The Fed Has a $4.5 Trillion Problem. Could It Become Yours?

The Fed Has a $4.5 Trillion Problem. Could It Become Yours?

(...) In the wake of the financial crisis and deep recession that followed, the Federal Reserve bought $4.5 trillion worth of intermediate- and long-term bonds, in an unprecedented attempt to shore up the economy by making it cheaper to borrow -- for everyone from the federal government to companies to would-be homeowners. Now, nearly a decade later, the Fed is moving to trim back on those investments.

The first thing to know about the Fed's challenge is that it's a good one to have -- because it suggests that the Fed's decision makers see the economy as healthy again. But even if it's good overall, the plan still carries risks, if only because no one know exactly how investors might react. After all, trying to sell a bond portfolio that big could easily flood the market, causing chaos. Imagine what would happen to stock prices if everyone in America decided to cash out their 401(k)s.

To minimize its impact on the market, the Fed plans to avoid actually selling the bonds it still holds. Rather, it's just going to let the bonds "run off" by slowing, and perhaps ultimately halting, its efforts to re-invest money it receives from maturing bonds in new ones. Just how will this process go? While the Fed hasn't said what the schedule will be, one Schwab analyst recently estimated that the Fed might shed $1.5 trillion of bonds over five years -- and projected an action of that magnitude would ultimately add 0.42 percentage points to 10-year Treasury yields, which currently stand at 2.35%.

www.time.com

originally posted by: ProphetZoroaster
The Fed Has a $4.5 Trillion Problem. Could It Become Yours?

(...) In the wake of the financial crisis and deep recession that followed, the Federal Reserve bought $4.5 trillion worth of intermediate- and long-term bonds, in an unprecedented attempt to shore up the economy by making it cheaper to borrow -- for everyone from the federal government to companies to would-be homeowners. Now, nearly a decade later, the Fed is moving to trim back on those investments.

And your thoughts are...?[

The stock market has been stealing from you for 115 years.
120 years ago just about everyone owned their homes, land, and transportation.

If the stock market in general is about to soar, us dollars are about to tank. That's a pay cut for everyone, and an effective hair cut on their savings.

a reply to: ProphetZoroaster

Is it going to become my problem because it will tank the market and I get the bone (again)?

Or do you see another scenario?

Home ownership is down to only 63% which is making the landlords quite wealthy.
We have been talking about the cost of the "bail out" on ATS since 2009 LOL!
Can we honestly predict anything meaningful without getting busted for insider trading?

a reply to: seasonal

It will raise the yield rate on all Treasury bonds, meaning borrowing will be more expensive for the feds AND state and local governments. (most local capital bonds use the treasury rate as their base to determine local yields.) In other words, the market will be fine, but the tax payers will get less done for more money.

last I understood... the Fed will delay upping the Treasury yield, interest rates, for this year is the guess

what the Fed intends to do is sell off all the non-Treasury paper they have both on & off their 'balance sheets'

~ iow, the banks will have to buy back all that bogus, overpriced, Mortgage paper they took on at the crisis
~ the Fed will also divest much of the Equities they had gotten by-way-of-the-Plunge Protection Team (PPT)
the same Equities which ballooned the DOW Stocks to New All Time Highs, and enriched the S&P for almost a decade

~ The Fed must eventually call-in all that $10-15 Trillion It lent to both the domestic TBTF banks and the floundering Big Banks over there in the EU (yeah, the USA Fed acted as the worlds Central Bank instead of the IMF or the BIS)

It will be how the markets respond to a wave of Equity Sales and even perhaps a second wave of equity sales to see if the economy is on the road-to-sustainability before rate increases are contemplated in 2018
....that's what was 'talked around' during all that Congressional hearings with the Fed last week
~ the Feds goal is to clear their balance of everything but Treasuries...



and I don't think that will happen, even with the lure of all those MBS (mortgage backed securities) that have the property ownership still in question as to just who owns what mortgage or piece of a mortgage mess ...

