and the Fed buys $1000 worth of bonds from you for $1000, how is this causing everything to go up in price? Notice that your purchasing power is exactly the same before and after the purchase.

gruez 5y ago
>If you are a bond holder, and the Fed buys $1000 worth of bonds from you for $1000 Then what, do you just keep that $1000 in cash while inflation slowly eats away at it? No, you'll invest it in something else (eg. stocks), so now the market for that has an extra $1000 injected into it.
- lottin 5y ago
  You already had a bond.
  - gruez 5y ago
    That's generally the precondition for selling a bond. I don't see how that's relevant to my previous comment though.
    - lottin 5y ago
      You said you'd use the cash to buy an investment because you don't want to hold cash, but you already had an investment —the bond— which you sold for cash. That doesn't make a whole lot of sense, does it?
      - gruez 5y ago
        >but you already had an investment —the bond— which you sold for cash. And then what? After you sold that bond you're going to stop investing?
        lottin 5y ago
        I don't know... if you wanted to sell the bond in order to buy stocks or something else, you'd have done that anyway, so it's unclear how the fact that the Fed purchased your bond is making everything to go up in price.
        gruez 5y ago
        >if you wanted to sell the bond in order to buy stocks or something else, you'd have done that anyway Where is the fed getting the 4 trillion dollars worth of bonds from? Existing bond holders, right? Are you telling me that even without the fed buying up bonds, that bond holders would still be converting 4 trillion dollars worth of bonds (net) to stocks/cash?
        lottin 5y ago
        Well, yes. The average daily trading volume in the US bond market is in the order of 0.8-1.0 trillion, which means 4 trillion over a span of several months is nothing. Inflation doesn't come about as a result of the Fed pumping asset prices up, this is a misunderstanding on your part. It comes about, at least in theory, as a consequence of lower nominal interest rates.
        gruez 5y ago
        >Well, yes. The average daily trading volume in the US bond market is in the order of 0.8-1.0 trillion, which means 4 trillion over a span of several months is nothing. I was talking about 4 trillion net. In other words, 4 trillion dollars worth of outflows. 1 trillion dollars worth of trades per day doesn't tell much because it could very well be people selling bonds and then buying other bonds. On the other hand, google says that the US bond market is worth $46 trillion. That's almost 9% pumped into the market. If all that cash stayed in the bond market and didn't leak out, you'd expect bond yields to drop by 9%[1], which I don't see happening. [1] bonds are essentially IOUs. They have fixed returns, which means the more you pay for them, the lower your yield is. For instance, if you bought a bond that's worth $105 on maturity (1 year from now) for $100, your yield is 5%. If the fed comes in and pumps a bunch of money into the market such that $100 bond is now worth $108.69, then your yield is negative (you paid more for a bond than what it will pay back). >Inflation doesn't come about as a result of the Fed pumping asset prices up, this is a misunderstanding on your part. In the technical sense that inflation = CPI by definition, then yes you're right. But that's not what I was arguing for, which is that fed pumping money has inflated the market.
onlyrealcuzzo 5y ago
They don't buy $1000 of bonds from you for $1000 dollars. The whole point is to push yields down. When yields go down, prices go up. So they are buying what was $1000 worth of bonds for more than $1000.

by lottin 5y ago

gruez 5y ago

>If you are a bond holder, and the Fed buys $1000 worth of bonds from you for $1000 Then what, do you just keep that $1000 in cash while inflation slowly eats away at it? No, you'll invest it in something else (eg. stocks), so now the market for that has an extra $1000 injected into it.

lottin 5y ago
You already had a bond.
- gruez 5y ago
  That's generally the precondition for selling a bond. I don't see how that's relevant to my previous comment though.
  - lottin 5y ago
    You said you'd use the cash to buy an investment because you don't want to hold cash, but you already had an investment —the bond— which you sold for cash. That doesn't make a whole lot of sense, does it?
    - gruez 5y ago
      >but you already had an investment —the bond— which you sold for cash. And then what? After you sold that bond you're going to stop investing?
      - lottin 5y ago
        I don't know... if you wanted to sell the bond in order to buy stocks or something else, you'd have done that anyway, so it's unclear how the fact that the Fed purchased your bond is making everything to go up in price.
        gruez 5y ago
        >if you wanted to sell the bond in order to buy stocks or something else, you'd have done that anyway Where is the fed getting the 4 trillion dollars worth of bonds from? Existing bond holders, right? Are you telling me that even without the fed buying up bonds, that bond holders would still be converting 4 trillion dollars worth of bonds (net) to stocks/cash?
        lottin 5y ago
        Well, yes. The average daily trading volume in the US bond market is in the order of 0.8-1.0 trillion, which means 4 trillion over a span of several months is nothing. Inflation doesn't come about as a result of the Fed pumping asset prices up, this is a misunderstanding on your part. It comes about, at least in theory, as a consequence of lower nominal interest rates.
        gruez 5y ago
        >Well, yes. The average daily trading volume in the US bond market is in the order of 0.8-1.0 trillion, which means 4 trillion over a span of several months is nothing. I was talking about 4 trillion net. In other words, 4 trillion dollars worth of outflows. 1 trillion dollars worth of trades per day doesn't tell much because it could very well be people selling bonds and then buying other bonds. On the other hand, google says that the US bond market is worth $46 trillion. That's almost 9% pumped into the market. If all that cash stayed in the bond market and didn't leak out, you'd expect bond yields to drop by 9%[1], which I don't see happening. [1] bonds are essentially IOUs. They have fixed returns, which means the more you pay for them, the lower your yield is. For instance, if you bought a bond that's worth $105 on maturity (1 year from now) for $100, your yield is 5%. If the fed comes in and pumps a bunch of money into the market such that $100 bond is now worth $108.69, then your yield is negative (you paid more for a bond than what it will pay back). >Inflation doesn't come about as a result of the Fed pumping asset prices up, this is a misunderstanding on your part. In the technical sense that inflation = CPI by definition, then yes you're right. But that's not what I was arguing for, which is that fed pumping money has inflated the market.

onlyrealcuzzo 5y ago

They don't buy $1000 of bonds from you for $1000 dollars. The whole point is to push yields down. When yields go down, prices go up. So they are buying what was $1000 worth of bonds for more than $1000.