Yes, this just happened. While we we all watching for trends and scalping, the Fed happily injected $400B into the repo market. I am simply not intelligent enough to understand this turn of events; this is beyond my comprehension. I’m hoping that someone from the ET community can enlighten me as to how this can be; how a check for $400B can be cut to cover the banks, without any form of regulatory, government, congressional intervention. , Even a referendum (like Brexit) might make sense. References: https://fortune.com/2019/09/26/the-...roblems-that-are-getting-worse-over-time/amp/ https://www.bloomberg.com/amp/news/...os-drives-overnight-rate-up-by-most-in-months
It was $75B recycled over multiple times I believe. So not a net $400B increase into the repo market. Repo loans get repaid every morning. The Fed has a license to print money. They don't need anyone's permission to do anything. The most powerful entity in the world.
https://www.khanacademy.org/economi...banking/federal-reserve/v/quantitative-easing The Inflation Machine does not have to ask permission. Maybe a better question would be, What are they buying? Direct inflation, printing dollars and sending it out into the economy.
A word about Repo rates. I used to trade the Treasury basis spread so it’s something that I had to be intimately familiar with. It’s a bit hyperbolic to call the NY Fed’s Repo liquidity injections a “bailout” since the Fed created this ‘imbalance’ - not the Banks or the traders. If anything - I would surmise that the Fed has been lax and simply has not kept pace with the economy’s operational liquidity requirements. Banks require liquidity. It’s a simple thing. The Treasury will “roll” coupons - they will buy back the higher interest paying coupons outstanding and issue new lower interest coupons. In other words - the US refinances it’s debt when it’s advantageous to do so. And in this ebb and flow on occasion liquidity gaps can arise but as you’ve seen the Treasury has fantastic printing presses. It’s somewhat amusing in that an argument could be made that the Fed created the Repo “issue” by aggressively selling off the balance of the TARP and QE assets they’ve accumulated since 2008 in just the past few years - including Sovereign Debt. And Banks were borrowing that Sovereign Debt at overnight rates to fund their operations. So, the Fed has to print up some new paper more tailored for the purpose. What’s amazing is that the Fed actually MADE money on QE and TARP. As an aside - the ECB interbank overnight lending instruments are collectively called EONIA.
How can anyone base any fact on what an economy actualy is and what real wealth and what a dollar is worth if the fed can print money at will.
It’s determined by the world - not the Fed. I recall reading recently that something like Sixty percent (?) of international transactions are in US Dollars. Let that soak in. And the dark lords all want Dollars. All of these European money laundering cases - Russian and East European mafiosi washing for Dollars. Drug cartels get paid in Dollars. The Gulf States insist on Dollars for their oil. Hell, the North Sea Brent Crude contract is denominated in Dollars. Most importantly - the number two and number three economic powers in the world “peg” their currency to a strong US Dollar. The EU (Draghi and the ECB) have by design gone to seriously negative interest rates as a means to weaken the Euro against the Dollar. The Chinese are much less subtle - the People’s Bank of China has a huge currency trading desk charged with pegging the Yuan LOW against the Dollar, and as everyone knows by now Chinese Companies that get paid in Dollars are required by law to immediately remit them to the PBC in exchange for Yuan. The Chinese complain about the Dollar being the de facto Worlds reserve currency - but no way in hell will they allow the Yuan to float. Quite the opposite - the State restricts Yuan outflows. Nothing comes close to US Capital markets in size and scope. The Europeans have given up on investment banking. US Investment Banks now dominate global mergers and acquisitions like never before. Point being - the international demand for Dollars has only been getting stronger. Anybody can print money. Any country on planet earth can make it possible for a citizen to require a huge stack of paper notes in order to buy a loaf of bread. It’s about demand. And the Fed doesn’t create demand.
United States 2018 exports of goods ($1.7 trillion) were the highest on record. 2018 exports of industrial supplies and materials ($538.9 billion); capital goods ($562.0 billion); consumer goods ($205.9 billion); and other goods ($65.4 billion) were the highest on record. Which is stupid strong considering that the state of the Dollar gives US Companies and Consumers such advantageous buying power. Translate: the US is a freaking juggernaut. And that’s confounding and vexing to more than a few smart people. I mean, 2008 was freaking Armageddon and it should have wiped out Investment Banks and Real Estate. Currently most (but not all) of US real estate has rebounded (or gotten stronger still) and US Investment Banks are stronger than ever in terms of M&A. 1999 should have taken out Silicon Valley. But US Tech is stronger than ever. It’s crazy and amazing and bewildering.