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balor123
Joined: 08 Mar 2008 Posts: 1204
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Posted: Thu Jan 21, 2010 4:37 am GMT Post subject: Fed faces trap as it frets over withdrawal from QE |
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Fed faces trap as it frets over withdrawal from QE
Did you all see this article? I don't know why I never thought about this problem. Wow! So the Fed is sitting on all these MBS (~$2 trillions worth). They want to stop buying them but if they do then there's going to be a lot more debt competing for treasuries which will drive up yields. They can continue buying them but at some point they'll have so much that investors will stop trusting treasuries due to the large debt burden and they'll rise anyway. Hence no one wants to touch long term debt except the too big to fail banks, who are only buying it because they can play the short/long debt arbitrage knowing that they'll get their bonuses now and if it doesn't work out later they'll get to keep them and the Fed will probably continue to bail them out with low rates, etc. Remember, before the Great Recession MBS were driving up yields, a problem the Fed doesn't have now. Either way, when they reappear on the market people will either: not trust them anymore, driving up mortgage rates, or they'll trust them and stop buying treasuries. There just isn't enough cash in this world to pay down this debt while the engine is still running.
I think everyone else is just holding their breath for another miracle like the computing revolution. That's one big pickle that they've got. |
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Renting in Mass
Joined: 26 Jun 2008 Posts: 381 Location: In a house I bought in December 2011
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Posted: Thu Jan 21, 2010 12:02 pm GMT Post subject: |
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Quote: | I think everyone else is just holding their breath for another miracle |
Yeah, I think they know they're screwed, but when the choice is disaster now or disaster later, I can't blame them for choosing disaster later. Like you said, maybe a miracle will happen before "later" comes around. |
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