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Tuesday, February 26, 2013

If this works, I'm becoming a social democrat

...and bring on the cradle-to-grave welfare.

Fed to buy 90% of new bonds
Even as U.S. government debt swells to more than $16 trillion, Treasuries and other dollar fixed- income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds.
The government will reduce net sales by $250 billion from the $1.2 trillion of bills, notes and bonds issued in fiscal 2012 ended Sept. 30, a survey of 18 primary dealers found. At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.

Even after U.S. public borrowings outstanding grew from less than $9 trillion in 2007 as the U.S. raised cash to pay for spending programs designed to pull the economy out of the worst financial crisis since the Great Depression, rising demand coupled with a drop in net supply means bonds will be scarce.

“The shrinking amount of bonds in the market is lowering rates and not just benefiting the Treasury, but providing lower rates for private-sector decision-makers as well,” Zach Pandl, a senior interest-rate strategist in Minneapolis at Columbia Management Investment Advisers LLC, which oversees $340 billion, said in a Nov. 30 telephone interview. “The Fed is not creating this scarcity to help out the Treasury, it’s primarily to get the economy going.”

If this doesn't work, it's another Minsky moment, or crack-up boom.

3 comments:

Visibilium said...

Does it work or not? Your alternatives aren't mutually exclusive. It'll work until it doesn't. It'll be given credit for getting the economy moving (sorta), but when the downturn comes, something else will get the blame. The upturn can't be tied to the downturn, right?

The only reason why the ad-hoc lamer Minsky gets any traction in the mainstream financial press is because mentioning Mises is less tasteful than dropping the f-bomb.

IanH said...

Hey Gnostic, what is your thoughts on the Hagel nomination drama?

I'm sorry I keep going off-topic, but I am very curious.

The Anti-Gnostic said...

Re: Hagel

The only issue that should matter is whether Hagel is good for protecting the territorial integrity of the US. Politicians who vet nominees based on whether they are sufficiently devoted to protecting the territorial integrity of Israel (or any place else) are foreign agents.

Given that nobody really cares about the territorial integrity of the US, arguing over who gets to be Secretary of Defense ("defense" of what?) is kind of pointless. The US should be dissolved so people can draw their own borders.