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The point, more broadly, is that these are loans with a quick expiry baked in. The money comes into and poofs out of existence on a relatively short timescale (
by cheald 7y ago
The point, more broadly, is that these are loans with a quick expiry baked in. The money comes into and poofs out of existence on a relatively short timescale (ranging from overnight to a couple of weeks); we aren't going to see an extra ~$3T in circulation. They're providing lubrication in the repo markets, they aren't just shoveling cash into the banks' vaults.
Most people misunderstand this point when discussing repo operations, so it's worth emphasizing.
- thisisnotmyname 7y agoWhat happens if banks systematically are unable to pay these loans back?
- aguyfromnb 7y ago>What happens if banks systematically are unable to pay these loans back? And how would that happen exactly? But if it did, the Fed would extend the loan, or loan more. Not very complicated.
- bendbro 7y agoSo it's not a loan
- quickthrowman 7y agoThe lender holds the collateral for the duration of the repo loan...
- powowow 7y agoThe fed holds US treasury bonds as collateral. Would you be worried about default if you loaned me a million dollars, and I gave you a million dollars of treasuries as collateral? It blows my mind that people are getting all worried about fully collateralized short term interbank lending.
- me_me_me 7y agoMiddle class can handle that, they already have a lot of experience with this. Better to leave it up to them to clean that mess up.
- Bjartr 7y agoSo I guess then the question to ask becomes "Is there a point at which these short-term loans become problematic, and if so, what are the signs it's hit that point, and what are the consequences of failing to stop that point from being reached?"
- SilasX 7y ago>The point, more broadly, is that these are loans with a quick expiry baked in. Not when they keep rolling them over, they aren't.
- AnimalMuppet 7y agoWell, you can regard that as rollover if you want. But if you do, you're regarding the second day's $120B loan as the same as the first day's $120B loan, not as an additional $120B loan. That is, even if you regard it as rolled over, it's still only $120B total, not $120B * N days. That, I believe, is SilasX's point about quick expiry. The total amount doesn't accumulate. That's true, whether the loans are rolled over or not.
- SilasX 7y agoI am SilasX :-) And yes, that is my point about how to account for it (and that both $120B and $120B x n are bad ways to express the loan significance, for opposite reasons). Here I was addressing the narrower, quoted point, that they're loans "with short expiry built in". No, when the intent from the beginning is to keep rolling them over, that should no longer count as a loan with "quick expiry built in".
- AnimalMuppet 7y agoFacepalm. Yes. Yes, you are. I believe that was cheald's point. Why do you think that $120B is a bad way to express the loan's significance?
- SilasX 7y agoSee my comment for my answer in the other thread: https://news.ycombinator.com/item?id=21827398 https://news.ycombinator.com/item?id=21827398 And if that's cheald's point, then it's invalidated. A loan of effectively three months is not lubrication, it's the [can't continue metaphor under HN rules, but you get the point].