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Statement Regarding Repurchase Operations

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Re: Statement Regarding Repurchase Operations

#131

Post by shitgoose »

ww520 wrote: post #107
ww520 wrote: post #58

One 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…

government can borrow at negative rates. i doubt that yooropean joe blow can do that.

Re: Statement Regarding Repurchase Operations

#133

Post by azernik »

o-__-o wrote: post #123
azernik wrote: post #63

Earlier quoted context omitted.

This is a reference to Elon Musk's financial strategy, specifically https://www.reuters.com/article/us-tesla-offering-banks/elon... Essentially, he has almost nothing in cash, and instead of selling stock to raise cash he borrows money with his stock as collateral. This is why he's so monomaniacally focused on his stock value and public image. For a more professional, but login-walled, overview, see https://www.econo…

This isn’t just Elon, Oracles Founder did the same thing. Except they actually have a company with assets. So I don’t get what OP was rambling on about “non real assets”. A fucking manufacturing plant is an asset. My servers are not. Looks like the financial world is working as it should...

The specific $500M number was a reference to Elon, but yeah, given how successful this strategy is I'm not surprised the Oracle founder uses it too.

I agree with you that these cases are where the companies have tangible, provable value, even if they're not profitable right now.

Re: Statement Regarding Repurchase Operations

#134

Post by ironSkillet »

nugget wrote: post #53
opportune wrote: post #25

Earlier quoted context omitted.

Why is there such a liquidity crunch though? And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only expl…

Quarterly taxes seems to have been the initial cover story. My guess is it ties back partially to the eurodollar carry trade. There is an unprecedented amount of international rate and currency arbitrage going on which has pulled US dollars out of the US and could easily manifest unintended macroeconomic consequences like this. One day repo is easy for the Fed to address but if it persists then it becomes a confidenc…

This is an interesting line of thought, could you expand and simplify your explanation a bit for people who are not as familiar with the dynamics you're talking about?

Re: Statement Regarding Repurchase Operations

#135

Post by zocoi »

nerfhammer wrote: post #116
rising-sky wrote: post #101

Earlier quoted context omitted.

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.

Any source to back this statement? I’m curious if fed actually destroyed the money after repayment

Re: Statement Regarding Repurchase Operations

#136

Post by diminoten »

rwmurrayVT wrote: post #47
diminoten wrote: post #41

Earlier quoted context omitted.

30 days * $100 billion = 3 trillion dollars. Wat. Seriously, can someone explain what that actually means? Surely there isn't literally 3 trillion dollars moving around...

It's 'overnight'. Theoretically the same "atleast $75b" could be used daily.

Thanks. Guess asking a genuine question on HN isn't okay, judging by the downvotes..

Re: Statement Regarding Repurchase Operations

#137

Post by cheekyboots »

beezle wrote: post #69
opportune wrote: post #25

Earlier quoted context omitted.

Why is there such a liquidity crunch though? And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only expl…

Recommend a google news search and pick one of the Bloomberg stories (they limit how many you can read for free). The problem is that (apparently) there are few lenders in a position to give up reserves to fund other participants bond holdings. Balance sheets, required reserves, excess reserves etc are all pretty complex post 2008. I don't know how to link to an earlier comment I posted in another thread this morning…

Psst...you can easily keep reading Bloomberg, just keep opening articles in incognito windows.

Re: Statement Regarding Repurchase Operations

#138

Post by lendinggroup »

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Re: Statement Regarding Repurchase Operations

#139

Post by LocalTrust »

spiantino wrote: post #19
LocalTrust wrote: post #9

Wow this is not good. Repo market is the market of overnight debt between banks. Banks lend money to each other to cover their collateral needs/exposures at the end of each day. If banks lose confidence in each other, they start demanding more collateral from each other in the overnight market, which means the overnight rate goes up. The NYFed is trying to keep interest rates down and is having trouble doing it. As a…

I don't think that's whats happening. Basically, in a repo you have one party posting a treasury bond as collateral and being lent the equivalent amount of cash. There's an interest rate you're charged on the cash, and potentially a "haircut" on the amount of cash relative to the value of the bond that a bank might take if they decide the other party is a risk and they want more collateral posted. What you're describ…

You’re right. Thanks for this comment. It’s really helpful. I’m still wondering what the factors are that created this gap. If financial institutions aren’t losing confidence in each other or the assets that are been posting as collateral, why is there a cash shortage in the overnight market?

Re: Statement Regarding Repurchase Operations

#140

Post by brobinson »

simplecomplex wrote: post #119
brobinson wrote: post #100

Earlier quoted context omitted.

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…

QE is neutral to the monetary base. The central bank buys government bonds from banks and pays for them using reserves.

You can see a big spike in the money supply, but there is no corresponding increase in inflation.

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