Correct me if I am wrong but QE2 is radically different from QE1 as the FED is directly buying from the treasury and returning most of the interest – therefore the FED is creating Greenbacks which are closer to money then the previous credit money that the banks bought to get yield.
This creates or at least maintains inflation while denying banks a income stream.
This is creating a certain instability as mercantile states can no longer gain a yield on their reserves.
The much smaller ECB bond purchases are similar – but I am under the impression that the yield on these vehicles goes back to its sister central banks rather then the Exchequers.
Feel free to punch holes in my admittingly fuzzy logic.
“the Fed tells the Goldman Sachs what they are going to buy and when they are going to buy before it does the trade.”
“So the Goldman Sachs can frontrun the Fed and give them the worst possible price for the tresusury bonds?”
I suppose it is some consolation that the levels of corruption and cronyism which is evident in the dealings between the Treasury – the Fed and GS makes our lot look squeaky clean. The problem is that they are shaking not just the US but the global economy.
Quantitative Easing explained :
Bond investors get money from Fed. Bond yields fall making overseas investment more attractive. Money is leveraged with cheap debt and speculated on food prices in “emerging markets”. Fantastic profits booked. Investment stories developed. Risk on.
3 replies on “Quantitative Easing Explained”
Correct me if I am wrong but QE2 is radically different from QE1 as the FED is directly buying from the treasury and returning most of the interest – therefore the FED is creating Greenbacks which are closer to money then the previous credit money that the banks bought to get yield.
This creates or at least maintains inflation while denying banks a income stream.
This is creating a certain instability as mercantile states can no longer gain a yield on their reserves.
The much smaller ECB bond purchases are similar – but I am under the impression that the yield on these vehicles goes back to its sister central banks rather then the Exchequers.
Feel free to punch holes in my admittingly fuzzy logic.
“the Fed tells the Goldman Sachs what they are going to buy and when they are going to buy before it does the trade.”
“So the Goldman Sachs can frontrun the Fed and give them the worst possible price for the tresusury bonds?”
I suppose it is some consolation that the levels of corruption and cronyism which is evident in the dealings between the Treasury – the Fed and GS makes our lot look squeaky clean. The problem is that they are shaking not just the US but the global economy.
Quantitative Easing explained :
Bond investors get money from Fed. Bond yields fall making overseas investment more attractive. Money is leveraged with cheap debt and speculated on food prices in “emerging markets”. Fantastic profits booked. Investment stories developed. Risk on.
http://www.ft.com/cms/s/0/84e56b44-25c5-11e0-8258-00144feab49a.html#axzz1CNaicmLh
Food price inflation ensues. Tunisia falls. Egypt is next. Risk off.
http://www.ft.com/cms/s/0/848f78c4-2778-11e0-a327-00144feab49a.html#axzz1CNaicmLh