“Nobody wants bonds because the yields are too low” is basically the same statement as “nobody goes to that restaurant because it’s too crowded.”
They now own $7 TRILLION of US govt bonds. This number was less than $100 billion before the GFC.
https://www.pgpf.org/blog/2021/01/the-federal-reserve-holds-...
So, yes, no investor wants bonds. Why would you buy something that's a guaranteed loss? It's increasingly just the Fed.
The Brigewater article would have been a lot stronger with that $7 T figure.
The government gets money from the Fed by selling them bonds in exchange for cash.
The Fed participates in open market operations, and one of the markets they participate in is the Treasury bond auction. But they participate in others as well: notably, they've recently been major participants in mortgage-backed securities and corporate debt markets. When they participate, they effectively inject cash into the system, since the amount they can pay is unlimited and subject only to their mandate to get full employment and limited inflation.
There's a lot of other subtleties involved as well; this isn't intended to be an exhaustive explanation.
> When they participate, they effectively inject cash into the system, since the amount they can pay is unlimited and subject only to their mandate to get full employment and limited inflation
In the case where they buy Treasury bonds, the government itself gets money that they can use as they see fit (I.e. stimulus checks), right? Whereas in this case they just "inject cash into the system" in general.
There's a big difference in dynamics between one firm giving money to another in a non-competitive situation (say, a union bargaining with a monopsony corporation) vs. a market of buyers trading with a market of sellers (say, the commodity or stock markets). You get efficient price discovery in the latter situation, you don't in the former. And the concern up-thread about the sheer scale of Fed purchases is that when the Fed becomes the only market participant, it starts to look an awful lot like the former situation, and market mechanisms break down.
Actually, by law the Fed can't buy bonds from the Treasury [1]. It has to buy them on the secondary market.
There seem to be way more bonds around than what the fed owns.
And when it’s not the fed, it’s (increasingly) just financial institutions buying their required allotments. We’re well on the path to a market like Japan, where nobody in their right mind actually goes out and invests in bonds, they just are required by law to have a certain amount on their balance sheets. This is why SLR is a big deal and if the fed does or doesn’t address it tomorrow, you can expect real chaos.
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Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”?
https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d...
> A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies...
> The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult.
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The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy
https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t...
> This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world.
> The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.
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The IMF already has a global reserve asset called the Special Drawing Rights:
https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14...
The Fed is…complicated.
The Federal Reserve Board of Governors is an agency of the executive branch (an “independent” agency, but not independent of the government, independent within the government, like the FCC, FTC, and a number of other boards, commissions, etc.)
The Federal Reserve System consists of a network of Federal Reserve Banks, each of which has a nine member board of directors, six of which are elected by member commercial banks, and three of which are selected by the Board of Governors.
But the actual setting of monetary policy is done by the Federal Reserve Open Market Committee, which has 12 members — the seven members of the Board of Governors, the President of the Federal Reserve Bank of New York, and four of the other Federal Reserve Bank Presidents.
There is a predetermined amount of the Fed dividends which gets payed to the constituent banks, and the rest is given back to the treasury.
The same happens for the European Central Bank, and AFAICT, most central banks.
the fed buys bonds from the treasury department, which must slowly repay them as if the fed were any other bondholder.
this provides a mechanism to reverse the creation of money, when bonds the fed holds are redeemed slightly more money than was created will be destroyed. Or they can destroy money by selling bonds on the open market earlier than that.
Or something like that