On Wed, Dec 8, 2010 at 2:51 PM, Jim Devine <[email protected]> wrote: > but Sabri is right that it doesn't matter who sells the bonds to the > Fed (the government or the private sector). It has the same effect on > bond prices and interest rates, either way the Fed now pays more > interest on more bonds to the government (at a lower rate), all else > constant.
But this is missing the point: yes the Fed remits a bit more to the Treasury because of its bond purchases, but this is like 1% of $600B i.e. pocket change in terms of stimulus. If the Fed simply bought newly issued bonds from the Treasury worth $600B, then the Treasury could have simply turned around and spent it i.e. $600B worth of stimulus. The key issue here is not how much interest rates are impacted by the purchase, but how much new spending is created - and here it really does matter whether the Fed is purchasing newly issued bonds or just already-issued bonds from the market. It is really quite simple: the Fed's $600B bond purchase does not translate into $600B of additional spending. I don't why Sabri disagrees with this. -raghu. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
