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This is another QE/Quantitative Easing, even if they don't call it that way. I hope inflation doesn't come back/get higher again because then we'd likely see th
by Findeton 4y ago
This is another QE/Quantitative Easing, even if they don't call it that way. I hope inflation doesn't come back/get higher again because then we'd likely see the kind of second wave inflation people saw in the 70s.
- wesapien 4y agoAccording to the internet it's a loan to prevent these affected banks from failing. Some things are going to fail and go under in the effort to lower inflation. Better them than everyone else. Call it trimming the fat or taking out the trash. If it weren't for the low interest rates/near zero rates, some entities wouldn't even exists now. I spoke to a trader and he said even retail traders could've telegraphed the changing rate conditions and made adjustments. Why wouldn't banks?
- almost_usual 4y agoIt’s a loan, not QE. QE is no strings attached money injected into the market. QT is still ongoing as of last week, however, I don’t see it lasting. I do think a .25 rate hike will still happen.
- yieldcrv 4y agoits a 0% loan (edit: 4.68%) at a 100% loan to value ratio, actually at par value not even the current market value, and if the banks don't pay then the fed seizes the collateral this is QE with extra steps
- ars 4y agoIt is not as 0% loan, that's not true. The actual rate is 4.68%.
- drexlspivey 4y ago> Rate: The rate for term advances will be the one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made. more like 5%
- vkou 4y agoIt's a short-term loan, so if you're calling it QE, I'd point out that it's QE today, followed by baked in QT tomorrow.
- Zetice 4y agoI know "QE with extra steps" is a R&M reference, but keep in mind that R&M was wrong, what they described wasn't actually slavery (you can make anything anything else if you squint hard enough and/or remove the critical "extra steps"), and this isn't actually QE (as I, random Internet dweller, understand it anyway).
- yieldcrv 4y agoI don't know who R&M is. I don't know anything about the slavery reference. Feel free to explain what you're talking about. I read press releases from the federal financial agencies and look at their balance sheet. The similarity here is that money is being created and injected into the balance sheets of private participants in the economy, money that wouldn't have seeped out to purchase things now will, overlapping in the venn diagram with QE. Another similarity is that additional US treasury bonds are now on the Federal Reserve's balance sheet, in direct exchange, overlapping in the venn diagram with QE. The difference is that the Fed is not acting as direct buying pressure in the US Treasury bond market, as the extra step is that people deposit the bonds as collateral to the fed and the feds will own them if the banks stop repaying. We're focusing on the similarities, you're focusing on the difference. I feel the similarities are a policy pivot in the worst way. I don't find the differences to be relevant.
- Zetice 4y ago"<X> with extra steps" is from a show called "Rick & Morty" [0]. Surprising how you picked up on the phrase without even knowing what the show is. As for your comment itself, it seems like you gloss over the similarities and ignore the differences. For example, you say "money is being created" but this is objectively false. As is your claim that this money is "seeping" anywhere; it isn't doing anything other than ensuring bank solvency. Your comment is what I'd expect from someone who wants to call this action by the Fed "Quantitive Easing" but doesn't want to bother actually considering if it is or not. It is not, as you said, because of the critical and relevant differences. This money isn't going back out into the economy as you claim, which is the meaningful mechanism through which QE has its effects. Without that mechanism, calling this QE is misleading at best. [0] https://knowyourmeme.com/memes/well-that-sounds-like-slavery-with-extra-steps https://knowyourmeme.com/memes/well-that-sounds-like-slavery...
- bozhark 4y ago0% loan, really
- HPsquared 4y agoIt's not strictly QE, but it is increasing the money supply. Lending is money creation; repayments are money deletion.
- almog 4y agoIt's a loan whose collateral is taken at par value rather than market price, which essentially increase the Fed's balance sheet. As of Wednesday last week, 4 months of QT have been reverted in a single week: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
- HDThoreaun 4y agoIt's a loan that will be paid back within 90 days. Most for the money won't enter circulation and is only a liquidity backstop for banks. The rest of the money will be gone in a few months. This is extremely different from traditional QE which involves buying long dated bonds.
- almog 4y agoTrue, I'm just not sure what's the plan after these 90 days have passed other than more loans, any idea? If the Fed suddenly cut rate aggressively that would be one way for banks to restore liquidity but I cannot see that happening while inflation still running hot.
