Fed boosts plan to inject billions into the US economy

Neat article.
Sounds like we are bringing those jobs back.

 

The Fed can only manage interest rates and shore up balance sheets by buying up lousy assets. Not sure how any of it affects the overall economy but hey, lets all pretend they can anyway.

 

While I agree with what I think you're saying, I don't agree that there are any imminent risks.

The government debt is too high and growing rapidly. That is true.

The cost of carrying that debt is manageable. Also true. As long as interest rates remain low, that cost will remain manageable. As long as inflation, and prospects for inflation, remain low, interest rates will remain low. There are no signs of inflationary pressures.

Our greatest risk is in slowing economic growth (not a recession). Slowing, but still positive, economic growth will slow the needed growth of tax receipts.

All dollars are backed by our economy. Even QE4 created ones. Added dollars are inflationary and subtracted dollars are deflationary. That added dollars haven't been shown to result in dangerous levels of increased inflation, proves that they aren't a cause. They're a factor. Only if an increased supply outstrips demand, will inflation occur. Again, no such risk is in the forseesble future.

In recent years, other nations have made serious efforts to supplant the US dollar as the dominant currency. They've even made inroads. Still, there's been no appreciable effect on the dollar's value.

It's possible that, someday, some other nation's currency will surpass ours. Even then, barring a complete collapse, the US dollar would still be a major world currency. It will still be in demand.

With all that said, we do need to rein in our spending.

 

Repo agreements and Reverse Repos are not something that the Fed "plans" to conduct.It's done to maintain reserves in the banking system. Financial institutions with lots of treasuries and short on cash can lend from the Fed without needing to go to the discount window. When the Fed wants to drain the system of reserves, it conducts a reverse repo.

This is simply a normal function of the monetary banking system. There is no reason to be so obtuse about it, especially when there is so much information out there on its functionalities.

https://www.newyorkfed.org/markets/rrp_faq.html

 

On a side note, the Federal Reserve has reversed its reduction of its balance sheet (representative of QE policy).

"The Federal Reserve's balance sheet has expanded and contracted over time. During the 2007-08 financial crisis and subsequent recession, total assets increased significantly from $870 billion in August 2007 to $4.5 trillion in early 2015. Then, reflecting the FOMC's balance sheet normalization program that took place between October 2017 and August 2019, total assets declined to under $3.8 trillion. Beginning in September 2019, total assets started to increase."

I couldn't copy the chart, but it's available here:

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

 

When the Fed increases rates, they sell securities in the open market; when the Fed needs to reduce rates, they buy securities in the open market. Nothing out of the ordinary.

 

Yes. What I posted is QE.

One of the factors that contributed to the tightness in the repo market, was the Fed's sales of securities it bought under QE.

Remember the $50billion per month of sales? Doing that, sucked $50billion of cash out of the banking system every month. - Cash that would otherwise have been available to the repo borrowers.

I don't think that that was the sole cause, but it was a significant contributing factor.

 

No, the part that you have posted you posted, the beginning of September 2019 to present, is not related to QE. QE is an unconventional form of monetary policy. Open Market Operations (purchasing treasuries) is very much conventional.

What you're talking about doesn't describe how repo works in the slightest.

 

to counter the post Christmas crash... yeah this should do it, for the start of the election year

 

"What you're talking about doesn't describe how repo works in the slightest."

I didn't claim that my post was describing how the repo market "works".


The repo market is dependent on cash being available for lending. Anything that works to reduce that available cash will affect the repo market. The unwinding of the QE part of the Fed's balance sheet reduced the amount of available cash.

 

Isn't it strange that the issuer of currency demands that currency back and then pretends that it is an asset? If dollars are assets to the FED, they can get more assets with a simple keystroke, all it takes is legislation. Or are the assets nothing but once bad assets they took off the hands of greedy bankers because the banks could not afford to write them off?

 

It might be better to consider cash to be a liability for the Fed.. It PAYS interest on its cash holdings.

Also, the Federal Reserve has to release cash into the banking system when the demand rises. In return, it obtains securities, which pay it interest.