“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.
OK, then the repo market is a “bank has bond holdings and sells them short term for reserve cash then buys them back in 24 hours” type thing? That I sorta get...but the N.Y. Fed has to get the cash to buy the bonds from somewhere, so sort-term QE I guess? (Money/”M3” “creation/printing”). Also, what is your opinion on the “2% inflation target” shouldn’t it be “0%/stable prices”, or does that mess with the “full employment mandate”? I see 5-6% annual inflation in what I buy when they shoot for a “2%” “core” rate, so that combined with 1%-2% (at best) MM and CD rates as screwing the common “Main Street” man & woman.
Real inflation rates?: http://www.shadowstats.com/alternate_data/inflation-charts
Or do you think Jim W. is way off?