Fed Seen Purchasing $300 Billion in Treasuries After QE2

Discussion in 'Off-Topic' started by Ramius75, Jun 27, 2011.

  1. Ramius75

    Ramius75 Deity

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    Dear All,

    can anyone explain this in layman term ?? im getting more and more confuse by it.

    Is there a limit to Fed buying up treasury ?
    What is the negative aspect of this ?


    Thank you :):crazyeye:
     
  2. Cutlass

    Cutlass The Man Who Wasn't There.

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    Well, in technical terms, no there is not a limit on what the Fed can do. The Fed is a law onto itself, at least in the short run. The limits of that is where they piss off the elected government enough to change the rules, or at least the people running the place.

    For the negatives, nothing really, in the current situation.
     
  3. aw3524

    aw3524 Prince

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  4. Arriaga II

    Arriaga II Warlord

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    QE3 would definitely be a positive development.
     
  5. woody60707

    woody60707 Deity

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  6. Ramius75

    Ramius75 Deity

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    Thanks, i tried that link. but that doesnt make economic sense.

    I really need someone to help explain it deeper. e.g.

    Where does the Fed came up with the money to buy the treasury ?
    Beside causing the USD to depreciate against the other currencies.
    what is the mechanism behind the buying ?
     
  7. Integral

    Integral Can't you hear it?

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    Naive answer: the Fed is printing money, which it is using to buy assets other than short-term Treasury bills. Right now, their main target is long-term Treasury bonds. This will lower interest rates and stimulate the economy.

    Slightly more complex answer: I'll just leave this here.

    (the problem with the naive view: I'd actually expect long interest rates to rise if QE was working due to rising inflation expectations. If inflation expectations pick up, which would be good and healthy for the economy right now, then long rates will go up, not down, as a result of QE. Further, it's not strictly true that the Fed is "printing money", either.)
     
  8. Monsterzuma

    Monsterzuma the sly one

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    they can purchase bonds with the money they have available. QE means they generate new money. since they are constantly trading debt products that on occasion mature and return principal + interest, they can have money on their hands without having recently engaged in QE. this is simple circulation of money that is already in the economic system as if the Fed was just another market agent, so it does not expand the money supply. at best it increases the velocity of money by a bit.

    (please correct me if i'm wrong about anything here)
     
  9. GoodGame

    GoodGame Red, White, & Blue, baby!

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    teletype movie makers FTW!!!!!

    Now if they only had the courage to just videotape themselves spouting their ideas.
     
  10. Ramius75

    Ramius75 Deity

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    and so who is paying the interest for the bonds ?
     
  11. Cutlass

    Cutlass The Man Who Wasn't There.

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    The Fed is creating the money fresh and new.
    Possible, but not a certainty. Remember that other countries aren't in great shape either.
    The Fed simply tells Wall St that it's buying, and Wall St sells.

    These are the US government bonds the government has been selling to run deficits. The government pays the interest on them. The Fed will be collecting that interest. But the excess money the Fed makes gets turned over to the Treasury.
     

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