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Fed Treasury Purchases Monetizing Debt

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http://www.bloomberg.com/news/2011-03-02/fed-treasury-purchases-monetizing-debt-may-spur-inflation-hoenig-says.html

Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank is “monetizing debt” with its purchases of U.S. Treasuries, a program that he says may spur inflation.

“Yes, we are monetizing debt,” Hoenig said today in a speech in New York. “You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time.”

Hoenig, the lone dissenter from every Fed meeting last year, warned that the central bank’s near-zero interest rates and record monetary stimulus could lead to asset price bubbles and increase inflation in a few years. He voted against the Fed’s plan to purchase $600 billion in U.S. Treasury securities through June during the final two meetings of 2010.

Hoenig told the Council on Foreign Relations the Fed needs to explain how it plans to reduce its record $2.54 trillion balance sheet. While he would avoid “shock therapy” of selling assets all at once, “we want to begin to show how we will withdraw that.”

Policy makers were divided over whether further evidence of a strengthening recovery would warrant slowing or reducing the $600 billion of purchases, according to minutes of their January meeting.

Philadelphia Fed President Charles Plosser, Richmond Fed President Jeffrey Lacker and St. Louis’s James Bullard have urged a review of the purchases in light of a strengthening economy and concern over future inflation. Hoenig currently doesn’t have a vote on the Federal Open Market Committee.

Target Rate

The central bank should raise the target federal funds rate to 1 percent from near zero rather than ease during the current economic recovery, Hoenig said, reiterating comments from last year.

“You really need to get off of zero, in my opinion,” Hoenig said. “I would think of moving back to 1 percent, and then I would pause. Let the market settle out” and then move to a higher rate, possibly 2 percent.

The Kansas City Fed leader also urged breaking up the largest banks, which he said have a lower cost of funds because of an implied government safety net. He would restore the barrier between commercial and investment banking.

“I think this is a good idea as they are so large they cannot be allowed to fail,” Hoenig said.

Hoenig also said standards for bank capital need to be raised further, and the Basel Committee on Banking Supervision’s overhaul of standards may not go far enough in reducing leverage.

Oh dear. Still it's nice to see inflation will occur in a few years, nothing to worry about I am sure. (Unless you want to buy bread in the middle east today or something like that.)

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Guest sillybear2

The Fed also owns residential property, commercial property, shopping malls, credit card debt, car and boat loans, it's amazing.

http://en.wikipedia.org/wiki/Maiden_Lane_Transactions

I'm starting to think they may never be able to shrink their balance sheet, it's become like a shadow national debt, i.e. never meant to be paid off (only inflated away) and it would prove to be highly deflationary if they even tried. They've got themselves in a trap, my advice? Don't start from here.

Edited by sillybear2

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http://www.bloomberg.com/news/2011-03-02/fed-treasury-purchases-monetizing-debt-may-spur-inflation-hoenig-says.html

Oh dear. Still it's nice to see inflation will occur in a few years, nothing to worry about I am sure. (Unless you want to buy bread in the middle east today or something like that.)

so they finally admit what they are doing, call a spade a spade and vindicate a fair sized group of us posting on here who said that was the plan all along. (and arguably had been since 2001)

this is not going to end well (at least not in the medium term)

:ph34r:

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The Fed also owns residential property, commercial property, shopping malls, credit card debt, car and boat loans, it's amazing.

http://en.wikipedia.org/wiki/Maiden_Lane_Transactions

I'm starting to think they may never be able to shrink their balance sheet, it's become like a shadow national debt, i.e. never meant to be paid off (only inflated away) and it would prove to be highly deflationary if they even tried. They've got themselves in a trap, my advice? Don't start from here.

Even more amazing they can't actually make a loss on any of this.

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Guest sillybear2

Even more amazing they can't actually make a loss on any of this.

Well I guess they're well placed for an inflationary bout (that they induced), so nominally they won't make a loss. However, it's all magic money at that level.

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http://www.bloomberg.com/news/2011-03-02/fed-treasury-purchases-monetizing-debt-may-spur-inflation-hoenig-says.html

Oh dear. Still it's nice to see inflation will occur in a few years, nothing to worry about I am sure. (Unless you want to buy bread in the middle east today or something like that.)

The only sensible rationale for the Fed's policies is that they are terrified of the deflationary consequences when the bubble pops and are doing everything to prevent that happening. The fact that they are pumping up the bubble even more and are therefore making the subsequent bust that much worse doesn't appear to bother them.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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