- HDThoreaun 4y agoI think the plan is the banks use these 90 days to sell their less liquid assets that aren't as effected by the interest rate increase. In the end, even being insolvent isn't actually a death knell for banks as long as depositors believe the money will be paid back, which is why the government is putting so much effort into reassuring that 0 deposits will be lost. Also half the money was literally just to pay back SVB and signature deposits while they unwind their book. Once everything is sold the other FDIC member banks will have to pony up any extra cash to pay the loans back.
- _gmax0 4y agoMan, these are the times I wish I had access to Bloomberg Terminal. What bond-selection strategies do banks usually take in situations like this? Riskiest bonds off of their sheets first?
- matheusmoreira 4y agoThere may be strings attached but it's still a massive loan that inflates the money supply.
- MuffinFlavored 4y agoWhat would the alternative have been? Don't lend it/provide it for banks and let ________ play out instead where _______ is defined as ________.
- matheusmoreira 4y agoNot lending money to banks and letting them fail when their "safe" investment strategies fail.
- mountainriver 4y agoThat’s a great way to collapse the banking system and screw over millions of people
- matheusmoreira 4y ago> collapse the banking system Exactly. > screw over millions of people People who loaned their money to the banks. Why shouldn't there be consequences for lenders?
- mountainriver 4y agoActually it would likely collapse the entire economy as thats whats historically happened. Then you have tons of people out of work and starving so you could feel some sense of justice for a few
- matheusmoreira 4y agoMaybe if people suffer enough they'll learn not to build a debt-based house-of-cards economy that requires hundreds of billions in taxpayer bailouts at the slightest threat of insolvency and defaults. Oh who am I kidding? They'll just go back to banks again, every single time.
- qeternity 4y ago> QE is no strings attached money injected into the market. Um what? How does the Fed inject no strings attached money into “the” market?
- MuffinFlavored 4y agowhen do you think the Fed will pause/are rate cuts already being priced in a 12 month horizon?
- HDThoreaun 4y agoWhen the labor market turns
- jbverschoor 4y agoBs.. you might be confused with the 0% reserve requirements. QE its strings attached, and this is also QE. They are buying debt from the banks (by giving out a loan)
- Retric 4y agoThey are lending on collateral not buying anything. QE is actually buying assets. https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing
- jbverschoor 4y agoA debt security is a financial asset. They can also sell that claim again to a company or country if anyone wants to buy.
- antibasilisk 4y ago>It’s a loan, not QE QE is literally just funky loans.
- Retric 4y agoNo QE is purchasing something not a loan. https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing. QE creates money from thin air when distressed assets fail. This doesn’t because the asset is still on the banks balance sheet and can thus cause the bank to fail. Which is a critical distinction.
- antibasilisk 4y agoThe 'something' here being bonds 99% of the time, so... a funky loan.
- Retric 4y agoThe loan was compared to QE, not what was being purchased. > No QE is purchasing something [generally a debt], not making a new loan.
- antibasilisk 4y agoPurchasing a bond is effectively just loaning money. I don't know why your distinction would have any relevency
- Retric 4y agoIt make a huge difference if the bond fails. Bob the bank buys a bond from Alice. Criss at the central bank in charge of QE buys if from Bob. Alice goes bankrupt and Bob doesn’t care. Bob the bank buys a bond from Alice. Criss at the central bank loans Bob money. Alice goes bankrupt and Bob’s bank fails.
- 4y ago
- cinquemb 4y agoFed balance sheet run off since april 2022 has nearly been offset by TGA drawdown until this point, so arguably, there's barely been any QT.
- JakeAl 4y agoIt's all a loan, whatever name you attach to it they have to borrow to print money. Reality check: US debt to GDP ratio is over 120% and the US doesn't have the credit to borrow anymore. We're looking at hyperinflation and a long depression unless they stop printing money and we experience massive austerity/spending cuts. We are literally in an economic death spiral (that's what a debt to GDP ratio of > 120% means) and that death spiral will be irreversible by 2028 (with US insolvent by 2042) as that WAS the timeline for when all of our loan payments for all of that printed money/bailouts goes only to the interest on the loans and not the principal. Unless of course, they change all the rules and it's laws for thee but not for me and debt starts getting erased. And/or war, which is historically how they do it.
- noloblo 4y agoso either a banana republic or japan
- xmcqdpt2 4y agoInsolvent in the sense that they won't be able to pay the debt? That's not very likely given that the US controls the emission of its own currency, which is the currency the government bonds are denominated in.
