Why couldn't the Fed pull out more money? (student loan, debt, borrowing)

[artillery77]

$4T is a lot of quantitative easing. Interest rates at 0% for nearly a decade is very low and for a very long time. Economically speaking, I had doubted the Fed would be able to pull back all of their money from a few years ago, but I did expect them to get further than they did...though it's rather obvious that we've perhaps now become less ready for shocks than a few years ago.



I know none of us were privy to the grand plan, but why do you think this occurred?

[Lowexpectations]

Are they actively pulling funds out as in selling securities or letting them mature and and reinvesting?

[artillery77]

The Fed has a large balance sheet of securities they own. As they mature, some are being reinvested and some are not. The not portion becomes the drop in the Fed's balance sheet. This effectively eliminates some of the cash created when the government was pumping liquidity into the markets. Banks require this liquidity as they tend to make longer term loans than what they have on hand, and in turn, seek to borrow the money on a shorter term for cheaper rates, with the assumption that they will be able to return to the well when they have to pay back those monies....netting the difference.


The crisis began when the banks stopped loaning to one another, fearful that the banks would not be able to repay it. Hence the massive injection of funds. In theory, the Fed should be getting a lower return on their money than the banks, who in turn get a lower return on their money than the people borrowing the money.



Compounded for nearly a decade, one would expect there to be plenty of money sloshing around and the Fed would need to pull it in to stop inflation. Yet inflation hasn't occurred according to their own numbers. Rather, there is fear of deflationary events that set in very soon after they began to pull in funds.

[mathjak107]

The fed pumped unprecedented trillions in to the economy and the best we can get is about 2% gdp growth and less than 2% inflation.. now that is a reason to worry

[aridon]

Originally Posted by mathjak107

The fed pumped unprecedented trillions in to the economy and the best we can get is about 2% gdp growth and less than 2% inflation.. now that is a reason to worry

This.

One other thing is our demographics are favorable to over selling if things get panicky and there isn't an immediate rebound. Will be a good opportunity to buy but I imagine many who have been riding the beta wave to gains will panic when they see their egg quickly break.

There is a lot of money concentrated in relatively few names. Stocks are quite expensive right now given growth. The coming declines are going to smack many boomers right in the face.

You do not want to be aggressive right now in stocks hoping gains will off set lack of balance accumulation. Use these bounces near the top to evaluate your positions and ensure preservation if you're close to or in retirement. Respect the time horizon and be ironer diversified.

[heart84]

Originally Posted by mathjak107

The fed pumped unprecedented trillions in to the economy and the best we can get is about 2% gdp growth and less than 2% inflation.. now that is a reason to worry

The Fed can keep pumping all they want but it will continue to have diminishing results. The global debt crisis is too much for the central banking systems to handle. I have been bullish on the general markets for a long time now up until very recently. Wouldn't be surprised to see the blowoff top with a China trade deal. After that good luck. The run has been great but dire times are ahead in the financial markets. It will take a lot of people by surprise just how bad things will get.

[Sunbiz1]

Originally Posted by artillery77

The crisis began when the banks stopped loaning to one another, fearful that the banks would not be able to repay it. Hence the massive injection of funds. In theory, the Fed should be getting a lower return on their money than the banks, who in turn get a lower return on their money than the people borrowing the money.

The crises began a century ago, when private banking was given the green light to legally rape, pillage, and plunder. For this reason, JFK printed currency backed by silver; allocating it to reduce the debt.
The Money Masters – Famous Quotations on Banking


“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.”
-Henry Ford

[SWFL_Native]

The real issue is the amount of debt, the pricing of the debt, the traunches of risk and whose holding it, and finally the to big to fail concept.

Student loans, auto loans, and home loans along with fed/state/municipal debts will be the cement shoes our economy in the next recession.

[leastprime]

JMO,
Most of the QE money and the tax reduction monies quickly went to those who accumulated and invested the funds into low velocity investment instruments. [see FRED Mx Velocity Charts); Hence the raising equity market. The FED can not really sell off the assets because no one really wants to buy relative low yielding and high risk to inflation products.

[tickyul]

All that QE-money, it just was not adequate to create a neato enough economy......now there is rumblings of a rate-cut, LOL.