Could take 5-8 years to shrink Fed portfolio: Yellen

[IIOII]

Kinda surprised Larry Summers withdrew.  Maybe he was too vocal and Yellen was more "safe"

No, I think he knew that there is no way out of the QE-Experiment his predecessors have started. Yellen will be the scapegoat when this giant ponzi-scheme collapses.

[twiifm]

Kinda surprised Larry Summers withdrew.  Maybe he was too vocal and Yellen was more "safe"

No, I think he knew that there is no way out of the QE-Experiment his predecessors have started. Yellen will be the scapegoat when this giant ponzi-scheme collapses.

Its not really an experiment.  They saw Japan do same thing in late 80s and all the way to current times

[Razick]

I lost all respect for odolvlovo with his comment ^^^^

Since you obviously know more and better than Yellen, why aren't you running the Fed?

+1. I was skeptical of Yellen, but she has said a few things that make me tentatively respect her. Also, though we might disagree on certain things, she came to her point of view through a lot of experience and knowledge. Might she be wrong? Absolutely. That being said we should consider what she has to say carefully.

My main problem with her is that she continues to cite the CPI as a measure of inflation, which I do not believe is accurate.

How would you describe the key differences between Yellen and Bernanke?  Kinda surprised Larry Summers withdrew.  Maybe he was too vocal and Yellen was more "safe"

I'm not really sure. I'm not a Fed fan so I tend to ignore it most of the time. It's just that Yellen has said some things that make me think she's not as far out of line with what I believe.

[Harley997]

It will take much longer then 5-8 years to shirk it's portfolio to a normalized level.

The Fed will have been buying bonds via QE for at least the lower bond of Yellen's estimate by the time it stops purchases.

They will not be able to sell bonds (including not reinvesting payments when bonds are paid off) at a rate that is anywhere near the rate they have purchased bonds.

IMO it will take 2 decades to reduce the Fed's portfolio to a normalized size.

[RoadTrain]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

[STT]

Yes I agree with Harley, current events will leave a mark like a high tide for many years probably a generation.     Japanese are richer per capita and havent ever reversed QE, maybe this could be presumed as good and they didnt want to or need to.   Really its more like they cant reverse, its effects will be around till they either default, radically revise gov spending or more likely is two decades of stagnation waiting the bond terms out

[tooil]

Yes I agree with Harley, current events will leave a mark like a high tide for many years probably a generation.     Japanese are richer per capita and havent ever reversed QE, maybe this could be presumed as good and they didnt want to or need to.   Really its more like they cant reverse, its effects will be around till they either default, radically revise gov spending or more likely is two decades of stagnation waiting the bond terms out

Hard to shrink the portfolio.

They buy it at high premium and no sane person will pay the same price they paid. The only reason the portfolio is so high at the moment because they are the last sucker.

As soon as they stop easing, the market will crap at least 20%.

[johnyj]

The ownership of newly created money is the biggest problem here, it will just get worse and worse if people finds out the truth

[distcoin]

They can't disengage from the markets and allow the markets to price risk into the bond market. Does anyone alive believe that yields on everything from junk to TBills reflect default risk? Can a government with a debt/GDP over 100% withstand a yield that would divert more sources to making the interest payment on the debt than paying for social security?

NO!

They know this is the end game.

Its negative interest rates next and stay the course until the barbarians (monomer they are the real barbarians) are at the gates. Then kick the can done the road have lots of technocratic meetings all the while flames consume the streets outside meeting halls.

How do I know this?

Because its happened before countless times over the 6 millennium history of man, and always the same outcome. With the same type of people, aristocrats who prancing around pretending to be noble who derive substance from the status quo.

  

[ShakyhandsBTCer]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.

When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

[odolvlobo]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.
When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

Are you saying that 80% of the Treasury bonds sold by the U.S. are bought by the Fed, and if the Fed doesn't buy them, nobody else will? That can't be true!

[ShakyhandsBTCer]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.
When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

Are you saying that 80% of the Treasury bonds sold by the U.S. are bought by the Fed, and if the Fed doesn't buy them, nobody else will? That can't be true!

That is not what I am saying.

What I am saying is that if the treasury sells bonds that are not purchased by the fed then they will need to be purchased by banks. If banks buy these bonds then they will have less money to lend to other banks, corporations, small businesses, people and the like

[RoadTrain]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.

When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

Liquidity is abundant, nobody knows what to do with it (just look at excess reserves).

Yes, effect for a state as a whole this would be the same. But thr Fed would not incur any direct losses, the Treasury would bear the burden instead.

What I am saying is that if the treasury sells bonds that are not purchased by the fed then they will need to be purchased by banks. If banks buy these bonds then they will have less money to lend to other banks, corporations, small businesses, people and the like

Banks don't lend money they have, they create new money out of thin air instead. And their reserve position doesn't matter when bank makes a decision whether to lend or not.

[transient858]

Most likely the portfolio will keep growing until the world stop supporting dollar.

[STT]

Banks don't lend money they have, they create new money out of thin air instead. And their reserve position doesn't matter when bank makes a decision whether to lend or not.

Banks primarily create money by lending to each other and via their customers.  If the banks lever up a deposit ten times and then loan it out, it only takes one borrower to deposit the cash at another bank and you can see how large amounts of money are being created.
They do need reserves or need to lie about it like Lehmans did.  I think that part of expansion is secondary, most of the risk is in the 1st point with natural double counting of the same cash.

This is where usury or a debt ban starts to make sense like the Muslims used to do.   However I think that spins round again to explain why Saudi Arabia is prepared to gift such support to the USA now.   The way to really find out when it ends is when the backers decide its no benefit for them to continue to float yellens titanic debt situation

[logger]

That assumes someone wants to actually buy it.

[AdamSmith]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.
When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

Are you saying that 80% of the Treasury bonds sold by the U.S. are bought by the Fed, and if the Fed doesn't buy them, nobody else will? That can't be true!

If the fed don't buy the bond, the interest rate will most likely go up the roof as no rational bank or institution will lend the government at near 0% rate.

[ShakyhandsBTCer]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.
When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

Are you saying that 80% of the Treasury bonds sold by the U.S. are bought by the Fed, and if the Fed doesn't buy them, nobody else will? That can't be true!

If the fed don't buy the bond, the interest rate will most likely go up the roof as no rational bank or institution will lend the government at near 0% rate.

That would probably be an exaggeration. If QE were to suddenly stop then interest rates would rise. The federal government is considered to be risk free in terms of a possible default. The only risk that banks take in lending to the federal government is inflation risk

[RoadTrain]

They do need reserves or need to lie about it like Lehmans did.

They do need reserves at the Fed but that's not important as they can always obtain them.
What they need more is capital, and the capital requirement is far more important to lending.

[RoadTrain]

There's no apparent need in cutting the portfolio. It will decrease naturally as bonds mature.
If there's a need in soaking up the excessive liquidity they have a range of other instruments, namely repos and manipulating rates on excess reserves.

The fed would need to reinvest the proceeds of matured bonds into new bonds or else liquidity would dry up.
When US treasury bonds mature the treasury must issue more bonds to repay the bonds that are maturing. If the Fed does not buy some of those bonds then the effect would be the same as if it had sold the bonds in the open market.

Are you saying that 80% of the Treasury bonds sold by the U.S. are bought by the Fed, and if the Fed doesn't buy them, nobody else will? That can't be true!

If the fed don't buy the bond, the interest rate will most likely go up the roof as no rational bank or institution will lend the government at near 0% rate.

Nope. The interest rates will likely adjust, but not up the roof (what is considered the roof btw?  ).