Fed to Buy Government Debt

[nageov3t]

anyone able to shed light on what this means? I got a C- in Econ in college... it's just a headline with no article on nytimes.com for now.

 

[her209]

The Federal Reserve != The US Treasury

 

[Vette73]

Could be they are buying up debt at higher rates to sell more debt at lower rates. Pretty common but usually does not make headlines.

% i.e. if you have a loan for 10% but can get another loan for 5%. So you pay off the 10% with the 5% loan.

 

[StageLeft]

anyone able to shed light on what this means? I got a C- in Econ in college... it's just a headline with no article on nytimes.com for now.

Then you're perfect to work for the fed.

 

[Genx87]

Then you're perfect to work for the fed.

Also needs to know how to fuckup using Turbo Tax.

 

[Moonbeam]

Also needs to know how to fuckup using Turbo Tax.

You donkeys are nobodies. Why do you talk this way?

 

[Genx87]

You donkeys are nobodies. Why do you talk this way?

Because we enjoy reading your convoluted self hate induced replies.

 

[nageov3t]

Also needs to know how to fuckup using Turbo Tax.

crap, I have a friend who's a CPA do my taxes in exchange for cake. :awe:

 

[soccerballtux]

mean Skoorb. I kinda like Ben, he just wants to keep everything easy for Joe Shmoe. The real fixes would cause a lot of pain. I can't say I would choose differently in his position.

 

[soccerballtux]

anyone able to shed light on what this means? I got a C- in Econ in college... it's just a headline with no article on nytimes.com for now.

they bought Mortgage Backed Securities from troubled banks and investors, in order to inject liquidity, and are allowing the MBS to mature while they move their holdings into 2-10 year Treasury bills/bonds. It means they do not foresee the economy recovering soon, and are taking a slightly more proactive role in getting money flowing-- previously the MBS liquidity injections just sat in reserve, and weren't lent out to businesses. By buying Treasury bills and bonds, they can ensure more money actually enters the economy.

The effect of this transition will be mildly inflationary. There are plenty of deflationary forces still at work so I do not think it'll be a big problem. Gas might start costing more though.

 

[bamacre]

http://www.portfolio.com/views/blogs/daily-brief/2010/08/10/buffett-is-worried-about-inflation

 

[Moonbeam]

Because we enjoy reading your convoluted self hate induced replies.

Then try reading and then comprehending because everything I say that sounds convoluted becomes clear at a higher lever of understanding.

 

[brencat]

It means they do not foresee the economy recovering soon, and are taking a slightly more proactive role in getting money flowing-- previously the MBS liquidity injections just sat in reserve, and weren't lent out to businesses. By buying Treasury bills and bonds, they can ensure more money actually enters the economy.

All they are doing is artificially holding down reference Treasury yields in hopes businesses will increase capex and expand, and people will buy more homes and cars and lever up the credit card buying crap they can't afford.

The Fed appears desperate and mildly panicked here. But all they are doing is pushing on a string. Think about it...your job is in jeopardy and you have $30k in credit card debt. If someone offers to cut your credit card APR to 2% from 7%, are you going to go out and charge another $10k on it knowing the macro picture and economic backdrop still suck? I think not.

It's amazing that people don't understand this very simple concept. You can't get people to borrow more and more indefinitely. We're way beyond our saturation point, and the overall negative social mood coupled with the weak economic outlook is only adding to peoples' reluctance to spend. If we don't have deflation, then we are certainly going to have 3-5 more years of European style 1-2% growth at best. Stocks need to be a lot lower...the bond market is telling you that.

 

[Kappo]

Also needs to know how to fuckup using Turbo Tax.

So full of win!

 

[Kappo]

Then try reading and then comprehending because everything I say that sounds convoluted becomes clear at a higher lever of understanding.

If by "higher level of understanding" you really mean "stoned out of my gourd", I agree.

However, I am subject to drug screens so I won't ever know what whacky shit you are really trying to say. Mostly, I just skip over your posts because they are boring.

 

[StageLeft]

Because we enjoy reading your convoluted self hate induced replies.

I do it because I love being told how opinionated I am by somebody who's very opinionated It's kind of a self-destructive--no, a self-hating--kind of thing. It just makes me feel right.

Then try reading and then comprehending because everything I say that sounds convoluted becomes clear at a higher lever of understanding.

But can donkies reach that level?

 

[soccerballtux]

All they are doing is artificially holding down reference Treasury yields in hopes businesses will increase capex and expand, and people will buy more homes and cars and lever up the credit card buying crap they can't afford.

Why would lower yields cause businesses to seek to expand/increase capex?

To me that seems more like an indirect symptom-- more money floating around, businesses have more money, hire more, expand more, etc. Not direct as in "oh look yields are down time to hire".

 

[JSt0rm]

I find moonie to be very lucid.

 

[soccerballtux]

I find moonie to be very lucid.

loonie moonie

 

[NoStateofMind]

http://www.portfolio.com/views/blogs/daily-brief/2010/08/10/buffett-is-worried-about-inflation

Buffett is a buffoon! Everyone knows the Fed's have everything under control.

 

[brencat]

Why would lower yields cause businesses to seek to expand/increase capex?

The High Yield debt market is having a banner year for new issuance. A potential borrower that needs $500 million for GCP (general corporate purposes), to fund capex, or for strategic acquisitions is constantly looking at the markets for the right time to issue...often based on sentiment and credit spreads.

Driving down yields means overall lower cost of borrowing...which is short-term bullish for credit. So when the company issues 10-yr debt at USTs+450 bps, the actual coupon might be 7.2% instead of 7.5% (in case of 10-yr UST drop in yield from 3% to 2.7% due to investor/Fed buying).

 

[Jhhnn]

The Fed appears desperate and mildly panicked here. But all they are doing is pushing on a string. Think about it...your job is in jeopardy and you have $30k in credit card debt. If someone offers to cut your credit card APR to 2% from 7%, are you going to go out and charge another $10k on it knowing the macro picture and economic backdrop still suck? I think not.

Kinda correct. It also means that people marginally over their heads can rollover debt to a lower interest rate and keep paying, rather than taking bankruptcy... it also means that businesses run on revolving credit rather than capital have a better chance, and can therefore continue to employ people, even hire more...

 

[soccerballtux]

The High Yield debt market is having a banner year for new issuance. A potential borrower that needs $500 million for GCP (general corporate purposes), to fund capex, or for strategic acquisitions is constantly looking at the markets for the right time to issue...often based on sentiment and credit spreads.

Driving down yields means overall lower cost of borrowing...which is short-term bullish for credit. So when the company issues 10-yr debt at USTs+450 bps, the actual coupon might be 7.2% instead of 7.5% (in case of 10-yr UST drop in yield from 3% to 2.7% due to investor/Fed buying).

Isn't the buyer still going to demand 7.5%, especially with inflationary policy? The risk to investing in high yield bonds doesn't change simply because a treasury is valued less. If anything, that should signal greater risk.

 

[ManSnake]

anyone able to shed light on what this means? I got a C- in Econ in college... it's just a headline with no article on nytimes.com for now.

Fed buys and sells government bonds to control the money supply. By buying government bonds, the Fed is pumping money into the market.

 

[Kamite]

So one part of the government is loaning money to another part? This is not good no matter how you look at it. It seems like they are getting desperate with fighting off deflation AND they don't want to pay market rates. This should be illegal. If I had dollar-denominated investments I'd be getting worried.