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TromboneAl 03-18-2009 01:15 PM

Fed Buying Treasurys: Please 'splain
 
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 03-18-2009 01:24 PM

Quote:

Originally Posted by TromboneAl (Post 797060)

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 03-18-2009 01:51 PM

Quote:

Originally Posted by TromboneAl (Post 797060)
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.
Quote:

Also why isn't it "treasuries" instead of "treasurys?"
Actually, it's neither. It is "Treasury Bonds"

ziggy29 03-18-2009 01:59 PM

Quote:

Originally Posted by TromboneAl (Post 797060)
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"? :coolsmiley:

jdw_fire 03-18-2009 02:07 PM

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 03-18-2009 02:17 PM

Quote:

Originally Posted by TromboneAl (Post 797060)
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 03-18-2009 02:32 PM

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 03-18-2009 02:38 PM

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

Hamlet 03-18-2009 02:40 PM

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 :(

Quote:

Originally Posted by Peter (Post 797065)
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 03-18-2009 02:41 PM

Quote:

Originally Posted by lsbcal (Post 797097)
:clap: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 03-18-2009 03:02 PM

Quote:

Originally Posted by TromboneAl (Post 797060)
...
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 03-18-2009 03:17 PM

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

Dawg52 03-18-2009 03:18 PM

Quote:

Originally Posted by clifp (Post 797093)
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 03-18-2009 03:20 PM

Quote:

Originally Posted by Hamlet (Post 797098)
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 03-18-2009 03:20 PM

Quote:

Originally Posted by clifp (Post 797093)
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 03-18-2009 03:33 PM

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

Cruising2022 03-18-2009 03:38 PM

Quote:

Originally Posted by MichaelB (Post 797115)
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 03-18-2009 03:41 PM

Quote:

Originally Posted by MichaelB (Post 797115)
... 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 03-18-2009 04:03 PM

Quote:

Originally Posted by FinallyRetired (Post 797119)
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 03-18-2009 05:01 PM

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


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