Yep, complicated, gives me a headache...I have yet to find a definitive guide to money supply/currency regulation/reserve bank issues! Any suggestions? Wasn’t sure on “repo” rates either...found this brief description that helped:
“Overnight repo rate is the interest rate at which different market participants swap treasuries for cash to cover short-term cash needs. The repo rate is helping to ensure banks have the liquidity to meet their daily operational needs and maintain sufficient reserves. The repo rate usually trades in line with the Federal Reserve’s target interest rate.” So where did the N.Y. Fed get the $100 billion over the last few days to inject into the repo market? “Printed” $$ ?
https://tradingeconomics.com/united-states/repo-rate
“So where did the N.Y. Fed get the $100 billion over the last few days to inject into the repo market? “Printed” $$ ?”
They “monetize” Treasury debt. Exchange dollar credits for bonds held by banks.
The best way to understand it is to think of Treasury bonds as being part of the money supply. IIRC T-bonds were actually considered part of M3, the broadest measure of the money supply. But bonds are an “illiquid” part of the money supply. They can’t be spent or loaned.
What the Fed can do is convert an illiquid bond held by a bank into liquid money. They take the bond from the bank, and credit the bank with dollars. For a repo this reverses the next day.
So the Fed is actually changing part of the money supply from illiquid to liquid when it does this, rather than adding to the entire money supply.
In contrast, when the Fed sells some of its bond holdings that acts as a sponge, sopping up liquid money and leaving the banks holding illiquid bonds.
This is all part of the Fed’s primary job of trying to keep the amount of liquid money, aka “high powered money”, at a level that encourages economic growth without promoting inflation or asset bubbles.