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To: William Cloutier who wrote (63534)	3/25/2020 3:05:36 PM
From: research1234	4 Recommendations Recommended By Nya_Quy robert b furman Spekulatius William Cloutier Respond to of 78439

If I may, I’ll like to offer my perspective. When the Fed buys bonds, they are printing brand new money which they send to the bond sellers. That is their role in the US banking system. Absent QE, the Fed buys and sells bonds with a goal to maintain the money supply within the range that is consistent with their inflation target. Their normal key function is to by Treasury bonds on the open market to offset the cash drain that occurs when the Treasury sells bonds in the open market. QE is a whole nother kettle of fish. In essence, the Fed is buying Treasury as well as mortgage bonds with more printed money in order to provide sufficient liquidity to goose the economy. When they buy a security, the money they send to the seller can be loaned out immediately in full. So the money the Fed printed can find its way into the pockets of business owners, home sellers or any other sort of borrower. Many believe that the original QE money is what has fueled a significant portion of the stock and bond market over the last decade. So if the Fed is embarking on a new round of QE, past history would suggest another significant stock ramp up will follow. At some point, it would seem likely that owners of stock, maybe the next generation heirs, will start to sell stock in sufficient amounts to fuel real consumer inflation. Or maybe not, I just don’t know. My view is to stay invested in companies that will be able to keep up with inflation so that my principle is inflation protected is I have chosen wisely.

To: William Cloutier who wrote (63534)	3/26/2020 12:44:01 AM
From: ajsharp	Read Replies (2) \| Respond to of 78439

At this point it's hard to say who they're buying from, as there are so many different liquidity programs they're doing. Generally, financial institutions, but I'm not sure on some of the newer asset-backed security liquidity programs, like the corporate bond stuff. What do you mean by "can they lend with fiduciary money"? Regarding the accounting, as far as I know, any assets the fed purchases is purely electronic. When they purchase, say, $1 million in treasury securities from a bank, the Fed increases a treasury security asset account for $1 million on their balance sheet, and decrease a cash account by the same amount. The bank does the opposite: decrease the treasuries asset account, increase the cash account. Now, theoretically, the bank has $1 million dollars they can lend out to a client. This process can indeed be inflationary, because when the Fed purchases securities, they are creating new money in the system. In normal times, they do this using "open market operations" -- buying and selling treasuries -- in order to maintain the target Federal Funds rate. In a liquidity crisis like we're in now (and similarly in 2008), dollars are fleeing the system in large amounts at rapid velocity. Consider the typical bank run scenario: people run to the bank to withdraw their money from accounts to take a stuff under a mattress, or maybe to buy gold. When this happens, money -- better thought of in this context as credit -- is removed from the system. In a fractional reserve system, banks can lend (credit) up to a specific percentage of deposit accounts (money) held at the bank out into the economy. This is essentially what happens in a liquidity crisis, writ large across the entire system. Instead of individuals running to the bank, it's hedge fund clients and sovereign wealth and foreign investors liquidating (often leveraged) positions and taking money home overseas, putting it into gold, or buying US treasuries. All of this has the harmful effect of reducing the amount of available credit in the system. Eventually, this has a contractionary, deflationary effect in the economy. So, in these crisis scenarios, basically what the Fed is trying to do is shore up the system, and replace rapidly evaporating credit in the system.