$600bn into the US economy

loseyourname

It's pretty relevant, man. Buying existing debt takes it off the hands of banks and gives them cash to lend, with the express purpose of putting more money into circulation and driving down bond yields. Issuing new debt adds debt and drives up bond yields since there is a larger supply without any added demand. The Congress isn't sitting around waiting for this so they can now increase the budget by $600 billion without increasing tax receipts over the next eight months with the hopes that the banks will use that cash to buy more debt rather than lend.

mheslep

Yes I understand how the debt purchase places more money into circulation, but that will happen whether or not the Fed buys old or new debt, as the level of debt will remain the same. One can't uncouple the actions of the Fed and the Treasury here from the standpoint of an investor bank. The Treasury is scheduled to issue another $X billion in 10 yr notes two weeks from today no matter what the Fed does when it starts QE2 buys tomorrow. After that Treasury issue two weeks from now the level of debt will be exactly the same whether the Fed bought $600B from GS, or directly from the Treasury.

As I understand it the only reason the Fed buys debt via, say Goldman Sachs, and doesn't buy directly from the Treasury is investors would very reasonably suspect the Treasury can't find real 3rd party buyers (who can't print there own money) for its debt any more and flee the market.

WhoWee

It seems Mr. Geithner has an opinion.
http://finance.yahoo.com/news/Geithn...85814.html?x=0

"Geithner also warned Republicans about politicizing the Federal Reserve. A number of conservative economists and Republicans in Congress have attacked the central bank for its decision to launch a new round of $600 billion in purchases of Treasury securities as a way to lower long-term interest rates. They warn this effort runs the risk of weakening the value of the dollar and setting off higher inflation down the road.

Asked about this criticism, Geithner said, "It is very important to keep politics out of monetary policy, as Congress recognized when it established the Fed."

Geithner said it was essential that policymakers "respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure ... they are promoting sustainable economic growth.""

Astronuc

Interesting reading here -
http://www.economy.com/mark-zandi/default.asp
See toward the bottom of the page - Fiscal Stimulus Fades

It seems the stimulus (from two years ago) isn't working as predicted. Unemployment was supposed to be falling through 2010 - but it obviously hasn't. Several sectors of our local economy are more or less frozen (no growth, zero activity) and in some cases in decline. Local development has essentially stopped, and one company, which has been around for decades just closed. On our Main Street business is down about 30% +/- from two years ago.

More recently
http://www.csmonitor.com/USA/Politic...Obama-stimulus

As far as I can tell - the economy is so damaged at this point - the stimulus as implemented cannot help stimulate growth. And the fundamentals of the economy aren't strong, and they were not strong in 2007.

mheslep

Geithner is absolutely right there, at least in word. So why the ?

mheslep

Zandi is the darling of NPR and Marketplace broadcasts. Hopefully his record will eventually put a stake through his popularity.
The Abysmal Track Record of Moody’s Mark Zandi

Astronuc

Well the could be because the Fed is playing politics itself, or because the QE2 seems to contractict Bernanke's statement earlier this year when he "declared that the central bank will not help legislators by printing money to pay for the ballooning federal debt." [quote attributed to Washington time article cited above]

So the Fed is monitizing the debt(?).

Interesting commentary from Roubini last year
http://www.forbes.com/2009/08/26/sti...l-roubini.html

BTW, Barney Frank made a comment two nights ago that he was wrong about Freddie and Fannie, but I missed the context, so I don't know what wrong he was acknowledging. Presumably their role in the secondary mortgage markets and the development of the financial crisis.

WhoWee

The Fed is isolated from politics under Obama?

http://www.nytimes.com/2010/11/19/bu...ed.html?src=me
"Echoing Obama, Bernanke Presses China on Imbalances"

I would say they are inseparable...
http://blogs.abcnews.com/politicalpu...us-econom.html
http://business.timesonline.co.uk/to...cle7000881.ece


http://articlesofinterest-kelley.blo...-economic.html
http://www.moneynews.com/StreetTalk/...0/28/id/375187
http://www.newsmax.com/Headline/bern...7/22/id/365426

mheslep

How? Why? Bernanke doesn't have to win any elections.
Maybe slightly. But then the Fed has two mandates, not one, as Geitner mentioned in the quote. The current Fed dual charter may indeed be a mistake, but for the moment there it is. Even so I don't know how that runs counter to what Geitner said.

mheslep

??? The whole developed economic world is pressing China over there low currency.

Even though Bush appointed him?
Your links don't make your point, which is annoying.

WhoWee

What does Bush have to do with anything?

mheslep

You said, "The Fed is isolated from politics under Obama?", implying Bernanke actions somehow favor or are under the influence of Obama's politics. That doesn't make much sense given he's a Bush appointee.

WhoWee

My point was that the Fed is eyeball deep in politics. Bernanke is all over the planet giving speeches.

I guess you didn't get a chance to open either of these links I posted?

http://business.timesonline.co.uk/to...cle7000881.ece
"Obama urges Senate to stand by Ben Bernanke"
Because you made the point about Bush - and

http://www.moneynews.com/StreetTalk/...0/28/id/375187
"China Urges Bernanke: Stop Printing Dollars!"
then you made the point the entire world having a problem with China manipulating currency - who in turn has a problem with the US actions (that will also devalue currency).

What is your point - other than to find fault with my post?

Astronuc

I was using the term politics in the more general sense -
http://en.wikipedia.org/wiki/Politics

Authority, power, influence - folks in Washington, the Fed, various cities, corporations, . . . . are vying for power and influence . . . .

Fed politics and Washington politics clash.

mheslep

And he has a beard and where's dark suits. Of course he gives speeches. He does not, however, give baby kissing vote for me speeches. He's the chairman of the US central bank, and he should be out there explaining his actions everyday.

Which means the President is political, not Bernanke. This is also basically what every President says, all the time - stay with the Fed chair do give the markets confidence in some stability.

Many countries have a problem with QE. So what, in this context about politics? They don't get a vote.

That Bernanke is relatively isolated from politics as compared to, a politician, and should stay that way as Geitner suggests. You don't like the Fed actions, I get it. I'm not sure I do either wrt QE, and I think I'd like to see the Fed charter changed. That doesn't mean we should all go and conflate that opinion with some conspiracy theory about Bernanke's politics.