
Fed Adds $72.8B to Markets, Balance Sheet Moves to $4.07T - jgalt212
https://www.wsj.com/articles/fed-adds-72-8-billion-to-markets-balance-sheet-moves-to-4-07-trillion-11575642409
======
Bootvis
This podcast is very informative on this topic:

[https://www.bloomberg.com/news/articles/2019-11-11/this-
is-w...](https://www.bloomberg.com/news/articles/2019-11-11/this-is-why-the-
repo-markets-went-crazy-and-why-december-could-be-even-worse)

~~~
useful
Here is another link to the podcast
[https://podcasts.google.com/?feed=aHR0cDovL2ZlZWRzLmJsb29tYm...](https://podcasts.google.com/?feed=aHR0cDovL2ZlZWRzLmJsb29tYmVyZy5mbS9CTE0yMDA5ODM3NDc3&episode=YWM1OGQyNjgtMDI1NC0xMWVhLWE1ZjgtN2I4YTQ0OThmY2I5&hl=en&ved=2ahUKEwi8jPHZy6XmAhVjGDQIHTzvCrMQieUEegQIBhAK&ep=6&at=1575792300475)

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stazz1
Liquidity! because there's not enough oil to soothe the gears of the economy?
Or is the root cause people hoarding money instead of pushing it back into the
world?

~~~
DethNinja
Well injecting this money will definitely not help if it is the case of people
hoarding money.

Also how come they cannot inject this money directly to citizens instead of
large companies? Sure, inflation might be larger but what guarantees are there
that injecting money to large companies won’t create inflation later down the
road.

~~~
nightski
Because citizens generally are not interested in an overnight loan? This repo
funding is repaid the next day.

~~~
raducu
"overnight" \-- yeah, right, as if you cannot make another, and another
"overnight" loan in perpetuity if you are a big player.

------
chris123
The Fed and bank bailouts are transferring wealth to the wealthy from everyone
else. Fiat makes it all possible. It's not hard money. We must get back in a
hard money system. Read or listen to "The Bitcoin Standard." Can also find
author and podcasts on YouTube.

~~~
smaddox
Deflationary currency is even worse than Fiat currency. We don't need
irrecoverable recessions. We just need our governments to stop relying on
trickle-down nonsense, and start injecting money at the bottom. We need to
rely on and leverage the trickle-up economy that we've always had.

~~~
jjeaff
I don't think trickle down economics are what was being used for these
bailouts.

The rationale behind the bailouts was that the failure of many of these large
banks would have caused lots of trouble and additional damage to the system as
a whole. Markets are controlled by consumer sentiment. The failure of any huge
banks or other huge organizations like AIG would have caused a catastrophic
run on the banks and even farther fall in the market.

Additionally, I believe overall the US government has netted more than $100B
in bailouts.

The bailouts were most definitely a good idea according to essentially every
expert out there.

But if anything, they should have extracted more from the companies they
bailed out to limit the moral hazard that was created.

~~~
smaddox
The bank bailouts is distinct from Quantitative Easing. The former was
government backed loans to large banks. The latter is the Federal Reserve
buying extremely over-valued financial assets (over-valued because of fraud),
and then just financial assets in general, in order to prop up the price of
these assets. The former was probably a necessary evil, but it should have
come with more changes. The latter is less clear. Because of the massive
amounts of fraud that occured, many citizens pension funds were extremely
exposed to junk financial assets. So the Fed decided they couldn't let the
market correct itself. But a better solution would have been a market
correction combined with a direct stimulus to the lower and middle class.

------
lvs
I can't get through the paywall, but I'm not sure what the news is. The fed
has been running this repo operation every day. On Thursday it was $78.7b, and
on Wednesday it was $70.1b. This liquidity injection has been ongoing for a
few months.

[https://apps.newyorkfed.org/markets/autorates/tomo-
results-d...](https://apps.newyorkfed.org/markets/autorates/tomo-results-
display?SHOWMORE=TRUE&startDate=01/01/2000&enddate=01/01/2000)

They are doing overnights to $120b daily.

[https://www.newyorkfed.org/markets/domestic-market-
operation...](https://www.newyorkfed.org/markets/domestic-market-
operations/monetary-policy-implementation/repo-reverse-repo-
agreements/repurchase-agreement-operational-details)

~~~
everybodyknows
FT describes an apparently escalating game of overnight "repo" borrowing, in
order to meet regulatory limits, with the days at end of quarter apparently
special:

[https://www.ft.com/content/1374afd4-181d-11ea-9ee4-11f260415...](https://www.ft.com/content/1374afd4-181d-11ea-9ee4-11f260415385)

This suggests a systemic instability.

~~~
lvs
There's definitely an imbalance at play here. But the Fed's actions have not
been shifting dramatically. I don't know what the FT piece is referring to
when they say they increased the size of Monday's operation. That is not
reflected on the Fed's schedule of operations. The term offering Monday is
distinct in the term length (~1 month), not its size. That means the value
will be held on the Fed's books for longer than the 2-week term and overnight
term operations that they've been running continuously.

[https://www.newyorkfed.org/markets/domestic-market-
operation...](https://www.newyorkfed.org/markets/domestic-market-
operations/monetary-policy-implementation/repo-reverse-repo-
agreements/repurchase-agreement-operational-details#operation-schedule-
parameters)

I expect this longer term offer is because there is the expectation of year-
end stress in outlays and could destabilize the market toward year-end. This
term offering runs through the first week of Jan, so they're hoping to smooth
over the possibility of year-end illiquidity.

------
thatiscool
some people are desparately preventing the stock market from crash.

