6 ms·

The $1.5 trillion injection doesn't actually cost any money. The Fed is making short-term fully-collateralized loans.

claudeganon 7y ago
Yes, just like how poor people can get 1.5 trillion in subsidized payday loans to cover the gap between pay checks...oh wait. It’s absolutely a bailout.
- ivalm 7y ago
  Payday loans are generally not overnight and are typically not collateralized; they are in fact very risky. Repo's are overnight borrowing collateralized by the US Treasuries. Basically it is borrowing to maintain capitalization requirements in these high volatility times. From the perspective of the US government they have literally 0 risk (you are guaranteed to get back either USD denominated money or US treasury).
  - SilasX 7y ago
    If you want to use that analogy ... You should compare it to a payday loan that is collateralized [1]. And then where the collateral happens to be insufficient because a glut of that item just came on the market (analogous to the sudden rush of banks needing to convert their Treasurys to cash). For the ordinary person, "Sorry, can't help you, you just have to deal with the fact that everyone else is selling that product too and so it doesn't provide the value you want and you have to take a big loss or an interest rate corresponding to higher risk." For banks, "Omg! You can't sell your bonds at par because everyone else is trying to sell before maturity? You poor thing, let me buy them up for you with new money!" [1] Sometimes referred to as "title loans", as you might e.g. put up your (remaining equity in your) car as the collateral.
    - ivalm 7y ago
      Except for they are not using random bonds, they are using Treasuries. This isn't random toxic debt, it's the debt of the US government to itself. More akin to "if banks are insolvent this ensures a certain degree of quantitative easing", which is a good thing since we are undershooting our inflation targets as is.
      - SilasX 7y ago
        They’re not technically toxic debt, but the market definitely prefers cash now, so they’re unwanted just the same.
        QuesnayJr 7y ago
        If they were unwanted, the 30 day interest rate would spike, but it hasn't. This is purely a move to provide liquidity, which is the essential job of the Fed.
        SilasX 7y ago
        They only not unwanted because the Fed is providing demand the market isn’t. That would be just as true of anything else where a glut hit the market.
        QuesnayJr 7y ago
        What's the story here? Banks are buying 30-day bonds so they can borrow overnight with the Fed? They can only borrow up to the amount of the bond, so why don't they just... use the money directly rather than in this roundabout fashion. If the Fed wants to keep the 30-day interest rate down, they can just buy the bonds directly themselves. They don't need to wait for the banks to buy the bonds and then repo them.
        ivalm 7y ago
        They are buying treasury and selling a treasury future, which nets them some premium. They then fulfill overnight capitalization requirements with the very same treasuries. Future premiums are higher than overnight lending rate.
- gbear605 7y ago
  It’s a bailout that doesn’t cost the government any money and that is guaranteed to be returned. Unfortunately, poor people aren’t a guaranteed return or the government would give subsidized payday loans. That said, the whole system needs to be changed to make it so that no one is in a situation to need a payday loan.
- kortilla 7y ago
  If a payday loan required full collateral this comparison would make sense.
  - claudeganon 7y ago
    Title loans on cars and second mortgages do just that, yet the people borrowing never get bailed out the same way by the fed. And guess what, medical bills are the number one cause of bankruptcy in the US, insurance companies are refusing to guarantee coverage for Coronavirus treatment, and the Trump administration just blocked states expanding Medicaid to do the same. Might need to think about systemic risk a little differently.
    - kortilla 7y ago
      There is no bailout here. It would be like the fed stepping in to offer title loans because the title loan companies get too scared. No debts are being forgiven here.
- tathougies 7y ago
  Except this time the federal reserve is paying money for loans collateralized by the federal government. It's a bit like purchasing your home loan from your bank and then giving it back after they pay you a bit of interest for it.
dgacmu 7y ago
It costs, just not the face value. From a government revenue perspective, it's going at around half a point lower than before, which costs about $20m/day. (There are a lot of different ways to look at the effect of that money injection, but this is one way to try to simplify it into a cost measure that doesn't require thinking about the effects on the economy)
kurthr 7y ago
Well, they are presumably generating some 10s of basis points of profit (lack of loss) for the banking party, so it's more like putting a $B out there for the taking, but providing a lot more "liquidity". That's the really disturbing thing... the bond market hasn't been liquid this week! Lots of no-bid.
nostrademons 7y ago
Technically lowering the SS age doesn't cost any money either. The government controls the money supply; they could just print money and hand it out. The real problem is that if they did this it wouldn't actually have any real short-term effect other than making the things seniors want to buy more expensive. Money's a fiction: it's purpose is to incentivize people to produce things that other people want. If you increase the amount of money in a population but don't increase the supply of goods, it just means everything gets more expensive. You still have the same amount of hospital beds, senior living centers, cruise berths, golf courses, etc. to go around but now the market-clearing price of buying one goes up, some fraction of poor old people end up without one, and their spot is taken by a richer young person. Over the long-term there's a reallocation of labor that actually does change things: that senior might retire and his job will be filled by someone younger, or people who might've gone into pediatric nursing instead work at a nursing home, or luxury condos might be converted into assisted living. All of these have unintended consequences that ripple down to others, eg. if condos are converted to senior homes it raises the price of housing for young people.
- bpodgursky 7y ago
  Printing money and QE are not the same, and it spreads misinformation to equate them.
- kortilla 7y ago
  > Technically lowering the SS age doesn't cost any money either. The government controls the money supply; they could just print money and hand it out. The government doesn’t do this though. That’s why there is confidence in the USD.
  - nostrademons 7y ago
    The government does, actually: Article 1, Section 8 of the U.S. Constitution explicitly gives Congress the power "to collect taxes; to coin money and regulate its value; provide for punishment for counterfeiting", among other powers. It's just that Congress has delegated this to multiple independent organizations within the government. The U.S. Mint makes physical coins and paper money. The U.S. Treasury issues government debt. The IRS collects taxes. The Secret Service prosecutes counterfeiting. The Federal Reserve serves as the lender of last resort to the banking system. The President submits the budget, which must be approved by Congress. The division between the President, Congress, U.S. Treasury, and Federal Reserve forms a very important check on the tendency of most governments to just print money to cover government services, since different branches of government are responsible for determining how much is spent; where it's spent; where it's collected from, and under what terms it'll be repaid; and how much it's worth. But it's worth remembering that constitutionally, Congress has the power to create all of those agencies, and Congress also has the power to unmake them. I don't necessarily think that doing so is a good idea, but it's possible.
deleted 7y ago
[deleted]

