Why assume bond redemptions go only to the Fed? If Treasury redeems private bond holders out of the TGA, aren't reserves shifted to private banks where they survive, not disappear as claimed in the blog? Is it wrong to say that reserves are only destroyed if the TGA pays the Fed and the Fed chooses not to reinvest for arbitrary, fickle, psychological, policy reasons, not any sort of necessity?
Yes, it is only when the Fed chooses not to roll over maturing Treasuries that its balance sheet shrinks. You are correct that if the Treasury repays other bondholders, then TGA balances become reserve balances and there is no contraction. In these T accounts I was trying to track the mechanics of contraction *per se*, so pulled out only one piece of what is going on.
Oh daniel, you start pds and banks, I confuse, sorry, you mean TS in Fed balance sheet, sorry, you are right. ( all of problem is result from zoltan schematization :) )
The Treasuries that mature aren't the new ones that were just sold to the dealers (and on to the market). They're the old ones that were already sitting on the Fed's balance sheet.
"contracting the Fed's balance sheet", which may not mean any change in reserves, at least initially tho' at some point TGA will contract sufficiently that reserves will have to contract.
Do you know why the pdfs of Zoltan's Dispatches are no longer available at the original links? I only see a blank page when I click on them.
That's too bad, and thanks for letting me know. I have removed the links for now.
Why assume bond redemptions go only to the Fed? If Treasury redeems private bond holders out of the TGA, aren't reserves shifted to private banks where they survive, not disappear as claimed in the blog? Is it wrong to say that reserves are only destroyed if the TGA pays the Fed and the Fed chooses not to reinvest for arbitrary, fickle, psychological, policy reasons, not any sort of necessity?
Yes, it is only when the Fed chooses not to roll over maturing Treasuries that its balance sheet shrinks. You are correct that if the Treasury repays other bondholders, then TGA balances become reserve balances and there is no contraction. In these T accounts I was trying to track the mechanics of contraction *per se*, so pulled out only one piece of what is going on.
Hello,
I dont understand why Fed balance sheet will contract
Primary dealers buys this TS from Treasury
when The Treasury draws on its TGA deposits to pay down maturing securities and this result in increasing reserves.
Dr. Engin YILMAZ
No, it doesn't increase reserves. When the Treasury pays down maturing securities, TGA deposits are destroyed without creating a new liability.
Oh daniel, you start pds and banks, I confuse, sorry, you mean TS in Fed balance sheet, sorry, you are right. ( all of problem is result from zoltan schematization :) )
The Treasuries that mature aren't the new ones that were just sold to the dealers (and on to the market). They're the old ones that were already sitting on the Fed's balance sheet.
"contracting the Fed's balance sheet", which may not mean any change in reserves, at least initially tho' at some point TGA will contract sufficiently that reserves will have to contract.