~~~
cm2187
Agree, this is now much more than a small dent in the Fed balance sheet, it is
a new period of QE:

[https://www.federalreserve.gov/monetarypolicy/bst_recenttren...](https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm)

I am bearish but I can't say I am excited to bet against the Fed!

~~~
0x8BADF00D
You don't need to bet against the Fed, you just need to bet against the dollar
price index going up.

~~~
echelon
If the dollar and the stock market are "going to crash", where should one put
their money?

~~~
wasdfff
In the market. Let it crash. In 5 years you will be back to where you were or
in the green.

~~~
echelon
Would it be better to hold cash and buy in on the dip?

~~~
Ambele
Nothing says you can't do both

------
jgalt212
The goals of monetary policy are to promote maximum employment, stable prices
and moderate long-term interest rates _so long as those goals do not conflict
with price supports for assets_.

~~~
blazespin
I think the fed is mostly concerned about price inflation of a reasonably
moral basket of goods. They want it around 2%. It's the "vig" for
participating in economic life.

Employment and everything else will take care of itself.

~~~
Danieru
The US Fed has a dual mandate of both full employment and inflation control.
Other central banks around the world only have mandates for inflation control,
but the US is special in this regard.

~~~
blazespin
It's just political / PR nonsense. The fed doesn't care about employment
(except how it impacts prices). And they shouldn't. If they did, they'd risk
hyper inflation and things for everyone would get much much worse.

Anyways, the fed can only do so much but try to keep the laws of physics in
place. Government spending, Entitlements and taxes are the real levers of
economic influence.

US government policy has traditionally relied on a combination of
entrepreneurs and military might for global economic mastery. Trump is
(ironically) undermining military might by destabilizing alliances.
Entrepreneurs are doing ok. He is increasing labor participation or at least
stopping the decline. This all is making global economy more efficient and
meritorious.

Trade wars are bad, yes, but China was/is a bad actor and was perverting the
US economy by making it lazy. Trump is trying to kick it in the ass and get it
going again.

I hate Trump, but my feeling is that these fed injections might just be the
fact that global efficiencies are pushing rates down below what the fed is
comfortable with. We will pay for all of this in other ways no doubt, eg,
climate change, weaker social safety nets, nuclear proliferation, etc.

Short term, things look good. Longer term there are reasons to freak out. It's
not really trumps fault though, people just generally can't reason with the
fact that you can make things good and bad at the same time, so arguments and
debates are all pretty much irrational. Why not vote in Trump, nobody else is
making sense either.

Andrew Yang is a perfect example, the only guy who is talking sanity but is at
3% in the polling.

~~~
QuesnayJr
They really do care about employment. Fed behavior can be approximated by a
Taylor rule:
[https://en.wikipedia.org/wiki/Taylor_rule](https://en.wikipedia.org/wiki/Taylor_rule)

~~~
craftinator
Cause or effect?

------
sgt101
QE is proving to be a very inefficient way to inflate the economy. The idea
was that the banks would take the capital and lend it to corporations for
productive investment, but I see no sign of this - the money is being
laundered through dividends and financial engineering to the 0.1%

If I were the next president I would establish a national investment bank and
use it to undertake infrastructure improvement / development by US companies
in both the US and abroad (because stimulating the economy else where would be
pretty useful to the US as well). I would mandate that the fed would have to
invest in the national bank first and the national bank would be allowed to
bail out other banks (with "liquidity") only if it received substantial near
term reward from the investment (therefore definitely only liquidity).