Yes, just like how poor people can get 1.5 trillion in subsidized payday loans to cover the gap between pay checks...oh wait. It’s absolutely a bailout.

ivalm 7y ago
Payday loans are generally not overnight and are typically not collateralized; they are in fact very risky. Repo's are overnight borrowing collateralized by the US Treasuries. Basically it is borrowing to maintain capitalization requirements in these high volatility times. From the perspective of the US government they have literally 0 risk (you are guaranteed to get back either USD denominated money or US treasury).
- SilasX 7y ago
  If you want to use that analogy ... You should compare it to a payday loan that is collateralized [1]. And then where the collateral happens to be insufficient because a glut of that item just came on the market (analogous to the sudden rush of banks needing to convert their Treasurys to cash). For the ordinary person, "Sorry, can't help you, you just have to deal with the fact that everyone else is selling that product too and so it doesn't provide the value you want and you have to take a big loss or an interest rate corresponding to higher risk." For banks, "Omg! You can't sell your bonds at par because everyone else is trying to sell before maturity? You poor thing, let me buy them up for you with new money!" [1] Sometimes referred to as "title loans", as you might e.g. put up your (remaining equity in your) car as the collateral.
  - ivalm 7y ago
    Except for they are not using random bonds, they are using Treasuries. This isn't random toxic debt, it's the debt of the US government to itself. More akin to "if banks are insolvent this ensures a certain degree of quantitative easing", which is a good thing since we are undershooting our inflation targets as is.
    - SilasX 7y ago
      They’re not technically toxic debt, but the market definitely prefers cash now, so they’re unwanted just the same.
      - QuesnayJr 7y ago
        If they were unwanted, the 30 day interest rate would spike, but it hasn't. This is purely a move to provide liquidity, which is the essential job of the Fed.
        SilasX 7y ago
        They only not unwanted because the Fed is providing demand the market isn’t. That would be just as true of anything else where a glut hit the market.
        QuesnayJr 7y ago
        What's the story here? Banks are buying 30-day bonds so they can borrow overnight with the Fed? They can only borrow up to the amount of the bond, so why don't they just... use the money directly rather than in this roundabout fashion. If the Fed wants to keep the 30-day interest rate down, they can just buy the bonds directly themselves. They don't need to wait for the banks to buy the bonds and then repo them.
        ivalm 7y ago
        They are buying treasury and selling a treasury future, which nets them some premium. They then fulfill overnight capitalization requirements with the very same treasuries. Future premiums are higher than overnight lending rate.
gbear605 7y ago
It’s a bailout that doesn’t cost the government any money and that is guaranteed to be returned. Unfortunately, poor people aren’t a guaranteed return or the government would give subsidized payday loans. That said, the whole system needs to be changed to make it so that no one is in a situation to need a payday loan.
kortilla 7y ago
If a payday loan required full collateral this comparison would make sense.
- claudeganon 7y ago
  Title loans on cars and second mortgages do just that, yet the people borrowing never get bailed out the same way by the fed. And guess what, medical bills are the number one cause of bankruptcy in the US, insurance companies are refusing to guarantee coverage for Coronavirus treatment, and the Trump administration just blocked states expanding Medicaid to do the same. Might need to think about systemic risk a little differently.
  - kortilla 7y ago
    There is no bailout here. It would be like the fed stepping in to offer title loans because the title loan companies get too scared. No debts are being forgiven here.
tathougies 7y ago
Except this time the federal reserve is paying money for loans collateralized by the federal government. It's a bit like purchasing your home loan from your bank and then giving it back after they pay you a bit of interest for it.

