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Fed Admits Failure of ‘Plan A’ to Control Money Market Rates, Shifts Back to Repos ...
WolfStreet.com ^ | 20 September 2019 | Wolf Richter

Posted on 09/20/2019 11:35:56 PM PDT by Yosemitest



TOPICS: Business/Economy; Extended News; Government; News/Current Events
KEYWORDS: bailout; bank; blackswan; debt; deficit; fed; fedrate; inflation; mmt; modernmonetarytheory; moneyprinting; qe; repurchaseagreement
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To: Yosemitest

Inevitable consequences of pretending debt is money...


61 posted on 09/21/2019 2:58:44 PM PDT by northislander
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To: Drago
Also, what is your opinion on the “2% inflation target” shouldn’t it be “0%/stable prices”

0% is too difficult to hit. Their price measurements have a lag. Deflation is bad. It's easier to just try to target a low, positive number.

I see 5-6% annual inflation in what I buy

What are you buying?

Or do you think Jim W. is way off?

Yes, his imaginary calculations are way, way off.

62 posted on 09/21/2019 2:59:18 PM PDT by Toddsterpatriot (TANSTAAFL)
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To: babble-on
The New York Fed fired their chief of market operations earlier this year, Mr. Simon Potter. The new guy was apparently not ready for prime time.

Interesting. Why did the fire Simon Potter?

63 posted on 09/21/2019 3:11:04 PM PDT by WashingtonSource
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To: Drago

“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? “

Yep.

“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?”

The Fed creates a cash balance to exchange for the bonds. That cash then “disappears” when the Fed hands the bonds back to the banks. It’s converting illiquid bonds into liquid money for the life of the repo.

“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”? “

IMO it comes from the full employment mandate- something that Congress has ordered the Fed to aim at. If we still had the gold standard I think they’d have to go for price stability.

“I see 5-6% annual inflation in what I buy when they shoot for a “2%” “core” rate,”

In the view of Milton Friedman and the Quantity of Money school, inflation is a purely monetary phenomenon that will cause a rise in all prices, not just some prices.

Prices rise (and fall) for all sorts of reasons having nothing to do with the quantity of money, so the prices of familiar items isn’t always a reliable guide.

If we have another inflation like the 1970s you will spend your money on hard goods as fast as you get it. You’ll know there is inflation. Everyone will know.

“Or do you think Jim W. is way off?

I wouldn’t dismiss Williams. Interest rates aren’t including any inflation premium at all. So if he’s right on inflation it would pay to borrow long and pay off the loan in depreciated dollars.


64 posted on 09/21/2019 3:12:29 PM PDT by Pelham (Secure Voter ID. Mexico has it, because unlike us they take voting seriously)
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To: Toddsterpatriot

What I am seeing:
Healthcare ave.yearly increase: 12%-18%
PG&E elect. & nat. gas: ave. 8% increase per year.
CA gasoline @ about $3.55/gal. (fluctuates between $2.25 & $4.25 over prior decades).
Restaurants/fast food observed about 5%-7% per year over the last 15 years.
Misc. “Home Goods” (appliances, small electrics, etc.) about 2-3% per year.
Groceries, pretty stable, maybe 1%-2% per year over the last 10 years.

Several of those may be “CA specific” due to crazy regs..

My personal “inflation index” is my Carl’s, Jr./Hardees index: Southwest Chicken Sandwich large combo w/fries-drink = $7.25 in 2007....same combo in the same city in 2019 = $12.50...~73% increase over 12 years equals about 6% inflation per year. My math may be suspect, but my perception/feelings is/are key! ;-)


65 posted on 09/21/2019 3:19:57 PM PDT by Drago
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To: northislander

“Inevitable consequences of pretending debt is money...”

During the National Bank Era from Lincoln until 1913, banks held Treasury paper (debt) as their reserves to back the money that they loaned.

Treating debt as money is about as old as banking itself. Pretty sure that Adam Smith was an advocate of the Real Bills doctrine, Real Bills being a name for short term commercial debt.


66 posted on 09/21/2019 3:22:38 PM PDT by Pelham (Secure Voter ID. Mexico has it, because unlike us they take voting seriously)
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To: Toddsterpatriot
The Fed has printed all these worthless dollars, either in real paper or in electronic money (which, sooner or later, becomes real dollars) and put them in the banks to be loaned out and used, whether to cover Federal dollars in peoples' pay, or retirement, or whatever.
Remember the three aircraft that Obama took to the Muslims with pallet loads of cash (1.5 Billion Dollars), to get the four hostages back and a "Nuclear Deal", and the rest of the 150 Billon Dollars of funds were transfer electronically to them..

Then later, when their story is that "we're in better shape economically", they raise interest rates to take back in, or remove from the economy, those worthless dollars they suddenly made out of thin air.
67 posted on 09/21/2019 3:24:30 PM PDT by Yosemitest (It's SIMPLE ! ... Fight, ... or Die !)
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To: Pelham

Thanks for that info..
So if/when the U.S. has negative rates, I should borrow dollars and buy gold and come out ahead on the loan?!?! Sounds like a good deal! ;-) The Fed needs to publish a white paper/.PDF/web page titled “Why the Fed is on the side of Main Street middle-class Americans”. I get the basic premise...(1920’s/30’s bank failures/bank runs, “regional” currency problems, etc.), but I have a problem when their “inflation target”/core inflation #’s don’t line up with middle-class wage increases over a long time period (i.e. wages are behind the curve).


