How does Quantitative Easing work?
The functional execution of QE has me a little concerned. As the yield on Treasuries drops, the incentive to hold them or buy more also drops. When the yield is at zero, the incentive is debatable. The flip side of the coin is that the lower the rates required by the purchasers, the better the deal that the Treasury is getting on the money.
Am I crazy or is there a feedback loop at play here, whereby the government is incentivized to let the system begin to crumble if only to be able to finance its way out of the hole it’s in? Sounds like something Soros would key in to. Theory of Reflexivity or something…
I raise the question only because there’s a lot of talk lately of central banks, especially the Chinese, not wanting to own more Treasuries.
If your minions are starting to believe they don’t need you any more, how do you put them back in line? You undermine their confidence of course.
