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Cash Flood Drives Use of Fed Reverse Repo to Record $1T

50 points by CyberRabbi 5y ago

sschueller 5y ago
I don't like Peter Schiff [1] and I think he's a selfish prick but I believe he is right when he says we are just pushing the hot potato down the road. This won't end well. [1] https://insideparadeplatz.ch/videos/the-entire-monetary-system-as-we-know-it-will-come-to-an-end/ https://insideparadeplatz.ch/videos/the-entire-monetary-syst...
- the-dude 5y ago
  He is predicting doom for over a decade.
  - epicureanideal 5y ago
    Sure, but the government has also been kicking the can down the road for over a decade. Interest rates get lower and lower, asset prices get pushed higher and higher...
    - fakesheriff 5y ago
      Demographics = destiny. When an older generation with no concept of civilization wields political power, it does so in its own narrow self interest. We must pay $1.5m for a shitty 3BR apartment, $300k for a college degree, and $600 for insulin so that Boomers may live comfortably in retirement. The frustrating part is that only half of Boomers will live comfortably in retirement. The ones that do will be very comfortable. The others will stand on their arthritic knees 8hrs a day bagging groceries, trying to offset the precipitous decline in the purchasing power of their social security checks. Boomers are so selfish they don't even look out for people in their own cohort. The Boomer generation is an abject civilizational failure.
  - applepple 5y ago
    Clearly he was right. Not sure how else to call what's going on now. Many people now are doomed. You just don't hear about them - This makes their suffering worse, not better. It's a matter of time before it reaches the rest of us. The rot has already eaten away the core of the economy.
  - CheezeIt 5y ago
    Yet we now have rock bottom interest rates and a 0% reserve requirement.
    - spinchange 5y ago
      And a global health pandemic that's harder to peg than inflation
  - SAShithole 5y ago
    And at some point he is bound to be right desu.
  - coralreef 5y ago
    I don't care for Schiff, but central banking and the modern monetary system is fundamentally problematic. Just because we haven't experienced a black-swan event doesn't mean that it's not possible, whether that be a market crash or a pandemic. Some cycles take longer than decades to play out. Some things take hundreds of years. First principles thinking (and common sense) tells us that no party should be able to create money out of thin air, it almost breaks physics, but it doesn't because the value comes from diluting every else's money. It breaks the social contract by taking from others without consent or transparency. And so no one complains because they don't notice it happening; my accounts stand as complete as they were yesterday. A powerful tool that over time, inevitably gets abused and mismanaged.
    - bin_bash 5y ago
      > Just because we haven't experienced a black-swan event doesn't mean that it's not possible. That’s going to be true for any kind of economic system. No reasonable person would argue that a black swan event wouldn’t be possible.
      - coralreef 5y ago
        The more complexity introduced into a system, the more likely the event of failure. This is true for airplanes, fission reactors, and monetary systems. Humans are the ultimate complexity, and indeed central banking relies on the decision making of a powerful few. Will the interest rate go up or down? Will a flood of money buy bonds and mortgages? Those decisions are made for us.
    - SantalBlush 5y ago
      These issues, like "it almost breaks physics" and "it breaks the social contract," are pretty vague.
      - coralreef 5y ago
        If I was able to create new energy out of nowhere in my bare hands, you would be astounded. Of course this is not possible. Energy must come from somewhere else. When you create new money, you have seemingly "new energy" in your hands, except the value of that "new money" came from everyone else's money, the existing base. Their money became worth less (inflation). The government is constantly creating more money, which is why we consistently have inflation year after year. They do it in the name of stimulating the economy. They've done it so much, that many governments now have 0 or negative interest rates on their bonds. This is when things start getting very confusing, because saving money should yield you a positive return. Your savings account should pay you interest, but instead you pay the bank to store your money (doesn't actually happen at the retail level, banks eat the cost to keep you in their business). The "social contract" aspect is that if you want something, you ask for it. Raise taxes? Lower taxes? At least there is representation at some level with a vote. Going to war in Iraq? Needs congressional and senate approval. Creating $100b of money you don't have and buying government bonds every month? Fed does this, and nobody blinks.
