7 ms·

Coordinated central bank action to enhance the provision of US dollar liquidity

72 points by VagueMag 4y ago

robbiet480 4y ago
[flagged]
- NovemberWhiskey 4y ago
  No; these are central bank currency swaps designed to improve dollar liquidity overseas. This has essentially nothing to do with QE or anything like that.
  - simple-thoughts 4y ago
    If the assets that are swapped were in fact worth what the swap line values them at, there would be no need for a swap line since the assets could be lent out in the open market. While you’re technically correct that it’s not QE, since the fed reserve is not directly purchasing assets, it has a similar effect on international markets. Foreign central banks purchase or lend USD to their local banks for assets which can’t be used as good collateral (meaning counterparties don’t believe the market has enough liquidity and/or the assets are valued under par) then these central banks, if they run low on USD, swap their own currency for USD through the swap lines. The net result is USD flows out of the Federal Reserve and into foreign bank reserves, while illiquid and/or under par assets flow into foreign central banks while foreign currency flows into the federal reserve. So it’s not really correct to say it isn’t like QE at all since in both types of stimulus new USD is issued by the federal reserve in exchange for assets. The difference is in the terms, counterparties, and types of assets.
    - WanderPanda 4y ago
      Great clarification, thanks!
    - NovemberWhiskey 4y ago
      >So it’s not really correct to say it isn’t like QE at all since in both types of stimulus new USD is issued by the federal reserve in exchange for assets. Uhhh, OK, by that definition the Fed discount window is "a bit like QE" too. >The difference is in the terms, counterparties, and types of assets. This is ... not a subtle difference? QE is outright purchase, vs a relative short-term swap structure; domestic commercial banks, vs. foreign central banks; bonds and MBS vs. currency.
  - lowkey 4y ago
    They might call it something else but the effect is the same as QE. The FED’s balance sheet has expanded by $300 billion in the past few days [0] That is equivalent to the past 4 months of quantitative tightening. This money is to be used to backstop insolvent banks and like all Fed created money it was created out of thin air. Make no mistake this will lead to even more inflation. [0] [0] https://mobile.twitter.com/charliebilello/status/1636479879364460546/photo/1 https://mobile.twitter.com/charliebilello/status/16364798793... Edit: added context to the size of the QE that the Fed claims isn’t really QE.
    - HDThoreaun 4y ago
      That's not what QE is and it does not have the same effect as QE.
      - lowkey 4y ago
        It’s a sudden expansion of the Fed’s balance sheet. What else would you call it?
        HDThoreaun 4y ago
        A loan to provide liquidity. QE is the systematic increasing of bond values. These loans will have no effect on bond value and therefore interest rates because they have high interest rates and need to be paid back quickly. They just give debtors enough time to sell a few assets and wait for the situation to calm down.
        lowkey 4y ago
        See my edited comment above. The effect is to erase the past 4 months of quantitative tightening in a single week. We can agree not to call it QE but the effect is nonetheless inflationary as with all cases when the Fed creates money out of thin air, thereby diluting the purchasing power of all dollar holders.
- _3u10 4y ago
  No this is making sure distribution is in place for when the printer goes brrrr… basically they are phoning the clubs and making sure bottles, Apple bottom jeans and the boots with the furs are there so when it’s time to make it rain the club is prepped and the money can be spent.
  - mym1990 4y ago
    Laughed at that second part.
lowkey 4y ago
The Fed set the reserve ratio for banks to zero percent in 2020 which absolutely contributed to this latest banking crisis. I wonder why they haven’t reversed course as that would seem a prudent course of action to protect depositor funds from being used for leverage speculation. [0] [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- lazide 4y ago
  The worst time to require increased reserves is during a liquidity crisis, as reserves suck up liquidity.
  - lowkey 4y ago
    I agree, but a crisis is the ideal time to examine the root causes that led to the crisis and to re-examine the assumptions upon which the environment that led to the crisis were based on. Fractional reserve central banking is a giant Ponzi scheme that leads to bank failures again and again. Any business that will fail if 20% of its customers use the product as intended (withdrawing funds from a demand account) is fundamentally unsound. If we fail to learn from our mistakes we are destined to repeat them.
    - deltree7 4y ago
      You don't talk about dietary habits when a person is having a heart attack
      - lowkey 4y ago
        I do like your analogy. Here is another: If smoking led to the patient’s heart attack and the patient is still smoking on the hospital bed, I think it is justified for the doctor to tell the patient to stop smoking.
