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We were told back in September that the liquidity injection then was a one-off response to a freak occurrence, nothing to worry about, won’t happen again.
by i_am_nomad 7y ago
We were told back in September that the liquidity injection then was a one-off response to a freak occurrence, nothing to worry about, won’t happen again.
- dfcagency 7y agoRight. What is going on here? Really hope someone on HN can explain this in a succinct way.
- whb07 7y agoIt means that the individual banks don’t trust each other and are leery to provide credit to each other literally “over night”. So they aren’t willing to provide liquidity to each other because they fear they will not pay back. Remember that banks have fractional deposits, so they might be left without money throughout the night and then have to literally be insolvent the following morning. So the Fed steps in to cover these situations. This is important because the economy and the system in general is supposed to be doing “just swell” when there are symptoms of a disease
- aalleavitch 7y agoSo there’s a ton of money in the economy but no way to actually make it liquid short term short of the fed, indicating that maybe the money on the books has a better chance of suddenly vanishing into thin air than anyone is comfortable with? Where have I heard this before?
- whb07 7y agoWell if it’s all loaned out and invested away you can’t exactly conjure it back home every night. But yeah, essentially the Fed is trying to stay ahead of this issue they were the cause of.
- henryw 7y agoThere's an explanation here: https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-the-repo-market/ https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bail... & https://www.youtube.com/watch?v=ORGFtWowKKM https://www.youtube.com/watch?v=ORGFtWowKKM Basically there are actors borrowing at the low repo rates and using it on higher rate government backed mortgage products. Banks with money don't want to lend to these actors, hence the repo rate hike.
- ChainOfFools 7y agois this to support specifically the emerging non-QM product ($20-ish BN so far in 2019) sector?
- tryitnow 7y agoWow. This is an interesting take. I didn't know higher risk firms like hedge funds, PE firms, and REITs are borrowing so heavily in the repo market. So basically, this is the Fed just handing out cheap money to these firms. It's socialism for the super-rich.
- nostrademons 7y agoI'd bet more on the European carry trade, with various financial firms attempt to arbitrage the difference between negative interest rates in Europe and positive rates in the U.S. That creates a natural demand for short-term dollar loans: https://news.ycombinator.com/item?id=21478251 https://news.ycombinator.com/item?id=21478251
- 0x00000000 7y agoLow key quantitative easing
- rdtwo 7y agoIt is QE
- 0x00000000 7y agoIt’s really funny how insistent the Fed is on it not being QE so they don’t scare anyone. “Powell has been adamant in pointing out that the T-bill purchases, though aimed at expanding the Fed's balance sheet and, correspondingly, bank reserves, this should not be confused with the quantitative easing that occurred during and after the financial crisis.“ https://www.cnbc.com/2019/10/11/the-fed-is-extending-its-overnight-funding-operations-through-january-2020.html https://www.cnbc.com/2019/10/11/the-fed-is-extending-its-ove...
- thoughtstheseus 7y agoMy understanding: Demand > supply for short term high quality, liquid financial assets. The ny fed provides a lower bound of sorts for yields in this market, they need to provide huge amounts of liquidity right now to prevent ST yields from spiking.
- 4ntonius8lock 7y agoI can't say about the exact details, but this is what I understand: We live in a fiat system; money is literally created out of nothing. When money is created, it then needs to be injected into the system (economy) This could be done any number of ways. The more transparent and straightforward though, the less of an advantage to the insider parties and the more meritocratic. So an extremely complex, byzantine and opaque system has been created. People who are in this system will be happy to go into the many, many details of it. But they won't ever tell you why, it just is. When I think of modern finance, I think of medieval Europe. Plenty of reasons were given as to why one person ranked above the other. Why one had access to certain things while others didn't. But in general, byzantine structures benefit the insiders at the expense of the outsiders. It's designed to be anti-meritocratic without having to claim being a decedent of the sun god. I really fail to see why, other than avoiding meritocratic distribution, the fed doesn't open it's own lending window directly to the public. They fret that lowering interest rates won't increase economic activity. I dare them to open those rates to the public and not see an increase in economic activity.
- ChainOfFools 7y ago> We live in a fiat system; money is literally created out of nothing. not out of nothing, all value is created out of shared assumptions about the future. money merely quantizes these assumptions.
- xtacy 7y agoOne of the best explanations I've read on this is here: https://www.reddit.com/r/Economics/comments/d6e8qv/the_fed_pumps_another_75_billion_into_markets_its/ https://www.reddit.com/r/Economics/comments/d6e8qv/the_fed_p.... Although, I must admit I don't understand the carry-trade dynamics that much. I hope someone else can throw some light on that!
- XnoiVeX 7y agoAnother explanation here. https://www.washingtonpost.com/business/the-repo-markets-a-mess-whats-the-repo-market/2019/09/28/e8fd43b2-e1d8-11e9-be7f-4cc85017c36f_story.html https://www.washingtonpost.com/business/the-repo-markets-a-m...
- deleted 7y ago[deleted]
- ralphington 7y ago[citation needed]
- savethefuture 7y agoIt won't happen again again /s
- freejulian85 7y agoThe dishonesty and irresponsibility of the fed is going to end in disaster - disaster, in this case, being destruction of the currency.
- icebraining 7y agoBy when? It's easy to predict the destruction of the currency without setting a period.
- SCAQTony 7y ago$100-billion handed over to banks for overnight loans! The top 15 largest banks now hold a combined total of $13.7 trillion in assets. Like they really needed it. Congress did not okay this, nor did the Fed need any permission due to their autonomy. I believed they infused over $200-billion this year. That is equal to giving $1-million in startup capital to 20,000 startups.
- qeternity 7y ago20k * $1m does indeed equal $200b...but they are most definitely not the same thing.
- hiram112 7y ago20k * $1M is $20B, not $200B.
- thoughtstheseus 7y agoThis is not an equity investment, those 20,000 startups would need to return the money the next day.
- bransonf 7y agoAssets don’t equal cash. Cash is liquidity. Without it, banks can’t make transactions. And due to post 2008-crisis rules, banks have to maintain a higher percentage liquidity. In the view of the fed, they would rather inject cash than return this requirement to pre-crisis levels. This isn’t the fed giving away money, it’s nothing at all like startup capital. Economics are complex. Don’t be outraged that the fed is trying to maintain a stable economy.
- JMTQp8lwXL 7y agoDid the Fed state that, or was it just the general interpretation?