QE4 Started & Nobody Noticed

[acptulsa]

Collateral is not on the Fed books because the Fed does not own the collateral. They don't own those Treasuries. The bank taking out the loan owns those Treasuries. Just as they did before they took out the loan- the ownership did not change.

So we have treasuries the Fed is holding, but which are not included in the figures you posted. And you cannot prove they don't have more now than they did a year ago, because if the Fed told you how much collateral they're holding they'd feel the need to shoot you.

Is all this review leading up to a point?

 

[r3volution 3.0]

That assumes they're actually buying them, as opposed to acting as an intermediary for other entities seeking to offload them away from the open market. Chinese, for example, could approach JPM for a "loan" and hand over Treasuries as collateral. Essentially JPM doing a repo for Chinese. But if the Chinese entity doesn't repay, JPM is stuck with the collateral and it goes onto JPMs books. Force repo market to lock up by ceasing to fund overnight loans, Fed printer steps in, JPM unloads Treasuries onto Fed. Fed ends up as bagholder entity and the Treasuries never hit the open market and never affected rates.

That's a very plausible explanation.

I tend to think that, ultimately, this is all a matter of disturbingly high treasury issuance (and/or lack of real demand therefor).

The latest data on the PDs that I've seen still show them bursting at the seams.

(whoops, guess spending, not taxing, is the real cost after all...)

I'd read about that theory if you have a link to share.

IIRC, the non-excess excess reserve theory is from Luke Gromen:



Both of those fellows have highly interesting opinions.

 

[r3volution 3.0]

This is just a wild guess but I think one potential bubble popping moment might be when the Fed's balance sheet hits a new high. What's that, another 2 or 3 months maybe when it hits 4.4T or whatever the old high is?

At the current rate, yea, couple months.

When the next recession arrives, they're going to go berserk and blow up the Y axis.

 

[r3volution 3.0]

I agree, it has to end with high inflation. That's the only thing that will stop the government from taking the path of least resistance, which is borrowing and printing.

And before someone replies, "But Japan!" remember that there are 1000 Zimbabwes, Argentinas and Venezuelas for every Japan. Besides that I don't want to work 80 hours a week and live in a closet just to keep the government from wrecking the currency.

Misallocators gonna misallocate...

What happens when, one day fairly soon, Japan goes into recession, the BOJ prints half a trillion dollars, and GDP goes more negative?



In other words, resource misallocations can only go so far until you get secular negative economic growth, which is rather the end of the game. The terrified citizens of Tokyo have delayed the reckoning through their wonderfully low-time preference behavior, but their government has wasted every cent of those massive savings in nonsensical ditch-digging.

And this is exactly where we're heading unless the politicians...

Nevermind, this is where we're heading.

Godzilla cometh (and Keynes, in this long-term, is dead, so what does he care)

 

[Zippyjuan]

This is just a wild guess but I think one potential bubble popping moment might be when the Fed's balance sheet hits a new high. What's that, another 2 or 3 months maybe when it hits 4.4T or whatever the old high is?

So when things go back to where they were for most of the last five years that will suddenly cause a collapse? https://fred.stlouisfed.org/series/WALCL

 

[pmbug]

It looks like the year-end repocalypse that was predicted by Credit Suisse strategist Zoltan Pozsar is not going to happen this year after all.

Today's Term Repo which matures on January 7 saw $28.8BN in security submissions ($13.85BN in TSYs, $14.95BN in MBS), below the $35BN in total availability.

As such, this was the second term repo since the start of the Fed's emergency repo program that covered the year-end "turn" with a maturity of Jan 2, and was not fully overalotted. ...
...
In his latest comment on the repo market, Curvature's Scott Skyrm noted that "once the term RP operations switch to being undersubscribed, it either means most of the Street's year-end funding need is fulfilled, or banks are close to their balance sheet limits." ...
...
Meanwhile, despite the lack of oversubscribed repo for two operations in a row, repo doomsayer Pozsar refuses to throw in the towel and in an interview posted by Bloomberg on Friday, the Credit Suisse analyst said "it's not over" yet, saying that "if the yearend is less of a problem because of the repo bazooka we got from the Fed, and if the message of my report played a part in getting that bazooka, then that’s a nice way to be proven wrong." However, he then added ominously that "now we’re getting into a point in the year when balance-sheet problems are going to flare up, and I think the system will get gummed up again."
...

https://www.zerohedge.com/markets/r...d-turn-repo-even-pozsar-doubles-down-doomsday

 

[oyarde]

I went ahead and played some Goszilla live today anyway .

 

[Madison320]

Different times- different economies. Limited stimulus can help turn things around in a recession (though I did say that QE after the first round was not necessary- stimulus has diminishing returns). You don't juice a steady economy like we have now.

Asking you for the second time. I feel a negative rep coming:

Right, so you agree that after around 2011 you can substitute "Obama" for "Trump" and the statement would be just as true:

Your statement:

"Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."

So do you agree this is true after 2011?

"Obama wants negative interest rates and heuge QE so he can look amazing just in time for the election."

 

[Madison320]

So when things go back to where they were for most of the last five years that will suddenly cause a collapse? https://fred.stlouisfed.org/series/WALCL

It's a psychological barrier. Remember that the when the Fed launched QE they promised it was only temporary and they'd reduce it back down after the emergency. The fact that it's going to hit a new high might pop the bubble.

And it's not going to creep back up to the 4.5 T mark and sit there. It's going to blow thru it like a hot knife thru butter. Next stop 5 T.

 

[Madison320]

Misallocators gonna misallocate...

