Wednesday, March 18, 2009

More Details on the Feds Plan to Purchase Longer-Term Treasury Securities

The New York Fed released the following details about the new Treasury purchases:

The Federal Open Market Committee (FOMC) has announced that the Open Market Trading Desk (the Desk) will begin a Treasury purchase program of up to $300 billion to help improve conditions in private credit markets. The Desk will concentrate purchases in the 2- to 10-year sector of the nominal Treasury curve,although purchases will occur across the nominal Treasury and TIPS yield curves.Consistent with prior outright Treasury purchases, these purchases will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions via the Desk’s FedTrade system. On average, the Desk will purchase Treasury securities two to three times per week. Further details willbe provided early next week after consultation with the primary dealers and other market participants. The Desk plans to hold the first purchase operation late next week.


  1. Karl Denninger, who you linked to before, believes that wages will not increase with prices and we will have a deflationary spiral and a much stronger US dollar that no one can afford. Why do you believe we will have wage inflation as well?

  2. The Fed just announced they are buying a TRILLION DOLLARS worth of securities, after pumping money at a near 15% annualized rate since September. That is just a huge amount of money. Prices don't go unless someone is bidding up for them. How could prices go up otherwise?

  3. I would think his only answer would be scarcity, dwindling supply. We would have to massively scale down production on just about everything. Under what circumstances could this happen? Perhaps if the economy gets too bad before inflation has a chance to set in. Could there be some critical level of job loss, wealth destruction, etc. that cannot be overcome by any amount of money printing?

  4. Scarcity is only half the equation. Demand has to be there also. Can't happen any other way.

    If you have a painting up for sale and the most anyone has in their pocket is $100, the picture is not going to go for more than $100 (forget borrowing just to make the example easy). On the other hand, if everyone is walking around with millions in their pockets, the painting could go for millions.

    You are not going to have inflation without money in peoples pockets.(Note: Hyperinflation is a little different--everyone has money but not enough)