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Federal Reserve lent $300B in emergency funds to banks in the past week

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Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#121

Post by 7speter »

fosk wrote: post #45
almog wrote: post #32

Earlier quoted context omitted.

It's a loan whose collateral is taken at par value rather than market price, which essentially increase the Fed's balance sheet. As of Wednesday last week, 4 months of QT have been reverted in a single week: https://fred.stlouisfed.org/series/WALCL

As long as the regular Joe doesn’t get extra money to spend, inflation will be check. Banks won’t go buy eggs anytime soon. We had close to 0% interest rates for almost a decade, and inflation was in check. It’s not the Fed that caused inflation, it is: * Suspending school debt (extra income) * Injecting real cash into the economy (stimulus checks and PPP loans to small businesses) * Supply chain bottlenecks after Co…

Egg prices are up mostly because of a shortage caused by avian flu.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#122

Post by HDThoreaun »

nodemaker wrote: post #115
arcticbull wrote: post #104

Earlier quoted context omitted.

An increase in asset prices is not inflation, it's a good investment. AAPL isn't in the CPI basket, Apples are. Homes are up in price because zoning rules preclude development of new houses sufficient to meet demand, creating an imbalance in supply vs. demand. Interest rates only shift that equilibrium. Concretely, Japan's monetary and interest rate policy has been almost the same as the US for decades however they h…

Lol so according to you the money supply can increase 10x but as long as the cost of apples (or things in the CPI basket) is same, there is no inflation. Am i right? I think you are trying to say that CPI and Inflation are the same thing.

Yep, if goods(not capital) don't change in value there is no inflation.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#123

Post by HDThoreaun »

beiller wrote: post #110

The fed has backstopped the FDIC. Instead of letting taxpayers foot the bill, of which are majority of payers are the very wealthy, they will foot the bill via inflation by rolling back some of the QE. Sure it's just a loan but what if the loan has no one to repay. Who will repay this loan in SVB's situation (the shortfall of asset sales to account balances) maybe I am misunderstanding. The money to cover the shortfa…

> Who will repay this loan in SVB's situation?

The FDIC has announced that any shortfalls wlil be paid by the collective member banks. As long as the banks can't pass these costs onto customers it will have no effect on taxpayers. There's good reason to believe that one time supply shocks don't effect prices, so I'd say taxpayers did not foot the bill here. Bank equity holders did.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#124

Post by hedora »

nimbius wrote: post #107
fosk wrote: post #45

Earlier quoted context omitted.

As long as the regular Joe doesn’t get extra money to spend, inflation will be check. Banks won’t go buy eggs anytime soon. We had close to 0% interest rates for almost a decade, and inflation was in check. It’s not the Fed that caused inflation, it is: * Suspending school debt (extra income) * Injecting real cash into the economy (stimulus checks and PPP loans to small businesses) * Supply chain bottlenecks after Co…

Suspending educational loan payments is tapping the brakes on what is largely a trillion dollars of absolutely unsustainable debt Joe biden himself lobbied for and now lives in constant low key fear of. Stimulus checks were a feature of George w bush's presidency too during the great collapse of 2008. The past 13 years of qe put so much cash into the supply side that inflation was inevitable as all the governors for…

I still don’t understand why student loans are not forgivable during bankruptcy proceedings. It is a recent change, and pretty clearly in violation of the thirteenth amendment:

“Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.”

since there are legal implications if you default (including legal liability, wage garnishment, loss of social security benefits, and revocation of professional licenses). This is similar to indentured servitude, which is a form of involuntary servitude.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#125

Post by mrcode007 »

7speter wrote: post #121
fosk wrote: post #45

Earlier quoted context omitted.

As long as the regular Joe doesn’t get extra money to spend, inflation will be check. Banks won’t go buy eggs anytime soon. We had close to 0% interest rates for almost a decade, and inflation was in check. It’s not the Fed that caused inflation, it is: * Suspending school debt (extra income) * Injecting real cash into the economy (stimulus checks and PPP loans to small businesses) * Supply chain bottlenecks after Co…

Egg prices are up mostly because of a shortage caused by avian flu.

You’re not even close to being right.

https://modernfarmer.com/2023/01/record-breaking-egg-profits...

