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Let's say our federal gov't wants to hand out $2T to the general public. So they issue $2T worth of Treasuries. And then the Fed creates $2T and buys them. (worst case monetization)
The Fed collects interest on the debt paper over time and sends most of that back to the Treasury.
Then comes to trade or sell or redeem - unwind. The roughly $2T of proceeds then go back to the Treasury cancelling $2T of national debt. The unwind is done and does not take back from the public.
A T-bill isn't unwound until it's paid. By definition, that's taking money from the public. If that doesn't happen, as you suggest, that's just pumping extra created money into the economy, diluting and devaluing the US Dollar. Worst case scenario is what the FR just announced last Monday: unlimited QE.
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So yes in the end there is more money in the economy, the purpose.
You want to cancel the public's gain. That would have to be taxed back.
There is no public gain when the dollar is diluted and devalued by unlimited QE. Everyone loses purchasing power.
Actually, Professor Earl G Tacking, professor of bio-economics at the University of Eastern Rhode Island, summed it up HERE It will involve the creation of a trillion dollar crypto coin, which will be diverted back into the economy after the recession, Complex, yes, but it will work.
A T-bill isn't unwound until it's paid. By definition, that's taking money from the public. If that doesn't happen, as you suggest, that's just pumping extra created money into the economy, diluting and devaluing the US Dollar. Worst case scenario is what the FR just announced last Monday: unlimited QE.
There is no public gain when the dollar is diluted and devalued by unlimited QE. Everyone loses purchasing power.
When the Fed redeems its Treasuries, the proceeds go back to the Treasury.
The Treasury is gone, the public gains. This is the point.
You are over stating this dilution effect as it related to today.
Any so called dilution effect has to be weighed against a current economy, its needs and a projection of its needs. Where, when and why these new moneys enter. Right now it is intended to be inflational.
We the people and our businesses will need more money right now!
My interpretation of unlimited QE is whatever it takes to get us through and over the virus and its economic impacts. If it has to go on and on, that would mean we have persistent deflation or risks for ongoing deflation. So we would all be in deep doo-doo for a long time. Look at Japan, as they have been doing this for quite some time.
Actually, Professor Earl G Tacking, professor of bio-economics at the University of Eastern Rhode Island, summed it up HERE It will involve the creation of a trillion dollar crypto coin, which will be diverted back into the economy after the recession, Complex, yes, but it will work.
When the Fed redeems its Treasuries, the proceeds go back to the Treasury.
No. You don't have a grasp of how it works:
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5.1 Redemptions of Treasury securities
In section 4.1 we described how the Federal Reserve accounts for maturing Treasury securities; with no further action on the part of the Fed, this is equivalent to the act of redeeming the securities. As we showed in Figure 6, at maturity, the Federal Reserve’s holdings of Treasury securities (asset) and the balance of the Treasury General Account (TGA; liability) both decline, and reserves in the banking system are unaffected. If the Federal Reserve determines that it will not reinvest the proceeds from the maturing securities—a securities redemption—the balances that result from the maturing securities illustrated in figure 6 would constitute the end of this transaction.
Without further action on the part of the Treasury, the outstanding amount of Treasury debt would also declinealong with the cash in the Treasury’s TGA. Of course, the Treasury uses the cash in its TGA to fund government expenditures; sizeable Fed redemptions would shrink that balance. At some point, the Treasury will most likely need to replace the Fed’s redeemed securities by issuing new securities to the public to keep a manageable cash balance. At this point, the Federal Reserve’s redemptions set in motion a chain of events that will affect the flow of funds of banks and other entities. In particular, as shown in figure 11, when the Treasury issues the new debt, the ultimate holder of the newly-issued Treasury securities may be primary dealers—banks and broker-dealers that trade in U.S. Treasuries with the New York Fed—banks, households, or nonfinancial businesses, or a combination thereof.
Got that? When the FR redeems Treasuries that have matured, the Treasury's General Account (which funds Fed Gov expenditures) declines by the corresponding redemption amount. That pulls extra taxpayer money out of the TGA. The only way to keep the farce going is to continue printing new funny money which as other countries have learned, results in hyperinflation.
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Originally Posted by Hoonose
You are over stating this dilution effect as it related to today.
