{"id":2297,"date":"2010-11-16T07:17:57","date_gmt":"2010-11-16T14:17:57","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=2297"},"modified":"2018-08-17T09:07:27","modified_gmt":"2018-08-17T13:07:27","slug":"the-qualitative-federal-reserve","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/11\/16\/the-qualitative-federal-reserve\/","title":{"rendered":"The qualitative Federal Reserve"},"content":{"rendered":"

Recall that the Federal Reserve announced a “quantitative easing” strategy earlier this month.\u00a0 The idea was to inject $600 billion into the U.S. economy by buying outstanding bonds.\u00a0 That, in turn, was supposed to create greater liquidity in the economy and drive down the value of the U.S. dollar.\u00a0 I argued at the time that the primary benefit of the Federal Reserve’s actions was qualitative, not quantitative.\u00a0 Why?<\/span><\/p>\n

My opinion was driven primarily by the fact that $600 billion was only slightly more money than was normally injected into the U.S. economy.\u00a0 Instead, I argued that the action was a signal to the trading partners of the United States that the nation was not going to forever underwrite their export economies by having an overvalued dollar.<\/span><\/p>\n

The Federal Reserve has, in fact,\u00a0initiated its “quantitative easing” strategy by buying tens of $billions of U.S. government debt in the open market.\u00a0 Normally such a huge increase in demand wrought over a fixed supply would result in rising prices of those bonds.\u00a0 The effect of that is to drive down the yields on those bonds.\u00a0 But lo, and behold, investors are selling U.S. government debt in such quantities that the value of U.S. government debt is actually falling.\u00a0 The interest rates, or yields, on those bonds are now at their highest level in more than three months.<\/span><\/p>\n

In other words, you heard it here first!\u00a0 Noting the success of my prediction is not very interesting, though.\u00a0 Instead, let’s consider:\u00a0why is this happening?<\/span><\/p>\n

1.\u00a0 One thought is that\u00a0some of the affected governments of the U.S. trading partners have been selling their reserves of U.S. government debt in order to compensate for “quantitative easing.”\u00a0 It is my intuition that this is roughly 65% likely.<\/span><\/p>\n

2.\u00a0 Another reason that debt is being sold off could be that investors are gaining more confidence in the U.S. economy.\u00a0 This would mean that they are selling off the “safe haven” of U.S. government debt where their cash was parked.\u00a0 However, these monies must be in cash, because if investors were now investing in equities, you would have expected a rise in the equity markets.\u00a0 And that just hasn’t happened.\u00a0 So this latter option I consider to be about 35% likely.<\/span><\/p>\n

Be well everyone!<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Recall that the Federal Reserve announced a “quantitative easing” strategy earlier this month.\u00a0 The idea was to inject $600 billion into the U.S. economy by buying outstanding bonds.\u00a0 That, in turn, was supposed to create greater liquidity in the economy and drive down the value of the U.S. dollar.\u00a0 I argued at the time that […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3,15],"tags":[],"class_list":["post-2297","post","type-post","status-publish","format-standard","hentry","category-the-blog","category-predictions"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2297","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=2297"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2297\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=2297"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=2297"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=2297"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}