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Comment by JumpCrisscross | Hacker News Reader

> it will incur big financial losses that reduce the funds the central bank returns to the Treasury...expect officials to face tough questions from Capitol Hill to explain why they've lost billions of dollars on behalf of the American people

This isn't how it works.

No doubt, some will try to spin it that way. But the Fed balance sheet's gains and losses are an accounting artefact. (It will always make money when lowering rates. It will always lose money when raising them. This is close to mathematical fact.) The Fed can't go broke. Its operating metrics are inflation and unemployment.

> the selling would likely push mortgage rates up further, at a time the housing industry is already starting to groan under the pressure of rising rates

This is the real issue. But it's why we have an independent central bank. Nobody likes rate rises. It's why economies with weak institutions wind up hyper inflating. (No, we're not.)

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> Nobody likes rate rises

I like rate rises. And I'd like a central bank run by people who didn't default to "nobody likes rate rises" thinking.

Nah I prefer to park my cash in highly volatile equities indexes, a basket of commodities fluctuating madly due to pandemic related effects, or real estate as a hail mary that my wealth won't be inflated to hell. Having central bank rates at 5+% below inflation is basically a nice way of asking people to desperately pump money into any speculative asset they can find before the roaring fire behind it incenerates it.

The housing market is in a mega bubble. Why exactly does it need support to push it even further into madness?

The bigger the bubble the harder it pops. The harder it pops the more damage it does. The more damage it does the better it is for those who didn't buy into the madness. And I say this as a homeowner.

It would be ironic if a second housing bubble collapse causes a second financial crisis. It's entirely possible. It could start outside the US, in other Western countries where real estate prices have reached completely insane levels. In Canada, if there was a housing "bubble pop" then it would be catastrophic for the entire economy and financial system. It would not really be better even for those who didn't buy into the madness, unless they've been sitting on a hoard cash the whole time and buy at the right time. Most people never had the cash to buy into the madness, and if the music stops then they lose their job and a significant portion of their investment savings and are probably unable to take advantage of the opportunity. The rich always get richer, and the poor always get poorer, even in a financial crisis.

> Why exactly does [the housing market] need support ?

For "homebuilders, real estate agents, and other influential industry groups," there is unlikely an upper bound to the support they feel they need.

If the Fed "loses" money by buying high and selling low, it means dollars have been created with no mechanism by which they can be retired, because the Fed has no corresponding assets they could use to exchange them for. This creates permanent inflation/dilution of the currency.

> dollars have been created with no mechanism by which they can be retired, because the Fed has no corresponding assets they could use to exchange them for

Open market operations are one among many of the Fed's policy tools [1].

[1] https://www.frbsf.org/education/teacher-resources/what-is-th...

These are debt instruments. If the Fed buys UST, MBS, etc from the market, those assets will be serviced over time and the money will return to the Fed.

> those assets will be serviced over time and the money will return to the Fed

The comment I responded to [1] posited the Fed needing to engage in extraordinary tightening. Waiting for the debt to be repaid would be insufficient in that case. (Also, defaults unbalance the equation.)

In that case, the Fed would need to sell assets to draw cash out of the economy. My point was that if the Fed ran its balance sheet to zero, it would still have unlimited firepower in the form of slashing interest on reserves through zero, borrowing through repos and potentially even raising the reserve requirement. These are powerful tools. Too powerful for regular use, which is why the more-precise open market operations are preferred.

TL; DR Running out of room to tighten is not a problem for a central bank.

[1] https://news.ycombinator.com/item?id=31428385

how independent is it really if they are printing money to buy treasury bonds?

That seems like a non-sequitur to me. When "quantitative easing" occurs, the Fed buys Treasuries not because it lets the government spend more, but to reduce interest rates and encourage lending.

> how independent is it really if they are printing money to buy treasury bonds?

This article is literally about them printing money to buy private assets...

the fed is independent... of the government

their job is to protect the big banks, the rest is window dressing for TV-americans

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