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lombardo

Why wont the US government use Fed to cover the deficit?

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https://www.cnbc.com/2018/05/14/goldman-deficit-unemployment-rate-disconnect-could-fuel-higher-interest-rates.html

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To meet the growing debt load, the U.S. will have to issue more bonds at a time when the Federal Reserve is no longer a player in the market.

More supply and fewer buyers will mean the government will have to pay investors more to buy U.S. debt. And that will mean higher interest rates.

 

So this means yield rates will go up which will force up interest rates elsewhere.

But can't the government bypass this and sell the bonds to the Fed? Why wouldn't they?

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8 minutes ago, lombardo said:

https://www.cnbc.com/2018/05/14/goldman-deficit-unemployment-rate-disconnect-could-fuel-higher-interest-rates.html

So this means yield rates will go up which will force up interest rates elsewhere.

But can't the government bypass this and sell the bonds to the Fed? Why wouldn't they?

Don't know exactly how it works, but I thought the Fed was nominally independent of the government (depending on how you define government of course). So the Fed can choose to buy, but not be forced to buy.

 

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Just now, Gigantic Purple Slug said:

Don't know exactly how it works, but I thought the Fed was nominally independent of the government (depending on how you define government of course). So the Fed can choose to buy, but not be forced to buy.

 

Well during QE they pretty much bought because the government asked them to. So why don't they do it again? If the government does not sell to the Fed then the equity markets will crash because the bond rates will increase.

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23 minutes ago, lombardo said:

Well during QE they pretty much bought because the government asked them to. So why don't they do it again? If the government does not sell to the Fed then the equity markets will crash because the bond rates will increase.

Probably because it was mutually agreed that it was a good idea then.

And we are in a different environment now.

Edit : Not sure that protecting the equity markets is part of the Feds remit, although it might fall under general economic stability.

Edited by Gigantic Purple Slug

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41 minutes ago, lombardo said:

https://www.cnbc.com/2018/05/14/goldman-deficit-unemployment-rate-disconnect-could-fuel-higher-interest-rates.html

But can't the government bypass this and sell the bonds to the Fed? Why wouldn't they? 

It will kill the bond market, one of the bigger problems the ECB has is due to its colossal buying of bonds it has crowded out the private market so no-one really knows what the going market rate of the bonds would be.  Italy in a world of hurt has lower yield public bonds than the US which is completely nuts.

The Fed is bravely trying to get back to normal which means no more mass printed money for the time being. 

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There's a proxy war going on between the Globalists (international socialists), and the nationalists (national socialists).

If you look at world events you  see this playing out. The nationalists such as the U.S.A and Russia want interest rates to rise, the globalists P.R.C & E.U want them to remain low. The solvent vs the insolvent.

As yet I have no idea who will win this shadow war. I do expect it to turn into a real shooting war at some point in the near future.

Edited by Lord D'arcy Pew
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5 minutes ago, Lord D'arcy Pew said:

There is a proxy war going on between the Globalists (international socialists), and the nationalists (national socialists).

If you look at world events you  see this playing out. The nationalists such as the U.S.A and Russia want interest rates to rise, the globalists P.R.C & E.U want them to remain low. The insolvent vs the solvent.

As yet I have know idea who will win this war.

Nonsense on so many levels, not sure where to begin. Did you deliberately or unintentionally invoke Godwin's law?

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1 hour ago, lombardo said:

https://www.cnbc.com/2018/05/14/goldman-deficit-unemployment-rate-disconnect-could-fuel-higher-interest-rates.html

So this means yield rates will go up which will force up interest rates elsewhere.

But can't the government bypass this and sell the bonds to the Fed? Why wouldn't they?

I'm no expert but aren't the Fed worried about the dollar losing its status as the world reserve currency. It doesn't want to print more and is tightening. 

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16 hours ago, Majorpain said:

It will kill the bond market, one of the bigger problems the ECB has is due to its colossal buying of bonds it has crowded out the private market so no-one really knows what the going market rate of the bonds would be.  Italy in a world of hurt has lower yield public bonds than the US which is completely nuts.

The Fed is bravely trying to get back to normal which means no more mass printed money for the time being. 

There appears to be a slow but steady return to pricing on Italian bonds.

Mario 'Do what it takes' is soon to be tested. Again. And again. And again.

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27 minutes ago, fru-gal said:

Rates will go down to record lows,Fed will print $8 trillion.Then rates are going much higher as is inflation.This long cycle is pretty certain to end in a huge debt deflation.The Fed seems to be only concerned with protecting the dollar as reserve currency.If they are they know whats coming and they dont care,its a price worth paying to keep the dollar going.EBU have much bigger problems than the Fed,they are goosed.

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16 minutes ago, durhamborn said:

The Fed seems to be only concerned with protecting the dollar as reserve currency.

IMO, this is pretty much the basis about almost everything that is going on right now in international affairs.

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38 minutes ago, Maynardgravy said:

IMO, this is pretty much the basis about almost everything that is going on right now in international affairs.

Yup. All the marbles. The Fed can flood the market with trillions of dollars to pay for Trump's reckless profligacy but if the world is unwilling or unable to absorb them then a new world order beckons.

