>The net amount of liquidity is going down. They are removing liquidity.
Yes, they are actively injecting less liquidity than they were before which is my original point?
Wouldn't removing liquidity be actually selling holdings?
EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?
> EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?
Do you actually understand what liquidity is?
Bonds are just one instrument the fed uses, the bond market isn’t the end all be all of open market operations. As I noted earlier, the fed was previously injecting liquidity by buying bonds and mortgages. What you’re talking about is tangential.
Liquidity is the amount of cash in the system relative the size of the market for assets. All else equal, adding or removing is the same as adding or removing cash.
The fed removes liquidity every time it receives a coupon payment or a bond matures (ie, it gets paid cash by the government). It could stop all open market operations and it would continue to remove liquidity from the system by virtue of that process. So, no, it doesn’t need to sell any assets in order to remove liquidity from the system, it simply needs to have lower net outflows of cash than its inflows of cash. As the headline states, since mid April it’s net outflows of cash have been $140 billion less than its inflows.
The Fed reduces liquidity by receiving coupon payments? So then, unless it's growing its balance sheet by the amount of those payments (i.e. returning that cash to market), it's removing liquidity?
Interesting take, I like the moxy.
EDIT: You have QE/QT backwards. QE increases the money the Treasury sends to the Fed as coupon, which you said removes liquidity.
My entire point was that you are backwards in one of your two conflicting arguments.
> Quantitative easing (QE) is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets (e.g., municipal bonds, corporate bonds, stocks, etc.) in order to inject money into the economy to expand economic activity.
Yes, they are actively injecting less liquidity than they were before which is my original point?
Wouldn't removing liquidity be actually selling holdings?
EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?