Gld,
Talk to me here. Where am I wrong with this: this is from an article by Dave kranzler: To begin with, how exactly does one define “normalize” in reference to the Fed’s balance sheet? The Fed predictably held off raising rates again today sep 21, However, it said that beginning in October it would no longer re-invest proceeds from its Treasury and mortgage holdings and let the balance sheet “run off.”
Here’s the problem with letting the Treasuries and mortgage just mature: Treasuries never really “mature.” Rather, the maturities are “rolled forward” by refinancing the outstanding Treasuries due to mature. The Government also issues even more Treasurys to fund its reckless spending habits. Unless the Fed “reverse repos” the Treasurys right before they are refinanced by the Government, the money printed by the Fed to buy the Treasurys will remain in the banking system. I’m surprised no one has mentioned this minor little detail.
