5 ms·

The Fed can hold them to term. They are under no pressure to sell.

• dxhdr 13y ago
  The Fed has no choice but to hold them to term. The Fed's whole game is to continue keeping rates at zero by buying everything under the sun to the tune of $85 billion! per month. Selling, or even slowing the rate of purchasing, would do the opposite and raise rates.
  • cremnob 13y ago
    They have choices. They have complete flexibility. They are under no pressure to do anything that isn't explicitly their goals. They want to control inflation and increase employment. If the economy starts to heat up and inflation starts to rise above their 2% target they will then have the option of selling bonds or raising the federal funds rate, the latter of which is more likely. I'm not really sure what you're trying to get at with the last comment. He doesn't know the exact number off the top of his head. The exact amount remitted last year to Treasury is $88.4 billion.
    • dxhdr 13y ago
      They are under extreme pressure to continue purchasing treasury bills from the government and mortgage backed securities and derivatives from banks. Even hinting that they'll start tapering these purchases has caused the equity markets to drop and rates to rise. Actually tapering will in short order throw the country into a recession. I'd be hard pressed to call that "complete flexibility."
  • preempalver 13y ago
    Agree, selling will be problematic. The fed's probably going to use reverse-repo to exit. See http://www.voxeu.org/article/exit-path-implications-collateral-chains http://www.voxeu.org/article/exit-path-implications-collater... and http://ftalphaville.ft.com/2013/08/27/1612763/will-this-be-the-zlbrepocollateral-scarcity-solution-weve-been-waiting-for/ http://ftalphaville.ft.com/2013/08/27/1612763/will-this-be-t...
  • preempalver 13y ago
    its here! http://www.newyorkfed.org/markets/opolicy/operating_policy_130920.html http://www.newyorkfed.org/markets/opolicy/operating_policy_1...
• msandford 13y ago
  Holding them to term is actually a bit of a joke if you think about it. The Fed is buying bonds. The government is selling them. As long as the Fed keeps buying them, the government can keep selling them. If the Fed holds them to maturity, where will the money come from to pay back the mature bonds? From the government selling even more new bonds which the Fed will have to buy. It's not a Ponzi scheme or a pyramid scam but it can't help but be compared to them. It's in a similar boat to Social Security. It has the veneer of legitimacy because "it's the government" but underneath it's a bit unseemly.
  • preempalver 13y ago
    The fed is buying bonds on the secondary market i.e not directly bidding and taking down auctions at treasury. This may sound minute but is a huge point. See http://pragcap.com/understanding-quantitative-easing http://pragcap.com/understanding-quantitative-easing
    • yuliyp 13y ago
      How is there any sort of difference? The effect of reducing the supply of treasury bonds in the market and increasing the supply of money in the economy is the same, regardless of whether the bond is removed from the open market at auction or from the secondary market.
      • preempalver 13y ago
        Reducing the supply of UST !=Increasing the money supply. All QE is doing is increasing bank reserves. Unless bank lend the reserves out money supply is not affected. With IOERR and general aggregate demand being jacked, banks are not really lending money out to actually increase the money supply. If just taking UST's out would have increased money supply we would have seen a lot more inflation! *edit: IOER = Interest on excess reserves. See http://synthenomics.blogspot.com/2012/08/interest-on-excess-reserves-illustrated.html http://synthenomics.blogspot.com/2012/08/interest-on-excess-... for a good explanation
    • msandford 13y ago