fed buying freddie and fannie securities

[tracer]

long time lurker, first time poster.

today the new york fed purchased 5 billion in fannie and freddie mortgage securities.

from what i can tell, it seems as if China and the US are playing chicken. Monday the Chinese devalue, today the fed purchases MBS'. Are these warning shots or the beginning of all out war (economic)?

http://www.newyorkfed.org/markets/po...play/index.cfm

[c1ue]

Re: fed buying freddie and fannie securities

Tracer,

Depends on your point of view.

It has long been the iTulip view that ultima ratio Fednum (the last argument of the Fed) would be inflation - through cash dropped by Helicopter Ben if necessary.

Now that the Fed rate is 1%, and multiple trillions of dollars have been lent, spent, and otherwise strewn in all FIRE economy directions without success, quantitative easing (newspeak for printing money) is the next logical step.

Thus in this context the latest Fed move is not for a negotiation with China, but rather part of a long chain of events extending for several years back.

China's move, on the other hand, is a clear (if small) reversal of a nearly 2 year trend of strengthening - unsurprisingly just as China's growth rates slow.

Another sign is that the Chicago economists are all pushing the idea of 'optimal production' - that those nations with extra production - i.e. China - should increase their internal demand and reduce export production for the good of themselves, the world, and the US...not necessarily in that order.

[tracer]

Re: fed buying freddie and fannie securities

i just find the timing of it to be suspect. the devaluation, meetings with the chinese, then them to the US, and then the open market operations. seems like these are directed at each other.

has it also not also been a long standing itulip idea that both the US and China cooperate on threat of economic MAD?

Do the Chinese feel like they are being taken for a ride with their investments and pushed a little? to me it's the timing of it all that seems strange. is one side ready to pull the plug?

[c1ue]

Re: fed buying freddie and fannie securities

It is certainly possible there is a little brinksmanship going on.

But ultimately the US and China do need each other - at the very least for the short term.

A sudden cessation of trade between the two would do neither country much good.

Ultimately the question of who needs the other most is going to be tested - until then it is all just fun and games...

[GRG55]

Re: fed buying freddie and fannie securities

i just find the timing of it to be suspect. the devaluation, meetings with the chinese, then them to the US, and then the open market operations. seems like these are directed at each other.

has it also not also been a long standing itulip idea that both the US and China cooperate on threat of economic MAD?

Do the Chinese feel like they are being taken for a ride with their investments and pushed a little? to me it's the timing of it all that seems strange. is one side ready to pull the plug?

You are probably reading too much into the timing. This move was telegraphed years in advance by Bernanke. Go back and have a look at his remedies for "getting out of deflation" in the Nov 2002 "helicopter speech". This was one of the explicit things he listed the Fed could do, once rates were at the zero bound.