How the Fed "Prints Money" in Secret Without QE

Tutorial: How the Fed "Prints Money" in Secret Without QE

Step 1: Understanding Treasury BuyBacks

• The US government has been engaging in Treasury BuyBacks, where they pay off old debts early to inject fresh liquidity into the financial system.
• Visit the website treasurydirect.gov to see details of the Treasury BuyBack operations.
• The government is borrowing extra money at the shortest end of the curve to pay off older, longer-term treasuries.
• This allows banks to offload less liquid debt for more liquid assets, easing liquidity in the financial system.
• While this is a temporary solution, it counts as a form of stealth QE.

Step 2: Rule Changes for Bank Leverage Ratios

• Banks are limited in the amount of treasuries they can hold on their balance sheets.
• A simple rule change by the Federal Reserve could allow banks to hold an unlimited amount of treasuries, essentially turning them into money printing machines for the government.
• Banks could loan money into existence by buying treasuries, with all the upside of interest payments but none of the risk.
• This rule change would significantly impact the financial system, making banks tools of the government.

Step 3: Balance Sheet Composition Shuffle

• The Federal Reserve has been adjusting the composition of its balance sheet without its total size growing.
• By selling certain types of securities and buying more long-term treasuries, the Fed injects liquidity into the system.
• This move helps address liquidity issues faced by banks, especially with longer-term treasuries.
• The Fed's actions in balancing its sheet composition contribute to stealth QE without the balance sheet visibly growing.

Conclusion:

• Treasury BuyBacks, rule changes for banks, and balance sheet composition adjustments are forms of stealth QE.
• While these methods provide temporary relief, a more permanent solution would involve changing rules for banks to buy unlimited treasuries.
• Understanding these tactics can help you navigate economic crises and protect your financial well-being.
• Stay informed about economic strategies and tactics through resources like the free newsletter "Letters from a Heretic" by Heresy Financial.