tag:blogger.com,1999:blog-2761684730989137546.post3070033976120965108..comments2024-03-28T20:28:01.733-04:00Comments on Mike Norman Economics: Would rates be higher if the Fed hadn't done QE?mike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-2761684730989137546.post-65397081523015568422012-12-25T14:17:57.016-05:002012-12-25T14:17:57.016-05:00"it doesn't enable government spending&qu..."it doesn't enable government spending" <br />This makes no sense. The interest payable on bonds is rebated by the Fed back to the Treasury. Hence QE reduces the deficit and thereby directly enables additional government spending. Furthermore expiring bonds are rolled over indefinitely so that the principal is de facto monetised. David Goldstonehttps://www.blogger.com/profile/04739408612401244845noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-65589310701465335382012-12-15T17:53:53.765-05:002012-12-15T17:53:53.765-05:00Mike, you say rates would not be lower if the Fed ...Mike, you say rates would not be lower if the Fed didn't do QE1 (most importantly), QE2, Twist, and QE3, and you state the Fed's goal is to lower/altyer the term structure of government debt. However, I can't wrap this around my head: if you look at what rates and bond prices actually did during each QE type program, rates actually INCREASED/bond prices decreased. And those treasury sell offs were right at the bottom of equity/risk asset sell offs. It looks to me like the Fed is trying DESPERATELY to stoke inflation and therefore a market need for rates to rise with the hope the market will be forced to do that because of economic growth. Is that a wrong assumption? Anonymoushttps://www.blogger.com/profile/11051127281934645301noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-84756617503608826822012-11-29T00:59:27.998-05:002012-11-29T00:59:27.998-05:00Great post and a topic well worth addressing. I co...Great post and a topic well worth addressing. I completely agree that rates would be lower without QE and here's my take (http://bubblesandbusts.blogspot.com/2012/11/without-qe-interest-rates-would-be-lower.html):<br /><br />QE reduces the default risk and shortens the duration of financial assets held by the private sector (i.e. public). Assuming risk preferences do not change significantly during this process, the private sector will likely counter QE by shifting other assets to higher risk and longer duration securities. The result is a smaller tradable supply of Treasuries and decreasing demand. Since a significant portion of QE has and continues to involve purchasing Agency-MBS instead of Treasuries, my intuition is that the demand effect trumps the change in supply. Without QE, the demand and supply of Treasuries would therefore be higher, with the larger demand effect pushing up prices and lowering rates.Anonymoushttps://www.blogger.com/profile/00720722626969395929noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-79859184610927739322012-11-28T23:40:00.054-05:002012-11-28T23:40:00.054-05:00@netbacker - Thanks for the backup! I doubt either...@netbacker - Thanks for the backup! I doubt either of us convinced anyone over there.Broll The Americanhttps://www.blogger.com/profile/15154214253418885609noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-48463222990565271322012-11-28T22:11:46.123-05:002012-11-28T22:11:46.123-05:00Broll
I am there with you :) But most of the com...Broll <br /> I am there with you :) But most of the comments are just plain idiotic that has not point responding to.netbackerhttps://www.blogger.com/profile/00216448466948034808noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-4657048152933529902012-11-28T20:14:36.558-05:002012-11-28T20:14:36.558-05:00Broll,
"What is fix the debt"
Here is ...Broll,<br /><br />"What is fix the debt"<br /><br />Here is their web page where we are now introduced to "Peterson Junior" who's daddy funded this clusterF--k and who is a New Democrat if you can believe it...<br /><br />http://www.fixthedebt.org/who-we-are<br /><br />Looks like as this is a feature on CNN they have co-opted Time-Warner now too... these morons are relentless.<br /><br />rsp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-33395890990326064172012-11-28T16:26:19.063-05:002012-11-28T16:26:19.063-05:00Completely off topic...
I'm currently fighting...Completely off topic...<br />I'm currently fighting a losing battle against the zeitgeist of ignorance over on CNN/Money in the comments of an article called "What is 'Fix the Debt.'"<br /><br />I could use some MMT support!Broll The Americanhttps://www.blogger.com/profile/15154214253418885609noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-36138451115613722692012-11-28T13:27:07.624-05:002012-11-28T13:27:07.624-05:00Mike,
I think rates would be a lot lower if they ...Mike,<br /><br />I think rates would be a lot lower if they never did it...<br /><br />This reminds me of how they supported the Euro back in 2008 with the swaps... and killed the short Euro trade ;)<br /><br />They are monopolists and price setters and as they are buyers of bonds they seek lower bond prices to "get a good deal for the taxpayers" we've discussed this before with their ability to act as "scale down buyers" with a fixed amount of funds to buy every month...<br /><br />http://www.newyorkfed.org/markets/tot_operation_schedule.html<br /><br />I think we would already have a "Japan-like" interest rate curve if they would just step aside....<br /><br /> their current magnitude of the operation is not as massive as back in QE1 and has not caused a big sell-off like back then working with the short specs (who are now broke) to drive prices down, but it seems like it has been big enough to stop the bond rally in its tracks....<br /><br />It looks like they are locking in a long term "income stream" for the Fed as the Fed gets it's operating funds out of the income stream generated by their portfolio...<br /><br />The short term stuff they had (which they are selling) is yielding 0 if they rolled it all over without extending the duration of the portfolio they would be "out of money" to operate....<br /><br />Once they get out, else equal I would think the bond rally could continue...<br /><br />maybe they will stop all of this when they they get the portfolio converted over to the longer duration and higher coupons that gives them the interest flows that they are looking for....<br /><br />rsp,<br /><br />Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-49928939637869663162012-11-28T12:28:55.212-05:002012-11-28T12:28:55.212-05:00The notion that rates would have been higher if th...<i>The notion that rates would have been higher if the Fed had not done QE is false.<br /><br />QE simply was the Fed's way of <b>reducing the rate</b> on some specific instrument (mortgages, longer dated <b>Treasuries</b>, etc.)</i><br /><br /><br />Uhhhhhhh.........what!?Bullish_Bearhttps://www.blogger.com/profile/15535906840998631082noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-31912120169955218052012-11-28T12:25:55.211-05:002012-11-28T12:25:55.211-05:00This comment has been removed by the author.Bullish_Bearhttps://www.blogger.com/profile/15535906840998631082noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-90647641699636584332012-11-28T11:49:28.934-05:002012-11-28T11:49:28.934-05:00Those who say the Fed is keeping rates "artif...<i>Those who say the Fed is keeping rates "artificially low" have got it backward. On the contrary, high rates or rising rates for a currency issuing nation are artificial. </i> Mike Norman<br /><br />Because the banks have a government enforced fiat storage and transaction monopoly (via government deposit insurance and a legal tender lender of last resort) they have far less need for reserves than they otherwise would have, no? So aren't reserve drains just pushing up artificially suppressed interest rates on reserves? One government intervention to counter the ill effects of another? In other words, a kludge?Anonymousnoreply@blogger.com