5 ms·

If I give you $100/month for 15 years and then give you $95 this month, am I taking money from you?

by RC_ITR 4y ago

cs702 4y ago
There's zero giving involved. For years, the Fed has purchased bonds, paid for with newly created liquidity, and now, as the bonds mature, the Fed is getting paid back, removing liquidity from the financial system.
- RC_ITR 4y ago
  >There's zero giving involved. Technically, the Fed gave the Treasury cash in exchange for debt, no? And it was giving the Treasury more in the past than it is now. To extend the metaphor, You (the treasury) have $100 in expenses (debt) that I used to pay (buy). Now, I (the Fed) pay you (The Treasury) $95 and you need to ask your friend (the financial markets) for the other $5. Sure, that's less than before, but nowhere near what actual removing liquidity would look like: actively selling holdings in addition to not replenishing matured Treasuries (in the metaphor: asking you to pay me the debt you owe me/giving you a new expense).
  - cs702 4y ago
    The Fed is not allowed to buy bonds directly from the US Treasury, let alone give them anything (!?). See here: https://www.federalreserve.gov/faqs/money_12851.htm https://www.federalreserve.gov/faqs/money_12851.htm The Fed has been buying bonds by issuing new liquidity, and will be getting paid back, removing liquidity. This thread that you started is starting to feel... as if the purpose is no longer to find and agree on facts, so I will step away from it. This will be my last comment on it.
    - RC_ITR 4y ago
      You can see my earlier comment about the ~20 prime brokers who bid at auction, but boy howdy does this feel like splitting hairs. Sure, the cash goes through intermediaries, and it's actually a huge source of economic rent/corruption that noone other than Song and Zhu seem to care about, but that doesn't change the ultimate flow of 'giving'. >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.
ubercow13 4y ago
Yes because I am also giving you $100 when you give me $95. If you gave me $100 15 years ago and today ask for $5 back, you're taking money from me (also every month we handed the $100 back and forth) Why does it make sense to think of it any other way?
- RC_ITR 4y ago
  You’re at the wrong stage of the metaphor. The Fed has actively purchased new bonds worth roughly 10% of its holdings from the open market each year just to keep the balance constant. QE requires active support to remain in place. Now the Fed is purchasing new bonds worth roughly 9% of its holdings each year, and like sure that’s less than max, but it’s still gross buying like $900bn of treasuries this year (instead of the $1tn it would’ve otherwise). The problem that a lot of people have here is they think “well the treasury issues new bonds to make up for the bonds that mature,” which again, sure, but that’s an independent phenomenon from what the Fed is doing. Congress could balance the budget and that wouldn’t change what the fed is doing rn.
  - deleted 4y ago
    [deleted]
  - ubercow13 4y ago
    The purchase of bonds by the Fed for the purpose of rolling over its holdings is not on the open market. It is not doing 10% of the same thing it did to build that balance sheet during QE again every year.

If I give you $100/month for 15 years and then give you $95 this month, am I taking money from you?

by RC_ITR 4y ago

If I give you $100/month for 15 years and then give you $95 this month, am I taking money from you?

There's zero giving involved. For years, the Fed has purchased bonds, paid for with newly created liquidity, and now, as the bonds mature, the Fed is getting paid back, removing liquidity from the financial system.

RC_ITR 4y ago
>There's zero giving involved. Technically, the Fed gave the Treasury cash in exchange for debt, no? And it was giving the Treasury more in the past than it is now. To extend the metaphor, You (the treasury) have $100 in expenses (debt) that I used to pay (buy). Now, I (the Fed) pay you (The Treasury) $95 and you need to ask your friend (the financial markets) for the other $5. Sure, that's less than before, but nowhere near what actual removing liquidity would look like: actively selling holdings in addition to not replenishing matured Treasuries (in the metaphor: asking you to pay me the debt you owe me/giving you a new expense).
- cs702 4y ago
  The Fed is not allowed to buy bonds directly from the US Treasury, let alone give them anything (!?). See here: https://www.federalreserve.gov/faqs/money_12851.htm https://www.federalreserve.gov/faqs/money_12851.htm The Fed has been buying bonds by issuing new liquidity, and will be getting paid back, removing liquidity. This thread that you started is starting to feel... as if the purpose is no longer to find and agree on facts, so I will step away from it. This will be my last comment on it.
  - RC_ITR 4y ago
    You can see my earlier comment about the ~20 prime brokers who bid at auction, but boy howdy does this feel like splitting hairs. Sure, the cash goes through intermediaries, and it's actually a huge source of economic rent/corruption that noone other than Song and Zhu seem to care about, but that doesn't change the ultimate flow of 'giving'. >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.

ubercow13 4y ago

Yes because I am also giving you $100 when you give me $95. If you gave me $100 15 years ago and today ask for $5 back, you're taking money from me (also every month we handed the $100 back and forth) Why does it make sense to think of it any other way?

RC_ITR 4y ago
You’re at the wrong stage of the metaphor. The Fed has actively purchased new bonds worth roughly 10% of its holdings from the open market each year just to keep the balance constant. QE requires active support to remain in place. Now the Fed is purchasing new bonds worth roughly 9% of its holdings each year, and like sure that’s less than max, but it’s still gross buying like $900bn of treasuries this year (instead of the $1tn it would’ve otherwise). The problem that a lot of people have here is they think “well the treasury issues new bonds to make up for the bonds that mature,” which again, sure, but that’s an independent phenomenon from what the Fed is doing. Congress could balance the budget and that wouldn’t change what the fed is doing rn.
- deleted 4y ago
  [deleted]
- ubercow13 4y ago
  The purchase of bonds by the Fed for the purpose of rolling over its holdings is not on the open market. It is not doing 10% of the same thing it did to build that balance sheet during QE again every year.