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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

by 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.
    - lottin 5y ago
      Your question was whether bond holders who sold bonds to the Fed would have been able to sell those bonds had the Fed not bought them as part of its 4 trillion bond purchasing program. And the answer is that, considering the average daily trading volume in the US bond market, which is a little under 1 trillion, whatever liquidity the 4 trillion Fed program provided, it couldn't possibly have made a big difference. Now you're making a different claim which is that the Fed inflated asset prices by pumping up the bond market. Yes, bond purchases by the Fed will tend to make bond prices increase, but your math is nonsense. Buying 9% of the supply of something doesn't mean the price will go up by 9%. This is not how prices work. Whether the Fed pumped up the bond market is an empirical question, which should be answered by looking at bond prices and seeing if they went up during 2020. So where's the data showing that bond prices were pumped up?

by lottin 5y ago

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.
  - lottin 5y ago
    Your question was whether bond holders who sold bonds to the Fed would have been able to sell those bonds had the Fed not bought them as part of its 4 trillion bond purchasing program. And the answer is that, considering the average daily trading volume in the US bond market, which is a little under 1 trillion, whatever liquidity the 4 trillion Fed program provided, it couldn't possibly have made a big difference. Now you're making a different claim which is that the Fed inflated asset prices by pumping up the bond market. Yes, bond purchases by the Fed will tend to make bond prices increase, but your math is nonsense. Buying 9% of the supply of something doesn't mean the price will go up by 9%. This is not how prices work. Whether the Fed pumped up the bond market is an empirical question, which should be answered by looking at bond prices and seeing if they went up during 2020. So where's the data showing that bond prices were pumped up?