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#126

Post by iforgetti »

HDThoreaun wrote: post #94
iforgetti wrote: post #84

Earlier quoted context omitted.

But if they are using bonds which the fed has valued at face value rather than market value as collateral then this is still effectively free money. They are only losing .1% of bond value instead of the difference between face and market value.

I think you misunderstand what is happening here. It's not free money, it has a 4.7% interest rate. Taking this loan and using it to buy bonds would just be transferring .1% of the loan value to the fed as the bonds would pay out less than the banks owe.

They may be collateralized by bonds worth even less than that.

If the bonds were worth 80 cents on the dollar than they just traded 80 cents on the dollar for 99.9 cents on the dollar. A good deal if your balance sheet is in such poor shape.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#127

Post by HDThoreaun »

iforgetti wrote: post #126
HDThoreaun wrote: post #94

Earlier quoted context omitted.

I think you misunderstand what is happening here. It's not free money, it has a 4.7% interest rate. Taking this loan and using it to buy bonds would just be transferring .1% of the loan value to the fed as the bonds would pay out less than the banks owe.

They may be collateralized by bonds worth even less than that. If the bonds were worth 80 cents on the dollar than they just traded 80 cents on the dollar for 99.9 cents on the dollar. A good deal if your balance sheet is in such poor shape.

Unless the bank fails that doesn't matter. And the banks won't fail because the incentive to run them is gone now. Everyone will see their deposits are safe and the banks can give the money back with interest.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#128

Post by SideQuark »

arcticbull wrote: post #117
nodemaker wrote: post #115

Earlier quoted context omitted.

Lol so according to you the money supply can increase 10x but as long as the cost of apples (or things in the CPI basket) is same, there is no inflation. Am i right? I think you are trying to say that CPI and Inflation are the same thing.

Money in a fractional reserve system operates not on a push model but on a pull model. You do not 'push' money into the system. Money is created when loans (and corresponding obligations to repay said loan) are created. The increase in supply was driven by an increase in demand. Your model is incomplete. You'll have to work a specific example - how would the supply suddenly triple? Who would get that money? What woul…

We're not in a fractional reserve system. Banks can borrow arbitrarily from the fed, and routinely do so, and don't have reserve ratios. Many countries have moved to this model over the past few decades, including the US. The Fed has papers on this explaining the how and why of the newer system.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#129

Post by gg82 »

drexlspivey wrote: post #33
chasebank wrote: post #25

Earlier quoted context omitted.

Source? Did we not have rapid asset inflation since QE started in 08? Inflation pops up in all sorts of ways, not just blanket across the board.

Typically people mean core goods (CPI) when they say inflation not stocks and crypto

If only people could pay core goods CPI to live and house themselves!

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#130

Post by wskinner »

arcticbull wrote: post #104
prasadjoglekar wrote: post #55

Earlier quoted context omitted.

Inflation was there all along in asset prices - why else have home values gone up disproportionately relative to average Joe's income? What the Fed is doing with this move is patching the balloon and preventing a deflation. That is, bank has a run on deposits because people want their money back; bank is out of liquid cash; bank sells bonds/MBS that have mark-to-market less than par thus realizing losses. The downstr…

An increase in asset prices is not inflation, it's a good investment. AAPL isn't in the CPI basket, Apples are. Homes are up in price because zoning rules preclude development of new houses sufficient to meet demand, creating an imbalance in supply vs. demand. Interest rates only shift that equilibrium. Concretely, Japan's monetary and interest rate policy has been almost the same as the US for decades however they h…

A change in the CPI is a symptom of underlying inflation (devaluation of the currency) but it is not the only symptom which can occur. Capital asset prices rising due to changes in the supply and demand of capital assets can also be a symptom of inflation. Different prices may be earlier or later indicators of inflation. Because financial markets are highly liquid, and their participants are close to the underlying source of the devaluation of the currency (the central bank), they tend to be earlier indicators. So to say that an increase in asset prices is not inflation may technically be correct, but it is misleading. An increase in asset prices can be an indicator that inflation is already occurring (e.g. in 2020), and that inflation may take much longer to show up in the CPI.
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