Posted on 09/02/2022 6:10:15 AM PDT by millenial4freedom
Plans for reducing the size of the Federal Reserve's balance sheet
In January 2022, the Fed announced an intention to start QT.
In May, the Fed announced its Plans for Reducing the Size of the Federal Reserve's Balance Sheet.
In June the Fed finally got around to doing QT. From January until March, despite a housing market totally out of control, the Fed kept doing QE (both treasuries and mortgage backed securities (MBS)
Plan caps
Beginning on June 1, principal payments from securities held in the System Open Market Account (SOMA) will be reinvested to the extent that they exceed monthly caps.
For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills.
For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.
Where does the excess money go? Does it just evaporate?
Why not? It was created out of thin air!
My understanding is that they bought assets with fake money and are now selling them to get real money.
That is exactly what happens to it.
What a racket!
“Where does the excess money go? Does it just evaporate?”
Yes & No, money is fluid and moves around....nobody owns it.
It also depends who gets it.
People that never had any money before tend to jam it into goods and services.
People with a lot of capital tend to look for good investments so their money sits longer.(Wherever they put it.... stocks, bonds, real estate, etc usually turns out well for them)
Historically, money evaporates when bankers raise interest rates and cut the money supply.
It causes pain but if they don’t do it the “speculative rot” destroys producers.
Right now, I’m looking at one dollar bill with George Washington on it.
I’m glad there aren’t 2 more zeros on it. Imagine these monetary units:
$100 Washington
$200 Jefferson
$500 Lincoln
$1000 Hamilton
$2000 Jackson
$5000 Grant
$10000 Franklin
Money has to make sense, what I presented are monetary denominations that would be an economic & psychological disaster.
QE or QT… here’s the reality: The Fed will never allow a failed auction. If all of the debt isn’t sold at issue, they will ALWAYS be the buyer of last resort. Their ability to QT is entirely situational.
Info. that might help with explain “Money Printing”/QE/QT:
https://fedguy.com/quantitative-tightening-step-by-step/
https://www.lynalden.com/money-printing/
The "reinvestment" that "reduces Treasury holdings" is a more subtle means to cut the money supply without directly raising interest rates.
Essentially, they are walking away from the game and reducing their risks when the government finally defaults on payments. This will indirectly cause interest rates to rise, but the banks can avoid being blamed for it.
It causes pain but if they don’t do it the “speculative rot” destroys producers.
The pain of rising interest rates protects the banks first. It bleeds out just about everybody else who cannot gain access to Government funding. And it will destroy producers if it goes on very long. What ultimately destroys producers is the inability to get paid in currency that has any predictable value.
Government causes inflation by using the banks as agents to create currency the Government can spend. No amount of increase in interest rates actually stops inflation. It stops when Government stops creating all that new currency, unbacked by any economic value.
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