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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

#101

Post by lazide »

lumost wrote: post #82
Findeton wrote: post #3

This is another QE/Quantitative Easing, even if they don't call it that way. I hope inflation doesn't come back/get higher again because then we'd likely see the kind of second wave inflation people saw in the 70s.

The fed is in between a rock and a hard place. Once upon a time, asset prices were low relative to incomes - and assets people cared about day to day like housing generally weren’t terribly competitive. The fed started rate targeting, and asset prices started rising as the economy adapted to Fed policies. 50 years later assets like homes regularly exceed individuals lifetime earning potential. If interest rates rise,…

But what if you run out of road before you can stop kicking the can?

Isn’t that a successful strategy then?

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

#102

Post by antibasilisk »

monero-xmr wrote: post #30
StopHammoTime wrote: post #5

Id be curious to know how much physical currency has been withdrawn and if there are pressures on that. Inter-bank deposits are covered for people fleeing bad banks, but anecdotally I know a few people who are withdrawing all their hard cash. I wonder if central banks will have issues with that soon.

[flagged]

ETH has extreme problems to the point where it's worse than fiat, there's no good reason to be grouping it in with BTC. Even something like Dogecoin, which need I remind you was invented as a joke, has a stronger case for replacing fiat than ETH.

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

#103

Post by agrajag »

fuoqi wrote: post #73
HDThoreaun wrote: post #57

Earlier quoted context omitted.

The interest rate on the loans is .1% higher than the 3 month T bills which is all they can get before the loan comes due. They would lose money with this strategy.

They can buy longer duration bonds and sell them before the loan is due or even corporate bonds. Yes, it introduces certain risks, but with the endemic banks irresponsibility constantly bailed out by the government, I will not be surprised. But I guess, possible spreads are a bit too small for this scheme to matter.

I mean, SVB did exactly this, and management got fired an equity zeroed out. Other banks aren’t looking at SVB and wishing that was them.

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

#104

Post by arcticbull »

prasadjoglekar wrote: post #55
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…

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 haven't seen an increase in housing prices in nominal terms since 1990. They federalize zoning so councils can't preclude you from building safe and reasonable housing, and this allows supply to meet demand.

Housing is driving inflation in the US, not responding to it - remember, inflation is the measured drop in purchasing power calculated from prices. Zoning causes house prices to go up, which in turn means the purchasing power of the dollar is calculated to be lower.

Punitive zoning rules are inflationary.

[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage

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

#105

Post by checkcircuits »

ClumsyPilot wrote: post #4
luckylion wrote: post #2

Why are we even doing the dance that banks need to keep short term assets on hand to satisfy deposit outflow? Can't they just buy whatever government bonds they want (if the federal government defaults and does not honor its debt there are bigger issues than some regional bank) and give them to the Fed in exchange for freshly minted money? It's the end result in either case, but a lot of uncertainty and friction is a…

Banks lend money to the US government so that a different branch of government can loan the money again to the banks? The whole thing sounds like a charade

That's because it is a charade. The fed's entire job is basically a dependency injection in an otherwise free market. Money creation in a modern economy is literal magic and while they may claim it's tied to "metrics" these metrics are tenuous at best. Unfortunately, the clown show has been run for the last 20 years by people who do not have the country's best interests at heart. We are now reaping what was sown with the 20 years of free money to banks.

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

#106

Post by lazide »

dools wrote: post #10
Findeton wrote: post #3

This is another QE/Quantitative Easing, even if they don't call it that way. I hope inflation doesn't come back/get higher again because then we'd likely see the kind of second wave inflation people saw in the 70s.

QE has no impact on inflation because loan origination is not reserve constrained, because banks can always use their government securities as collateral

QE had a big impact on inflation because creating loans typically requires a willing buyer/underwriter at a given rate, which is a natural limiter.

When the gov’t is willing to buy/underwrite loans with minimal standards or sight unseen at lower rates, it artificially accelerates loans and lowers the cost of money - and increases the money supply and velocity of money in the economy.

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

#107

Post by nimbius »

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…

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 responsible corporate income basically evaporated with free money. The governments hamfisted bailout loan of about a dozen major conglomerates while ignoring small business during covid was probably the real torch that lit the powderkeg.

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

#108

Post by yieldcrv »

Zetice wrote: post #77
yieldcrv wrote: post #15

Earlier quoted context omitted.

its a 0% loan (edit: 4.68%) at a 100% loan to value ratio, actually at par value not even the current market value, and if the banks don't pay then the fed seizes the collateral this is QE with extra steps

I know "QE with extra steps" is a R&M reference, but keep in mind that R&M was wrong, what they described wasn't actually slavery (you can make anything anything else if you squint hard enough and/or remove the critical "extra steps"), and this isn't actually QE (as I, random Internet dweller, understand it anyway).

I don't know who R&M is. I don't know anything about the slavery reference. Feel free to explain what you're talking about.

I read press releases from the federal financial agencies and look at their balance sheet. The similarity here is that money is being created and injected into the balance sheets of private participants in the economy, money that wouldn't have seeped out to purchase things now will, overlapping in the venn diagram with QE. Another similarity is that additional US treasury bonds are now on the Federal Reserve's balance sheet, in direct exchange, overlapping in the venn diagram with QE. The difference is that the Fed is not acting as direct buying pressure in the US Treasury bond market, as the extra step is that people deposit the bonds as collateral to the fed and the feds will own them if the banks stop repaying. We're focusing on the similarities, you're focusing on the difference. I feel the similarities are a policy pivot in the worst way. I don't find the differences to be relevant.

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

#109

Post by HDThoreaun »

MuffinFlavored wrote: post #81
almost_usual wrote: post #6

Earlier quoted context omitted.

It’s a loan, not QE. QE is no strings attached money injected into the market. QT is still ongoing as of last week, however, I don’t see it lasting. I do think a .25 rate hike will still happen.

when do you think the Fed will pause/are rate cuts already being priced in a 12 month horizon?

When the labor market turns

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

#110

Post by beiller »

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 shortfall of the FDIC was conjured. It will find a way to your grocery bill. If all the banks are paying a fee to foot the bill, the payers of that fee will be you the customer.
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