What Will Happen to the Economy When the Federal Reserve Stops Buying Bonds?

Chuck Butler does a daily newsletter called the Daily Pfennig - the German word for penny - and he talked about a Minsky moment in bonds in yesterday's newsletter.

Hyman Minsky who has passed away was a brilliant economist and he came up with a formula that basically describes how a collapse happens. So Chuck Butler wrote:

"What could cause a Minsky Moment in bonds? Well, think about this for a minute. The U.S. Fed has been a very large bond buyer since the first round of quantitative easing began in 2009. They bought boatloads of both U.S. Treasury bonds and Mortgage-backed bonds. Look at their balance sheet, it increased five-fold to over $4.6 Trillion in 2017."

Now, they bought these bonds in order to throw money into the economy. They pull the bonds out, they throw the cash in. So this is pouring money into the economy. This is called quantitative easing. And they said that there would be a tapering of this in 2015, and there was. They slowed down their purchases but they continued to buy them and then at the end of last year - 2017 - they said in 2018 they were not going to buy any more bonds.

And guess what? It's next year, so the Fed apparently isn't buying bonds. And Chuck Butler says...

"The question was... "Who is going to take the Fed's place"? Well, there has been no one, to date, and the 10-year Treasury yield has risen from 2.05% on Sept. 8, 2017, to 2.65% on Jan. 18, 2018. That's just the beginning, in my opinion! The Fed may not be the only "no show" at the auction window. "

In other words, it might not just be the Fed who's not buying US Treasuries. And he goes on to say...

"China is considering slowing down their Treasury purchases or halting them altogether! Guess who else has been slowing down their Treasury purchases? Saudi Arabia, and Russia... This is the Minsky Moment for bonds... no big Central Bank buying, will drive yields much higher. It could easily be followed with another Minsky Moment for stocks."

And then Chuck Butler says...

"And then this morning I saw this head of interest rate strategy at Wells Fargo saying the same thing I said last week! Let's listen in to what he had to say... 'Michael Schumacher's chief concern right now: Who's going to buy all those extra Treasury notes? They [people] are worried about Treasury issuance going up, up, up'."

Well, this is what's going to happen as a result of the trillion and a half dollar borrowing that the federal government has to do to support the GOP tax scam. We all discussed this a month or so ago. The Republicans said' "we're going to borrow a trillion and a half dollars and we're going to give that money to billionaires like the Koch brothers." And everybody was saying, "oh, no, we can't borrow, oh, well, okay, I guess it's okay."

That's how the Republicans dealt with it: "no we, don't like that, oh well, I guess we do, it's going to the Koch brothers, it's going to the Mercers, it's going to the billionaires, so it's fine."

A trillion and a half dollars. $1,500 billion. So the Treasury has to issue a trillion and a half dollars worth of bonds. The Fed is trying to unload $4.6 trillion worth of bonds. Russia, Saudi Arabia and China are slowing down their bond purchases.

This could do it.


gmiklashek950's picture
gmiklashek950 4 years 44 weeks ago

OK, so nobody wants to buy US govt. debt, then what?

Scotty11 4 years 44 weeks ago

Lost me on this one.

So, the major players slow down/stop their (US) Bond buying

Is this an opportunity to buy at a lower price? a time to offload what we have? or a time to hold until the value increases to a point that we sell for a goodly profit?

Riverplunge's picture
Riverplunge 4 years 44 weeks ago

They want to crash every safety program and end up starting trouble with other countries that bought our bonds. This may be the end of the US dollar. Sickening..

Worn out door knobs's picture
Worn out door knobs 4 years 44 weeks ago

My friends, I’m so excited. I received my first paycheck today under President Trumps tax cut. I make $200.00 more per pay check. I’m paid twice a month, so $400.00 more per month. $4,800 more a year....Thank you President Trump...

2950-10K's picture
2950-10K 4 years 44 weeks ago

With the fed maxing out on bond purchases and rates near historic lows, what ability does it have left to fix things after the inevitable crash coming? .....zero!

