Why bond price go up when Fed buys bonds?
There are two things going on here. The Treasury issues and sells bonds and the Federal Reserve is in charge of the currency. The Treasury borrows money and the Federal Reserve exchanges like for like.
At a Treasury auction, the buyer is a person or institution with savings to purchase the bond. The purchase removes money from circulation (the government is going to spend it) The selling process is an auction. If there are more buyers than bonds, the price for the bond increases and in lock step, the interest rate decreases.
The other thing happening is when the Federal Reserve buys a bond. The Treasury prints the paper and the Federal Reserve pays for it with printed dollars. In this simplified form, it is a zero sum game and makes no real sense. Why would you create it and then sell it back to yourself?
These two things seem unrelated but carry it forward one step. If China decided that it wanted to sell the bonds it holds back to the US and there were no buyers, the bonds would drop in price until they found a buyer. If say, a previously issued bond was at par and paying 4% interest was offered for sale, and buyers demanded 8%, the bond would drop in value by 50%. This would be very observable to the buyers at present Treasury auctions and they too would want 8%. So the Federal Reserve is buying these bonds at par as they hit the market. The net result is an increase in the money supply. This action guarantees the value of all previously sold Treasury issues. Note, the investor pays in real dollars and gets back printed ones. Since all dollars are alike, we have more dollars chasing the same amount of goods.
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I think what we need to look at here is values. Madoff got 150 years in prison and he is 71 years old. So he will be 221 years old when he gets out(I'll only be 212). I think that a 30 year sentence would have kept the judge from looking like an incompetent idiot. You do have to ask yourself, if Bernanke buys enough US Treasury's from China, does he get the same treatment? Of course if Madoff's sentence were to be adjusted for inflation, he just might be free in 10 years.
We are next in line to lose our savings by inflation and no one will go to jail, go figure!