Posted: 6/3/2012 3:59:48 PM
Originally Posted by JEFFMARKETCAP
Everyone saying we need QE3
. That will be a short term boost for the market but will only make our debt problem worse and won't solve anything.
I dont know.
The FED can hold onto their portfolio indefinitely, until past duration if they wanted to. So QE3 would keep bond rates low which are different than bank interest rates.
The FED buying government bonds really helps the government, it keeps interest costs way down and makes a market for said bonds and puts a floor on the return for banks and funds.
So a bank can go and get FED money for literally no cost, go and leverage to buy government bonds earning a risk free return as long as the FED is keeping rates down, profiting both on the leveraged rate of return AND likely making a return on principal as rates go down the bonds previously bought go up in price.
I dont see how the FED can back out now or the whole thing collapses and I dont see that happening.