QE, The Gift That Just Kept Giving, Is Now Taking


Zero Hedge: I know the Federal Reserve doesn’t effectively create money or directly monetize.  I know this because then Fed chief, Ben Bernanke, told us so (HERE).  But still, something has me wondering about that exchange, now almost a decade ago.  The simplest of math.

The plan to utilize quantitative easing and avoid direct monetization went like this.  The Fed would buy the Treasury debt and Mortgage Backed Securities (remove assets from the market) from the big banks.  However, the Fed would force those banks to deposit the new money at the Federal Reserve.  This would avoid the trillions of newly created dollars from going in search of the remaining assets (particularly levered from somewhere between 5x’s to 10x’s…turning a trillion into five to 10 trillion…or far more).

The chart below shows the Federal Reserve balance sheet (red line) and the quantity of those newly created dollars that the recipients of those dollars, the banks, deposited at the Federal Reserve (blue line).  But the green line is the quantity of newly created dollars that have “leaked” out…also known as “monetized”. more …

Opinion: After hundreds of posts (or so) on central bank money printing, which put 4 trillion US dollars in the hands of major money center banks, it is now time to unwind the trade.

With quantitative easing (QE) from 2009-14, the Federal Reserve bought massive amounts of toxic mortgage bonds to save the banks from failure. A new idiom ‘too big to fail’ became embedded in our psyche.

When more bonds are bought than sold, interest rates go down and vice versa. Now we are faced with more bonds being sold than bought. Interest rates are going up.

Unless there is a collapse, in which case investors rush into Treasury bonds forcing interest rates down again, which happened in the crash of 1987.

In 2017 the US government paid $474,500,000,000 (billion) in interest on $20 trillion in debt. According to estimates from the Congressional Budget Office, each 1-percentage-point increase in interest rates is expected to add $1.6 trillion to the 10-year budget deficit.

Trillion here, trillion there = Revelation 6:5-6