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Comment by jordanb | Hacker News Reader

> The yield is determined by what the buyers demand

Your mistake is misunderstanding the power central banks have in managing these assets. The Fed can make the yield whatever it wants. The Fed potentially has reasons to let the yield be high but it's a choice.

> The Fed can distort the market by buying treasures themselves

What you call "distorting the market" the Fed would call something like "setting the parameters of the market".

Regardless if you're ideologically opposed to the Fed actively managing the market for treasuries. The fact is that they can, and they do.

> inflation and reduces credibility

So you admit that the Fed has this power but they just choose not to exercise it? In any case, the Treasury's actions "fuels inflation" every bit as much as any intervention the Fed might take in the bond market.

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To me it seems that you are ideologically opposed to anybody having the leverage over Fed, and believe Fed has overpowered magic.

There is no point repeating what maxglute wrote above.

> So you admit that the Fed has this power but they just choose not to exercise it?

Fed has the ability to buy as much treasuries as it wants. However, the power of that ability is limited, especially in situation like we are now, with rising inflation, high debt and dubious US credibility.

By the way the final thing you appear to not be understanding is that the Treasury had to borrow money to buy those yen. What do you think gets issued when the US Treasury borrows money?

You still have your blinders on.

Where did I say that the treasure had to borrow money?

It creates money out of thin air. What I implied is that creating too much money raises inflation and reduces its credibility, i.e. it can't do it in an unlimited manner.

You never said the Treasury has to borrow this money. I'm saying the Treasury has to borrow this money.

The Treasury does not have the ability to "create money out of thin air." That is not how any of this works. The treasury, when it buys something, does so either by using tax receipts or by issuing bonds. The tax receipts are spent. The Treasury is issuing bonds.

The Fed could create money and use it to buy Treasury bonds on the open market, as part of its Open Market Activities to manage interest rates (which is exactly what it would do if the Japanese sold US treasuries)

Ironically, the law actually forbids the Fed from buying bonds directly from the treasury, so the treasury has to float the bonds and then have the Fed buy them off the open market if it chooses to do so. So again you can see how insane this move by the US Treasury is.

I apologize, I have indeed mixed up the Fed and the Treasury in my last post.

To respond to your previous post:

I (naively?) thought that the Treasury had some Euro reserves lying around (like other central banks have USD reserves) and used those, not issuing new USD debt.

I agree that issuing new USD debt just to avoid the need for Japan to sell its USD debt (treasuries) would not reduce the pressure on USD debt.

Most probably it was mostly psychological market manipulation ('leaked' notes).

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