breaking news- us treasury/dollar rises!, page-21

John I get your example, however at the end of your example what is the fed's balance sheet at?

back to zero right? (if i get it, heh)

so
UST issued:
-1B cash
+1B UST

UST sold to china:
+1B bash
-1B UST

But look at the fed's balance sheet now..


I can't see that balance sheet coming down too much?

Currently the states (treasury) is in the position that to service those coupon payments they need to continue to monetise (issue treasuries to the fed via the pd's for an nice fat spread).

So in your current situation where (50%?) of issued UST goes to the Fed balance sheet, and only half of the yearly states public spend is covered by tax/gov revenue.. isn't this an ongoing pattern of money creation?

(yes i agree the fed selling down the balance sheet is cash destruction, or reducing the money supply).

Or to put another way: Increasing the money supply of a ccy decreases its purchasing power. QE that is encouraging the issue of new bonds that otherwise wouldn't have a market (at that yield) is increasing the money supply beyond the natural demand.