$600bn into the US economy

  1. jcsd
  2. turbo

    turbo 7,366
    Gold Member

  3. Or a good time to sell them !

    I'm only a humble physicist but can someone explain how it's good for a country to borrow $500Bn on top of $1.7Tn and hand it out to the people, who are going to have to pay it back one day, so that they can boost demand. Yet it's irresponsible to just give everyone a credit card with a $10,000 limit and tell them to enjoy themselves.
     
  4. Ivan Seeking

    Ivan Seeking 12,529
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    Yes, this isn't a math equation. It is a matter of momentum.

    No stimulus program can buy our way out of a recession. Everyone knows that.

    By your logic, no business would ever invest in itself.
     
  5. It's not. At all. Why folks continue to pour lead into the anchor of debt that's capsizing the ship is beyond everything I learned of economics.
     
    Last edited: Nov 15, 2010
  6. Your missing the point. The Fed isn't interested in inflation or exchange rates. It's concern is the yield curve (the interest rate). I'm guessing your English; the Federal Reserve is not like the ECB. It's mandate goes beyond inflation control - it is responsible for promoting long term economic growth while maintain a healthy inflation rate.

    Consumers are still saving. This pushes yields up, which is the worst possible scenario (a so-called unhealthy yield curve has historically been a very reliable indicator of recession). The Fed will do anything it can (including risking significant long term inflation) to keep the yield curves healthy. A healthy yield curve is one which is directly related to coupon term - longer term bonds should have higher yields than shorter term bonds. An unhealthy yield curve has no or an inverse relationship between rate and term. The American yield curve inverted in late 2006. A healthy yield curve returned in 2009, due as much to actions by the Fed as the market.

    The Fed's lingering concern is that, if it stops buying short term rates down, the yield curve will steepen and the market will collapse.

    If you're interested in speculating on anything, then, it's stocks, but this is not financial advice.

    This is not how it works. The Federal Reserve is not borrowing money, it's creating it. It is not giving it away, it is selling it (and buying Treasuries). The people who buy those dollars don't have to give them back later.
     
  7. No, I was literal; only concerned about the consequences of this on the exchange rates.
     
  8. Can you elaborate?
     
  9. Here is another description...
    http://www.businessinsider.com/dalls-fed-chief-fisher-debt-monetization-2010-11

    "Dallas Fed Chief: The Fed Is Monetizing The Nation's Debt For The Next 8 Months"
    "To dwell on a point: Most all the businesses I talk to are expanding investment in productivity enhancement. Far too few of the large companies I talk to report interest in hiring American workers or committing to large-scale CAPEX (capital expenditures) in the United States; they believe their potential for return on investment (ROI) is greater elsewhere. The smaller companies that do not have global options are putting off hiring until the coast is clear on the tax and regulatory fronts. This reticence intensified during the final innings of the election season, which begs the question of whether this will now change with the new Congress."
     
  10. I read it was for inflation, didn't know yield curves could be reliable enough. I cannot recall at this moment, but I remember reading that yield curves are not good indication of future.

    But, it can always take money out of the economy too.
     
  11. Monique

    Monique 4,700
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    Indeed, I'm still regretting that I didn't sell my dollars 7 years ago in 2003. At the time I thought the dollar could rise again to the level of 2002. I also regret not selling them in June this year and taking my money. I'm thinking of getting rid of the dollars now before they devalue even more (I'm already too late), or just sit out the ride and maybe 20 years from now they'll be worth some money again.

    edit: inserted a 10Y graph.
     

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    Last edited: Nov 16, 2010
  12. loseyourname

    loseyourname 3,632
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    This was already mentioned, but just to clarify, the Fed buys existing debt. No new debt is issued for this program.
     
  13. mheslep

    mheslep 3,463
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    Whether the Fed directly buys existing or new debt is irrelevant, as when the Fed buys existing debt from some third party seller tomorrow at the beginning of QE2, that seller is then enabled to buy more new debt from the Treasury at the auction of new 10yrs in two weeks.
     
    Last edited: Nov 18, 2010
  14. mheslep

    mheslep 3,463
    Gold Member

  15. mheslep

    mheslep 3,463
    Gold Member

    ??? There is no comment from Rep. Frank in the article.
     
  16. A picture is worth a thousand words?:rolleyes:
     
  17. loseyourname

    loseyourname 3,632
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    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.
     
  18. mheslep

    mheslep 3,463
    Gold Member

    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.
     
  19. It seems Mr. Geithner has an opinion.
    http://finance.yahoo.com/news/Geithner-opposes-effort-to-apf-3043185814.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.""


    :uhh:
     
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