QED.
FAQs: Purchasing Direct Obligations of Housing-Related GSEs
Click through to details on the Fed’s plan to buy Frannie paper. (The plan was announced last week, but the details have only now come through.)
Of particular note, via Alea (emphasis ours):
Will these operations be reserve neutral?
No, these operations will be financed through the creation of additional bank reserves.
How long will the program be in place?
The program to purchase up to $100 billion in GSE direct obligations will be in place for the next several quarters, subject to conditions in the market for such securities.
Or years, if Japan - or indeed chairman Bernanke’s academic musings - are anything to go by. As he wrote in 2004:
…the expectational and fiscal channels of quantitative easing, though not the portfolio substitution channel, require the central bank to make a credible commitment to not reverse its open-market operations, at least until certain conditions are met. Thus, this approach also poses communication challenges for monetary policy makers.
Forget not also that $100bn of GSE paper is just the start - the Fed is also slated to buy up to $500bn in MBS.
Related links:
The pictorial quantitative easing - FT Alphaville
If all else fails, devalue the dollar - FT Alphaville
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