- Afforess 5y ago
  Predicting recessions is easy. Economists have predicted 18 of the last 4 recessions.
  - ur-whale 5y ago
    If there's one thing Economists are amazingly bad at it's predictions. Not that it prevents them from producing metric tons of it. And why shouldn't they? People gobble them up and never hold them accountable for getting it wrong.
  - SantalBlush 5y ago
    This old saw might seem clever, but we have a central bank and a government working to make every one of those 18 predictions false.
    - legolas2412 5y ago
      And have borrowed immensely from the future generations for this. The bill will come due sometime, and some future generation would finally have to pay it up.
      - jlokier 5y ago
        > some future generation would finally have to pay it up To whom? The past? Future generations inherit whatever is produced in the present. If you want to run with with the present-vs-future generations metaphor, maybe include that the present generation will gift everything they have to the future generation. Spending money to improve things today is an investment in the future as well.
        legolas2412 5y ago
        Not everything is wealth. A lot of GDP is consumption which is depreciating assets that disappear. I would be happier if my future income isn't taxed to gift to the wealth of the currently rich. And this extra wealth of currently rich is definitely never getting taxed enough to get it back into the working class hands. We have gone so far into capitalism that not only we take from labor to give to capital owners, we have started taking from future labor to give to current capital owners.
- Proven 5y ago
  > I think he's a selfish prick And compared to him you are not because...?
aazaa 5y ago
> Demand for the so-called RRP facility has surged since the Fed boosted the offering rate on it to 0.05% from 0% last month as a flood of cash continues to overwhelm the U.S. dollar funding markets. That’s in part a result of central-bank asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. This article kind of leaves the significance of what's happening as an exercise for the reader. The Fed is in the fight of its life to hold back negative short term interest rates. That 0.05% in the RRP is the only thing standing in the way. Yes, this is ironic (and alarming) because QE was supposed to drive down long rates and thereby entice borrowers to borrow. However, the massive drawdown of the TGA (the Treasury's account with the Fed) has left the banks starved for good collateral yielding anything. Money market funds are obligated by law to buy short-erm US Treasuries. Throw in various government transfers clogging up the banking system, and all of this puts huge pressure on short-term notes. QE is only inflationary if banks lend against the collateral they receive as a result of QE. So far, that hasn't been happening much. So the potential here is a deflationary shock that few are expecting, with negative rates across the yield curve leading the way.
- toomuchtodo 5y ago
  What’s the play if your prediction is accurate?
  - legolas2412 5y ago
    I think you could buy long term treasuries at the currently high interest rates. When interest rate goes down, your treasury value goes up.
    - deleted 5y ago
      [deleted]
    - cinquemb 5y ago
      The problem with this is that UST's are being used as collateral (maybe not for the "real economy" but definitely financial assets), are also rehypothicated many times over and face liquidation risks in line with notional value of credit risks of the positions its backing. Buying and holding long dated UST is like being leveraged long duration in the environment where interest rates are more sensitive to the credit risk of other assets in the system.