- colechristensen 4y ago> US doesn't have the credit to borrow anymore This is a ridiculous statement. The market for US treasuries is perfectly healthy.
- deleted 4y ago[deleted]
- Dylan16807 4y agoWhen does the hyperinflation start? For more than half a year the inflation rate has been 4%.
- wesapien 4y agoI'd rather get .25 and hover there
- jones6ofMont 4y agoThese loans will have special clauses for banks not to pay back, or pay back very much later wothout any consequences for not doing so. Somwtimes Fed as write down these debts. It is QE just the free money parts need some dressing so peasants won't know about it.
- dools 4y agoQE has no impact on inflation because loan origination is not reserve constrained, because banks can always use their government securities as collateral
- bequanna 4y ago> QE has no impact on inflation This is the most false statement ever. Anything that increases the money supply will increase inflation.
- tick_tock_tick 4y ago> Anything that increases the money supply will increase inflation. Except we have actual numbers and history to prove that false....
- chasebank 4y agoSource? Did we not have rapid asset inflation since QE started in 08? Inflation pops up in all sorts of ways, not just blanket across the board.
- drexlspivey 4y agoTypically people mean core goods (CPI) when they say inflation not stocks and crypto
- philll 4y agoIt's deflationary, this comes with strings attached. That said, it is a harbinger of substantial problems to the system.
- tick_tock_tick 4y agoInflation doesn't come from QE it comes from very tight labor markets and monetary policy putting money in the hands of the poorest members of society.
- ClumsyPilot 4y agoNot if you are talking about asset inflation, housing, etc
- vkou 4y agoIn response to that, I'd point out that inflation doesn't come from QE or tight labor markets, its comes from supply chain shortages, and fractional reserve banks lending money to people. ---- In reality, it comes from all of those things, to different extents, in different spaces. The price of cars and eggs went up because of supply shortages. The price of houses went up because people can borrow money for 30 year mortgages. The price of employing someone went up because of a tight labor market. The price of stocks went up because the Fed printed money with QE, and kept interest rates at zero.
- antibasilisk 4y agothat's like saying getting sick doesn't come from pathogens it comes from your immune response
- spaceman_2020 4y agoJuicero’s 127M funding round certainly came from QE. As did WeWork’s 40B valuation, Uber’s 32B in burnt cash, and all the inflated salaries that money funded, which, in turn, created $3M 2-bedroom houses in SF.
- elevenoh 4y ago[dead]
- zzleeper 4y agoAgree it's QE. For those that say this isn't QE, it's understandable given the "original sin of QE" as Ricardo Reis put it: https://twitter.com/R2Rsquared/status/1576164361898708998?t=dNAVo2qsc8XH1rv3ZI_xDA&s=19 https://twitter.com/R2Rsquared/status/1576164361898708998?t=... (this episode is QE type 3 in his taxonomy)
- HDThoreaun 4y agoTurning "QE" into a catchall for anything even sort of related to central banks holding more bonds isn't helpful. When words have too many meanings they have none, communication breaks down and people talk past each other, exactly as is happening here.
- tootie 4y agoThis is like the whole debate over whether or not there was a bailout. In the colloquial sense there absolutely was. In the traditional policy definition it really wasn't. It may seem academic but if you're interested in how this will affect the taxpayer then it makes a big difference. Both the Fed and FDIC are exercising the tools within their ordinary powers.
- paulpauper 4y agoIt would seem like the US economy has become addicted to stimulus, bailouts, and other intervention. That is what reserve currency does.
- DANmode 4y ago/me glances over at BTC
- lumost 4y agoThe fed is in between a rock and a hard place. Once upon a time, asset prices were low relative to incomes - and assets people cared about day to day like housing generally weren’t terribly competitive. The fed started rate targeting, and asset prices started rising as the economy adapted to Fed policies. 50 years later assets like homes regularly exceed individuals lifetime earning potential. If interest rates rise, these asset prices must fall. If they fall, then someone is on the hook as a counter party. The fed bailing out the banks with more free money kicks the can down the road. Best case scenario is a steady inflation that raises incomes closer to assets. However this inflation effects boomers, millennials, and gen z differently- there is no easy solution. But swinging between 0 interest rates and bailouts won’t help things.
- lazide 4y agoBut what if you run out of road before you can stop kicking the can? Isn’t that a successful strategy then?
- argiopetech 4y agoArguably, yes; however, I'd rather (for my descendants' sake) we play the infinite game and be disappointed if it ends early than play the finite game and be left holding a hot potato.