Interest rate is zero, government increases money supply by ?

S

Sabareeswari

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
As per text, they mention 4 methods by which money supply is increased when the interest rate is zero
1. Push cash ,
2. Devalue currency ,
3. hold short term interest rate low for extended period
4. buy assets directly from private sectors
My question is on the 4th point which will increase the money in the market and also driving decreasing yield on asset. How will the yield on assets decrease if government buys assets from private sector .
 
Removing supply / bidding up debt assets (lowering yields)
 
Thanks Galli.
Just to understand better I am taking an example. Assume I have land purchased at 100 k in 2010. The price of the land in 2014 is 300 K. In 2015, the government is purchasing all the land from that location. The prices of the land have gone up to 500 K because supply is being removed in the market. So the profit for me if I sell the land is my yield. Correct? Yield will be more because of price raise.
So are we talking about the yield that the existing owner of the asset will get or are we talking of the yield that the new purchaser in 2015 will get?
Let’s say the new buyer will buy the asset at 500 k in 2015 and we expect the appreciation of the land to be min in 2016
 
You can’t use land as an example. The Feds don’t buy land, when they say they “buy assets directly from private sectors” they mean they are buy bonds in Billions of dollars worth. Land is too illiquid and not enough sellers of it. When rates are at zero they have already exhausted their regular buying of short-term notes, so at level 4, they are now buying LONGER maturity bonds at all costs, driving prices up and causing yields to go down. They buy from private banking insitutions, exhanges, where ever to pump more cash into the private sector. Pushing long-term rates lower, further out on the yield curve, trying to flatten it down more.
 
You must log in or register to reply here.
Back
Top