https://archive.freecapitalists.org:443/forums/5.aspxenCommunityServer 2008.5 SP2 (Build: 40407.4157)https://archive.freecapitalists.org:443/forums/thread/356363.aspxSat, 14 Aug 2010 05:21:27 GMT944abf2b-d1be-4bf2-990d-438cb0e377e9:356363chloe7320https://archive.freecapitalists.org:443/forums/thread/356363.aspxhttps://archive.freecapitalists.org:443/forums/commentrss.aspx?SectionID=5&PostID=356363<p> Hey, first post.&nbsp; Welcome!</p> <p> I think you have some debits and credits mixed up.&nbsp; The Fed buys $300B in worthless MBS&#39;s.&nbsp; The money supply expands by $300B.&nbsp; Folks supposedly repay to the Fed $300B in MBS.&nbsp; The money supply contracts by $300B.&nbsp; The Fed then buys long term treasuries, the money supply expands by $300B.&nbsp;</p> <p> You needed to cancel out the debits and credits in your #2 above.</p> <p> How I see it, is the Fed is now providing a steady source of liquidity for&nbsp;the treasury market.&nbsp; This calms the market, knowing a buyer with unlimited &quot;funds&quot; is ready to buy.&nbsp;</p> <p> The Fed claims it is merely keeping the money supply constant by buying treasuries to the extent of MBS repayments.&nbsp; This too calms the market, making it sound like there are no concerns about hyperinflation.&nbsp;</p> <p> How can the Fed ever stop this &quot;program&quot;?&nbsp; It can&#39;t.&nbsp; Not with $1.5 trillion deficits that must be monetized to keep bond yields low (for now).</p> <p> There is no accountability for the Fed.&nbsp; It says and does anything it wants to do.&nbsp; Who&#39;s to verify that the Fed is doing the treasury purchases dollar for dollar with the MBS payments?&nbsp; Even if they were, there are winners (bond market) and losers (citizens, savers, the hidden tax of inflation).</p> <p> I don&#39;t think QE Lite is worse than QE1.&nbsp; The only difference is that QE Lite is permanent, and will increase in time, to become QE Heavy.</p><div style="clear:both;"></div>https://archive.freecapitalists.org:443/forums/thread/356279.aspxFri, 13 Aug 2010 21:34:24 GMT944abf2b-d1be-4bf2-990d-438cb0e377e9:356279Capitalist_Man0https://archive.freecapitalists.org:443/forums/thread/356279.aspxhttps://archive.freecapitalists.org:443/forums/commentrss.aspx?SectionID=5&PostID=356279<p> Obviously, both are just degrees of terrible, but unless I&#39;m completely off track, QE Lite actually seems worse than the original. Here is my understanding of the Fed&#39;s recent announcement. The Fed is taking principal payments received from MBS and agency debt to purchase USTs. That part seems pretty straightforward. Where it seems worse is when I thought in terms of the effects on the Fed&#39;s balance sheet.</p> <p> 1) Fed makes original purchase of $300B in MBS. They have a $300B asset (whether they bought it mark to market or myth is somewhat immaterial) and a liability of $300B FRNs.</p> <p> 2) Assuming anyone in the U.S. is still making mortgage payments, Fed receives principal payments from MBS of $300B.&nbsp; They now have $300B asset of FRNs versus $300B liability of FRNs.</p> <p> 3) $300B FRN asset is used to purchase $300B in USTs. Thus, removing balancing asset for the original $300B FRNs and adding another $300B FRN liability.</p> <p> I definitely could be missing a step here and feel free to correct me, but it seems as though in this isolated transaction the Fed levered their balance sheet 2 to 1. If this is creating a precedent for similar purchases in the future, the disastrous end result is probably the same but seems to up the ante on boring old QE1 style money printing.</p><div style="clear:both;"></div>