        unsupp0rted 4y ago
Overtonwindow 4y ago
Could someone explain what exactly this means in simple terms?
- deleted 4y ago
  [deleted]
- lazide 4y ago
  They’re making it easier to swap debt for cash (temporarily), so no one panics because they can’t get a loan fast enough in USD. The ability to do so is key for a great many financial operations.
  - alooPotato 4y ago
    Why is it a temporary thing? Seems like all upside?
    - yeahsure22 4y ago
      Well the debt is worthless so one but the FED can afford to buy it.
- Analemma_ 4y ago
  Banks have a bunch of assets (mortgages, long-term government debt) that still has its full value, but only 10 years later, people want their money out now, the Fed is issuing bridge loans to cover the gap and avoid bank runs.
elevenoh 4y ago
[dead]
kyboren 4y ago
So the Fed hikes in order to cause fiscal pain, succeeds, then bails out the international banking cartel with unlimited liquidity secured by bonds under par. Where is the liquidity bailout for single parents who lost their jobs due to Fed hikes? Can they get HELOCs at sweetheart valuations so they can survive the rate hikes, too? It's abundantly clear to me at this point: 1) Fractional reserve banking is inherently unstable and no amount of regulation or insurance schemes can prevent bank failures. A major rethink of our monetary system is in order: One that keeps credit allocation and money creation in the private sphere without guaranteeing interest rate arbitrage on all new money to a privileged class of authorized Ponzi schemers. 2) The Federal Reserve Bank is merely a creature of its owners: The international banking cartel. It does not serve the people--rather, treats them adversarially--and the mechanisms of accountability that exist are obviously insufficient. However, increasing the political accountability of the Fed will likely result in a failed political monetary policy. We need to re-evaluate whether the Fed is fit for purpose. 3) At the very least, the Fed must be forced to grant charters for narrow banks, be put in public trust rather than continue under private ownership, ban bank employees from staffing Fed positions, and become radically more transparent in virtually every way. Oversight must be reorganized and democratized. The toxic nexus of fractional reserve banksters and their political and governmental enablers must be destroyed.
- alxmng 4y ago
  I think it’s just 1). Without 1) there is no purpose to the Fed really, since all their tools amount to manipulating interest rates and spending (printing) money unauthorized by the legislature. If there’s no fractional reserve, new money is only created by government spending via spending bills passed by congress. People can hold deposit accounts with the government directly (via the treasury) so there’s no possibility of losing deposits. Investments can be left to the market. Interest rates for loans can better reflect real risk, instead of an imaginary number backed by inflation. When a bank that has made loans fails, the people who took the loan keep the money and collateral. There would be no risk to deposits or housing by bank failure. And the market selects for banks that are actually better at managing risk (imagine that!) A similar system was proposed as far back as the 1930s and was known as the “Chicago Plan”.
- 4y ago
h2odragon 4y ago
Since I haven't seen it yet, I'll throw the notion out for dissection: Is this economic warfare (maybe against China)? Was the SVB run triggered by specific, identifiable individuals, whose ties to whatever states could be proven or disproved? The other banks likewise, are they all dominoes or were they kicked by linked forces? There's all this commentary about how easy these bank failures were to see and how widespread the instabilities caused by interest rates rising are. It's easy and fun to be Captain Hindsight but really, no one whose job it was to foresee and prevent these things, saw this coming? No one suggested steering the banks a bit better? Was the base motive profit or "break shit"?
- anon291 4y ago
  I don't understand the sudden desire for conspiracy. The basis of all bank runs is the same: I want my money now.
throwaway20222 4y ago
Not an economist* Also a problem is that the primary lever we seemingly have to impact the economy is the feds manipulation of interest rates, but what happened to taxes? The have been so politicized that all is left is the wide scatter shotgun effect of rate changes.
- Ancalagon 4y ago
  The FED is not a part of the federal government. They are completely separate entities. The FED can set interest rates. The federal government can set taxes. And there is no overlap of those powers between the two.
  - throwaway20222 4y ago
    Yes. But those both impact the economy directly, correct? The federal government can also spend which impacts it as well. I appreciate they are separate, but they are intertwined and one has become politically untenable.
Havoc 4y ago
The fact that they feel the need to do stuff is ominous in itself
hulitu 4y ago
Why not let the market regulate it ? /s

