PIMCO'S Gross says Fed to unveil QE3 at Jackson Hole in August

I find it very comical that the Fed and the US Government officials try to make a statement that the futures of QE3 depends on the statistics coming out of Washington instead on the simple fact that the only way to finance the 1.5 trillion US deficit is to print the money.
 
can anyone on here explain to me why they say it wont add to the money supply?

surely since the $300B in interest is still 'new' money that has come into existence from nothing then will go to paying bills throughout the US economy?
 
Norrin Radd said:
can anyone on here explain to me why they say it wont add to the money supply?

surely since the $300B in interest is still 'new' money that has come into existence from nothing then will go to paying bills throughout the US economy?
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The Fed aren't printing new money, they are recycling maturing bonds.
 
Norrin Radd said:
Still dont get how that works, need to go do some learnin
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As T Bonds that the Fed holds mature, they get repaid by treasury, so the treasury pays the Fed and the Fed takes the money. The Treasury then issues another bond and the Fed buys it with the same money that they just received for the maturing bond. So no new money is printed.

The whole purpose of this is to manipulate the price of bonds, i.e, keep the price high and hence keep interest rates low.

It's just kicking the can...
 
jparrie said:
Norrin Radd said:
Still dont get how that works, need to go do some learnin
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As T Bonds that the Fed holds mature, they get repaid by treasury, so the treasury pays the Fed and the Fed takes the money. The Treasury then issues another bond and the Fed buys it with the same money that they just received for the maturing bond. So no new money is printed.

The whole purpose of this is to manipulate the price of bonds, i.e, keep the price high and hence keep interest rates low.

It's just kicking the can...
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How does the treasury pay the Fed at maturity if it has no money and already has a large budget deficit? It must first issue new debt to do this, sounds like a perpetual motion device to me and the second law of thermodynamics says these do not exist. If someone could elaborate on how this actually works would be appreciated. I understand that the fed is not shrinking its balance sheet and as bonds mature they roll them over to new ones so in effect they will still be buying. But there has to be a primary buyer that funds the US to issue more debt to pay the bond that it owes the Fed.
 
euphoria said:
How does the treasury pay the Fed at maturity if it has no money and already has a large budget deficit? It must first issue new debt to do this, sounds like a perpetual motion device to me and the second law of thermodynamics says these do not exist. If someone could elaborate on how this actually works would be appreciated. I understand that the fed is not shrinking its balance sheet and as bonds mature they roll them over to new ones so in effect they will still be buying. But there has to be a primary buyer that funds the US to issue more debt to pay the bond that it owes the Fed.
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Article said:
A total of $112.1 billion of the Fed's government bond holdings will mature in the next 12 months, 7 percent of the $1.59 trillion in Treasuries held in its system open market account, known to traders as SOMA. Replacing those securities will require the Fed to buy an average of $9.4 billion of Treasuries a month through June 2012.

The Fed also held $914.4 billion of mortgage-backed debt and $118.4 billion of debentures, the debt of government sponsored enterprises Fannie Mae and Freddie Mac, as of June 22. UBS AG, Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Royal Bank of Canada say $10 billion to $16 billion will mature each month, depending on the pace of prepayments.
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They are pulling from the bonds they own of other entities. These are not T-bonds.

When maturity is reached on these other bonds the Fed will get money back and will use this money to invest in more government debt.

I personally believe that these 'bonds' of mortgages are debt fueled which is why I made the jest of debt fueling more debt in my above post ;)
 
Who says it hasn't got any money? Do you think the treasury operates with no income?

What you are describing is a Greece like scenario, where they simply can't afford to repay maturing bonds, hence debt gets progressively more expensive until they either default or are bailed out. The US isn't close to that yet, although the amount of short-term maturity debt is worrying a lot of people.

What they are saying is that this is a short term measure to keep interest rates low to give the economy time to recover. It's just a patch. If the economy doesn't improve then debt will get more expensive and a Greece-like scenario gets closer as time goes by.

So the end of QE2 is not really a big event at all and QE3 is almost assured, just at a later date.
 
@ euphoria:
Probably like people getting 2 or 3 credit cards, lets say on 15th x amount is due to be paid you take it from one of the credit cards and pay for it. at the same time you open a new credit card and borrow that x to pay the first credit card etc
 
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