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I’m aware that is the case. If they weren’t doing that, though, it would result in a massive uncontrolled level of tightening. I don’t see how it’s somehow a ba

I’m aware that is the case. If they weren’t doing that, though, it would result in a massive uncontrolled level of tightening. I don’t see how it’s somehow a bad thing that they are being intentional about the draw down. If I were to buy a bond ETF, that fund would be doing the same thing on my behalf. I wouldn’t be “buying” bonds just because the underlying product is maintaining a fixed asset level/ratio.

RC_ITR 4y ago
>I’m aware that is the case. If they weren’t doing that, though, it would result in a massive uncontrolled level of tightening. Yes, so they aren't 'removing liquidity' because they are still 'injecting liquidity' at literally every treasury auction (as they have been for 15 years). They are simply injecting less liquidity than they have been, which is my entire point. >I don’t see how it’s somehow a bad thing that they are being intentional about the draw down. It's not a bad thing and I never said it was. If you want ideology, I think the Fed shouldn't even be doing QT and probably never should (I think inflation is largely unrelated to this liquidity). >If I were to buy a bond ETF, that fund would be doing the same thing on my behalf. I wouldn’t be “buying” bonds just because the underlying product is maintaining a fixed asset level/ratio. In literal terms, the government holds an auction for Treasury debt at various maturities. ~20 primary dealers bid on those Treasuries. Those ~20 primary dealers know exactly how much The Fed needs to buy from them. That influences their bids. If The Fed weren't buying from those dealers, they would bid for higher rates. In no way do those dealers consider the amount of debt that has reached maturity that month, they only care about new issuances. Isn't this pretty basic supply/demand stuff here? Are you also implying that demand for bond ETFs has no effect on the price of underlying bonds?
- wbsss4412 4y ago
  > Yes, so they aren't 'removing liquidity' because they are still 'injecting liquidity' at literally every treasury auction (as they have been for 15 years). They are simply injecting less liquidity than they have been, which is my entire point. Your point is myopically focused on the bond market (and realistically the mortgage backed securities market as well). The net amount of liquidity is going down. They are removing liquidity. If I’m in a sinking ship and frantically pulling out buckets of water, the ship is still sinking even though I’m removing water. The fact that the fed has to continue to make bond purchases is a technicality that is irrelevant to anyone outside of the trading industry, and has little net effect of the Marco economy. Like, when headlines come out saying “alphabet stock sell off on earning miss” do you tell everyone around you that technically there was a buyer on the other side of every one of those transactions?
  - RC_ITR 4y ago
    >The net amount of liquidity is going down. They are removing liquidity. Yes, they are actively injecting less liquidity than they were before which is my original point? Wouldn't removing liquidity be actually selling holdings? EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?
    - wbsss4412 4y ago
      The fed removes liquidity every time it receives a coupon payment or a bond matures (ie, it gets paid cash by the government). It could stop all open market operations and it would continue to remove liquidity from the system by virtue of that process. So, no, it doesn’t need to sell any assets in order to remove liquidity from the system, it simply needs to have lower net outflows of cash than its inflows of cash. As the headline states, since mid April it’s net outflows of cash have been $140 billion less than its inflows.
      - RC_ITR 4y ago
        Wait, it's really hard to follow you here. The Fed reduces liquidity by receiving coupon payments? So then, unless it's growing its balance sheet by the amount of those payments (i.e. returning that cash to market), it's removing liquidity? Interesting take, I like the moxy. EDIT: You have QE/QT backwards. QE increases the money the Treasury sends to the Fed as coupon, which you said removes liquidity. My entire point was that you are backwards in one of your two conflicting arguments.
        wbsss4412 4y ago
        > Quantitative easing (QE) is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets (e.g., municipal bonds, corporate bonds, stocks, etc.) in order to inject money into the economy to expand economic activity. [0] https://en.wikipedia.org/wiki/Quantitative_easing?wprov=sfti1 https://en.wikipedia.org/wiki/Quantitative_easing?wprov=sfti...

RC_ITR 4y ago

>I’m aware that is the case. If they weren’t doing that, though, it would result in a massive uncontrolled level of tightening. Yes, so they aren't 'removing liquidity' because they are still 'injecting liquidity' at literally every treasury auction (as they have been for 15 years). They are simply injecting less liquidity than they have been, which is my entire point. >I don’t see how it’s somehow a bad thing that they are being intentional about the draw down. It's not a bad thing and I never said it was. If you want ideology, I think the Fed shouldn't even be doing QT and probably never should (I think inflation is largely unrelated to this liquidity). >If I were to buy a bond ETF, that fund would be doing the same thing on my behalf. I wouldn’t be “buying” bonds just because the underlying product is maintaining a fixed asset level/ratio. In literal terms, the government holds an auction for Treasury debt at various maturities. ~20 primary dealers bid on those Treasuries. Those ~20 primary dealers know exactly how much The Fed needs to buy from them. That influences their bids. If The Fed weren't buying from those dealers, they would bid for higher rates. In no way do those dealers consider the amount of debt that has reached maturity that month, they only care about new issuances. Isn't this pretty basic supply/demand stuff here? Are you also implying that demand for bond ETFs has no effect on the price of underlying bonds?

wbsss4412 4y ago
> Yes, so they aren't 'removing liquidity' because they are still 'injecting liquidity' at literally every treasury auction (as they have been for 15 years). They are simply injecting less liquidity than they have been, which is my entire point. Your point is myopically focused on the bond market (and realistically the mortgage backed securities market as well). The net amount of liquidity is going down. They are removing liquidity. If I’m in a sinking ship and frantically pulling out buckets of water, the ship is still sinking even though I’m removing water. The fact that the fed has to continue to make bond purchases is a technicality that is irrelevant to anyone outside of the trading industry, and has little net effect of the Marco economy. Like, when headlines come out saying “alphabet stock sell off on earning miss” do you tell everyone around you that technically there was a buyer on the other side of every one of those transactions?
- RC_ITR 4y ago
  >The net amount of liquidity is going down. They are removing liquidity. Yes, they are actively injecting less liquidity than they were before which is my original point? Wouldn't removing liquidity be actually selling holdings? EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?
  - wbsss4412 4y ago
    The fed removes liquidity every time it receives a coupon payment or a bond matures (ie, it gets paid cash by the government). It could stop all open market operations and it would continue to remove liquidity from the system by virtue of that process. So, no, it doesn’t need to sell any assets in order to remove liquidity from the system, it simply needs to have lower net outflows of cash than its inflows of cash. As the headline states, since mid April it’s net outflows of cash have been $140 billion less than its inflows.
    - RC_ITR 4y ago
      Wait, it's really hard to follow you here. The Fed reduces liquidity by receiving coupon payments? So then, unless it's growing its balance sheet by the amount of those payments (i.e. returning that cash to market), it's removing liquidity? Interesting take, I like the moxy. EDIT: You have QE/QT backwards. QE increases the money the Treasury sends to the Fed as coupon, which you said removes liquidity. My entire point was that you are backwards in one of your two conflicting arguments.
      - wbsss4412 4y ago
        > Quantitative easing (QE) is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets (e.g., municipal bonds, corporate bonds, stocks, etc.) in order to inject money into the economy to expand economic activity. [0] https://en.wikipedia.org/wiki/Quantitative_easing?wprov=sfti1 https://en.wikipedia.org/wiki/Quantitative_easing?wprov=sfti...