Statement Regarding Repurchase Operations
111–120 of 141 posts
Re: Statement Regarding Repurchase Operations
#112NFI what any of it means myself, but it does seem sensible that upcoming Brexit and middle eastern news has a lot of large funds moving around, which might be sufficient reason for extra liquidity to be needed?
Re: Statement Regarding Repurchase Operations
#113One thing to note is that $100B is created everyday but the $100B is destroyed the next day. It's not like $100B created everyday for the next month.
Hijacking my own comment. There're rumors that the current shortage of cash is because people in Europe are borrowing massive amount of ultra low rate loans (negative yield) in Europe and turn around to buy U.S. treasuries (higher yield) to do currency carry trade to profit on the yield difference. To buy the treasury bonds, they have to use U.S. dollars so they are soaking up all the excessive dollars out there with…
I don't think this is true. I trade cross currency basis and if there was excess demand for offshore USD the "basis" (premium over normal rates to borrow USD in return for lending e.g. EUR ) would be moving dramatically. It changed a bit today in response to USD shortage but this seems predominantly a domestic story.
Re: Statement Regarding Repurchase Operations
#114To retry my earlier comment[1]: The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%. Over three weeks. That means banks are, at most, saved from having to pay an (extra) interest charge of $3.6 million per 1 billion (revolving) dollars borrowed. [2] That ... still seems like a rounding error against their typical quarterly profits, considering it's a one-tim…
I think what you are missing is that the bank doesn't own the 1 billion, that is someone else's money (deposit, leverage, etc...). This is very rough estimate, but let's say they are making 1% on the spread in rates (I just made that up, but that feels right, if not high) then using your same calculation they are looking at ~$570k in revenue. If that $570k suddenly turns into a $3.6M loss, that could cause problems.
Re: Statement Regarding Repurchase Operations
#115Earlier quoted context omitted.
What you've described is already happening, just on a global scale. For 10 or more years, whole financial system is just pushing slowly and collectively the lever, knowing that central banks will not allow it to collapse. So as long, as you're not outstandingly fragile, and instead your collapse would mean a collapse of most of similar financial agents, you can always push your risk a little bit higher, forcing your…
So, where should we put our money?
Decentralized currencies.
Re: Statement Regarding Repurchase Operations
#116Earlier quoted context omitted.
I guess that's a fair point. Sorry for oversimplified explanation. So, to attempt to improve on your further clarification: technically it is $75b per night created and destroyed each morning. And 3 separate cycles of $30b will be created for 2 weeks and then destroyed. Therefore $90b injected for 2-weeks then destroyed. Point is this is being injected to help banks cover their overnight exposures with the hope that…
Is there some resource I can look up to better understand what you mean by "destroyed"? Will they be absorbing the value back through financial instruments or how does this "destruction" happen?
when the fed writes a check to a bank, the money isn't deducted from an account, it's new money created out of thin air.
when the fed receives a check from a bank, the money doesn't get deposited and stored in some account, the money just stops existing.
Re: Statement Regarding Repurchase Operations
#117To me it sounds like there is glut in treasuries due to the huge government deficit and there are not enough buyers. This event is the banks not having enough on hand on hand for the treasuries and the corporate tax event at once, so the fed is stepping in to provide temporary liquidity.
Is it possible, or are we close to to where the banks (or other buyers) won't be able absorb the glut in treasuries themselves, and the fed has to buy them, effectively monetizing our deficits?
Re: Statement Regarding Repurchase Operations
#118One thing to note is that $100B is created everyday but the $100B is destroyed the next day. It's not like $100B created everyday for the next month.
That's true. But another way to look at it (not necessarily good), it's like the water in desert. You are in the middle of the desert and you need water - you ask a guy - lend me some water please, I will buy you back the same amount once we are home. Technical speaking, the amount you get and the amount you give back is the same. What happened during the last crisis is also a great illustration - many banks took tax…
You don't have to short it, however, would it make sense to start selling things? Where should money be right now or where should it start going if it is about to hit the fan?
Re: Statement Regarding Repurchase Operations
#119Earlier quoted context omitted.
They did rapidly expand the monetary supply and it did cause inflation. Assets are sky high (stocks and real estate). Properties are priced 10-20x cash flow. Stocks are similarly trading at absurd earnings ratios. Does anyone remember https://en.wikipedia.org/wiki/Japanese_asset_price_bubble ? Massively expanding credit to the point where money is free .... reduces the value of money. But denial is a helluva drug.
QE does not expand the monetary base so it can't cause inflation. It's also not "printing money" as the media likes to call it. You can't talk about the Japanese asset bubble without talking about the Plaza Accord and the appreciation of the yen.
When the Fed monetizes assets (QE) it adds to bank reserves (monetary base) AND adds to demand deposits at commercial banks (money supply) that held those assets. Where does the Fed get money to purchase the assets? They create it. Obviously no “printing” is happening it’s on a computer.
When the Fed buys the assets they add credit, giving the banks more than they need in reserves. Banks then seek to make a profit by lending that extra money, thus “stimulating” the economy.
The whole point of QE is increasing liquidity by increasing the supply of money.
Re: Statement Regarding Repurchase Operations
#120Hoping to clear up some FUD here: 1) This is the financial equivalent of taking a sledgehammer to squash a bug. Financial markets operate largely on confidence, and especially the rule that the Fed is the lender of last resort at their specified Fed Funds Rate (now 25 basis points lower as of Wednesday). 2) This isn’t $165b. It could be the same $75b used every day. 3) No, this isn’t a sign of a healthy market, but b…
It might not be happening this time but there are thoughts out there that the era of constant inflation is over. Automation and a sinking or negative growth rate among the top economies will lead to a long phase of economic retraction which is not at all the same as the periodic growth/recession cycle, but a longer term net negative. Many populations of people have a birth rate under the replacement rate and automation is making workers less necessary.
Zoom out and it could be the first phase of the transition from capitalism to a post-scarcity economy which would look very much different.
Obviously that is a lot of speculation, but there are going to be all sorts of population peak points which are going to pass in the next 20-30 years and it's really hard to believe economic growth can continue or even ever happen again with a steadily shrinking global population.
When you pack smart successful people into cities like rats and have them paying half their income to live in a few hundred square feet they just won't have babies. They have to work too hard for too little and don't have interest in places with more space because the job market doesn't want to leave the cost-efficiency of the city.
The effect is that populations are going to shrink until cost of living becomes cheap enough for people to want to afford the luxury of working less and raising children.
I am honestly in that position myself at the moment. I am of the age and life situation where it should be time to start having children but I don't want to because I can't afford it despite being in the top X percentile of income because I want to live in a decently sized space less than 30 minutes away from my work.