Fed - QE and more

[jp6]

repo -markets are essentially a collateralized loan market. When you have sufficient (good quality) collateral, mostly Treasuries, you can obtain short-term funding from the markets. And, the other way around, if you have too much cash, you can park it into the reverse repo and earn a small interest.

Role of the repo in monetary policy

Repo markets are an essential tool for the Federal Reserve. They play a significant role in the smooth functioning of the financial markets, as they are used to finance large scale purchases in sovereign bonds, equities, and other similar assets. The Federal Reserve uses the repo market to conduct asset purchases (QE), but also to draw excess liquidity from the markets.

 

https://mtmalinen.substack.com/p/problems-in-the-repo-market-are-persistent

 

https://hoisington.com/pdf/HIM2021Q1NP.pdf

 

[DrStool]

Utter, absolute, unmitigated garbage. Logical gobbledygook and economic excrement. 

If you believe that shit, you're on the wrong website. It's nonsense, and it's pathetic. 

The Fed is, right now, unequivocally and irrevocably, funding the entire Federal Deficit. 100%. That's up from the norm of 85% under QE. They are purchasing 40-50% outright. The rest they are funding indirectly via its MBS purchases. The Fed is the Treasury market. Without the Fed purchases, the Treasury would not be able to issue debt at any reasonable cost. 

Furthermore, to say it isn't money is like saying that gold is money. It's counterfactual. You can't spend gold. But QE is in fact, immediately spent and permanently enters the banking system. The increase of deposits in the banking system, which is the bulk of M2, is virtually 1:1 with the amount of QE that the Fed pumps into the market, month in and month out.

The Fed buys the newly issued Treasury debt outright through its Primary Dealer strawmen. The Treasury then spends those dollars to pay its regular obligations, from government worker and military salaries, to social security, and every single outlay the Treasury makes that is greater than the revenue it takes in.

When the Treasury spends the money, the payments the Treasury makes are deposited into the recipient's bank account, often directly. That means the the Fed has been directly creating about $200 billion a month in spendable cash under the current version of QE.

That's all I have to say. If you want the facts, week in and week out, they're available. Or you can read economist garbage. Believe what you want to. 

https://liquiditytrader.com/

[DrStool]

The guy talisman is absolutely clueless about where the increase in RRPs are coming from. Also clueless to the extent that he thinks the Fed is draining reserves. 

The RRPs are increasing dollar for dollar with the Treasury's drawdown of its cash balance through T-bill paydowns. The Treasury has redeemed almost a trillion in T-bills since Feb 23, and continue to do so as it spends down its massive cash hoard. The holders of the redeemed bills, mostly money market funds, get cash from the Treasury, and now there's no paper in the market for them to roll into, so they voluntarily deposit it at the Fed in the form of overnight RRPs. 

This is overnight money. It's the same as cash. There's virtually no effective difference between the Fed's RRPs and the reserve deposits that banks hold at the Fed. 

The Treasury will start reissuing bills when the debt ceiling is lifted. The Fed's RRP account will go back to zero as the MMFs buy the T-bills that the Treasury issues. 

The idea that the RRPs drain liquidity from the system is hogwash. It's a slush fund for institutions to hold cash while they're waiting for T-bills to return to the market. 

Keep posting this garbage, JP. It gives me something to do.  As if I don't have enough work.  

But I cannot allow economic nonsense posted on this site to simply sit here unanswered, as if it's factual. It's useful only to the extent that it shows just how ignorant and clueless most mainstream economists are. It's mind boggling that none of them actually follow the accounts that they're talking about. They have no understanding whatsoever of the fundamentals of double entry accounting and balance sheet analysis. 

[itiswhatitis]

at Bretton Woods today