Realize that the primary task of the FED is to save the US Government from the consequences of its fiscal profligacy and the danger of hard default by printing money.
Price stability is a secondary task.
If the two tasks conflict....as they currently do.....
Then task one wins at the expense to task two.
And the wealth of lenders gets transferred to the borrowers.
The FED and the US Treasury are dance partners in the debt and printing spiral. Both doing their part, moving as one.
The only reason the FED is doing some QT now is because there is enough background liquidity left from the big print to plug..temporarily...the treasury supply demand gap.
It's 2 trillion a year that has to be plugged...add infinitum.
When the remaining liquidity from the big print is all used up....it's back to tapering QT then more QE, to keep bond rates below 5%.
And eventually more inflation will be the result.
The Fed has zero independence. It's just the "in house" funding arm of the US Treasury.
Yes it has a game plan. A rather sad one....but it is a plan. Here it is:
1/ Use as much of the back ground liquidity still remaining from the big print to plug the treasuries gap. RRP, whatever.
2/ Prop up the banks by replacing the deposits as they flow out to feed the defecit beast. Alphabet soup programs etc.
3/ Layer on the synthetic QE when needed. When the ten year rate gets too high say over 5% trundle out Printer Jay or one of the minions to say something nice and positive about QE. Give the impression the real stuff is not too far away.
4/ When the above stops working start tapering the QT.
5/ When tapering the QT stops working roll out as much real QE as required.
1/ Its September 2019.......a lot of hedge funds are underwater on their long bond postions
2/ The usual wall street banks (i.e primary dealers) have lent them a lot of money to lever up......and buy the new issues of treasury bonds from them.
3/ Its a code red alert to the FED
4/ FED saves the day with 500 billion of REPO
5/ But thats just a Hans Brinker.....a finger in the dyke .......when they need a Houdini act in order to escape
6/ Then along comes the Houdini act.....the masive virus money print!!!! Large short term appreciation in bond prices as stocks sell off!!!.
7/ Hedge funds dump their bonds and pay back the FED
8/ But who do they dump their bonds onto?????
9/The Banks....the Banks!!!!!.....because thats where a lot of the virus print ended up.....in bank deposits. So they had the funds to buy and were the natural customers.
10/ So its the Banks problem now!!!!
Its almost as if the virus print was also designed to rescue the hedge funds and their underwater positions in the bond market?????
Or is that just too much of a conspiracy theory???????
Air Pockety 4/11/24
in The Daily Stool - Stock Market Message Board
Posted
WHEN WILL FINANCIAL MARKETS
Realize that the primary task of the FED is to save the US Government from the consequences of its fiscal profligacy and the danger of hard default by printing money.
Price stability is a secondary task.
If the two tasks conflict....as they currently do.....
Then task one wins at the expense to task two.
And the wealth of lenders gets transferred to the borrowers.