For god sakes the Fed has put itself in this powerless position because of the last great Kochpublican recession....good luck getting out of a Kochpublican Depression.

I can't believe responsible economists aren't sounding the alarm about current runaway market inflation....fools gold only becomes real if you cash out quick. It's going to be ugly as hell....better get those auto shut down market circut breakers ready!

Oldskoold's picture
Oldskoold 4 years 44 weeks ago

Yep. You must have been hit in the head with a door knob when young and multiple times too! #4

2950-10K's picture
2950-10K 4 years 44 weeks ago

The Dems missed a great chance to get Bernie's "true populous" message out to a National audience last night...what a fantastic speech he gave! Everyone should share and post it on facebook.

2950-10K's picture
2950-10K 4 years 44 weeks ago

Nice try Door Knob...the IRS hasn't even released withholding guidelines yet..changes won't be implemented until next month...BTW: You're from Russia anyway..LMAO!

Oldskoold's picture
Oldskoold 4 years 44 weeks ago

# 5 It's too late. The Koolaid has taken it's toll on the 25%. They wouldn't listen to God "it's self" if they were visited. This is the culmination of a slow coup that stole the hearts and minds of the lemmings that won't think for themselves. I still consider the religious coup worse. When the 25% of the electorate, as indoctinated as they are, think God is on their side, it is very dangerous. And, that was the vehicle of the coup. Religon! George Bush the younger started this and the Republicans lost control to a crime family!

jefflisse's picture
jefflisse 4 years 44 weeks ago

Shits about to hit the fan! Maybe those preppers out in the sticks have the right idea...

DHBranski's picture
DHBranski 4 years 44 weeks ago

So, the economy will collapse, and the end of the US will come at the hands of our oligarchs?

DHBranski's picture
DHBranski 4 years 44 weeks ago

You exaggerate the role of religion in politics. People are very skilled at separating the two. Consider how America's agenda -- pro-war, anti-poor -- is the exact opposite of Christ's teachings.

changeX's picture
changeX 4 years 44 weeks ago

What already happened to the economy?

Ding Ding, doorbell, absolute rubbish, laddie! Wait until you find out they are paying you in rupees and it is probably one time. Remember, it was a socialist tax increase on all of us to give those at the top welfare. At least now it seems some can afford the psychotherapy that they need.

Willie W's picture
Willie W 4 years 44 weeks ago

@ # 4 Door knob.

Trump actually referred to your windfall as a pay raise. If you're expecting a nice tax refund next year, remember...You have $4,800 less withholding to work with. Even with a lower tax owed, I think many will be disappointed when they see how much money is actually going to be returned..

Worn out door knobs's picture
Worn out door knobs 4 years 44 weeks ago

2950-10k No my friend, I received my increase on my paycheck Wednesday. Also, I’m from Mexico, not Russia.

jefflisse's picture
jefflisse 4 years 44 weeks ago


You ended your #11 post with a question mark..?
It should have been ended with an exclamation point..!

jefflisse's picture
jefflisse 4 years 44 weeks ago

Look at the bright side...

An complete economic collapse/disaster would still be better than a " black swan" disaster.
Although a cosmic or geological disaster is real possibility too!

But fear not.. The Sociopaths who are bringing us this economic disaster, have a contingency plan [for themselves].
They plan on living under the Denver Airport (and other plush bunkers around the globe) and riding it all out..
Then (when its safe) they can re-emerge and rule us ( the struggling survivors) once again...

"Chuckling" Ohh no! Just another conspiracy theory!

Dianereynolds's picture
Dianereynolds 4 years 44 weeks ago

@#8 road runner,

Actually, you are the one who is incorrect. The IRS had the withholding tables published Jan 12.


@#14 Willie,

Help me understand why an increase in total income is not a benefit to workers?