dgacmu 7y ago

It costs, just not the face value. From a government revenue perspective, it's going at around half a point lower than before, which costs about $20m/day. (There are a lot of different ways to look at the effect of that money injection, but this is one way to try to simplify it into a cost measure that doesn't require thinking about the effects on the economy)

kurthr 7y ago

Well, they are presumably generating some 10s of basis points of profit (lack of loss) for the banking party, so it's more like putting a $B out there for the taking, but providing a lot more "liquidity". That's the really disturbing thing... the bond market hasn't been liquid this week! Lots of no-bid.

nostrademons 7y ago

Technically lowering the SS age doesn't cost any money either. The government controls the money supply; they could just print money and hand it out. The real problem is that if they did this it wouldn't actually have any real short-term effect other than making the things seniors want to buy more expensive. Money's a fiction: it's purpose is to incentivize people to produce things that other people want. If you increase the amount of money in a population but don't increase the supply of goods, it just means everything gets more expensive. You still have the same amount of hospital beds, senior living centers, cruise berths, golf courses, etc. to go around but now the market-clearing price of buying one goes up, some fraction of poor old people end up without one, and their spot is taken by a richer young person. Over the long-term there's a reallocation of labor that actually does change things: that senior might retire and his job will be filled by someone younger, or people who might've gone into pediatric nursing instead work at a nursing home, or luxury condos might be converted into assisted living. All of these have unintended consequences that ripple down to others, eg. if condos are converted to senior homes it raises the price of housing for young people.

bpodgursky 7y ago
Printing money and QE are not the same, and it spreads misinformation to equate them.
kortilla 7y ago
> Technically lowering the SS age doesn't cost any money either. The government controls the money supply; they could just print money and hand it out. The government doesn’t do this though. That’s why there is confidence in the USD.
- nostrademons 7y ago
  The government does, actually: Article 1, Section 8 of the U.S. Constitution explicitly gives Congress the power "to collect taxes; to coin money and regulate its value; provide for punishment for counterfeiting", among other powers. It's just that Congress has delegated this to multiple independent organizations within the government. The U.S. Mint makes physical coins and paper money. The U.S. Treasury issues government debt. The IRS collects taxes. The Secret Service prosecutes counterfeiting. The Federal Reserve serves as the lender of last resort to the banking system. The President submits the budget, which must be approved by Congress. The division between the President, Congress, U.S. Treasury, and Federal Reserve forms a very important check on the tendency of most governments to just print money to cover government services, since different branches of government are responsible for determining how much is spent; where it's spent; where it's collected from, and under what terms it'll be repaid; and how much it's worth. But it's worth remembering that constitutionally, Congress has the power to create all of those agencies, and Congress also has the power to unmake them. I don't necessarily think that doing so is a good idea, but it's possible.

deleted 7y ago

[deleted]