Posted on 07/06/2021 7:01:02 AM PDT by Browns Ultra Fan
Typically, banks make money by taking deposits at low rates and lending to borrowers at higher rates (car loans, residential mortgages, business loans, etc.), earning a spread. And bank deposits are usually less than the loans that they extended. Until April 2020. Nothing has been the same since Covid.
This is really a unique time, since during the last recessions (2001 and The Great Recession) bank credit exceeded bank deposits.
Banks can turn to The Federal Reserve at times like these. The Fed’s reverse repo program lets eligible firms, like banks and money-market mutual-funds, park large amounts of cash overnight at the Fed, at a time when short-term funding rates have fallen to next to nothing, and finding a home for cash has become harder.
But we are seeing a temporary decline in overnight reverse repo agreements.
In other words, there is too much cash in the system. And Credit Suisse’s Zoltan Pozsar calculates that we’re looking at $1.3 trillion of flows from bills into Reverse Repos by the end of August.
We shall see if The Federal Reserve ever leaves markets with the effective Fed Funds rate at 8 basis points and The Fed’s balance sheet at over $8 TRILLION. Now, THAT’S a lot of cash in the system.
Zoltan!
(Excerpt) Read more at confoundedinterest.net ...
Keep the printing presses cranked up idiots.
I don’t understand all the ins and outs of banking. But can say, that bank CD rates and interest rates on savings are very small nowadays. Do banks have more money than they can loan out to make their profits?
But then how does all of this tie into fears of inflation? Historically, increases in money supply have helped fuel inflation. Can the fed contract the money supply, so it doesn’t have 8 trillion on its balance sheet?
“The Federal Reserve is screwing up markets to enable Biden’s ravenous spending and debt appetite.”
The last balanced budget occurred under Bill Clinton, a Democrat. Under his successor George W. Bush the accumulated national debt doubled thanks to a GOP Congress gorging on earmarks and a president who couldn’t find his veto pen. Under Obama the national debt doubled again. For six of the Obama years (2011-2017) the GOP controlled the House of Representatives, which per the Constitution has the “power of the purse” which it can exercise because all spending and revenue bills must originate in the House. The last two years of Obama’s two terms the GOP controlled the Senate as well as the House. Did the GOP Congress use its power to stop the deficit spending? No, it essentially acquiesced to Obama’s spending plans.
During the Trump years the accumulated national debt increase 38%. The first two years of the Trump presidency the GOP controlled both houses of Congress and the oval office yet the federal government spent like a pack of drunken sailors. Yes the pandemic contributed to the deficit spending in the last year of the Trump term. However, during the first three years of his administration a massive decease in taxes was passed, without any offsetting spending cuts. The GOP (Trump and Congress) made no effort to control spending, much less reduce the rate of spending growth. Trump waited until the end of his term to veto a defense bill and was overridden by Congress. Trump vetoed the defense bill in losing effort to force Congress to pass his plan to send out $2000 stimulus checks. It wasn’t the defense spending he was trying to stop, he was trying to force the spending of even more money.
Yes spending is out of control under Biden. However, you cannot blame the federal deficit on the current administration. Both political parties have given up on any pretense to be fiscally responsible. It matters not if a Republican or Democrat is president. It matters not if Republicans or Democrats control Congress. Both political parties are fully committed to spending freely and neither has any desire to control spending or budget responsibly. There are no deficit innocents inside the beltway.
I do not know how the markets continue up when it looks like we are facing disaster. I have REALLY been trying to be positive, but everything I have seen points to political/financial disaster. Tell me how I’m wrong.
I have typically said I’m a Republican because there are no Democrats who care about fiscal restraint, and maybe half the Republicans. But I may have to reassess that.
Treasuries and Cash are the same thing, FIAT currency that cannot never be completely fulfilled by goods and services, it is all play money and the interchange is the amount of profits that the Central banks allow the banks to extract from the credit markets for the utility of overnight lending vs a bit of risk.
“Can the fed contract the money supply, so it doesn’t have 8 trillion on its balance sheet?”
Well, they can’t exactly burn a big pile of money like the Joker did in “The Dark Knight”. They put that money in circulation already. The best they can do is stop printing money and maybe the disaster won’t get any worse.
This was only due to two things: (1) the accounting gimmick of including payroll taxes as current revenues without accounting for future liabilities of Social Security of Medicare, and (2) a temporary flood of tax revenue from millions of taxpayers converting traditional IRAs to the new Roth IRAs that were established in 1997.
So will people selling doomsday financial newsletters and gold. That "worthless" storer of value always seems, miraculously, to be worth something when it benefits the recipient.
And it's strange, how the fearporn purveyors' forecasts never come true. Sure we have dips but The Crash, well...it's like Waiting for Godot.
“They put that money in circulation already.”
Dumb question: Is that huge amount of money in circulation the same money sitting un-loaned in the banks?
No, what the banks have on hand is just a drop in the bucket compared to the total money supply.
“It is here that the Fed’s excess reserves have gone - the delta between the two is almost precisely the total amount of reserves injected by the Fed since the Lehman crisis.”
“the excess deposits over loans is entirely driven by the trillions in reserves pumped by the Fed!”
These quotes are from a couple months ago: https://www.zerohedge.com/markets/stunning-divergence-latest-bank-data-reveals-something-terminally-broken-financial-system
This MMT thing is a mystery to my formerly-Austrian economics mind - I’m trying to wrap my head around it.
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