"we will provide additional support.”’bernanke, page-40

"Bernanke (FED) is/were doing a mixture of two things.
1) printing cash to buy the debt
2) creating short term debt to purchase long term debt (Op Twist)"

These are both incorrect

1. The fed didn't print cash, they created reserves. There is no printing when the net financial assets is zero.

Fed Balance Sheet on QE Transaction
Liability: $85B Reserves
Asset: $85B MBS/Treasuries

2. The debt/liability on a QE transaction is a reserve and is on the Feds balance sheet. Reserves are not US govt debt.

A QE transaction is no different to normal FOMO transaction whereby the fed utilises reserves to meet its target interest rates. The only difference (QE 1 aside) is that they targeted size, not price.

From Mr Bernanke:

"if you think of the Fed’s balance sheet, when we buy securities, on the asset side of the balance sheet, we get the Treasury securities, or in the previous episode, mortgage-backed securities. On the liability side of the balance sheet, to balance that, we create reserves in the banking system. Now, what these reserves are is essentially deposits that commercial banks hold with the Fed, so sometimes you hear the Fed is printing money, that’s not really happening, the amount of cash in circulation is not changing. What’s happening is that banks are holding more and more reserves with the Fed."


When people refer to US printing money, the only entity that can do that is the US treasury and can do so autonomously through the Primary Dealers however the demand for US Treasuries has been and remains huge as evinced by the bid/cover on every auction.