Comments by "seneca983" (@seneca983) on "Quantitative Tightening Explained (and What it Means for Markets)" video.

No, typically those assets are government bonds (though sometimes more "exotic" assets like corporate bonds are bought).
3
"Banks are not restricted in credit creation by the amount of reserves they have" No, that's incorrect. They are restricted. In the US there's a 10% reserve requirement for banks which means that they can't more than 10x the deposits as their liabilities compared to the amount of reserves they have. If a bank is at that 10% limit and wants to make a new loan it needs to get new reserves from somewhere.
3
@schumanhuman "In other words lending creates reserves" No, that's incorrect. It creates new deposit money but it doesn't create reserves.
2
@schumanhuman "inflation is negatively correlated with the total use of QE" Of course, because QE is used to fight disinflation/deflation. Similarly e.g. the use of antibiotics is positively correlated with bacterial infections but that doesn't mean that antibiotics don't help with those.
2
Typically any bond payments would be income for the central bank. This income from money creation is called "seigniorage" as another commenter above noted. Some of it is used to pay for the expenses that the central bank accrues in it's operations (such as salary for staff) but most is given to the treasury on some timescale. Sometimes it can also be used to increase the amount of forex reserves. However, in this case if the intention is to tighten then I'd guess the money is just destroyed.
2
"Why would the Federal Reserve be tightening to reduce demand for goods even further?" Because then there are less dollars available to buy those goods.
2
If the intention is to tighten then they basically destroy it.
1
@Rapture-2045 Yeah, the security is sold on the open market. Meant that the money they get from is destroyed if the intention is to tighten.
1
@schumanhuman "today the new loan creates deposits" The part I quoted from your comment didn't say a loan creates deposits but rather it said it creates reserves which is incorrect. It does create deposits but not reserves.
1
@schumanhuman "It creates deposits then the overdraught at the central bank creates new reserves." It doesn't automatically create new reserves. If the bank was at the reserve requirement limit it must then acquire new reserves from somewhere (or face a penalty) and getting those reserves isn't free.
1
@schumanhuman "It has created new reserves at another bank where the loaned money is deposited ie the seller of the property" That doesn't create new reserves. If the deposits are transferred to another bank in a sale, as in your example, then the bank from which the deposits are transferred must transfer that much reserves to the receiving bank. For that it either needs to have enough reserves to do that or get more reserves from somewhere (which isn't free).
1
@schumanhuman I.e. no new reserves are created in the transaction and the total amount of reserves available limits loans in the aggregate.
1
@schumanhuman "But if the entire system is short of reserves the bank will sell bonds to the central bank" The central bank has no obligation to buy bonds. In the case of the US the Fed has a bond trader who buys or sells such that the lending rates between banks match the policy rate or in the case of QE they might just buy a certain amount of bonds they have decided on. "or borrow through the discount window, so the reserve requirement itself it has no real effect on aggregate lending." They may borrow through the discount window but this isn't free; it's actually on average more expensive than borrowing from other banks. Thus the reserve requirement (in combination with other central bank policies) does have an effect on aggregate lending.
1
@schumanhuman "Yes there is a fee, but as long as the margin is sufficient, the bank will lend. So in reality this has a negligible effect on total lending, it's a cost not an absolute restraint." The restraint doesn't have to be absolute to be very significant. But this does affect how much banks deem it worth to lend (and since these loans have to be overcollateralized the bank also needs to have enough bonds to cover it). That means that things like QE or QT can still have a large effect on lending. "I don't think there is any evidence that central banks which have no reserve requirements (Canada, Sweden) lend more, or are any more or less stable, than ones who do not." I'm not claiming they are less stable. I only used the example of reserve requirements because it makes the limits on lending (and how they are affected by QE/QT) more clear.
1
@schumanhuman "The country which has most deployed QE is of course Japan" How do you measure this? The US nearly doubled its monetary base in a short amount of time during the pandemic which to me would sound like larger amount of QE. My earlier comments were more about how the amount of base money can constrain bank lending from above so this is a slightly different thing. However, I still claim that QE is certainly not deflationary and can always raise at least inflation to any desired level. In the case of Japan the inflation expectations (which were also mentioned in this video) had fallen so low that a large QE was needed to boost inflation. But we saw that when Abe replaced the central bank governor (Shirakawa -> Kuroda) inflation in Japan was successfully boosted though maybe not enough.
1
"QE is essentially money-printing (which it is)" But you could also say that even normal monetary policy is money printing. After all that's what the central banks job, i.e. monetary policy, is, deciding how much money to print (or in some rarer cases, how much money to destroy).
1
@tiempo9855 The paragraph you quoted doesn't say lending isn't constrained by reserves and the amount of reserves clearly sets a hard upper limit on lending when there's a reserve requirement.
1