4 ms·

The Fed isn't printing 1.5 trillion greenbacks and handing out fat sacks on Wall St. They are providing short-term loans to increase the amount of money in circ

• JumpCrisscross 7y ago
  > They are providing short-term loans They're also buying assets, e.g. Treasuries. This is about increasing liquidity, not printing money.
  • krtong 7y ago
    It's the closest to printing money as the real world gets. "Hey here's an insane amount of money at 0% interest rate so you could literally invest in ANYTHING and make free money. Go ham." Lets remember what causes slowdowns in productivity, panics, the great depression, the recession etc: people being slammed with too high interest rates for what's feasible for them to repay when times are tough. If the fed offered low interest rates directly it would be a different world. Remember also, the world is an auction house, so when people get these kinds of perks and you don't, your money doesnt go as far.
• mamon 7y ago
  >> They are providing short-term loans If I want to give my friend a loan, I need to earn that money first by working hard. FED does not conduct any profitable activity that would earn them any money, they DO PRINT that money from thin air.
  • kylebenzle 7y ago
    Why do people keep telling the lie that the FED "does not print money"? As you say, these "loans" are the FED printing $1.5t, no other way to look at it.
    • 34679 7y ago
      There is at least one other way to look at it. These loans will primarily, if not exclusively, go to large financial institutions. Due to the wonders of fractional reserve lending, those institutions will get to loan out several multiples of the original $1.5T. Another way to look at it is that they've probably "printed" closer to $15T.
      • kamaal 7y ago
        How does this work? Like any government can just print their way to prosperity? I mean you just magically put $15T into circulation? Won't this lead to inflation?
        • dchyrdvh 7y ago
          As long as other countries use dollars, it's the US that's got 15T worth of goods more. These 15T buy entire tankers of oil, metals, minerals and goods from other countries and this is what matters.
        • 34679 7y ago
          Yes it will absolutely lead to inflation. But for the well connected banks who are first to benefit, and coincidentally, I'm sure, the ones who run the Federal Reserve, the money will get to be spent/loaned before it causes much or any inflation. For the rest of us with value stored as US currency, we get fucked.
        • imtringued 7y ago
          It depends on what it is used for. If banks have enough deposits to lend out $15T they might not find enough borrowers and therefore only a partial sum will reach the economy. Why do banks have so much trouble getting borrowers if the interest rates are negative? Because banks add additional fees on top. The fee must high enough to cover defaulting loans and the bank's expenses. If you have ever taken a loan from a bank you are aware that you must prove to the bank that you are able to repay the sum. Based on the information they receive they will calculate the default risk and increase the interest rate accordingly. Warning. Extremely simplified for ease of demonstration. If you have a 50% default risk then someone else has to cover your missed payments. For every $10k you want to borrow the bank has to ask for another $10k in additional interest to cover the default risk. If your loan lasts 8 years that means $833 additional interest per year or around 8%. Now, if you are a young poor person with a bad credit score then you might end up paying 5% on top of the actual interest rate. Negative interest: 5% - 0.1% = 4.9%. Positive interest: 5% + 1% = 6%. I'm glossing over compounding interest but the picture is clear. Negative interest rates are not going to meaningfully change the cost of borrowing money for the average person unless they get a mortgage that is backed by the value of the house. Meanwhile for rich people and companies who can get rates as low as 1% lowering the interest rate to -0.1% is almost like a cheat code. At those rates the money might as well be free.
  • ipnon 7y ago
    If you want to compare apple to oranges, then you would need to be able to print money from thin air in order to be consistent in your metaphor where you are the Federal Reserve and your friend is a cohort of "financial institutions providing high-quality collateral" in exchange. Personal finance and monetary policy are not similar even though they both involve money. Money in your bank account is not the same as money in the Federal Reserve or even money printed at a mint.
    • mamon 7y ago
      >> Personal finance and monetary policy are not similar even though they both involve money. That's what central banks want you to believe: that what they are doing is something special, "God's work" - as some drunk Goldman Sachs executive put it. Truth is: law of economics are pretty much like laws of physics - they work the same in small and large scale. It is no coincidence that Great Depression happened in 1929, mere 16 years after FED was created - that was just a first of many consequences of central bank's irresponsible actions.
• 6gvONxR4sf7o 7y ago
  How short term are these loans?
  • tandr 7y ago
    Overnight, I think
• sytelus 7y ago
  There is huge amount of cash sloshing around as it is. Folks like Mark Cuban have already been mostly cash. Big tech have $100B cash lying around. I think it would be disgenuous to say there is no cash available for trading but perhaps right thing to say that I rather not trad with my own cash. I presume if you trad with fed money and go on loss over long term then you can simply declare bankrupcy of your shell company and start a new one.
  • Waterluvian 7y ago
    Literally printing money and pushing up inflation would effectively claw back these dollars, yeah? So long as you send rebates to everyone else.
• gowld 7y ago
  Why do banks get these sweetheart loans instead of civilians?
  • MrMember 7y ago
    What is the average person going to do with an overnight loan?