Um… lots of big words and phrases. What does this all mean?
The US has a lot of debt and the Fed is going to buy some of it. That’s about all we know. Beyond that? Honestly? … Nobody knows. A lot of money is going to be created to buy treasuries. This will push the interest rate on treasuries down. The theory is that this will spur additional lending and create economic growth. But why lend when you can just buy treasuries and sell them a few weeks later at a higher price? The banks don’t have to hold the treasuries to maturity. Therefore the interest rate on those treasuries is pretty meaningless. The rate of return is better assessed by the price change between buying and selling. Furthermore, the banks aren’t liquidity constrained, so the additional dollars won’t remove some sort of blockage in the financial system (this was arguably the case shortly after Lehman failed).
I hadn’t updated the chart in a while. Since nobody else seems to collate the data this way (which is odd, because this is straight out of corporate finance textbooks), I felt I should update it. Google Analytics tells me that some people find their way to me by searching for this image. But after making the image, I felt the need to provide some commentary.
UPDATE: I just Googled “maturity profile of us debt” and your reblog of this post was the 4th link. Bastard.
