A decade after the crisis, The Fed plans to shrink its bond holdings

Color me completely skeptical - not that it won&#x27;t happen (though it might not) but that it will mean what the WSJ seems to say.<p>One of the things about the &quot;winding&quot; which started all this was that it involved bailing out institutions considered too-back-to-fail.<p>And that bailing out altogether meant that such institutions had the &quot;full faith and credit of the US government&quot;, just like what&#x27;s printed on dollar bills and these institutions could effectively print money more or less like the Fed.<p>So the Fed itself has said it will start selling it&#x27;s particular portfolio, with the proviso that it will stop if anything seems to be going wrong. Which is to say that this is &quot;privatizing the bubble&quot; since the too-big-to-fail institutions can effectively &quot;print&quot; any money that leaves via the Fed&#x27;s action. Obviously, there are micro ways that this will play out, this will change the color and emphasis of the &quot;Greenspan Put&quot; or it&#x27;s many latter-day equivalents but those are small adjustments, not fundamental shifts - ie, we&#x27;re still in bubble-nomics, well, unless the Fed really fumbles this.

Not the usual story you see on HN... but it&#x27;s still interesting - if the trading of US debt is the kind of thing that gets you going.<p>That said, it <i>does</i> get me going. What this story is telling you is:<p>1) Futures on US treasury bonds are going to fall, as the DOT unloads <i>42 million</i> of them. This is a lot, and it will affect the value of your investments&#x2F;401k in a non-trivial way.<p>2) Equities(and futures based on them, e.g. ES&#x2F;NQ&#x2F;DJIA) are going to rise, simply due to their inverse relationship with treasury bonds.<p>3) Commodities(such as oil, gasoline, natural gas) will increase in price.<p>4) Foreign interests will have a &quot;fire sale&quot; of US debt available to them for purchase. Whether or not they will buy it is anyone&#x27;s guess. I&#x27;d say &quot;if you know, you should tell us!&quot;, but we all know that won&#x27;t happen.<p>What does this mean for the average investor? Short on bonds, long on equities. Your 401k or other managed investment portfolio is likely taking this approach on your behalf anyway(if they aren&#x27;t, fire them and find one that does).<p>Edit: If you want to know what these particular financial instruments are and how they work(bonds and how they are traded), see here: <a href="https:&#x2F;&#x2F;www.cmegroup.com&#x2F;education&#x2F;files&#x2F;understanding-treasury-futures.pdf" rel="nofollow">https:&#x2F;&#x2F;www.cmegroup.com&#x2F;education&#x2F;files&#x2F;understanding-treas...</a>

Same article without the paywall: <a href="http:&#x2F;&#x2F;www.msn.com&#x2F;en-us&#x2F;money&#x2F;markets&#x2F;the-fed-a-decade-after-the-crisis-is-about-to-embark-on-the-great-unwinding&#x2F;ar-AAs8lnh" rel="nofollow">http:&#x2F;&#x2F;www.msn.com&#x2F;en-us&#x2F;money&#x2F;markets&#x2F;the-fed-a-decade-afte...</a>

Since 2008, given all the failed past predictions about the fed being unable to wind-down its balance sheet, failed predictions of TARP being a failure, failed predictions that rising interest rates would hurt the US economy, and failed predictions about how the fed ending QE would hurt the economy, I have every reason to believe, even without knowing all the details of this story or having any claim to clairvoyance, that this too is nothing to worry about and will pass like all the other doom and gloom premonitions. Against all odds, policy makers keep pulling through, defying predictions of doom. It doesn&#x27;t always make sense, but sometimes you have to suspend skepticism and put your faith in IQ and policy. The EMH also stipulates that this is wind-down is already priced into the bond and stock markets, so betting against the bond market in anticipation of these bonds flooding the market, is far from a sure-fire strategy.

Good podcast on this topic: <a href="https:&#x2F;&#x2F;itunes.apple.com&#x2F;us&#x2F;podcast&#x2F;the-lara-murphy-show&#x2F;id1084202846?mt=2&amp;i=1000391675152" rel="nofollow">https:&#x2F;&#x2F;itunes.apple.com&#x2F;us&#x2F;podcast&#x2F;the-lara-murphy-show&#x2F;id1...</a>

A blendle link for those with Blendle : <a href="https:&#x2F;&#x2F;blendle.com&#x2F;i&#x2F;the-wall-street-journal&#x2F;the-fed-bracesfor-the-great-unwinding&#x2F;bnl-wallstreetjournal840-20170919-1_4?sharer=eyJ2ZXJzaW9uIjoiMSIsInVpZCI6ImNodWNrbWNtYW5pcyIsIml0ZW1faWQiOiJibmwtd2FsbHN0cmVldGpvdXJuYWw4NDAtMjAxNzA5MTktMV80In0%3D" rel="nofollow">https:&#x2F;&#x2F;blendle.com&#x2F;i&#x2F;the-wall-street-journal&#x2F;the-fed-braces...</a><p>Pretty much no matter what it is going to be something economists are going to debate for the next 100 years :-)

It seems to me that it&#x27;s unusual to see something be cleaned up, without that something also being totally destroyed. I hope this goes well!

I do not believe they will do this. The US has 20 trillion in debt right now. If you notch the interest rate up just a little bit, you will create chaos in the financial markets.