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Old 10-17-2018, 09:40 AM
 
8,285 posts, read 3,454,476 times
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Quote:
Originally Posted by Larry Caldwell View Post
Bond rates are going up because the Fed is (slowly) unwinding the QE monetization. The big bond rate push is because the Fed is no longer buying treasuries, so they have to boost returns to attract buyers.
The Fed hasn't been a net buyer of Treasuries for some time now.

https://fred.stlouisfed.org/series/TREAST

Raising rates tends to lower the value of the paper the Fed will be selling off with QE unwinding. Private bankers you know.

So IMO the Fed is raising rates in anticipation of more inflation short/medium term.
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Old 10-18-2018, 05:58 AM
 
Location: Proxima Centauri
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I will rephrase the original question. Economically what will happen if the US treasury buys 100 billion dollars in federal debt with money newly created for that purpose?

Where does the money go after it wipes out the debt? back into the general fund?
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Old 10-18-2018, 08:43 AM
 
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Quote:
Originally Posted by Tonyafd View Post
Back when I was in grad school, finance professors warned about monetizing the debt. Aside from being inflationary does anyone know what further ramifications there would be?
They never get the deficit problem under control since it relieves the politicians of any pressure to address the problem.

You can get around the debt monetization problem by having other governments finance you by printing money to buy your debt or by running a substantial trade surplus to accumulate the reserves to offset the fiscal deficit.

The Fed monetized the Treasury supply until the 1951 Accord which established their independence. Since then, it has done so on and off directly and more frequently through their partners, some of whom have an incentive to prop up the dollar. Since the unwinding of monetization's inflationary effects is rapid, they haven't lost control. That could change with de-dollarization, just as the end of the Bretton Woods Systems in the early 70's ushered in an era of very high inflation and interest rates.

Japan was able to dodge the bullet for a long time since they ran a trade surplus that covered most of their fiscal deficit and had a high personal savings rate to cover the rest, while using nuclear power to reduce fuel imports. Their debt is now twice the size of the economy.
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Old 10-18-2018, 09:25 AM
 
7,283 posts, read 8,116,246 times
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Quote:
Originally Posted by Tonyafd View Post
I will rephrase the original question. Economically what will happen if the US treasury buys 100 billion dollars in federal debt with money newly created for that purpose?

Where does the money go after it wipes out the debt? back into the general fund?
Tap the brake.

In order for monetization (generating money or credit from debt) to occur in The US several things must happen.

1). The Federal Reserve must buy Treasury notes, bonds or bills.

2). The Fed does not print money to make this happen. It issues credits to banks holding the treasuries and then places the treasuries on The Federal Reserve's balance sheet. Thus increasing reserves at said banks, lowering interest rates.

3). The Fed must keep these treasuries on its balance sheet indefinitely. If not 1. and 2. are simply unusual open market operations.

Here's the rub that most everyone forgets. As noted motization does not occur unless the Fed keeps said treasuries on its balance sheet indefinitely. The Fed has begun to unwind QE efforts ergo these QE actions were not monetization efforts.
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Old 10-18-2018, 09:33 AM
 
Location: Silicon Valley
2,751 posts, read 1,209,866 times
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Quote:
Originally Posted by Tonyafd View Post
I will rephrase the original question. Economically what will happen if the US treasury buys 100 billion dollars in federal debt with money newly created for that purpose?

Where does the money go after it wipes out the debt? back into the general fund?

It generally doesn't work that way. Normally the Treasury will borrow $100B from the Federal Reserve, which control's the nation's money supply.


Having a Federal Reserve that is independent in many respects from politicians is one of the pillars of the dollar's strength. The significant other pillar of old....the dollar being tied to gold reserves....no longer exists. So economically what would happen is a bit more like market reaction. As you chop away supporting walls in a building, a building gets weaker...whether or not it collapses on a key element is hard to say.
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Old 10-18-2018, 09:40 AM
 
6,997 posts, read 6,632,415 times
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Quote:
Originally Posted by Tonyafd View Post
I will rephrase the original question. Economically what will happen if the US treasury buys 100 billion dollars in federal debt with money newly created for that purpose?

Where does the money go after it wipes out the debt? back into the general fund?
Money is injected into the treasury and the banks. Since each purchase program is announced with a long lead time to allow the banks to mark up the holdings, there is a substantial profit injected into the system as well. QE 1.0 didn't work so well when they started the same day as the announcement since everyone wanted to sell.

The Treasury makes the payments on the debt. At the end of each year, the Fed remits any excess net income, including interest received on the treasuries it purchased. In simplest terms, the principal payment have to be refinanced constantly or when the security matures and rolls off the Fed's balance sheet. There is effectively no interest paid out and has to be financed. Monetization in this simplest of terms holds the outstanding debt constant so it can be financed as the tax receipts grow with the economy. In Europe, they took it a step further and refinanced at zero or less so the holder is paying the governments while holding the securities. The EU deficits have been shrinking rapidly as a result.
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Old 10-18-2018, 09:55 AM
 
8,285 posts, read 3,454,476 times
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Quote:
Originally Posted by Tonyafd View Post
I will rephrase the original question. Economically what will happen if the US treasury buys 100 billion dollars in federal debt with money newly created for that purpose?

Where does the money go after it wipes out the debt? back into the general fund?
Check out how the Trillion Dollar Platinum Proof Coin wipes out national debt.

https://en.wikipedia.org/wiki/Trillion_dollar_coin

The Fed can do QE's out the yin-yang.

The Fed creates money from thin air then swaps for a like amount of member bank paper debt.

Theoretically they could fund about anything. But of course politics gets in the way.

https://en.wikipedia.org/wiki/People...itative_Easing

https://ellenbrown.com/2017/05/17/if...dit-so-can-we/
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Old 10-18-2018, 09:46 PM
 
Location: Silicon Valley
2,751 posts, read 1,209,866 times
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Quote:
Originally Posted by Hoonose View Post
Check out how the Trillion Dollar Platinum Proof Coin wipes out national debt.

https://en.wikipedia.org/wiki/Trillion_dollar_coin

The Fed can do QE's out the yin-yang.

The Fed creates money from thin air then swaps for a like amount of member bank paper debt.

Theoretically they could fund about anything. But of course politics gets in the way.

https://en.wikipedia.org/wiki/People...itative_Easing

https://ellenbrown.com/2017/05/17/if...dit-so-can-we/
I have 3 of them. Wire $50K to my bank account and they're yours.
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Old 10-18-2018, 09:51 PM
 
8,285 posts, read 3,454,476 times
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Quote:
Originally Posted by artillery77 View Post
I have 3 of them. Wire $50K to my bank account and they're yours.
I couldn't use them. They have to be placed and stored in the Federal Reserve's Treasury account into perpetuity.
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Old 10-23-2018, 12:21 AM
 
27 posts, read 7,389 times
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How can we monetize the debt? can anyone help me in answering the question?
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