How was the confusion and questionable deed handling by the "Mortgage Electronic Registration System (MERS)", which dropped out of the news shortly after arising, resolved?

see: www.quora.com... -news-shortly-after-arising-resolved

still in limbo, but the Fed is recognized as the biggest single property owner in the whole USA...
I bet the Foreign Sovereign Funds will be glad to buy up those MBS from the Fed Reserve in the coming years instead of the USAs TBTF banks

a reply to: St Udio

And of course raising US interest rates increases the value of the US dollar.
Bad for gold bugs..

originally posted by: Blueracer
And your thoughts are...?[

edit on Fri Jul 14 2017 by DontTreadOnMe because: Quote Crash Course

The $4,500,000,000,000 represents consumption of government services (wars, Medicaid, education etc) from 2008 to 2014. Reducing future spending, both on these government services and in the private sector for decades into the future will only create weakness, misery, economic convulsions and a devastating deflationary spiral. No attempt to reduce this portfolio should be undertaken except to use as a limited tool to cool a seriously overheating economy.

originally posted by: Cauliflower
a reply to: St Udio

And of course raising US interest rates increases the value of the US dollar.
Bad for gold bugs..

bad for PM hoarders... but not for the reason you suggest

the dollar strength may, in some future reality go up... but not now ~~~ the USD is continuing to edge downward

many countries which formerly stacked Billions in USA Treasuries as Reserve currency are busy
unloading the paper as they expect the USD to continue to lose strength And Value against other world currencies

Trade is no longer exclusively exchanged in USD-Treasuries..... China-Russia-India-Iran and a host of others are establishing new exchange bourses & deals...
the writing-is-on-the-Wall for the USA-London Financial system ...including the SWIFT bank code operations

It must be "liberating" to gamble with the sweat, labor and earnings of others.
Trillions of debt. I don't see how that's any of our problem. Sounds to me like they skipped out on home economics class. They don't come across as "well educated". Also sounds as if they have a bit of a problem.

a reply to: St Udio

Historically quantitative easing (printing money) by governments weakens the countries currency and leads to inflation.
Germany after WW1 is the example most often cited.

These days the NWO choreographs the global economies so the different countries take turns valuing and devaluing their currency through cooperative central bank policy changes.

Longer term the US dollar index reached a high of 128 back in 1985, 113 in 2002 and more recently 103 so who knows.
So you think the SWIFT bank code operations might hold some clues?

a reply to: Cauliflower


the historical response with excessive money printing... has been to flood the economy with more, less valued bank-note$....


But since the 2007 'Crisis', the Fed has been deliberate in requiring the banks to not circulate that printed money but to contain all those Trillions of money-from-fake-mortgages
into the required 'Federal Reserve member banks reserve accounts and Mandated that 'extra' reserve funds be sequestered into each Banks' personal account)...

so that the money-from-thin-air would not circulate/multiply or gain velocity ..& for the Main Street economy to experience undesired, heated inflation/hyper-inflation as a result of more & cheaper dollars in circulation




the Fed has done an incredible and creative, slight-of-hand magic trick for the past 7 or more years


watch as the Federal Reserve owned (by proxy) DOW Equities are sold back into the market, watch as the multi-National Mega Corps become the norm... so as to resist the onslaughts by volatile FOREX money valuations & the Pre-dominant Mega-Corps from accessing quick overnight-money infusions needed to run their business... the Fed is opening the door to obvious Fascist Mega-Corps as the new Strategic-Partners-without-Borders paradigm
(that should keep the Casino Markets flush for a decade or Generation longer


rest easy & play the system

While the Fed hasn't said what the schedule will be, one Schwab analyst recently estimated that the Fed might shed $1.5 trillion of bonds over five years -- and projected an action of that magnitude would ultimately add 0.42 percentage points to 10-year Treasury yields, which currently stand at 2.35%.

Not exactly skyrocketing inflation expected by this calculation.
I'm going to do some research on the Japanese economy since they might be leading the way.
Japan has had low or negative inflation and mostly recession for over 20 years.