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Don’t be fooled by Fed’s taper talk


Mises Institute/Brendan Brown

Repost from 8-25-2021

graphic image of the White House with piles of greenbacks in front of it


“Some commentators suggest that long-term rates might rise due to less Fed purchases of government bonds. This is implausible, given that the prices of these are determined by supply and demand related to the stock of bonds outstanding. The Fed will still be a huge holder of this stock, hence continuing to weigh down on the so-called term premium.”

USAGOLD note: Under the functioning fait accompli, as long as the federal government’s borrowing needs exceed market demand, the Fed fills the gaps with its own purchases of U.S. Treasuries. The Wall Street Journal recently reported that the Fed has purchased 74.6% of the federal debt issued since the pandemic began. Under what circumstances, the logical observer might ask, would any of that change? Brown, a hedge fund manager, ends by raising the specter of Afghanistan: “History will judge,” he says, “whether the advice on monetary matters which the Biden administration is seeking and acting on is any better or worse than on Afghanistan.”

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