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>I’m aware that is the case. If they weren’t doing that, though, it would result in a massive uncontrolled level of tightening.

Yes, so they aren't 'removing liquidity' because they are still 'injecting liquidity' at literally every treasury auction (as they have been for 15 years). They are simply injecting less liquidity than they have been, which is my entire point.

>I don’t see how it’s somehow a bad thing that they are being intentional about the draw down.

It's not a bad thing and I never said it was. If you want ideology, I think the Fed shouldn't even be doing QT and probably never should (I think inflation is largely unrelated to this liquidity).

>If I were to buy a bond ETF, that fund would be doing the same thing on my behalf. I wouldn’t be “buying” bonds just because the underlying product is maintaining a fixed asset level/ratio.

In literal terms, the government holds an auction for Treasury debt at various maturities. ~20 primary dealers bid on those Treasuries. Those ~20 primary dealers know exactly how much The Fed needs to buy from them. That influences their bids. If The Fed weren't buying from those dealers, they would bid for higher rates. In no way do those dealers consider the amount of debt that has reached maturity that month, they only care about new issuances.

Isn't this pretty basic supply/demand stuff here? Are you also implying that demand for bond ETFs has no effect on the price of underlying bonds?

> Yes, so they aren't 'removing liquidity' because they are still 'injecting liquidity' at literally every treasury auction (as they have been for 15 years). They are simply injecting less liquidity than they have been, which is my entire point.

Your point is myopically focused on the bond market (and realistically the mortgage backed securities market as well).

The net amount of liquidity is going down. They are removing liquidity.

If I’m in a sinking ship and frantically pulling out buckets of water, the ship is still sinking even though I’m removing water. The fact that the fed has to continue to make bond purchases is a technicality that is irrelevant to anyone outside of the trading industry, and has little net effect of the Marco economy.

Like, when headlines come out saying “alphabet stock sell off on earning miss” do you tell everyone around you that technically there was a buyer on the other side of every one of those transactions?

I can't reply to your many new comments (guess this is a flamewar lol), but

>Liquidity is the amount of cash in the system relative the size of the market for assets. All else equal, adding or removing is the same as adding or removing cash.

Citation needed there buddy. Like you're arguing that the Fed is hoovering up too much cash? Wouldn't QE be anti-liquidity since it's net result is more cash goes to the Fed and QT be pro-liquidity since the opposite happens?

On this earth, liquidity is about transaction velocity, and The Fed taking transactions off the table (by being a guaranteed buyer at every auction) makes non-Fed transactions happen at lower prices. The end.

Anyway, enjoy the end of this flamewar.

> Wouldn't QE be anti-liquidity since it's net result is more cash goes to the Fed and QT be pro-liquidity since the opposite happens?

You have QE and QT backwards.

QE => fed builds up it’s balance sheet, it sends out cash.

QT => fed reduces its balance sheet, it gets cash back.

>On this earth, liquidity is about transaction velocity, and The Fed taking transactions off the table (by being a guaranteed buyer at every auction) makes non-Fed transactions happen at lower prices. The end.

Transaction velocity matters but it’s not everything. You’re myopically looking at one market, while the rest of us are talking about the systemic effects.

Transaction volume follows from the supply and demand for money. If you remove money from the system, you remove liquidity.

Look, you quoted a blatantly incorrect definition of QE/QT below. You clearly have no idea what you’re talking about.

You have QE/QT backwards. QE increases the money the Treasury sends to the Fed as coupon, which you said removes liquidity.

My entire point was that you are backwards in one of your two conflicting arguments.

EDIT: Maybe let's put it this way, the US pays off it's debt and no longer sends coupon payments to anyone. In your framework, that reduces 'liquidity.' But in what market exactly? The "systemic" market?

>The net amount of liquidity is going down. They are removing liquidity.

Yes, they are actively injecting less liquidity than they were before which is my original point?

Wouldn't removing liquidity be actually selling holdings?

EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?

> EDIT: Maybe this helps - you're taking for granted that the US Treasury auctions an increasingly large amount of Treasuries to cover an increasingly large amount of debt, but The Fed doesn't create that debt, that's a separate phenomenon. If the government balanced its budget for a year, does that create liquidity?

Do you actually understand what liquidity is?

Bonds are just one instrument the fed uses, the bond market isn’t the end all be all of open market operations. As I noted earlier, the fed was previously injecting liquidity by buying bonds and mortgages. What you’re talking about is tangential.

Liquidity is the amount of cash in the system relative the size of the market for assets. All else equal, adding or removing is the same as adding or removing cash.

The fed removes liquidity every time it receives a coupon payment or a bond matures (ie, it gets paid cash by the government). It could stop all open market operations and it would continue to remove liquidity from the system by virtue of that process. So, no, it doesn’t need to sell any assets in order to remove liquidity from the system, it simply needs to have lower net outflows of cash than its inflows of cash. As the headline states, since mid April it’s net outflows of cash have been $140 billion less than its inflows.

Wait, it's really hard to follow you here.

The Fed reduces liquidity by receiving coupon payments? So then, unless it's growing its balance sheet by the amount of those payments (i.e. returning that cash to market), it's removing liquidity?

Interesting take, I like the moxy.

EDIT: You have QE/QT backwards. QE increases the money the Treasury sends to the Fed as coupon, which you said removes liquidity.

My entire point was that you are backwards in one of your two conflicting arguments.

[0] https://en.wikipedia.org/wiki/Quantitative_easing?wprov=sfti...

> Quantitative easing (QE) is a monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets (e.g., municipal bonds, corporate bonds, stocks, etc.) in order to inject money into the economy to expand economic activity.