50 points by CyberRabbi 5y ago

I don't like Peter Schiff [1] and I think he's a selfish prick but I believe he is right when he says we are just pushing the hot potato down the road. This won't end well. [1] https://insideparadeplatz.ch/videos/the-entire-monetary-system-as-we-know-it-will-come-to-an-end/ https://insideparadeplatz.ch/videos/the-entire-monetary-syst...

the-dude 5y ago
He is predicting doom for over a decade.
- epicureanideal 5y ago
  Sure, but the government has also been kicking the can down the road for over a decade. Interest rates get lower and lower, asset prices get pushed higher and higher...
  - fakesheriff 5y ago
    Demographics = destiny. When an older generation with no concept of civilization wields political power, it does so in its own narrow self interest. We must pay $1.5m for a shitty 3BR apartment, $300k for a college degree, and $600 for insulin so that Boomers may live comfortably in retirement. The frustrating part is that only half of Boomers will live comfortably in retirement. The ones that do will be very comfortable. The others will stand on their arthritic knees 8hrs a day bagging groceries, trying to offset the precipitous decline in the purchasing power of their social security checks. Boomers are so selfish they don't even look out for people in their own cohort. The Boomer generation is an abject civilizational failure.
- applepple 5y ago
  Clearly he was right. Not sure how else to call what's going on now. Many people now are doomed. You just don't hear about them - This makes their suffering worse, not better. It's a matter of time before it reaches the rest of us. The rot has already eaten away the core of the economy.
- CheezeIt 5y ago
  Yet we now have rock bottom interest rates and a 0% reserve requirement.
  - spinchange 5y ago
    And a global health pandemic that's harder to peg than inflation
- SAShithole 5y ago
  And at some point he is bound to be right desu.
- coralreef 5y ago
  I don't care for Schiff, but central banking and the modern monetary system is fundamentally problematic. Just because we haven't experienced a black-swan event doesn't mean that it's not possible, whether that be a market crash or a pandemic. Some cycles take longer than decades to play out. Some things take hundreds of years. First principles thinking (and common sense) tells us that no party should be able to create money out of thin air, it almost breaks physics, but it doesn't because the value comes from diluting every else's money. It breaks the social contract by taking from others without consent or transparency. And so no one complains because they don't notice it happening; my accounts stand as complete as they were yesterday. A powerful tool that over time, inevitably gets abused and mismanaged.
  - bin_bash 5y ago
    > Just because we haven't experienced a black-swan event doesn't mean that it's not possible. That’s going to be true for any kind of economic system. No reasonable person would argue that a black swan event wouldn’t be possible.
    - coralreef 5y ago
      The more complexity introduced into a system, the more likely the event of failure. This is true for airplanes, fission reactors, and monetary systems. Humans are the ultimate complexity, and indeed central banking relies on the decision making of a powerful few. Will the interest rate go up or down? Will a flood of money buy bonds and mortgages? Those decisions are made for us.
  - SantalBlush 5y ago
    These issues, like "it almost breaks physics" and "it breaks the social contract," are pretty vague.
    - coralreef 5y ago
      If I was able to create new energy out of nowhere in my bare hands, you would be astounded. Of course this is not possible. Energy must come from somewhere else. When you create new money, you have seemingly "new energy" in your hands, except the value of that "new money" came from everyone else's money, the existing base. Their money became worth less (inflation). The government is constantly creating more money, which is why we consistently have inflation year after year. They do it in the name of stimulating the economy. They've done it so much, that many governments now have 0 or negative interest rates on their bonds. This is when things start getting very confusing, because saving money should yield you a positive return. Your savings account should pay you interest, but instead you pay the bank to store your money (doesn't actually happen at the retail level, banks eat the cost to keep you in their business). The "social contract" aspect is that if you want something, you ask for it. Raise taxes? Lower taxes? At least there is representation at some level with a vote. Going to war in Iraq? Needs congressional and senate approval. Creating $100b of money you don't have and buying government bonds every month? Fed does this, and nobody blinks.
Afforess 5y ago
Predicting recessions is easy. Economists have predicted 18 of the last 4 recessions.
- ur-whale 5y ago
  If there's one thing Economists are amazingly bad at it's predictions. Not that it prevents them from producing metric tons of it. And why shouldn't they? People gobble them up and never hold them accountable for getting it wrong.
- SantalBlush 5y ago
  This old saw might seem clever, but we have a central bank and a government working to make every one of those 18 predictions false.
  - legolas2412 5y ago
    And have borrowed immensely from the future generations for this. The bill will come due sometime, and some future generation would finally have to pay it up.
    - jlokier 5y ago
      > some future generation would finally have to pay it up To whom? The past? Future generations inherit whatever is produced in the present. If you want to run with with the present-vs-future generations metaphor, maybe include that the present generation will gift everything they have to the future generation. Spending money to improve things today is an investment in the future as well.
      - legolas2412 5y ago
        Not everything is wealth. A lot of GDP is consumption which is depreciating assets that disappear. I would be happier if my future income isn't taxed to gift to the wealth of the currently rich. And this extra wealth of currently rich is definitely never getting taxed enough to get it back into the working class hands. We have gone so far into capitalism that not only we take from labor to give to capital owners, we have started taking from future labor to give to current capital owners.
Proven 5y ago
> I think he's a selfish prick And compared to him you are not because...?

aazaa 5y ago

> Demand for the so-called RRP facility has surged since the Fed boosted the offering rate on it to 0.05% from 0% last month as a flood of cash continues to overwhelm the U.S. dollar funding markets. That’s in part a result of central-bank asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. This article kind of leaves the significance of what's happening as an exercise for the reader. The Fed is in the fight of its life to hold back negative short term interest rates. That 0.05% in the RRP is the only thing standing in the way. Yes, this is ironic (and alarming) because QE was supposed to drive down long rates and thereby entice borrowers to borrow. However, the massive drawdown of the TGA (the Treasury's account with the Fed) has left the banks starved for good collateral yielding anything. Money market funds are obligated by law to buy short-erm US Treasuries. Throw in various government transfers clogging up the banking system, and all of this puts huge pressure on short-term notes. QE is only inflationary if banks lend against the collateral they receive as a result of QE. So far, that hasn't been happening much. So the potential here is a deflationary shock that few are expecting, with negative rates across the yield curve leading the way.

toomuchtodo 5y ago
What’s the play if your prediction is accurate?
- legolas2412 5y ago
  I think you could buy long term treasuries at the currently high interest rates. When interest rate goes down, your treasury value goes up.
  - deleted 5y ago
    [deleted]
  - cinquemb 5y ago
    The problem with this is that UST's are being used as collateral (maybe not for the "real economy" but definitely financial assets), are also rehypothicated many times over and face liquidation risks in line with notional value of credit risks of the positions its backing. Buying and holding long dated UST is like being leveraged long duration in the environment where interest rates are more sensitive to the credit risk of other assets in the system.