What happens when, one day fairly soon, Japan goes into recession, the BOJ prints half a trillion dollars, and GDP goes more negative?



In other words, resource misallocations can only go so far until you get secular negative economic growth, which is rather the end of the game. The terrified citizens of Tokyo have delayed the reckoning through their wonderfully low-time preference behavior, but their government has wasted every cent of those massive savings in nonsensical ditch-digging.

And this is exactly where we're heading unless the politicians...

Nevermind, this is where we're heading.

Godzilla cometh (and Keynes, in this long-term, is dead, so what does he care)

I would argue that price inflation is the end of the game. If you think about it, you could print your way out of ANY economic problem if you could always print faster than the printing shows up in prices.

 

[devil21]

That's a very plausible explanation.

I tend to think that, ultimately, this is all a matter of disturbingly high treasury issuance (and/or lack of real demand therefor).

The latest data on the PDs that I've seen still show them bursting at the seams.

(whoops, guess spending, not taxing, is the real cost after all...)



IIRC, the non-excess excess reserve theory is from Luke Gromen:



Both of those fellows have highly interesting opinions.

It's also worth noting that actual cash withdrawn from a bank (say, as part of any Chinese "loan" scenario I posited) counts against the bank's reserves and draws down the bank's official reserves. Cash is treated differently, accounting-wise, than the fractional reserve deposit-based digital movement of funds. Moving digital funds between bank accounts (checks, ACH, eg) doesn't affect a bank's official reserves but withdrawing vault cash does. Whenever cash is withdrawn from a bank it comes directly out of that bank's official reserves. A good way to poke a bank in the eye is to keep withdrawing and using cash

There's some news floating around the net recently about large amounts of physical cash and gold disappearing lately. If cash is vanishing, it is presumably affecting bank's official reserves if any of that cash was recently taken from banks.

 

[devil21]

Thanks to r3revolution, devil21 & all for this thread,
which allowed me finally to reach a better understanding of what repo operations are.


So, the Fed is monetising US federal debt through POMO and repo operations

http://danielamerman.com/va/ccc/F1DefFund1219.html


Even if Zippy for once had been right, only through POMO the Fed has been monetising 60-70% the new US federal debt in the last 3 months

I think everybody is wondering how long before the system breaks down.
Japan shows that it can long at least several years

Glad it's helped. If you want to get really crazy and wonky, read this publication by the Chicago Fed describing the nuts and bolts of the system.
https://pdfhost.io/v/ir1b43XD_MODERN_MONEY_MECHANICS.pdf

In this way the banks are first repaid, and only then the public's money becomes officially and legally worthless.

Ashes to ashes, dust to dust? From whence it came? Etc. Whatever religious cliche you want to use. It is the Vatican's Cestui Que Trust system, after all.

 

[oyarde]

Gold is 1515.00 so I'm good .

 

[Madison320]

Different times- different economies. Limited stimulus can help turn things around in a recession (though I did say that QE after the first round was not necessary- stimulus has diminishing returns). You don't juice a steady economy like we have now.

Why are you ignoring my simple question? Will you get in trouble if you answer it?

Asking for the third time:

Your statement:

"Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."

So do you agree this is true after 2011?

"Obama wants negative interest rates and heuge QE so he can look amazing just in time for the election."

 

[Zippyjuan]

Why are you ignoring my simple question? Will you get in trouble if you answer it?

Asking for the third time:

Your statement:

"Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."

So do you agree this is true after 2011?

"Obama wants negative interest rates and heuge QE so he can look amazing just in time for the election."

Every president would like a good economy. `By 2011, the US had recovered a lot. Sure, he would not mind more help but he did not publicly demand that the Fed reduce interest rates to zero and do more quantitative easing like Trump did. He trusted the Fed to do what they thought best.

 

[Warlord]

Every president would like a good economy. `By 2011, the US had recovered a lot. Sure, he would not mind more help but he did not publicly demand that the Fed reduce interest rates to zero and do more quantitative easing like Trump did. He trusted the Fed to do what they thought best.

QE started under Obama.

 

[Zippyjuan]

QE started under Obama.

Because that is when the recession was. We don't need QE when there isn't one.

 

[Madison320]

Every president would like a good economy. `By 2011, the US had recovered a lot. Sure, he would not mind more help but he did not publicly demand that the Fed reduce interest rates to zero and do more quantitative easing like Trump did. He trusted the Fed to do what they thought best.

You are blinded by your loyalty to the democratic party.

The only difference between Obama and Trump is that Obama OWNED the Federal Reserve. They kept rates at zero for his entire 8 year reign and printed 3.5 trillion!!! Compare that to Trump, as soon as Trump got elected they started raising rates and reducing QE.

 

[Madison320]

Because that is when the recession was. We don't need QE when there isn't one.

The recession ended by 2011. Obama didn't need QE2, QE3 and ZIRP for his last 5 or 6 years. Obama had the Fed under his thumb. Trump can only dream of having the kind of influence that Obama had.

 

[Zippyjuan]

You are blinded by your loyalty to the democratic party.

The only difference between Obama and Trump is that Obama OWNED the Federal Reserve. They kept rates at zero for his entire 8 year reign and printed 3.5 trillion!!! Compare that to Trump, as soon as Trump got elected they started raising rates and reducing QE.

Which rates were zero (they were very low but not quite zero)? I would agree that QE after the first round was not necessary (there is diminishing returns- you need to exponentially increase it to continue the same effect). I also thought they could have started raising rates sooner. Do you think they should have stayed low and QE continued?