RE:RE:RE:RE:RE:RE:Us crash imminent
houbahop wrote: So, Torontojay, QT or QE???
"The US government has to start buying longer dated treasuries because the reverse repo is no longer a viable option."
I have a perception of confusion on your part on the path the FED would take in the near future...
The government is stuck between a rock and a hard place. If they sell long dated treasuries then yields have to rise with more issuance of treasuries. The Fed cannot start QE with inflation currently above target. Moreover core cpi which removes the volatile components, food and energy, is still at 3.3%. What would QE accomplish at this point? It's my guess that QT will have to continue this year which is removing about $60 billion per month from the Feds balance sheet. The money supply is about $900 billion above where it should be had the pandemic not occurred. In other words, they still have quite a bit of work to do just to get back in the same path as before. This is why I believe 2025 could be another challenge as it was in 2022 because QT will begin to kick into fifth gear as Janet Yellens t bills piggy bank has run out of money.
When you remove bank reserves from the system, liquidity dries up and yields rise. If the Fed starts QE, then yields on long dated treasuries fall as liquidity picks up momentum. This runs the risk that inflation will re accelerate as the Fed is now a buyer of these treasuries. It's too early to be talking about QE. There is strong evidence to suggest that QE causes asset price inflation which through the wealth effect causes inflation in the real economy.
A while back I asked the question if QE is money printing and I received some poor answers. Always remember that the Federal Reserve does not print money. It prints bank reserves. There's a difference. Bank reserves is not money in the real economy but its how banks transact with one another. If there are more reserves then banks may lend more money out to people which increases the money supply. When too much money chases few goods we have the classic definition of inflation.