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I'm currently taking the "Economics of Money and Banking" course on coursera [0] and, as far as my understanding has developed, the Fed injecting cash is not an

I'm currently taking the "Economics of Money and Banking" course on coursera [0] and, as far as my understanding has developed, the Fed injecting cash is not an irreversible thing. When the liquidity crunch is over, the Fed will start gradually increasing the rate. That will make rolling over existing overnight loans taken from the Fed less attractive and a lot of money will flow back to the Fed. I hope people more familiar with the subject will correct me if I'm wrong. [0]: https://www.coursera.org/learn/money-banking https://www.coursera.org/learn/money-banking

nscalf 7y ago
Currently the issue is that the fed has removed the overnight liquidity requirements. This opens up the threat of a bank run. All of this is due to years of aggressively propping up the economy for political means, in reality we should have had a market decline a few years ago, but the government massively mismanaged their responsibilities and pushed us into more than one bubble, while hamstringing their ability to respond.
- littlestymaar 7y ago
  Since most payments are now dematerialized in developed countries, a bank run would cause little issue in practice though.
  - lolc 7y ago
    The problem with a bank run is not the physicality of it, but the insolvency.
    - coldtea 7y ago
      Without physicality though, it's not hard to restrict automatically the demand. Capital control measures...
    - dmurdoch 7y ago
      Major US banks will NOT be rendered insolvent. The fed won't allow it. They are literally too big to fail. They'll just be bailed out.
      - chalst 7y ago
        US banks have deposit insurance of $250k per account for retail banks. https://www.fdic.gov/deposit/deposits/faq.html https://www.fdic.gov/deposit/deposits/faq.html
        protein_lense 7y ago
        Yes, and in 1Q2017, the fund held $84.9E9. Meanwhile, in the US, gross private savings total $4.64 trillion, while personal savings total $1.06 trillion.(Sep 11, 2019) What happens when a major bank goes under and completely depletes the FDIC fund? (e.g. Bank of America) Another key aspect of monetary metals is lack of counter party risk. When you deposit money with BoA, it is no longer yours; you become an unsecured creditor of the bank. BoA's derivatives counter parties are senior to you, so they will get paid first if say interest rate swaps go against BoA, and they need to post more collateral to that counter party. Also, the problem with rates 'normalizing' is the magnitude of outstanding Treasury debt, and the fraction of GDP that the interest payments represent. 5% would be devastating, even though historically, that is a typical rate.
    - csense 7y ago
      If you're not transacting for physical cash, isn't your money going directly into an account at another bank? Unless people are withdrawing mass amounts of cash, I'm relatively certain you can't have bank runs against the banking system as a whole, you can only have runs against a particular bank.
barry-cotter 7y ago
The Fed and other central banks have almost total control over nominal inflation because they control the printing presses. They can create money by buying bonds and destroy it by selling them. They have bugger all control over real inflation but that’s a matter for the fiscal authorities to try and deal with by demand management. “Inflation is always and everywhere a monetary phenomenon.” Milton Friedman Edited to fix elementary mistake as pointed out by forkerenok
- forkerenok 7y ago
  > They can create money by selling bonds... Did you actually mean it the other way around as in they can create money by buying govt bonds/treasury bills/etc and retire them by selling them back to the market.
  - barry-cotter 7y ago
    Yes, will edit. Thanks.
- littlestymaar 7y ago
  That's funny to quote Milton Friedman in 2020 because the monetarist analysis have had zero predictive power since the 80s!
  - barry-cotter 7y ago
    Yes, if you stop doing the thing that reliably leads to hyperinflation you don’t get any more hyperinflation.
    - littlestymaar 7y ago
      First of all, inflation and hyperinflation are two really different things. The first one being common in history while the second one is rare but catastrophic. Then, In Friedman's book inflation is related to the amount of money in circulation, yet since the 80s the amount of money and inflation have almost zero correlation in the US. Some of Friedman's concepts were useful to reach that point, but still: we now have been living for 40 years in a world where Friedman's model is unable to explain anything.

nscalf 7y ago

Currently the issue is that the fed has removed the overnight liquidity requirements. This opens up the threat of a bank run. All of this is due to years of aggressively propping up the economy for political means, in reality we should have had a market decline a few years ago, but the government massively mismanaged their responsibilities and pushed us into more than one bubble, while hamstringing their ability to respond.

littlestymaar 7y ago
Since most payments are now dematerialized in developed countries, a bank run would cause little issue in practice though.
- lolc 7y ago
  The problem with a bank run is not the physicality of it, but the insolvency.
  - coldtea 7y ago
    Without physicality though, it's not hard to restrict automatically the demand. Capital control measures...
  - dmurdoch 7y ago
    Major US banks will NOT be rendered insolvent. The fed won't allow it. They are literally too big to fail. They'll just be bailed out.
    - chalst 7y ago
      US banks have deposit insurance of $250k per account for retail banks. https://www.fdic.gov/deposit/deposits/faq.html https://www.fdic.gov/deposit/deposits/faq.html
      - protein_lense 7y ago
        Yes, and in 1Q2017, the fund held $84.9E9. Meanwhile, in the US, gross private savings total $4.64 trillion, while personal savings total $1.06 trillion.(Sep 11, 2019) What happens when a major bank goes under and completely depletes the FDIC fund? (e.g. Bank of America) Another key aspect of monetary metals is lack of counter party risk. When you deposit money with BoA, it is no longer yours; you become an unsecured creditor of the bank. BoA's derivatives counter parties are senior to you, so they will get paid first if say interest rate swaps go against BoA, and they need to post more collateral to that counter party. Also, the problem with rates 'normalizing' is the magnitude of outstanding Treasury debt, and the fraction of GDP that the interest payments represent. 5% would be devastating, even though historically, that is a typical rate.
  - csense 7y ago
    If you're not transacting for physical cash, isn't your money going directly into an account at another bank? Unless people are withdrawing mass amounts of cash, I'm relatively certain you can't have bank runs against the banking system as a whole, you can only have runs against a particular bank.

barry-cotter 7y ago

The Fed and other central banks have almost total control over nominal inflation because they control the printing presses. They can create money by buying bonds and destroy it by selling them. They have bugger all control over real inflation but that’s a matter for the fiscal authorities to try and deal with by demand management. “Inflation is always and everywhere a monetary phenomenon.” Milton Friedman Edited to fix elementary mistake as pointed out by forkerenok

forkerenok 7y ago
> They can create money by selling bonds... Did you actually mean it the other way around as in they can create money by buying govt bonds/treasury bills/etc and retire them by selling them back to the market.
- barry-cotter 7y ago
  Yes, will edit. Thanks.
littlestymaar 7y ago
That's funny to quote Milton Friedman in 2020 because the monetarist analysis have had zero predictive power since the 80s!
- barry-cotter 7y ago
  Yes, if you stop doing the thing that reliably leads to hyperinflation you don’t get any more hyperinflation.
  - littlestymaar 7y ago
    First of all, inflation and hyperinflation are two really different things. The first one being common in history while the second one is rare but catastrophic. Then, In Friedman's book inflation is related to the amount of money in circulation, yet since the 80s the amount of money and inflation have almost zero correlation in the US. Some of Friedman's concepts were useful to reach that point, but still: we now have been living for 40 years in a world where Friedman's model is unable to explain anything.