@ Thom Hartmann,

As an on/off listener during eight years Obama was adding $10 billion to the debt you told your listeners over and over and over again that debt was a good thing using Japan and other high debt/GNP countries as an example. You also told us to invest everything is Treasury Bonds as they have never defaulted and were backed by the good faith of the US government. Suddenly, it’s a bad thing?

I understand leftie/socialists hating President Trump’s the State of the Union speech that goes without saying but this poll may actually point out just how far out of touch with mainstream Americans you are.

“A CBS News poll found that three-quarters of Americans who watched President Trump’s State of the Union yesterday approved of the address. Eight out of ten viewers said they felt the speech was trying to unite rather than divide the country. A full 97 percent of Republicans approved of the speech, as did 72 percent of independents and 43 percent of Democrats. The positive rating from independents is a good indication that Trump’s address succeeded in striking a bipartisan, unifying tone.

Sixty-five percent of viewers said the speech made them feel proud, and another 35 percent said they felt safer, while just 14 percent felt scared and 21 percent felt angry.”


Riverplunge's picture
Riverplunge 4 years 44 weeks ago
  • A complete economic collapse means living in a 3rd world country of absolute misery and danger.
  • The US Dollar will no longer be used since it cannot be depended upon. We won't be number one in the world. We may even be last.
  • So you can put away all your military toys. You won't be able to afford them. The rich won't pay for them out of their pockets - How do you think they became rich in the first place?? By being generous??
  • It will also make it a cake walk for some other country to take over.
  • Only the rich will be unaffected by crime and murders. They will flee safely with their money being stored overseas.
Kend's picture
Kend 4 years 44 weeks ago

It must be difficult to be a Liberal in America these days. Everything is going so well. Almost no unemployment. Foreign money pouring in from all over the world. Tax cuts for hard working Americans. A president finally fighting for minority's and Daca kids. America first policies are working extremely well. Be honest with yourselves, you may not like Trump but what he is doing is working. You are just looking foolish by making up stuff like The Russian ghost and economic crashes. Diane is right, most Americans like what is happening, and why wouldn't they.

Legend 4 years 44 weeks ago

Kend, Obama gave us the good economy and low unemployment. Trump is living off of the Obama economy. Look at what Obama got from the Republicans in 2008. So Trump gave massive tax cuts to the super wealthy. Do you really think that will help the economy? It never has in the past. Republicans defund CHIP and then take credit when they fund it. Republicans cancel DACA and use it as a gambling chip. They will never pass DACA because they know it is 800000 Democrats. If the Russian thing is nothing why is Nunes making a fool of himself and the Republican party?

Willie W's picture
Willie W 4 years 44 weeks ago

# 18 Diane,

Increasing one's total income is a good thing. Manipulating your tax withholding to get it seems a little shady. The government is counting on the influx of returning industries to recoup their funds. I just think they're being way too optimistic. Spending will have to be cut somewhere else later. However, we will be told repeatedly that all is working out as planned, even when it's not. I'm afraid we'll all be paying it back later, one way or another.

Dianereynolds's picture
Dianereynolds 4 years 44 weeks ago

@#22 Willie,

I have an idea. If it makes you feel better, and I will extend this offer to any leftie/socialists out there, send me any increased income you will receive and I will find a home for it. I know it is "crumbs" a "token" and a"pitance" but I will still happily accept it and put it to use to improve the economy. I know this would drive Rick Steve crazy as it is other peoples money but I will be thrilled to take it anyway.

ckrob's picture
ckrob 4 years 44 weeks ago

Off topic:

The false assumption that the private sector can always do a task more cheaply than government ignores that capitalism's motto is not "profit over all," it is "more profit above all else."

chuckle8's picture
chuckle8 4 years 44 weeks ago

Kend & DianeR, I have a question. What great policy change did tRump make to make the unemployment numbers seem so good? I know of one. It used to be that full employment was considered to 3.8% unemployment. Now the trumpsters are calling 4.2% full employment. Also, they have changed the way they measure unemployment. Actually it seems they have changed which of the 9 or so measurements of unemployment they report. It should also be of concern what Steve Keen said. He said the employment/unemployment numbers have been mirror images of each other. The latest numbers aren't.

