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Fed’s Fourth Bill POMO Is Most Oversubscribed Yet Amid Liquidity Scramble
Fed’s Fourth Bill POMO Is Most Oversubscribed Yet Amid Liquidity Scramble
One day after the Fed unexpectedly saw a surge in demand for its term-repo operation, which was oversubscribed for the first time since the mid-September repo crisis erupted, the liquidity shortage in the funding market appears to be getting worse by the day, and in today’s just concluded 4th consecutive T-Bill POMO, which saw the Fed monetize another batch of Bills, Dealers submitted $44.2BN in bids for the maximum $7.5BN in Fed “Reserve Management” (note: not QE) purchases.
This means that today’s operation was 5.9x oversubscribed, the most of any operation since the launch of “Not QE4”, and clearly an increase from the first three POMOs, when operations were 4.3x, 4.8x and 5.5x oversubscribed.
The results confirm that demand for the Fed’s permanent liquidity injection is increasing with every operation – suggesting that not only was the September repo turmoil not a one-time liquidity event, but that that liquidity shortage is getting worse – even as usage of the Fed’s latest overnight repo saw a modest decline.
As such the question we have been asking for the past month – and one which Elizabeth Warren should also consider asking of Steven Mnuchin – remains: why are banks still so desperate for liquidity even though the Fed has now made clear that its balance sheet will expand to accommodate all reserve needs, and why do they so stubbornly refuse to approach the interbank market for their funding needs? In short, what do they know about the banking system that we don’t?
Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves
Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves
Much like BoJ governor Haruhiko Kuroda, Paul Krugman thinks that the key for Japan when it comes to overcoming decades of deflation is a positive outlook.
“Japan needs to reach a point where everyone believes that it has pulled out of deflation. And then if that can be believed, then it may be able to stay out of trouble thereafter,” he told an audience in Tokyo last September.
That rather ridiculous pronouncement is reminiscent of something Kuroda said last summer: “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.”
In other words, Krugman and Kuroda believe that Japan can wish its way out of deflation. Krugman’s comments in Tokyo came around 10 months after he visited Japan in 2014. On that trip, he’s said to have helped convince PM Shinzo Abe to delay a planned sales tax hike. “That nailed Abe’s decision — Krugman was Krugman, he was so powerful,” Japanese economist Etsuro Honda said, recounting a meeting between the economist and the premier.
Well, 16 months has passed since that fateful visit and virtually nothing has changed in Japan. In fact, the Japanese have since taken a further plunge down the Keynesian rabbit hole by taking interest rates negative and not only is inflation still languishing at essentially zero, stocks are some 20% off their highs and this month the yen actually hit its highest levels since Kuroda announced the second round of QE two Octobers ago.
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