tag:blogger.com,1999:blog-2761684730989137546.post8948985936172575198..comments2024-03-29T02:19:19.866-04:00Comments on Mike Norman Economics: Fed MBS Purchases & Balance Sheetmike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-2761684730989137546.post-15523083408757177152009-08-25T16:14:35.880-04:002009-08-25T16:14:35.880-04:00RSG: Only the Fed or the Treasury can supply new r...RSG: Only the Fed or the Treasury can supply new reserves. When the Fed adds reserves through open market operations (buying securities) it reduces the amount of securities held by the public, but raises the level of reserves. Thus, you have a situation where more "money" is chasing fewer bonds.mike normanhttps://www.blogger.com/profile/03296006882513340747noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-91635042466896266562009-08-25T15:39:55.791-04:002009-08-25T15:39:55.791-04:00RSG,
OK thanks..
Yes I see your point there, but ...RSG,<br />OK thanks..<br /><br />Yes I see your point there, but I think we are in a somewhat unique time in history this year (I guess due to the crisis) where the Fed has come right out in a press release and up front stated that they intend to BUY $1.75T of securities this year, not net sell any, but BUY with new reserves. So everything else even, that should be supportive of bond prices in theory.Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-39430268152502968462009-08-25T15:19:08.197-04:002009-08-25T15:19:08.197-04:00Matt, The fed... it buys Treasury securities from...Matt, The fed... it buys Treasury securities from the public and credits the sellers' banks with additional deposits at the Fed. Conversely the Fed sells treas to the public from its own portfolio when it needs to decrease aggregate bank reserves. <br /><br />my simple point was trying to understand Mikes comment about how additional new reserves could put upward pressure on prices/downward pressure on yields if all that was happening was that the fed and the public were selling treas back and forth to one another.RSGhttps://www.blogger.com/profile/15635208928626644119noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-26523849214938442012009-08-25T14:57:48.873-04:002009-08-25T14:57:48.873-04:00RSG,
thanks for the comments here...
When in your...RSG,<br />thanks for the comments here...<br /><br />When in your previous post you said "buying treasuries adds to aggregate reserves." who is your buyer in that sentence? (Im trying to understand your point)Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-83509007066800822012009-08-25T14:42:46.226-04:002009-08-25T14:42:46.226-04:00RSG: Only when the Fed buys from the public, which...RSG: Only when the Fed buys from the public, which it has. If the public buys from itself there is no change in reserves. I buy from you, my account is debited reserves and your account gets a credit. I get the security, you get the cash.mike normanhttps://www.blogger.com/profile/03296006882513340747noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-91054517017072156422009-08-25T14:20:08.227-04:002009-08-25T14:20:08.227-04:00Matt, except for the part of holding other factor...Matt, except for the part of holding other factors affecting reserve balances steady, how is that not circular?RSGhttps://www.blogger.com/profile/15635208928626644119noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-54781428245540261872009-08-25T13:56:25.786-04:002009-08-25T13:56:25.786-04:00RSG,
The theory here is that if the Fed buys the M...RSG,<br />The theory here is that if the Fed buys the MBS/Treasuries with new reserves, while holding other factors affecting reserve balances steady, the sellers of these on-the-run MBS/Treasuries will receive net new reserve balances in payment from the Fed that they will to some extent re-deploy into the bond markets (buying other OTR MBS/Agency/Treasuries) and thus apply additional buying that on net should support prices.Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-83756432694076955952009-08-25T13:11:04.301-04:002009-08-25T13:11:04.301-04:00That seems like a circular argument as buying trea...That seems like a circular argument as buying treasuries adds to aggregate reserves.RSGhttps://www.blogger.com/profile/15635208928626644119noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-23238320200303866042009-08-25T12:39:47.737-04:002009-08-25T12:39:47.737-04:00Upward pressure on bond "prices," not in...Upward pressure on bond "prices," not interest rates. (Prices move inversely to rates.) Bonds should rally because some of that larger quantity of excess reserves will go to buy Treasuries.mike normanhttps://www.blogger.com/profile/03296006882513340747noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-29195280605648725392009-08-25T10:40:57.236-04:002009-08-25T10:40:57.236-04:00"and the additional new reserves created coul..."and the additional new reserves created could put upward pressure on bond prices over this time."<br /><br />Mike, with ff rate at zero why would additional reserves put upward pressure on bond prices?RSGhttps://www.blogger.com/profile/15635208928626644119noreply@blogger.com