72 points by VagueMag 4y ago

robbiet480 4y ago

[flagged]

NovemberWhiskey 4y ago
No; these are central bank currency swaps designed to improve dollar liquidity overseas. This has essentially nothing to do with QE or anything like that.
- simple-thoughts 4y ago
  If the assets that are swapped were in fact worth what the swap line values them at, there would be no need for a swap line since the assets could be lent out in the open market. While you’re technically correct that it’s not QE, since the fed reserve is not directly purchasing assets, it has a similar effect on international markets. Foreign central banks purchase or lend USD to their local banks for assets which can’t be used as good collateral (meaning counterparties don’t believe the market has enough liquidity and/or the assets are valued under par) then these central banks, if they run low on USD, swap their own currency for USD through the swap lines. The net result is USD flows out of the Federal Reserve and into foreign bank reserves, while illiquid and/or under par assets flow into foreign central banks while foreign currency flows into the federal reserve. So it’s not really correct to say it isn’t like QE at all since in both types of stimulus new USD is issued by the federal reserve in exchange for assets. The difference is in the terms, counterparties, and types of assets.
  - WanderPanda 4y ago
    Great clarification, thanks!
  - NovemberWhiskey 4y ago
    >So it’s not really correct to say it isn’t like QE at all since in both types of stimulus new USD is issued by the federal reserve in exchange for assets. Uhhh, OK, by that definition the Fed discount window is "a bit like QE" too. >The difference is in the terms, counterparties, and types of assets. This is ... not a subtle difference? QE is outright purchase, vs a relative short-term swap structure; domestic commercial banks, vs. foreign central banks; bonds and MBS vs. currency.
- lowkey 4y ago
  They might call it something else but the effect is the same as QE. The FED’s balance sheet has expanded by $300 billion in the past few days [0] That is equivalent to the past 4 months of quantitative tightening. This money is to be used to backstop insolvent banks and like all Fed created money it was created out of thin air. Make no mistake this will lead to even more inflation. [0] [0] https://mobile.twitter.com/charliebilello/status/1636479879364460546/photo/1 https://mobile.twitter.com/charliebilello/status/16364798793... Edit: added context to the size of the QE that the Fed claims isn’t really QE.
  - HDThoreaun 4y ago
    That's not what QE is and it does not have the same effect as QE.
    - lowkey 4y ago
      It’s a sudden expansion of the Fed’s balance sheet. What else would you call it?
      - HDThoreaun 4y ago
        A loan to provide liquidity. QE is the systematic increasing of bond values. These loans will have no effect on bond value and therefore interest rates because they have high interest rates and need to be paid back quickly. They just give debtors enough time to sell a few assets and wait for the situation to calm down.
        lowkey 4y ago
        See my edited comment above. The effect is to erase the past 4 months of quantitative tightening in a single week. We can agree not to call it QE but the effect is nonetheless inflationary as with all cases when the Fed creates money out of thin air, thereby diluting the purchasing power of all dollar holders.
_3u10 4y ago
No this is making sure distribution is in place for when the printer goes brrrr… basically they are phoning the clubs and making sure bottles, Apple bottom jeans and the boots with the furs are there so when it’s time to make it rain the club is prepped and the money can be spent.
- mym1990 4y ago
  Laughed at that second part.

lowkey 4y ago

The Fed set the reserve ratio for banks to zero percent in 2020 which absolutely contributed to this latest banking crisis. I wonder why they haven’t reversed course as that would seem a prudent course of action to protect depositor funds from being used for leverage speculation. [0] [0] https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm

lazide 4y ago
The worst time to require increased reserves is during a liquidity crisis, as reserves suck up liquidity.
- lowkey 4y ago
  I agree, but a crisis is the ideal time to examine the root causes that led to the crisis and to re-examine the assumptions upon which the environment that led to the crisis were based on. Fractional reserve central banking is a giant Ponzi scheme that leads to bank failures again and again. Any business that will fail if 20% of its customers use the product as intended (withdrawing funds from a demand account) is fundamentally unsound. If we fail to learn from our mistakes we are destined to repeat them.
  - deltree7 4y ago
    You don't talk about dietary habits when a person is having a heart attack
    - lowkey 4y ago
      I do like your analogy. Here is another: If smoking led to the patient’s heart attack and the patient is still smoking on the hospital bed, I think it is justified for the doctor to tell the patient to stop smoking.
      - unsupp0rted 4y ago