68 posted on 09/21/2019 3:35:19 PM PDT by Drago
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To: Drago

“So if/when the U.S. has negative rates, I should borrow dollars and buy gold and come out ahead on the loan?!?! “

Your guess is as good as mine. Markets sometimes do the exact opposite of what appears to make sense to me.

I don’t think that negative interest rates filter down to the level of individual savers. I looked into that once and IIRC it’s aimed at huge balances.


69 posted on 09/21/2019 3:40:00 PM PDT by Pelham (Secure Voter ID. Mexico has it, because unlike us they take voting seriously)
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To: Pelham

Not fair!!! I should be able to borrow $$ at the rates “evil banks” get to!!! (So I can take it and lend it out at 5-12% interest in my “Lending Club” account {arbitrage}). That is why the “private bank owned Fed is ripping us off” argument comes about! They need a PR department.


70 posted on 09/21/2019 3:47:06 PM PDT by Drago
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To: Drago
~73% increase over 12 years equals about 6% inflation per year. My math may be suspect, but my perception/feelings is/are key! ;-)

That works out to a 4.7% increase per year.

71 posted on 09/21/2019 3:51:41 PM PDT by Toddsterpatriot (TANSTAAFL)
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To: Yosemitest
The Fed has printed all these worthless dollars, either in real paper or in electronic money (which, sooner or later, becomes real dollars) and put them in the banks to be loaned out and used, whether to cover Federal dollars in peoples' pay, or retirement, or whatever.

And these short term repos are the Fed temporarily "printing" more dollars. Still not sure what you meant by "draw back in some of the worthless dollars"

Then later, when their story is that "we're in better shape economically", they raise interest rates to take back in, or remove from the economy,

Raising the Fed Funds rate doesn't reduce the Fed's balance sheet. Doesn't remove "printed dollars" from the economy. FYI, they just cut the Fed Funds rate on Tuesday.

72 posted on 09/21/2019 3:58:45 PM PDT by Toddsterpatriot (TANSTAAFL)
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To: Yosemitest

Nope. Prove it.


73 posted on 09/21/2019 4:00:21 PM PDT by jdsteel (Americans are Dreamers too!!!)
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To: Yosemitest

The gold standard has it’s own problems. Nothing is perfect.

Like most people that have a hatred for the Fed you seem to hate things you THINK it does that are bad and miss all the valid reasons for hating the Fed.

I could go on about those, but in the end there isn’t a better solution....though it does need to be audited annually. More transparency would be a good thing.


74 posted on 09/21/2019 4:03:55 PM PDT by jdsteel (Americans are Dreamers too!!!)
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To: Toddsterpatriot
I think what's really going on is When their "short bets" are going the wrong way, and they get a "Call", they have to come up with the cash to cover those "shorts" and they borrow it from the banks (who say they'll loan them the funds, but then at the end of the day, the banks realize that they don't have those funds to loan.)
Or a similar situation could happen with their "long bets" that those businesses were counting on to be able to sell at a profit, but come payroll time, the "longs" have lost money and they don't have the funds to cover payroll.
So they call the banks to borrow the funds to cover payroll, and the banks say they'll loan them the funds (that the banks don't have) and count on the Fed's repurchase (repo) loans.

All in all, it's a sign of really big trouble, bad management, and poor judgment.
The Fed is simple delaying the economic collapse that we need, in order to get rid of these bad managers and companies.
And the TAX PAYERS are the ones who'll get stuck with the bills, and who's savings are diminished with this 'pretend-it's-not-Quantitate Easing' farce called "Repurchase (repo) Loans".

The quicker we get a "reset" and weed out these bad players, the quicker we can have real recovery.
75 posted on 09/21/2019 4:05:37 PM PDT by Yosemitest (It's SIMPLE ! ... Fight, ... or Die !)
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To: Yosemitest
The Fed is simple delaying the economic collapse that we need, in order to get rid of these bad managers and companies.

The last time we got a "needed collapse", we suffered through eight years of Obama's idiocy.

76 posted on 09/21/2019 4:11:06 PM PDT by Toddsterpatriot (TANSTAAFL)
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To: jdsteel
The Fed made the Great Depression WORSE,
and drug out a normal recovery, that should have only been 2 or 3 years long, and made it 10 years.
We need to get rid of the Fed !
This time, the Fed's setting us up for a Depression that will last a lot longer than 10 years, and will be much, much worse than in the 1930s.
77 posted on 09/21/2019 4:14:13 PM PDT by Yosemitest (It's SIMPLE ! ... Fight, ... or Die !)
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To: Toddsterpatriot
And the LAME STREAM MEDIA is still trying to say those years were a good economy.
78 posted on 09/21/2019 4:15:49 PM PDT by Yosemitest (It's SIMPLE ! ... Fight, ... or Die !)
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To: Yosemitest
The Fed made the Great Depression WORSE,

Yup. And Bernanke was determined not to repeat that mistake in 2008.

This time, the Fed's setting us up for a Depression that will last a lot longer than 10 years

How?

79 posted on 09/21/2019 4:34:34 PM PDT by Toddsterpatriot (TANSTAAFL)
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To: Toddsterpatriot
By tinkering with everything, when the Fed should stay out of it.
The free economy, left to its own reactions, will solve the problems quickly.
And the corrections won't last 10 years or longer, i.e. Obama.
80 posted on 09/21/2019 4:58:54 PM PDT by Yosemitest (It's SIMPLE ! ... Fight, ... or Die !)
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