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> Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets whe
by whimsicalism 1y ago
> Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy)
Yes, it comes in at the 'fair market bids' part. When yields spike, the mechanism still “works” legally, but the government’s interest costs and financial stability risks explode in real terms.
The “law” doesn’t immunize you from inflation, balance sheet stress, or a collapsing yield curve. The Fed can’t conjure real resources; it can only reprice claims on them. Monetizing debt isn’t free. Ask the U.K. gilt market in 2022 how far “sovereign currency issuer” logic got them before the Bank of England had to step in. The government isn't immune from market forces.
- CraigJPerry 1y ago>> Yes, it comes in at the 'fair market bids' part No, you’re confused. The legally obligated “fair market bids” - a tongue in cheek term - isn’t conducted in dollars. I believe you’re thinking of the secondary market activity which occurs at a later time - where private buyers purchase from the primary dealer banks and those txns are in dollars. At the primary dealer purchase stage, the fed provides the funds to purchase via the PDCF. “The market” has precisely zero influence over this process. You’re kind of randomly firing in different directions with the last paragraph, its too removed from reality to make much of a useful comment on.
- whimsicalism 1y agothe PDCF doesn't even exist any more, pal. take care, enjoy your 'reality'
- CraigJPerry 1y agoWrong acronym, SRF, standing repo facility.