6 ms·

I suspect this is news only because of the financial crisis last decade, otherwise it would be a footnote in the financial pages. I dont see why people should c

by rb808 7y ago

I suspect this is news only because of the financial crisis last decade, otherwise it would be a footnote in the financial pages. I dont see why people should care. Presumably if it continues the main players will find a way to arb out the spread. If you downvote me at least list why this repo problem affects anyone.

joobus 7y ago
This "blowup" is the reason the Federal Reserve has printed $415 billion dollars since mid September. reference: https://wallstreetexaminer.com/2019/12/chart-shows-fed-not-qe-aka-qe-new-catching-up-funding-almost-all-treasury-issuance/ https://wallstreetexaminer.com/2019/12/chart-shows-fed-not-q...
- rb808 7y ago
  Yes I know that, but how does it affect anyone? Worst I can see is that poor quality banks pay a few percent overnight if they need to borrow on bad days. Surely that is temporary with so many players.
- Analemma_ 7y ago
  Saying the Federal Reserve has "printed $415 billion" without qualification is dishonest. It has created $415 billion worth of liquidity for short-term operations of solvent banks, essentially printing money and then destroying it the next day. It has not added $415 billion to the money circulation.
  - SkyBelow 7y ago
    >It has not added $415 billion to the money circulation. But it did, even if for just a day.
    - chaorace 7y ago
      Not all in the same day. If you loan $30, then take it back the next day for 10 days in a row, you're still just moving around $30, not $300
      - NovemberWhiskey 7y ago
        There are two separate things going on here; although both of them intended to relieve pressure in the money markets. Firstly, there's a so-called "reserve management operation" which is intended to increase reserves held at the Fed by purchasing Treasury bills. Increases in reserves implies greater liquidity to support money market activities. This definitely shows up as a growth in the Fed balance sheet, as the policy is to roll into new Treasury bills at maturity. Secondly, there's an ongoing campaign of overnight and term repo operations where necessary to achieve the policy target rates. These are short-term, and do not result in a significant balance sheet growth. See the statement from the NY Fed: https://www.newyorkfed.org/markets/opolicy/operating_policy_191011 https://www.newyorkfed.org/markets/opolicy/operating_policy_...
      - pg_is_a_butt 7y ago
        If you loan $30 of pretend money and the borrower then puts that money to work and makes $3 in real money profit then pays back the $30 of pretend money for 10 days in a row, the borrower still has $30 in real money based entirely on fake money.
      - SkyBelow 7y ago
        The impact depends upon if the market knows you will or won't continue to lend if it fails to be paid back.
  - joobus 7y ago
    > Saying the Federal Reserve has "printed $415 billion" without qualification is dishonest No, it isn't. I stated exactly what they have done. If you want to make excuses for why they did it, go ahead. It seems you want to.
    - Analemma_ 7y ago
      Your statement was a lie of omission. They printed a much smaller amount, destroyed it shortly afterward, and then repeated that on several occasions until the total amount was about $415 billion. A reasonable person reading "the Federal Reserve has printed $415 billion since mid-September" would take it to mean that $415 billion was added to the monetary supply, which is not what happened. You're disingenuously leaning on how your words will be misinterpreted to stir up unwarranted hysteria about inflation and whatnot.
      - daxorid 7y ago
        Nothing was "destroyed". Rather, it was rolled over for bidding the next day (or 14 days, depending on the specific operation). It's an important distinction, because until the actual FRB balance sheet unwinds back to the $3.76T level it was in September, it is precisely as OP describes. The delta of the FRB's balance sheet between Sept and now is 4066-3761 == 305B. It's not 415B, but it's not even remotely close to 0, either. During this period, there has only been a single weekly draw-down. All other weeks have been accumulative, and should be considered QE4 unless and until these operations stop occurring. Ref: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
salawat 7y ago
The problem comes in in that the Fed should be the lender of last resort. Not the primary thing propping up the system. If banks are not capable of engaging in interbank lending while maintaining elevated regulatory levels of liquidity then they've filled their books in such a way that they are not capable of doing one of the fundamental maintenance activities of the financial system. This is also in essence a sort of signal that all is not well, since there is clearly not enough realizable margin between what the banks portfolios can generate vs. what they have to generate to be capable of playing clearinghouse for another actor. My hunch is, this repo market is probably a normal mechanism used to moderate the system overall (some actors will have a good period, some'll have it bad, but over time everyone averages out) when the market is healthy, and generating actual value. I think what we may be seeing now, is pickings starting to get so slim because of low interest rates/lower spending/lower actual (not surveyed, but actual) growth such that everybody is now turning to the Fed at the same time, because everyone sees everyone else as a threat to their liquidity. The point is that in a healthy market, your growth should be able to surpass your minimum drop dead liquidity reserves. We aren't seeing that so I'd say we aren't experiencing a healthy market; and no, I don't think the higher liquidity reserves are the chief cause of the unhealthy market. I think we're starting to run into the physical barriers in several industrial verticals as the low hanging fruit starts to dry up, and growth is becoming less and less certain, as well as less and less equitably distributed. That's my wild-ass-guess anyway.
pg_is_a_butt 7y ago
> I suspect this is news only because of the financial crisis last decade, otherwise it would be a footnote in the financial pages. This is a footnote in the financial pages. I looked for the article yesterday in the wall st journal, and it was on the back page of the markets section. It didn't make News or Economy. Over $4 trillion in fake money created in a month, when the entire national debt since inception is $23 trillion... why should people care about anything, right?

