Home » Posts tagged 'Reverse Repo'
Tag Archives: Reverse Repo
When Inflation is really Deflation
QUESTION: Why is the Fed doing so much Reverse Repo? Do you think it will hit $2 trillion?
JE
ANSWER: I understand that people seem to be talking up the reverse repo activity as doom and gloom. The Federal Reserve has been raising interest rates and boosted the return to fight inflation. The reverse repo facility takes in cash primarily from money-market funds, as well as government-sponsored companies and banks. This facility offered a return of zero percent to eligible users previously, and then the Fed moved it up to 0.05%, while at the same time lifting another rate, called the interest on excess reserves rate to 0.15% from 0.10%. The Fed is actually competing against the US Treasury in taking in cash, which is diverting it from government debt.
What the Fed does not understand because it is beyond their control are the international capital flows. Raising rates to fight domestic inflation is attracting capital from Europe, where banks are charged negative interest rates if they have excess cash. They open a branch in the USA and then send the excess cash to the state, and then they put it at the Fed. In this manner, the Fed has no idea how much money they are actually attracting globally.
I helped the Japanese lower their trade surplus by simply buying gold in New York, taking delivery, shipping it to London, and then selling it and starting all over again constantly. The trade statistics only measure dollars — not goods. You can buy a hot dog and have it delivered in London, and that too would reduce the trade surplus. It’s all a numbers game, and those in government have no ability to figure out the real world.
…click on the above link to read the rest of the article…
Will The Fed Follow The BoJ Down The NIRP Rabbit Hole?
Will The Fed Follow The BoJ Down The NIRP Rabbit Hole?
“Overall, we believe the latest package is far from a game changer,” Matejka opined.
What was especially interesting about that particular note was the following graph and set of tables which show just how “effective” NIRP has been for the five central banks that have tried it so far.
As you can see, once you go NIRP, it’s pretty much all downhill from there whether you’re talking inflation, the economy, or even equities.
Given that, and given that the entire idea is absurd on its face for a whole laundry list of reasons, one wonders why any central banker would chase down this rabbit hole only to find themselves the protagonist in the latest retelling of “Krugman in Wonderland”.
In any event, for those wondering whether the Fed will join the ECB, the BoJ, the Riksbank, the SNB, and the NationalBank in this increasingly insane monetary experiment, below, courtesy of Bloomberg, find a chronological history of Fed and analyst commentary on NIRP in America.
FED COMMENTARY
- March 16: Yellen said during post-FOMC press conference Fed isn’t actively considering negative rates, studying effects in other nations
- March 2: San Francisco President Williams said “we’re not doing negative interest rates”; Williams Feb. 25 said negative rates are “potentially in the toolbox” but may have “unintended consequences”
- March 1: Former Fed Chairman Alan Greenspan said on Bloomberg Radio and TV negative interest rates, if pursued for an extended period of time, will eventually distort saving and investment…click on the above link to read the rest of the article…
