Friday, March 13, 2015

Dirk Ehnts — How much financial assets can the Fed buy per year?

The Fed can create central bank money (reserves) by keystroke and in this manner acquire financial assets, thus reducing their supply and likely increasing the price of the remaining financial assets. Whether it was a good idea to do this will be the subject of some discussion in the future, I think. (Note that the Fed is not allowed to spend those reserves into the real economy directly by buying goods and services. That would be Treasury’s job, with its democratic oversight.)
I understand that the Bank of Japan is now buying equities as part of its QE program, too. It's been rumored that the Fed had a "plunge protection team" as part of the "Greenspan put."

econoblog 101
How much financial assets can the Fed buy per year?
Dirk Ehnts | Berlin School for Economics and Law

2 comments:

NeilW said...

The question that needs asking is why taking these assets and the income they generate out of the private sector is better than simply paying to employ people that don't have a job.

Creating more reserves and income for banks and capital gains for existing asset holders doesn't strike me as a good use of public money or a way of tackling inequality or encouraging investing in production.

Tom Hickey said...

That have it ass-backwards.