changeX's picture
changeX 4 years 44 weeks ago

Similar as in 2008 the rightie/socialists will use tax dollars. Instead this time to cover the purchase of Bonds in place of the Federal Reserve, Russia, Saudi Arabia, and China in any amount necessary to a) keep the bubble from bursting and b) keep the delusional ever still deluded. Will they purchase cryptocurrency instead?

chuckle8's picture
chuckle8 4 years 44 weeks ago

changeX - I thought the whole point of this thread was there were no tax dollars available. Since there are no tax dollars we have to sell bonds worth $1.5 trillion to give to the 1%.

chuckle8's picture
chuckle8 4 years 44 weeks ago

DianeR -- I am here to help you understand why an increase in disposable income is not good for workers and everyone else. It seems that the best economic metric to determine how well an economic policy is helping its citizenry is economic inequality.

I use the world "helping" to mean such things as lowering suicides, lowering homicides, reducing teenage pregnancies, longevity etc. Richard Wilkinson in his book "The Spirit Level" fills in the "etc." part.

With that in mind one specific example of the increase in disposable income not being good for workers is the Walmart(?) numbers Thom mentioned. For every $10 benefit the tax scam gave to Walmart, the worker received $0.09. It seems to me that would increase economic inequality.

chuckle8's picture
chuckle8 4 years 44 weeks ago

DianeR -- With regard to the polls no one on the left has ever said the tRump was not good at being a con man.

chuckle8's picture
chuckle8 4 years 44 weeks ago

Oh yeah, a convicted con man (tRump University).

Dianereynolds's picture
Dianereynolds 4 years 44 weeks ago


I will try to phrase this delicately.

You may have written the three most nonsensical paragraphs I have ever read in my entire life.

It is clear you have been poisoned and your chance of recovery may be very dim if you stay on this path.

chuckle8's picture
chuckle8 4 years 44 weeks ago

DianeR -- It is such a relief for you to mention the debt/GDP ratio instead of the debt. Debt is both good and bad. Good debt is often called investment. To just say that the debt is $20 trillion ignores the fact that how much of it is good debt. The ratio of debt/GDP is a measure of what kind of debt it is. Bad debt increases the ratio, and bad debt decreases it.

In the February 22, 2016 edition of Time magazine they discuss the two kinds of debt. Obama's debt provided the best ratio of debt/GDP in the world. However, it was still bad (an increase of 11%). It seems that the policies of the tax scam, based on all previous attempts of supply side economics, will make the 11% look like heaven. A difficulty of analyzing all this is that economic policies on average take 7 years to effect the economy. For example, stimulus packages take a few months to have an effect, the GI Bill took about 20 years to have an effect, and the Head Start program took 40 years to show its effect. Of course, the right wing and Phyllis Schafly (on Thom's program) said that since the study was 40 years old the results did not mean anything.

chuckle8's picture
chuckle8 4 years 44 weeks ago

DianeR -- My mind has been poisoned by scientific study. You should really try it sometime. I do not think facts will hurt you that much.

changeX's picture
changeX 4 years 44 weeks ago

chuckle8 #27

Great point thanks. I understood the point of this thread to be:

What Will Happen to the Economy When the Federal Reserve Stops Buying Bonds?

i.e. what will happen to our economy if "they" do not want to invest in US Bonds at the particular moment or, using your example, if they can get not $1.5 but $11.5 trillion given to "them" by who knows what or where.

changeX's picture
changeX 4 years 43 weeks ago

Ding dong door bell.

Paul Ryan Deletes Tweet Connecting Woman’s Tiny Raise to Tax Cut.

Aunt Clara


changeX's picture
changeX 4 years 43 weeks ago

Dena Dietrich once said "It's not nice to fool Mother Nature".

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