Earlier quoted context omitted.
> replacing government-issued financial instruments that pay interest (bonds) with government-issued financial instruments that pay no interest (money). Except that the Fed is not giving "government-issued financial instruments" with QE. They are placing reserve credits in the banks' reserve accounts. Bank reserves cannot be used in the wider economy, but only with-in the Federal Reserve inter-bank settlement system.…
Yes, bonds for reserves, and vice versa. But recall that reserves are money -- they are the key component of all measures of money. Also, recall that the primary dealers which trade with the Fed routinely act as intermediaries on behalf of third parties -- mutual funds, companies, individuals, etc. During QE, the Fed was buying bonds previously held by the private sector. Now, with QT, the Fed is letting the treasury…
They shift out and buy more risky assets. Corporate bonds, equities.
And then next the people that held the corps/equities that were sold buy still more risky assets (e.g., speculative equities, VC) and so on (e.g., crypto).