So how are you all doing these days? Well, while you may be doing some workouts at home, the FED started 125 billion dollars of QE per day! Yes - per day... To put that into perspective:
- quantitative easing three was 85 billion a month
- now they are "easing" with 125 billion a day (That's around 3750 billion or 3,75 trillion per month)
Where are they getting enough Treasuries to buy? One of the main problems is that, there's not enough collateral. So they're out there, taking collateral out of the system and putting it onto their balance sheet!
In fact, they've actually admitted it now as they are calling it "open-ended" QE (wink wink) There is no limit to the amount of money, they're going to print. Also they came out with the statement saying, they are now buying everything. There's no pretending anymore.
They've extended it to :
- student loans
- credit card debt
- auto loans
- SBA loans
- mortgage-backed securities
- commercial real estate
Look at what they're doing. They're looking at any asset class, that can possibly go down, and they're taking it off the private sector balance sheet, and putting it onto their balance sheet! So no matter how much of a haircut these assets take - it's not going to matter because it's on the Fed's balance sheet.
There are some huge side effects to this.
Let's say that The FED is taking 1 billion worth of a hedge fund credit debt as an asset. And FED deposits that billion dollars onto hedge fund's retail bank XYZ. The hedge funds bank account goes up by a billion dollars that increases the deposits in the real economy. Than to offset the liability because that's a liability on the balance sheet of the retail bank! The Fed prints up more money and just adds that to the reserve account of the retail bank
See the difference?
It's still just printing up reserves and putting it onto its balance sheet (meaning the Fed) but in the case of the primary dealers just reiterate it. What that does in longer term is consumer price inflation - domestically
