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Why the Federal Reserve is pouring money into the financial system

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Re: Why the Federal Reserve is pouring money into the financial system

#41

Post by sedeki »

freejulian85 wrote: post #30

The money absolutely impacts the economy and the individual. If the fed were not providing this printed money to the banks, the banks would need to do some combination of the following to increase liquidity: 1) Increase interest rates to attract new deposits 2) Sell assets — such as foreclosed homes now in the banks possession With house prices at all time highs and interest rates at all time lows, both 1&2 sound gre…

I think it makes sense for the banks to wait for the Fed to do something. Banks are acting in the interest of their shareholders; the Fed for the population as a whole.

Re: Why the Federal Reserve is pouring money into the financial system

#42

Post by freejulian85 »

sedeki wrote: post #41
freejulian85 wrote: post #30

The money absolutely impacts the economy and the individual. If the fed were not providing this printed money to the banks, the banks would need to do some combination of the following to increase liquidity: 1) Increase interest rates to attract new deposits 2) Sell assets — such as foreclosed homes now in the banks possession With house prices at all time highs and interest rates at all time lows, both 1&2 sound gre…

I think it makes sense for the banks to wait for the Fed to do something. Banks are acting in the interest of their shareholders; the Fed for the population as a whole.

This is no different than the manipulation that happened with LIBOR. Back then the media was quick to point out that the manipulated interest rate impacted pension funds, mortgages, and everything in between.

The fed is doing the same thing by stepping in and manipulating the overnight rate. Without the fed doing this, banks would have to plan ahead and make sure they have sufficient liquidity. This means maybe offering better interest rates to earn customer deposits.

With the major banks still calling 0.05% “high yield”, I don’t think it’s appropriate for the fed to continue to enable their incompetence. Furthermore, the banks hold a significant inventory of foreclosed homes on their books. They’ve been sitting on them for years. It’s time they sell that resource to people who need them.

Re: Why the Federal Reserve is pouring money into the financial system

#43

Post by sedeki »

freejulian85 wrote: post #42
sedeki wrote: post #41

Earlier quoted context omitted.

I think it makes sense for the banks to wait for the Fed to do something. Banks are acting in the interest of their shareholders; the Fed for the population as a whole.

This is no different than the manipulation that happened with LIBOR. Back then the media was quick to point out that the manipulated interest rate impacted pension funds, mortgages, and everything in between. The fed is doing the same thing by stepping in and manipulating the overnight rate. Without the fed doing this, banks would have to plan ahead and make sure they have sufficient liquidity. This means maybe offer…

I mean that given that the Fed will act if the banks do nothing, and that doing something will make the banks loose money, it is inevitable that the banks will "drag their feet". As you understand, I am not commenting on the moral aspect.

Re: Why the Federal Reserve is pouring money into the financial system

#45

Post by newshorts »

thiago_fm wrote: post #33

They can always pump more money to the market in different ways, but what is clear that is happening there is a shift on the dollar not being the world currency / international trade currency. FED will have always more trouble to handle that. What will happen is hard to say, maybe some crazy inflation, or liquidity crisis... or something I don't care about. What I care about is that economy and money will be broken f…

If you live in the us, you would most certainly care about inflation...

Re: Why the Federal Reserve is pouring money into the financial system

#46

Post by markus_zhang »

joshuafkon wrote: post #3

I thought the Financial Times had a more in-depth analysis of the structural reasons behind the spike in the REPO market than I've seen elsewhere. I've seen a few sources point out the tax payment due on the 15th, and the settlement of a large treasury sale, but as the article says: "...Analysts say these two things alone should not cause the deep cracks in the repo market that we have seen this week. The underlying…

I'm wondering why this hasn't affected the stock market.

Re: Why the Federal Reserve is pouring money into the financial system

#47

Post by pmart123 »

freejulian85 wrote: post #42
sedeki wrote: post #41

Earlier quoted context omitted.

I think it makes sense for the banks to wait for the Fed to do something. Banks are acting in the interest of their shareholders; the Fed for the population as a whole.

This is no different than the manipulation that happened with LIBOR. Back then the media was quick to point out that the manipulated interest rate impacted pension funds, mortgages, and everything in between. The fed is doing the same thing by stepping in and manipulating the overnight rate. Without the fed doing this, banks would have to plan ahead and make sure they have sufficient liquidity. This means maybe offer…

Part of the problem is the fed has tried to raise short term rates while the rest of the world has had a zero interest rate policy. Meanwhile, the US interest rate curve is inverted. So banks, who typically lend long and borrow short get squeezed. So even if the fed is targeting 2% rates, but the 10 yr is at 1.5%, a bank really shouldn’t be borrowing from you at 2% to lend it out to someone else at 1.5% on a ten year loan.

Re: Why the Federal Reserve is pouring money into the financial system

#48

Post by dragonwriter »

freejulian85 wrote: post #30

The money absolutely impacts the economy and the individual. If the fed were not providing this printed money to the banks, the banks would need to do some combination of the following to increase liquidity: 1) Increase interest rates to attract new deposits 2) Sell assets — such as foreclosed homes now in the banks possession With house prices at all time highs and interest rates at all time lows, both 1&2 sound gre…

You left out #3, tighten lending criteria and raise interest rates on loans to increase income per dollar lent and reduce volume of lending, which also improves liquidity.

But, yeah, if you are flush with cash and don't own a home but want to, #1 & #2 sound great if you consider only their first order effects on you.

#1, especially, is a huge brake on the economy (as is it's close relative #3). Which probably also has a negative impact on you, unless you are living entirely off of a pile of cash previously earned.

Re: Why the Federal Reserve is pouring money into the financial system

#49

Post by dragonwriter »

markus_zhang wrote: post #46
joshuafkon wrote: post #3

I thought the Financial Times had a more in-depth analysis of the structural reasons behind the spike in the REPO market than I've seen elsewhere. I've seen a few sources point out the tax payment due on the 15th, and the settlement of a large treasury sale, but as the article says: "...Analysts say these two things alone should not cause the deep cracks in the repo market that we have seen this week. The underlying…

I'm wondering why this hasn't affected the stock market.

It probably has; if you think it hasn't, you probably have an incorrect view of what the stock market would do without it.

Re: Why the Federal Reserve is pouring money into the financial system

#50

Post by freejulian85 »

dragonwriter wrote: post #48
freejulian85 wrote: post #30

The money absolutely impacts the economy and the individual. If the fed were not providing this printed money to the banks, the banks would need to do some combination of the following to increase liquidity: 1) Increase interest rates to attract new deposits 2) Sell assets — such as foreclosed homes now in the banks possession With house prices at all time highs and interest rates at all time lows, both 1&2 sound gre…

You left out #3, tighten lending criteria and raise interest rates on loans to increase income per dollar lent and reduce volume of lending, which also improves liquidity. But, yeah, if you are flush with cash and don't own a home but want to, #1 & #2 sound great if you consider only their first order effects on you. #1, especially, is a huge brake on the economy (as is it's close relative #3). Which probably also ha…

I don’t believe the fed should pick winners and losers. I worked hard for my dollars. The banks should have to compete for them fairly.
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