The problem with this operation by the fed is that every banks finance
department has priced it in for this quarter, so they're all going with the
begging bowl now - moral hazard write large!

~~~
darawk
> QE is proving to be a very inefficient way to inflate the economy. The idea
> was that the banks would take the capital and lend it to corporations for
> productive investment, but I see no sign of this - the money is being
> laundered through dividends and financial engineering to the 0.1%

Even if we accept your premise that that is what is happening, what is it that
you think the 0.1% are doing with that money? They're doing one of two things:

1\. Reinvesting it in other companies, who are then using that capital to
invest in their business.

2\. Buying goods and services from companies who use that revenue to invest in
their business.

> If I were the next president I would establish a national investment bank
> and use it to undertake infrastructure improvement / development by US
> companies in both the US and abroad (because stimulating the economy else
> where would be pretty useful to the US as well).

Why do we need to establish a national investment bank to undertake
infrastructure projects? The federal government undertakes infrastructure
projects all the time.

> I would mandate that the fed would have to invest in the national bank first
> and the national bank would be allowed to bail out other banks (with
> "liquidity") only if it received substantial near term reward from the
> investment (therefore definitely only liquidity).

Are you aware that the US government made a very healthy profit by bailing out
the banks in 2008[1]?

> The problem with this operation by the fed is that every banks finance
> department has priced it in for this quarter, so they're all going with the
> begging bowl now - moral hazard write large!

That's...actually exactly the point of it. There is no 'moral hazard' here.
The fed _wants_ the market to anticipate its actions, and react to them pre-
emptively. This allows the fed to actually do less than they otherwise might
have to. If the Fed's goal is to drive rates down to a certain point, and the
market knows they'll spend the money to do it, the market will do it for them.
That's how arbitrage works. This is the system working exactly as intended.

1\. [https://www.washingtonpost.com/business/economy/bailout-
high...](https://www.washingtonpost.com/business/economy/bailout-highly-
profitable-for-taxpayers-when-you-look-at-the-right-
numbers/2015/01/01/dc2a05a6-8fa5-11e4-a412-4b735edc7175_story.html)

~~~
sulam
This is effectively equivalent to "trickle down economics." Ie, if we give
money to the rich, they will use it to buy things or to invest, thereby
growing the pie for everyone.

Of course, merely saying "trickle down" is enough to get a big laugh out of
all but most co-opted of economists. It has repeatedly failed to achieve its
stated objectives, and you just have to look at the wealth gap between the
99%, the 1%, and the .01% over the last 10 years to see what the actual effect
is.

~~~
darawk
> This is effectively equivalent to "trickle down economics." Ie, if we give
> money to the rich, they will use it to buy things or to invest, thereby
> growing the pie for everyone.

Trickle down economics is a theory about who _benefits_ from giving money to
the wealthy. I'm not making any statements about who benefits. What I am
saying is that when some companies return cash to shareholders, other
companies receive that cash in the form of either revenue or investment. This
is how the economy works. It is, more or less, a closed system.

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cheez
Since everyone is clearly watching this, the problem will occur elsewhere.

~~~
jotto
With this much printing (without requisite gains in GDP), it means there's
_already_ a problem, but we don't understand it yet.

~~~
cheez
Well the fed is often liquidity of last resort so the question is why they're
providing it overnight. The chatter is Deutsche bank is the cause of it which
would seem to imply that the problem is contained. Basically banks don't trust
each other right now which is what happened before the last tanking but it
also happens frequently without tanking. So I don't know what this really
signals.

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rodgerd
"Fed adds half a Bezos to the markets"

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hamhand
The geography of dollar funding of non-US banks

[https://www.bis.org/publ/qtrpdf/r_qt1812b.htm](https://www.bis.org/publ/qtrpdf/r_qt1812b.htm)

------
HSO
There is a general dollar shortage in the world, explaining things as
superficially diverse as this, increasing Saudi desperation (as evidenced by
the machinations behind their pseudo-IPO), CCP forbearance on HK (relatively
speaking), and the covered interest parity puzzle.

I don't want to explain more but some might want to look into it.

~~~
raducu
There is no dollar shortage, there is a shortage of suckers wanting to hold
their dollars in regular bank accounts due to low interest rates.

As long as the the FED is willing to provide liquidity no questions asked, why
would you hold dollars?

Just buy high yield bonds and when you want liquidity, you call the FED and
loan your junk bonds for real dollars and you pocket the interest rate
difference.

~~~
Ambele
I'd really rather use my 2% savings account than the 1.61% from short term
treasuries, 1.65% from intermediate term treasuries, or 2.1% from long term
treasuries.*

Or maybe you're making snarky comment on how large banks were bailed out in
2008 by the Fed by which the Fed traded a portion of it's "good" treasury debt
for bad bank debt (CDOs). If that's the case than I agree because I dislike
how the Fed bails out the banksters more than the common man.

*Source for annual interest rates on common bonds: [https://investor.vanguard.com/etf/list#/etf/asset-class/mont...](https://investor.vanguard.com/etf/list#/etf/asset-class/month-end-returns)

------
jMyles
I'm already fairly stalwart in the position that Fed-style reserve banking is
not part of a compelling future for humanity as economies evolve into the
information age, but this kind of side-handed QE makes it easier and easier to
feel comfortable in that position.

~~~
benaadams
[https://www.nybooks.com/articles/2019/12/05/against-
economic...](https://www.nybooks.com/articles/2019/12/05/against-economics/)

------
sub7
This debt will all be paid by the US dollar falling dramatically. Many assets
will keep their inflated prices in nominal terms though still good buys out
there.

