I'm not trying to be an ass, but I'm actually legitimately curious where our misunderstanding is.
My understanding is that, all other things being equal, when government/government controlled agencies purchase government debt ("cause"), the result ("effect") is lower interest rates. Here it is, directly from the head of the Fed regarding the rationale behind QE2:
"What we're doing is lowering interest rates by buying treasury securities and, by lowering interest rates, we hope to stimulate the economy to grow faster." - Ben Bernake
This is the fundamental idea behind reserve banking -- the central bank controls interest rates by manipulating the money supply via the purchase of government bonds:
"When the Central Bank cuts the target rate, they must simultaneously increase the monetary base by buying government securities. The growth of the monetary base creates a surplus in the banks, the supply of funds overnight increases, the demand falls and the overnight rate falls.
...
By controlling overnight interest rates, the central bank will affect the interest rates with longer maturity." - Essentials of Macroeconomics
Is there anything in the above that you disagree with?
The Fed is using quantitative easing to lower market interest rates because their typical lever against market interest rates--the interest rates of short-term U.S. Treasuries--was already effectively zero.
They were already effectively zero because there has been such strong demand for U.S. Treasury bonds from customers both domestic and foreign, which was my point at the beginning.
My understanding is that, all other things being equal, when government/government controlled agencies purchase government debt ("cause"), the result ("effect") is lower interest rates. Here it is, directly from the head of the Fed regarding the rationale behind QE2:
"What we're doing is lowering interest rates by buying treasury securities and, by lowering interest rates, we hope to stimulate the economy to grow faster." - Ben Bernake
This is the fundamental idea behind reserve banking -- the central bank controls interest rates by manipulating the money supply via the purchase of government bonds:
"When the Central Bank cuts the target rate, they must simultaneously increase the monetary base by buying government securities. The growth of the monetary base creates a surplus in the banks, the supply of funds overnight increases, the demand falls and the overnight rate falls.
...
By controlling overnight interest rates, the central bank will affect the interest rates with longer maturity." - Essentials of Macroeconomics
Is there anything in the above that you disagree with?