The Fed keeps buying up the very collateral which banks need to post in order to buy the freaking Repo Agreements. Sort of a self-defeating if you ask me.
@bone Just typing out loud so I understand... Your use of the word "buy" makes me think these T-Bill purchases are not overnight Repo loans. These short-term T-BILLS are taken out of the market, and assuming held to maturity, the face value of these short-term bills gets extinguished... no interest need be paid, whether coupon, excess reserves, or otherwise. This debt extinguishing offsets NEW issuance of Congress approved debt (and/or other methods of money creation). If I am not mistaken, THIS IS QE! If the buy is more conventional, where the bills are used as collateral for a loan, then the borrower will pay interest, which also offsets fresh money creation based on difference between coupon and loan rate. This is not QE, but rather a longer term repo. Am I missing something?
Yes, the Fed is not buying repos they are buying T-Bills in the secondary market. And it is QE by another tag - they are by design bolstering demand. My point in my most recent post was that finally the Fed was actually meeting Bank demand for repos. What has been happening which created this "crisis" up to this point was that Banks were offering up Treasuries (like T-Bills) as collateral for repos - but the Fed was not meeting the demand. Which is absolutely insane considering that the Banks are pledging US sovereign debt as full collateral in exchange for these very short term borrowing agreements. If you're a bank, your operations will absolutely demand that you are able to borrow very short term (which is the Repo market) from time to time - you simply cannot liquidate retail and commercial customer loans just to satisfy an incredibly short term funding requirement.
Well, the Fed was forced into lowering rates by Draghi and the ECB. Right now, you see obnoxiously negative interest rates in the EU because the ECB is devaluing the Euro versus the Dollar in an effort to bolster EU exports. So yeah, the ECB started a currency war so there's that. But that's a topic for another thread.
Completely agree. My last word... until USD strength causes real havoc (outside of US), green lights remain on!
It gives US citizens and Companies greater purchasing power - until it reaches the inflection point where the stronger dollar mutes US exports and then it is very very bad for domestic employment and share prices. The US exports $2.5 Trillion per year and that inflection point will be quite closely monitored because it can really hurt the United States.