Overtonwindow 4y ago

Could someone explain what exactly this means in simple terms?

deleted 4y ago
[deleted]
lazide 4y ago
They’re making it easier to swap debt for cash (temporarily), so no one panics because they can’t get a loan fast enough in USD. The ability to do so is key for a great many financial operations.
- alooPotato 4y ago
  Why is it a temporary thing? Seems like all upside?
  - yeahsure22 4y ago
    Well the debt is worthless so one but the FED can afford to buy it.
Analemma_ 4y ago
Banks have a bunch of assets (mortgages, long-term government debt) that still has its full value, but only 10 years later, people want their money out now, the Fed is issuing bridge loans to cover the gap and avoid bank runs.

elevenoh 4y ago

[dead]

kyboren 4y ago

So the Fed hikes in order to cause fiscal pain, succeeds, then bails out the international banking cartel with unlimited liquidity secured by bonds under par. Where is the liquidity bailout for single parents who lost their jobs due to Fed hikes? Can they get HELOCs at sweetheart valuations so they can survive the rate hikes, too? It's abundantly clear to me at this point: 1) Fractional reserve banking is inherently unstable and no amount of regulation or insurance schemes can prevent bank failures. A major rethink of our monetary system is in order: One that keeps credit allocation and money creation in the private sphere without guaranteeing interest rate arbitrage on all new money to a privileged class of authorized Ponzi schemers. 2) The Federal Reserve Bank is merely a creature of its owners: The international banking cartel. It does not serve the people--rather, treats them adversarially--and the mechanisms of accountability that exist are obviously insufficient. However, increasing the political accountability of the Fed will likely result in a failed political monetary policy. We need to re-evaluate whether the Fed is fit for purpose. 3) At the very least, the Fed must be forced to grant charters for narrow banks, be put in public trust rather than continue under private ownership, ban bank employees from staffing Fed positions, and become radically more transparent in virtually every way. Oversight must be reorganized and democratized. The toxic nexus of fractional reserve banksters and their political and governmental enablers must be destroyed.

alxmng 4y ago
I think it’s just 1). Without 1) there is no purpose to the Fed really, since all their tools amount to manipulating interest rates and spending (printing) money unauthorized by the legislature. If there’s no fractional reserve, new money is only created by government spending via spending bills passed by congress. People can hold deposit accounts with the government directly (via the treasury) so there’s no possibility of losing deposits. Investments can be left to the market. Interest rates for loans can better reflect real risk, instead of an imaginary number backed by inflation. When a bank that has made loans fails, the people who took the loan keep the money and collateral. There would be no risk to deposits or housing by bank failure. And the market selects for banks that are actually better at managing risk (imagine that!) A similar system was proposed as far back as the 1930s and was known as the “Chicago Plan”.
4y ago

h2odragon 4y ago

Since I haven't seen it yet, I'll throw the notion out for dissection: Is this economic warfare (maybe against China)? Was the SVB run triggered by specific, identifiable individuals, whose ties to whatever states could be proven or disproved? The other banks likewise, are they all dominoes or were they kicked by linked forces? There's all this commentary about how easy these bank failures were to see and how widespread the instabilities caused by interest rates rising are. It's easy and fun to be Captain Hindsight but really, no one whose job it was to foresee and prevent these things, saw this coming? No one suggested steering the banks a bit better? Was the base motive profit or "break shit"?

anon291 4y ago
I don't understand the sudden desire for conspiracy. The basis of all bank runs is the same: I want my money now.

throwaway20222 4y ago

Not an economist* Also a problem is that the primary lever we seemingly have to impact the economy is the feds manipulation of interest rates, but what happened to taxes? The have been so politicized that all is left is the wide scatter shotgun effect of rate changes.

Ancalagon 4y ago
The FED is not a part of the federal government. They are completely separate entities. The FED can set interest rates. The federal government can set taxes. And there is no overlap of those powers between the two.
- throwaway20222 4y ago
  Yes. But those both impact the economy directly, correct? The federal government can also spend which impacts it as well. I appreciate they are separate, but they are intertwined and one has become politically untenable.

Havoc 4y ago

The fact that they feel the need to do stuff is ominous in itself

hulitu 4y ago

Why not let the market regulate it ? /s