By Cory Ned Schmidt Answers Questions On Bonds And Fed QT
Ned Schmidt send an email to subscribers earlier this week outlining some questions he has been receiving from subscribers. The questions focused on how the Fed went about buying bonds during the QE program and how an unwind will actually look. Here are the questions and answers.
Why are they unwinding the balance sheet and what could happen if they did not?
When Fed Res bought bonds from bank it credited electronically the account of the selling bank at Federal Reserve.
Banks hold because of QE roughly $2.3 trillion at the Federal Reserve.
Nothing can stop banks from lending those reserves out.
More than $3.5 trillion of money could be created by lending out those reserves.
That potential amount of money would cause US inflation to rise.
Who holds these bonds?
The bonds are held, owned, by the Federal Reserve.
They are “held” for them electronically by the US Treasury.
No paper US bonds exist.
I suppose to unwind their balance sheet means they will try to flog off some bonds.
They will not sell any bonds.
They will simply let some bonds mature without reinvesting the proceeds.
The money has been “printed” already hasn’t it?
NO money was printed, in any way, when the bonds were bought.
Fed Res simply credited the account of the selling bank at the Federal Reserve when they bought the bonds.
That money was printed was one of the great myths of QE.
thanks,
ned w. schmidt,cfa
the value view gold report
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Source:: The Korelin Economics Report
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