by rb808 7y ago

joobus 7y ago

This "blowup" is the reason the Federal Reserve has printed $415 billion dollars since mid September. reference: https://wallstreetexaminer.com/2019/12/chart-shows-fed-not-qe-aka-qe-new-catching-up-funding-almost-all-treasury-issuance/ https://wallstreetexaminer.com/2019/12/chart-shows-fed-not-q...

rb808 7y ago
Yes I know that, but how does it affect anyone? Worst I can see is that poor quality banks pay a few percent overnight if they need to borrow on bad days. Surely that is temporary with so many players.
Analemma_ 7y ago
Saying the Federal Reserve has "printed $415 billion" without qualification is dishonest. It has created $415 billion worth of liquidity for short-term operations of solvent banks, essentially printing money and then destroying it the next day. It has not added $415 billion to the money circulation.
- SkyBelow 7y ago
  >It has not added $415 billion to the money circulation. But it did, even if for just a day.
  - chaorace 7y ago
    Not all in the same day. If you loan $30, then take it back the next day for 10 days in a row, you're still just moving around $30, not $300
    - NovemberWhiskey 7y ago
      There are two separate things going on here; although both of them intended to relieve pressure in the money markets. Firstly, there's a so-called "reserve management operation" which is intended to increase reserves held at the Fed by purchasing Treasury bills. Increases in reserves implies greater liquidity to support money market activities. This definitely shows up as a growth in the Fed balance sheet, as the policy is to roll into new Treasury bills at maturity. Secondly, there's an ongoing campaign of overnight and term repo operations where necessary to achieve the policy target rates. These are short-term, and do not result in a significant balance sheet growth. See the statement from the NY Fed: https://www.newyorkfed.org/markets/opolicy/operating_policy_191011 https://www.newyorkfed.org/markets/opolicy/operating_policy_...
    - pg_is_a_butt 7y ago
      If you loan $30 of pretend money and the borrower then puts that money to work and makes $3 in real money profit then pays back the $30 of pretend money for 10 days in a row, the borrower still has $30 in real money based entirely on fake money.
    - SkyBelow 7y ago
      The impact depends upon if the market knows you will or won't continue to lend if it fails to be paid back.
- joobus 7y ago
  > Saying the Federal Reserve has "printed $415 billion" without qualification is dishonest No, it isn't. I stated exactly what they have done. If you want to make excuses for why they did it, go ahead. It seems you want to.
  - Analemma_ 7y ago
    Your statement was a lie of omission. They printed a much smaller amount, destroyed it shortly afterward, and then repeated that on several occasions until the total amount was about $415 billion. A reasonable person reading "the Federal Reserve has printed $415 billion since mid-September" would take it to mean that $415 billion was added to the monetary supply, which is not what happened. You're disingenuously leaning on how your words will be misinterpreted to stir up unwarranted hysteria about inflation and whatnot.
    - daxorid 7y ago
      Nothing was "destroyed". Rather, it was rolled over for bidding the next day (or 14 days, depending on the specific operation). It's an important distinction, because until the actual FRB balance sheet unwinds back to the $3.76T level it was in September, it is precisely as OP describes. The delta of the FRB's balance sheet between Sept and now is 4066-3761 == 305B. It's not 415B, but it's not even remotely close to 0, either. During this period, there has only been a single weekly draw-down. All other weeks have been accumulative, and should be considered QE4 unless and until these operations stop occurring. Ref: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

salawat 7y ago

The problem comes in in that the Fed should be the lender of last resort. Not the primary thing propping up the system. If banks are not capable of engaging in interbank lending while maintaining elevated regulatory levels of liquidity then they've filled their books in such a way that they are not capable of doing one of the fundamental maintenance activities of the financial system. This is also in essence a sort of signal that all is not well, since there is clearly not enough realizable margin between what the banks portfolios can generate vs. what they have to generate to be capable of playing clearinghouse for another actor. My hunch is, this repo market is probably a normal mechanism used to moderate the system overall (some actors will have a good period, some'll have it bad, but over time everyone averages out) when the market is healthy, and generating actual value. I think what we may be seeing now, is pickings starting to get so slim because of low interest rates/lower spending/lower actual (not surveyed, but actual) growth such that everybody is now turning to the Fed at the same time, because everyone sees everyone else as a threat to their liquidity. The point is that in a healthy market, your growth should be able to surpass your minimum drop dead liquidity reserves. We aren't seeing that so I'd say we aren't experiencing a healthy market; and no, I don't think the higher liquidity reserves are the chief cause of the unhealthy market. I think we're starting to run into the physical barriers in several industrial verticals as the low hanging fruit starts to dry up, and growth is becoming less and less certain, as well as less and less equitably distributed. That's my wild-ass-guess anyway.

pg_is_a_butt 7y ago

> I suspect this is news only because of the financial crisis last decade, otherwise it would be a footnote in the financial pages. This is a footnote in the financial pages. I looked for the article yesterday in the wall st journal, and it was on the back page of the markets section. It didn't make News or Economy. Over $4 trillion in fake money created in a month, when the entire national debt since inception is $23 trillion... why should people care about anything, right?