Fed buying treasuries.... question

Discussion in 'Economics' started by jrcase, Mar 18, 2009.

  1. jrcase


    Ok, I understand the goal was to lower rates and unfreeze credit but what ill effects will this cause? Inflation comes to mind for me since they are simply printing money, right?

    If this is such a good idea, why have they not done it sooner? Surely there will be some bad effects. Or maybe not? Please advise me. I relally don't know what all of this means.
  2. Mainly it will be seen in a weaker currency. When treasury rates fall, the interest rate differential compared to other currency debt interest rates changes. If you can get a higher rate of return in euros, and the threat of dilution is less, you will park your money there.
  3. lrm21


    We are starting down a path that may not end well.

    Gold jumped right away.

    Rice Rocket, is this a sign of desperation by the FED?
  4. This is a sign of capitulation by the Fed. Truly, this is the Fed's last bullet .

    They are buying illiquid assets and driving down long term rates to try to put a bid under the housing market. It won't work, it can't work. The valuations were bid up on absurd lending standards. Easy credit creates an artificial demand, that demand may not be seen again for another decade.

    This is going to ROYALLY piss off China.
  5. This isn't their last bullet. This is just the beginning of a new way of doing business. China will love this actually. The fed is essentially going to buy their treasuries from them at a higher value.
  6. Well, China would love it, if it weren't for the fact that they have to sell their agency paper and replace it with USTs. The Fed loves the part where China sells them higher yield vs buying lower yield, with it all being the same govt paper...

    Everyone wins!
  7. The name of the game is for China to continue to support our spending by buying our debt. They will unload our debt and seek a higher yield. They will like it short-term because of the gain in treasuries but longer term, they now know we are now an economic wasteland for decades to come.

    The reason I say this is their last bullet is because they will be buying at the top.
  8. jnorty


    I was scared the fed would get so desperate and take this step. They're now at full printing press with $'s that are out of then air to stop this tumble. I now fear the other side of this printing will make present day look like a cub
  9. dhpar


    ok - this one wins today's ignorance contest. :D

    PRC will not like today's action for many reasons. let's name some of them:

    1. lower yields at auctions they are supposed to bid on. note they continuous bidding is one of the few leverages PRC has over US.

    2. lower USD which indirectly (!) impacts chinese export competitiveness.

    3. lower USD means their reserves are immediately worth less. recall that PRC does not MtM its Tsy holdings - it is being held till maturity and rolled over at lower yields.

    p.s. take it easy RR - i know you are a decent guy.
  10. Japan did it. "The lost decade" it was called.
    #10     Mar 18, 2009