Raghu writes: On Wed, Oct 21, 2009 at 11:38 AM, Louis Proyect <[email protected]> wrote:
What kind of bonds are they buying? Are they investing the money in American business? “No, they are mostly buying Treasuries.” So the money is just being shuffled from one Federal bank account to another, with each Wall Street bank skimming off $1 billion per month for itself? “Pretty much.”
I am still puzzled bu this: if these guys are all simply buying Treasuries, wouldn't that simply push the yields down and eliminate the profit opportunity? In any case, if indeed it is Treasuries they are buying, we are talking about 5 year maturities at least to get 2%: http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml So this is really a bet on interest rates staying really low i.e. < 2% for at least the next five years? Sounds like a *very* risky bet. Somehow, this all doesn't quite make sense. How else could they making money then? Could it be that they are simply cooking the books again? ==================================== I'd like to see the evidence they are mostly buying 2% Treasuries, because that certainly doesn't "quite make sense", as you say. My understanding is that the cheap Fed funding has primarily gone into US corporates, where the spreads have come down but are still relatively attractive, and into the US carry trade - overseas buying where the yields are also higher and, additionally, there is an expectation that those currencies will continue to appreciate against the dollar. The Fed's support of Wall Street has chiefly fueled the sharp rise of the Aussie dollar, Brazilian real, and other currencies which aren't pegged to the dollar, the boom in emerging market debt, and the rising dollar price of gold and other commodities. The BIS and central banks are worried that the unwinding of the dollar carry trade, when it does come, will have much more serious consquences for the global financial system and world economy than did the yen trade in 2007-08 which was serious enough. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
