Who Is Going To Buy All That Paper.
 

https://www.cnbc.com/2017/09/20/us-stocks-federal-reserve-announcement-balancesheet.html

The Fed announced today that they are going to start to roll back their 4.5T balance sheet of Treasuries and Mortgage backed securities starting in October 17. They kept interest rates a 1% with an indication that they will raise by .25% in December, and the 10 year Treasury climbed to 2.2%.


Leaving the interest rate at 1% indicates that the FED thinks the economy is tepid. Even at 2.2% the 10 year rate indicates that investors think the economy is still fragile.

So the question becomes who is going to be buying all of the paper the FED is going to unload? My guess based upon Jamie Dimon saying that the Wall Street banks have recovered and are healthy again is going to make them the prime buyer of all that paper. Clean the balance sheet to shore up the FED's position of credibility.

Demand always equals supply, so as the Fed drops bonds into the market supply increased, decreasing the cost of bonds, increasing the yields, making bonds more attractive, which then increases their price. Rates have been artificially low for a decade now. It's time for a little increase in rates which means prices drop. Inflation may be allowed to pick up a bit anyway. But all that paper is going to be bought by people worldwide chasing rates and trying to avoid risk. You might think they're fish flopping in a net - dead while still moving and yet not realizing they've already been caught - but they'll be lining up to get a piece of that cheap safe paper now and for a long time to come.

Nobody. They drop off the books as bonds mature or loans are paid off. This is very long-term. That’s how it was explained earlier when I heard about it anyway...

So if the FED rolls back it's balance sheet, they are strengthening the USD...

The key word in all of this is TRUST in the soundness of the currency whether it is the USD, the Yuan, EU or Yen....with the Chinese and their upcoming launch for an Oil Exchange where the settlement is in Yuan backed by Gold any fears about the Yuan will be allayed.

So you might say as a counter to the Chinee introducing a settlement of oil trades in Yuan the FED is rolling back their balance sheet to shore up TRUST in the viability of the USD.

If the FED sells off bonds the supply increases, which is in competition with the Treasury selling new bonds to cover the current deficit spending. The price of bonds decreases inversely means that interest rate increase... The result is that with higher interest rates the Debt Service level of the US govt GOES UP...meaning more of the income tax stream goes to pay on the debt and less goes for funding govt operations.. To keep the current status taxes will have to increase, govt services decreased or MORE MONEY WILL HAVE TO BE BORROWED?

Further with higher interest rates being paid, it slows the economy...which will decrease the income tax cash stream.

Anyway ya want to cut it we always come back to the unintended consequences of Catch 22.

An increasing strong dollar is what will crash the system. Ends foreign borrowing.