No, I am not. All of the hyperinflationary economies tried to do the exact same thing (print unlimited amounts of extra money) and failed.
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Any so called dilution effect has to be weighed against a current economy, its needs and a projection of its needs. Where, when and why these new moneys enter. Right now it is intended to be inflational.
We the people and our businesses will need more money right now!
My interpretation of unlimited QE is whatever it takes to get us through and over the virus and its economic impacts. If it has to go on and on, that would mean we have persistent deflation or risks for ongoing deflation. So we would all be in deep doo-doo for a long time. Look at Japan, as they have been doing this for quite some time.
Look at the hyperinflationary economies that tried to do the exact same thing. They failed.
Got that? When the FR redeems Treasuries that have matured, the Treasury's General Account (which funds Fed Gov expenditures) declines by the corresponding redemption amount. That pulls extra taxpayer money out of the TGA. The only way to keep the farce going is to continue printing new funny money which as other countries have learned, results in hyperinflation.
From your same reference:
5.1 Redemptions of Treasury securities In section 4.1 we described how the Federal Reserve accounts for maturing Treasury securities; with no further action on the part of the Fed, this is equivalent to the act of redeeming the securities. As we showed in Figure 6, at maturity, the Federal Reserve’s holdings of Treasury securities (asset) and the balance of the Treasury General Account (TGA; liability) both decline, and reserves in the banking system are unaffected. If the Federal Reserve determines that it will not reinvest the proceeds from the maturing securities—a securities redemption—the balances that result from the maturing securities illustrated in figure 6 would constitute the end of this transaction. Without further action on the part of the Treasury, the outstanding amount of Treasury debt would also decline along with the cash in the Treasury’s TGA. Of course, the Treasury uses the cash in its TGA to fund government expenditures; sizeable Fed redemptions would shrink that balance. At some point, the Treasury will most likely need to replace the Fed’s redeemed securities by issuing new securities to the public to keep a manageable cash balance.
"If the Federal Reserve determines that it will not reinvest the proceeds"
It is confusing.
When the Fed wants to expand the money supply it buys Treasuries. As it will now do.
Unwinding means they are redeeming and taking money out. As they started a few years back, now aborted.
By and large in more normal times Treasuries are getting rolled over and the net in/out is nominal.
But you are leaving out the Fed's 'proceeds' with the Treasury redemption. And the fact that the National Debt declines.
The 'proceeds' from the sale go back to the Treasury minus the Fed's 6%.
5.1 Redemptions of Treasury securities In section 4.1 we described how the Federal Reserve accounts for maturing Treasury securities; with no further action on the part of the Fed, this is equivalent to the act of redeeming the securities. As we showed in Figure 6, at maturity, the Federal Reserve’s holdings of Treasury securities (asset) and the balance of the Treasury General Account (TGA; liability) both decline, and reserves in the banking system are unaffected. If the Federal Reserve determines that it will not reinvest the proceeds from the maturing securities—a securities redemption—the balances that result from the maturing securities illustrated in figure 6 would constitute the end of this transaction. Without further action on the part of the Treasury, the outstanding amount of Treasury debt would also decline along with the cash in the Treasury’s TGA. Of course, the Treasury uses the cash in its TGA to fund government expenditures; sizeable Fed redemptions would shrink that balance. At some point, the Treasury will most likely need to replace the Fed’s redeemed securities by issuing new securities to the public to keep a manageable cash balance.
"If the Federal Reserve determines that it will not reinvest the proceeds"
It is confusing.
Actually, it's not confusing. It means either the FR engages in ongoing unlimited QE, or not.
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When the Fed wants to expand the money supply it buys Treasuries. As it will now do.
Unwinding means they are redeeming and taking money out. As they started a few years back, now aborted.
By and large in more normal times Treasuries are getting rolled over and the net in/out is nominal.
But you are leaving out the Fed's 'proceeds' with the Treasury redemption. And the fact that the National Debt declines.
The 'proceeds' from the sale go back to the Treasury minus the Fed's 6%.
No, the proceeds from FR Treasuries redemption does not go back to the Treasury. It reduces the Treasury's General Account amount available for Fed Gov spending by a corresponding amount.
I'm getting the fact that you don't understand what's going on so it's pointless to continue discussing this with you unless you learn a lot more about how QE, Treasuries redemption, etc., works.
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