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1 hour ago, durhamborn said:

Rates will go down to record lows,Fed will print $8 trillion.Then rates are going much higher as is inflation.This long cycle is pretty certain to end in a huge debt deflation.The Fed seems to be only concerned with protecting the dollar as reserve currency.If they are they know whats coming and they dont care,its a price worth paying to keep the dollar going.EBU have much bigger problems than the Fed,they are goosed.

Just out of interest why do you believe the ECB is worse off than the Fed ?

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9 minutes ago, Gigantic Purple Slug said:

Just out of interest why do you believe the ECB is worse off than the Fed ?

They dont have the dollar.The structure of the EU also means a debt deflation will see many banks go under.Italy and several others are pretty much basket cases.

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1 hour ago, Maynardgravy said:

IMO, this is pretty much the basis about almost everything that is going on right now in international affairs.

Principally in the strategy of war against/ destabilisation of countries that won't sell their oil priced in dollars.

Having control of the global reserve currency is an amazing advantage.  You can print to finance your military and offshore the resulting inflation to the countries who are going to get whacked by said military.  You can use withdrawal of dollar credit and banking facilities to bring any dissenting country to heel.  You can bribe foreign leaders with abandon, bail out your own chums.

 It's all possible when you own the magic money press for the currency that the world uses.

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20 hours ago, Majorpain said:

It will kill the bond market, one of the bigger problems the ECB has is due to its colossal buying of bonds it has crowded out the private market so no-one really knows what the going market rate of the bonds would be.  Italy in a world of hurt has lower yield public bonds than the US which is completely nuts.

The Fed is bravely trying to get back to normal which means no more mass printed money for the time being. 

Why would the government or fed care if the bond market is killed?

I think in a crisis the fed will buy bonds again to perform more QE.

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1 minute ago, lombardo said:

Why would the government or fed care if the bond market is killed?

I think in a crisis the fed will buy bonds again to perform more QE.

Well to answer what you said earlier why would the government care if the equity market is killed ?

What do you mean by "crisis" are you implying that the only solution to a "crisis" is to perform QE ? That is simplistic thinking I think.

To me there is a lot of simplistic thinking on here regarding QE, that the government will print no matter what form a crisis takes.

I think central bank thinking is a lot more nuanced than that. I think you have to look at why central banks performed QE when the GFC hit. This was to solve some issues with the banks, but also to buy time. I'm not sure if you pinned any central banker down they would admit that QE fundamentally solves long term behavioural issues with the economy. In fact to me all it does is buy time while the economy can be made to re-adjust. This to me in many ways is the tradgedy of QE, that the CB's used it to buy time, but as usual the politicians didn't actually follow through with the economic adjustments that they could have made over many years rather than having to take the pain over a shorter timescale. Now it seems like we are staring down the barrel of the gun again with CB's with massively inflated balance sheets but no fundamental resolution to the problems that got us here last time (credit expansion for one).

There is also a degree of balancing that needs to take place. Long term if you introduce distortions into the economy that may correct imbalances in the short term, but introduce those distortions long term, or increase their magnitude, they may become more threatening to stability than the imbalances that they are trying to correct. QE is one of those distortions. That's not to say I believe QE won't take place in the future, but I think if it does it may well take a very different form from the QE that was used in the past and may well produce very different results.

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1 hour ago, Gigantic Purple Slug said:

This was to solve some issues with the banks, but also to buy time.

The same issues will occur. Banks will go bankrupt. If the fed does not buy bonds then IRs will rise and houses and stocks will fall in value. Banks will again lose out. Especially here in the UK.

There can be political pressure on the fed to keep buying time until it implodes.

But I do believe that the fed itself wants to make Trump suffer a bit so they will not buy those bonds so quickly.

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31 minutes ago, lombardo said:

The same issues will occur. Banks will go bankrupt. If the fed does not buy bonds then IRs will rise and houses and stocks will fall in value. Banks will again lose out. Especially here in the UK.

There can be political pressure on the fed to keep buying time until it implodes.

But I do believe that the fed itself wants to make Trump suffer a bit so they will not buy those bonds so quickly.

Don't know. I think the next crisis will take a different form. Banks are in a stronger position now. That doesn't make them invunerable but it does mean that the solution might be different.

I don't see that "making Trump suffer a bit" is part of the Feds remit. It's supposed to be apolitical and act in the best interests of the economy/US and is answerable I think to both the president and congress. Anything that it does has to be justified in those terms.

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3 hours ago, lombardo said:

Why would the government or fed care if the bond market is killed?

I think in a crisis the fed will buy bonds again to perform more QE.

As an example, the ECB is levitating the Euro corporate bond market by buying bonds to increase the price and decrease the yield.  In theory it will be able to reduce its purchases as the companies invest the cheap money and growth picks up, in practice this has not happened so if the ECB withdraws then the prices will drop and yields soar.

In essense, its back to the whole "printing yourself rich" idea that pops up from time to time.  Wiemar Germany or Zimbabwe are where that path leads.

Edited by Majorpain

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  • 301 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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