Fed Buying Treasurys: Please 'splain

[TromboneAl]

Fed decides to buy Treasurys

It sounds like the government is borrowing money from itself. Help me understand what they did and how it helps. Thanks.

Also why isn't it "treasuries" instead of "treasurys?"

 

[Peter]

It sounds like the government is borrowing money from itself. Help me understand what they did and how it helps. Thanks.

Also why isn't it "treasuries" instead of "treasurys?"

No, they are creating new money out of thin air. Can't you hear the printing presses?! I believe the idea is that it will keep long term interest rates low, and boost investment in housing and other areas.

And I've often wondered about that plural myself ...

Peter

 

[MichaelB]

Fed decides to buy Treasurys

It sounds like the government is borrowing money from itself. Help me understand what they did and how it helps. Thanks.

The government - through the Treasury department - borrows money by selling bonds and other debt to all buyers. The Fed manages the supply of money in circulation to affect the financial system and the economy. In this case, it buys long term bonds in circulation, drives up the price, which drives down the yield and interest rate, and (hopefully) will drive down the interest rates of other bonds, like mortgage bonds and such.

Also why isn't it "treasuries" instead of "treasurys?"

Actually, it's neither. It is "Treasury Bonds"

 

[ziggy29]

Also why isn't it "treasuries" instead of "treasurys?"

Hmm. Why do football teams get three "time outs" per half and not three "times out"?

 

[jdw_fire]

because both treasury and time out is considered the proper name of a specific something thus just an s is added, i think lol

 

[ChrisC]

Fed decides to buy Treasurys

It sounds like the government is borrowing money from itself. Help me understand what they did and how it helps. Thanks.

In a sense, you're right that it appears that way. Last night's NewsHour with Jim Lehrer covered this topic a bit: When the Government Writes Checks, Where Does the Money Come From? | Online NewsHour | March 17, 2009 | PBS

The Central Bank is, however, quite different than the Treasury Department, a fact made all the more clear by AIG's involvement with botht the Federal Reserve Bank of New York/Fed and the Treasury Department. Here's some stuff on the role of the Central Banks: Central bank - Wikipedia, the free encyclopedia

 

[clifp]

The silver lining of the great recession is that we are becoming more educated about how the financial system works. Unfortunately for most of the board members the cost of the education easily exceeds 4 years at an Ivy League school

 

[Lsbcal]

They did this on my birthday for a reason. Nice move on those 20yr TIPS!!!

 

[Hamlet]

Doesn't this seem unsustainable?

If the government is going to be printing money to buy-back their treasury bonds, it seems like most people will become more reluctant to own them, thus selling more and more of the bonds to the Fed.

Seems like this is going to destroy the dollar if they do a whole lot of it.

They're going to make me into a gold bug yet

No, they are creating new money out of thin air. Can't you hear the printing presses?! I believe the idea is that it will keep long term interest rates low, and boost investment in housing and other areas.

And I've often wondered about that plural myself ...

Peter

 

[ziggy29]

They did this on my birthday for a reason. Nice move on those 20yr TIPS!!!

No kidding. My January 2025s just spiked up more than 600 basis points.

 

[Lsbcal]

...
Also why isn't it "treasuries" instead of "treasurys?"

I've often wondered about this point and consider it to be among the most profound questions of modern finance .

 

[Peter]

The Brits avoid this problem by calling them "gilts". Not "gilties".

 

[Dawg52]

The silver lining of the great recession is that we are becoming more educated about how the financial system works. Unfortunately for most of the board members the cost of the education easily exceeds 4 years at an Ivy League school

I'm not sure whether to laugh or cry on that one. I think I will cry.

 

[MichaelB]

Doesn't this seem unsustainable?

If the government is going to be printing money to buy-back their treasury bonds, it seems like most people will become more reluctant to own them, thus selling more and more of the bonds to the Fed.

Seems like this is going to destroy the dollar if they do a whole lot of it.

They're going to make me into a gold bug yet

The government isn't buying back it's own treasury bonds. The Fed is buying, and by doing so, driving down the long term interest rate. By driving own the treasury rate, it is hoping that long term rates will decline in general, thus 1) making things like mortgages cheaper so people and companies will invest, and 2) driving investors toward higher risk investments.

The whole trick is to do so without debasing the currency or exposing the economy. The decline in the US$ today vs gold and the Euro means some folks out there don't think the fed can do it.

Risk hasn't gone away - it's just getting more complex.

 

[ziggy29]

The silver lining of the great recession is that we are becoming more educated about how the financial system works. Unfortunately for most of the board members the cost of the education easily exceeds 4 years at an Ivy League school

For someone who is very interested in economics and public policy, it is certainly both exciting and terrifying at the same time.

I could do without this education from the School of Hard Knocks, but I do find it very interesting, painful as it has been...

 

[FinallyRetired]

I wonder what company makes oil for printing presses? That might be a great investment.

 

[Cruising2022]

The government isn't buying back it's own treasury bonds. The Fed is buying, and by doing so, driving down the long term interest rate.

OK, so where is the Fed getting the money?

 

[Lsbcal]

... The whole trick is to do so without debasing the currency or exposing the economy. The decline in the US$ today vs gold and the Euro means some folks out there don't think the fed can do it. ...

I'm no expert on currency moves but will note that generally when US rates move lower the dollar moves lower against other developed country currencies too. I think there is some logical arbitrage going on there.

 

[clifp]

I wonder what company makes oil for printing presses? That might be a great investment.

No oil need, just electrons. Sadly a 64-bit microprocessor and Vista are able to keep track of millions of trillion dollar transactions.

 

[mathjak107]

ill say one thing, you know those long term treasuries the talking heads warned you not to buy? man i sold tlt today after an 8% rise in 1 hour...

remember the fed has little control normally on long term rates , the only way they can influence long term rates is buy buying treasuries like everyone else and creating demand

 

[ChrisC]

OK, so where is the Fed getting the money?

Take out a dollar bill and read the top line across the bill. Now, think of billions of this thjing by electronic book entries on the books and records of banks.

 

[Bikerdude]

OK, so where is the Fed getting the money?

From the Newshour report last night, it would go something like this:

Federal reserve computer, "Good Morning Chairman Bernake," "how much money would you like to create today". "$300,000,000,000," he said. "Done," the computer said in a female voice. "have a nice day".

 

[jdw_fire]

ill say one thing, you know those long term

remember the fed has little control normally on long term rates , the only way they can influence long term rates is buy buying treasuries like everyone else and creating demand

actually they have some control over long term rates by doing what they said they were going to do today and that is buy mortgages.

 

[FIRE'd@51]

No kidding. My January 2025s just spiked up more than 600 basis points.

The 20-year issued this past January jumped nearly 16%. Now there's duration at work.

 

[Maurice]

This is what 'quantitative easing' looks like.