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SPDR S&P 500 ETF Message Board

  • freeentry001 freeentry001 Jun 17, 2014 2:21 PM Flag

    How Fed's 4 bln money goes to stock market

    Here is what happens, as I see it now. Every day, Federal Reserve traders are buying about $4 billion in long- term Treasurys and mortgage bonds from major trading houses. How does the Fed pay for those purchases? Simple. The Fed gives the seller a credit on their Federal Reserve statement. Remember, the Fed is a bank that can legally give away money. Meanwhile, the seller of bonds to the Fed can then withdraw some or all of that money, or leave it on deposit with the Fed.

    In other words, the Fed doesn’t pay anyone anything. All the Fed does is in essence create new money to give the seller. So let us follow that newly created money. The major dealers who sell the bonds to the Fed can take that money and buy other bonds in the open market. The new seller then gets paid with that newly created money, which in the bank clearing system, acts just the same as money you and I work for.

    Therefore, to make this really simple, the Fed creates $4 billion a day and eventually some of that money goes into equities

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