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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

#141

Post by lumb63 »

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…

The increase in money supply was absolutely not driven by an increase in demand. Supply increases were used to grow demand. Why else would it be called “stimulus”?

The supply did grow and the money went to banks, to the US government, etc. You can look at the Federal Reserve’s balance sheet and see entries for US treasury bonds, mortgage backed securities, etc. The US government then went and spent that on things, and the value of mortgage-backed securities increased which decreases the return on the investment and thus encourages banks to take on higher-risk investments. These activities drive inflation. So, no, an increase in the amount of money isn’t inflation, but a higher quantity of money supply times velocity does, by definition.

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

#142

Post by chii »

checkcircuits wrote: post #105
ClumsyPilot wrote: post #4

Earlier quoted context omitted.

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…

> We are now reaping what was sown with the 20 years of free money to banks.

This argument ignores the "black swan" events of covid, ukrainian invasion by russia, supply bottlenecks of various kinds, and trade tensions with china, all happening at the "same" time within the last 3 years.

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

#144

Post by chii »

HDThoreaun wrote: post #123
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.

> As long as the banks can't pass these costs onto customers

fat chance?

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

#145

Post by marcosdumay »

jmyeet wrote: post #26

So here's what I'm confused by. The writing was on the wall a year ago for rapid interest rate hikes. This has well-known and predictable effects on long-term bond holdings. Why didn't banks liquidate their long-term bond holdings a year ago? I can guess the answer: they wanted to protect executive bonuses and share prices. They hoped they could just stick their heads in the sands and hold those bonds to maturity. An…

> Why didn't banks liquidate their long-term bond holdings a year ago?

Too many bonds / too little time.

Bank assets are several times larger than the real economy. It's impossible to transact them in one year.

> long-term bonds have better yields so the bank can artificially improve its position (ie executive bonuses and share prices again) by adding risk to their depositor funds.

About this, that one seems right on the mark to me. Banks seem to love all kinds of "tails we win, heads you lose" games.

But then, I wonder if the US didn't increase their rates much faster than they should.

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

#147

Post by noloblo »

JakeAl wrote: post #134
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.

It's all a loan, whatever name you attach to it they have to borrow to print money. Reality check: US debt to GDP ratio is over 120% and the US doesn't have the credit to borrow anymore. We're looking at hyperinflation and a long depression unless they stop printing money and we experience massive austerity/spending cuts. We are literally in an economic death spiral (that's what a debt to GDP ratio of > 120% means) a…

so either a banana republic or japan

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

#148

Post by dools »

fallingknife wrote: post #31
tick_tock_tick wrote: post #20

Earlier quoted context omitted.

> Anything that increases the money supply will increase inflation. Except we have actual numbers and history to prove that false....

Here are the numbers to prove it true https://fred.stlouisfed.org/series/WM2NS

That's a graph that shows M2, not inflation. QE does have an impact on M2, but bank lending behaviour is not directly reserve constrained, so it has little impact on inflation.

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

#149

Post by dools »

lazide wrote: post #106
dools wrote: post #10

Earlier quoted context omitted.

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.

"The most extreme growth occurred in September 2001, January 2009, and January 2012, when the rate of M2 expansion topped 10%. These accelerated periods coincided with recessions and economic weakness, during which expansionary monetary policy was deployed by the central bank."[0]

This expasionary monetary policy failed to stimulate the economy, which is predictable to anyone who understands that banks having bonds vs reserves has virtually no impact on their lending behaviour. Bonds are, for all intents and purposes, as good as cash.

[0] https://www.investopedia.com/terms/m/m2.asp#toc-the-bottom-l...

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

#150

Post by 88913527 »

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…

Banks don't buy eggs, but they do buy mortgage-backed securities. The focus on eggs is a red herring. Eggs are what, 0.15% of a middle class household's monthly budget, and housing is at least >30%? I would have much less objection to this policy if it didn't have real negative impacts on median working Americans. Having a long term residence is a bedrock to stability.
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