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"Not Quantitative Easing"

The Fed is now buying $60 billon in Treasury Bills each month.  They're also providing $87 billion in liquidity for the overnight repo market.

So when the Fed creates an internal bookeeping entry to be able to do the above or to buy Treasury Bonds or even quasi-legal subprime mortgage bonds, we understand it to always be merely an "asset swap" since it is swapping bank reserves which is zero duration for higher years of duration by buying what's allowed by the Fed charter.  I understand swapping bad debt such as subprime mortgage bonds off a bank's balance sheet so it can be repaired (like the RTC did in the early 90's), but what does swapping non-bad debts solve other than to manipulate yields lower?  And if that is "Quantitative Easing", what exactly then is "Not Quantitative Easing"?

The national debt now stands at $22 trillion, paying out more than $500 billion in interest alone this year on that outstanding debt. By 2024 the interest costs will surpass military spending and by 2028 the interest costs could surpass $1 trillion.  That is 1/3rd of average Federal revenues per year which doesn't seem to grow much.

However, I understand there's presently no mechanism for the Fed to directly participate and bid in Treasury auctions, so is the Fed limited to buying only the forced selling of Treasury's from bank's balance sheets?  Is that the only limitation there is for not literal "money printing" and "monetizing Treasuries" like Japan's central bank?

The popular meme gaining increasing traction over time is that the Fed is printing money to buy Treasuries that no one else wants so the Treasury Dept can pay its bills.  NIRP will be viewed as just another "symptom" of that "crisis".  At what point do we say we got a problem that we cannot return from to justify panicing 1970's style into non-fiat assets?  Because I get the sense that some kind of reckoning is going to happen as the meme more and more feeds upon itself whether or not it is in actual fact happening.  Will it even matter if what is objectively false operationally is perceived to be true metaphysically?


People act like this is new, but it's really not. The Fed has always engaged in repos and open market operations. The only thing that's new is the size of the policies. The basic reason why the size has increased so much is because the Fed thinks they need more quantity to hit an inflation target they can't hit. And they can't hit that inflation target because all they're doing is swapping assets. If you want to create bigly inflation you need massive fiscal policy with no monetary offset. But that's not really happening. So here we are.

Will we eventually get that high inflation? I don't know. Maybe. But I think it depends on how fiscally reckless we decide to get. For now I wouldn't describe the US govt as being all that fiscally reckless.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Hmm, what would it look like if the US were to act fiscally reckless?  Would that imply there would be no monetary offset, or would be being fiscally reckless be independent of monetary policy?

I can't really find any clear historical parallels for insight.  Either we were under a fixed exchange rate system or we had that dual gold delinking/wage contract growth spiral complication in the 70's.  In your view, has Japan been acting fiscally reckless despite the lackluster inflationary results for decades?

(I read somewhere today there was a gathering of "experts" to discuss fiscal stimulation, but there was no consensus on what to implement, so I guess the MMT kind of meme is starting to reach the commanding heights.)


I don't really know to be honest. The way I think of govt spending is kind of like the way a company might think of its debt to equity ratio. What is the sustainable level? No one really knows and it's different for different companies just like the sustainability of govt debt is different for different countries.

What is the level that matters for the USA? No one really knows. But given the low rate of inflation I'd say we're pretty clearly not there right now.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche