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It'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 m

• HDThoreaun 4y ago
  It'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 ago
    True, 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 ago
      I 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 ago
        Man, 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?
  • lazide 4y ago
    The reason they need this money is because of drawdowns in deposits - money now entering the economy.
• fosk 4y ago
  As long as the regular Joe doesn’t get extra money to spend, inflation will be check. Banks won’t go buy eggs anytime soon. We had close to 0% interest rates for almost a decade, and inflation was in check. It’s not the Fed that caused inflation, it is: * Suspending school debt (extra income) * Injecting real cash into the economy (stimulus checks and PPP loans to small businesses) * Supply chain bottlenecks after Covid All things that make real people wake up tomorrow and decide to spend some extra cash they have around in their bank account. It’s very tangible, it’s very measurable. Of course 0% interest rates didn’t help, but it wasn’t the originating source of our inflation problems, as the previous 13 years of QE didn’t cause a spike in inflation.
  • cudgy 4y ago
    How does this explain food increases? Everyone decided to eat twice as much food because their student loan payments were paused?
  • rqtwteye 4y ago
    I don’t really understand the inflation situation. When house prices shot up, heath care costs shot up, education costs shot up there was no inflation. But when the little guys got some money, suddenly we call it inflation. I don’t really get it.
    • fosk 4y ago
      When you give to 300+ million people extra cash to spend, you have inflation, yes. I am not arguing that “before” it was better for the “little guys”, I am just making an observation. You can affect the economy with fiscal policy (what our politicians/government does) and monetary policy (the central bank). Turns out monetary policy didn’t cause inflation to rise as much, as the previous 13 years demonstrate, but it was caused by liberal fiscal policy after Covid (all those points that I mentioned + supply chain bottlenecks). The fact that our government blames the Fed is just scapegoating. They messed up big time, and acted quickly in such a way that they were not able to coordinate properly (rates should have gone up in light of liberal fiscal policies being implemented). These two entities don’t work and collaborate well together, and hindsight is 20/20.
• pgwhalen 4y ago
  You are uninformed. The fed facility discussed in the post is the discount window, a century old program. The new facility is the Bank Term Funding Program. It won't be revealed how much this facility is used for a year.
• onlyrealcuzzo 4y ago
  It's a loan like PPP was a loan. Sure, technically, but substantially different from how loans usually work...