{"id":14883,"date":"2015-11-28T15:05:54","date_gmt":"2015-11-28T20:05:54","guid":{"rendered":"http:\/\/olduvai.ca\/?p=14883"},"modified":"2015-11-28T15:05:54","modified_gmt":"2015-11-28T20:05:54","slug":"unintended-consequences-of-lift-off-in-a-world-of-excess-reserves","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=14883","title":{"rendered":"Unintended consequences of lift-off in a world of excess reserves"},"content":{"rendered":"
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Unintended consequences of lift-off in a world of excess reserves<\/a><\/h3>\n<\/header>\n
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\"Before<\/p>\n
Bar a disastrous NFP print this coming Friday the US Federal Reserve will change the target range for the Federal Reserve (Fed) Bank\u2019s Funds rate from the current level of zero \u2013 25bp to 25 \u2013 50bp on December 16th. \u00a0The Fed will effectively raise the overnight interbank rate of interest to around 30bp from an average of only 12bp in 2015. Ironically, that will be seven years, to the day, when the Fed first lowered rates to the current band.<\/div>\n<\/div>\n
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During the period of ZIRP madness, the Fed\u2019s balance sheet ballooned 6.2 times its pre-Lehman size to allow the central bank to add monetary \u201cstimuli\u201d even at the zero lower bound. Consequently the financial system got stuffed with more cash than they knew what to do with; commercial banks thus ended up funding the very same assets they sold to the central bank through excess reserves held as deposits with the Federal Reserve bank itself<\/p>\n

\"Fed<\/a><\/p>\n

Source: \u00a0Board of Governors of the Federal Reserve System \u2013 H.4, Federal Reserve Bank of St. Louis, Bawerk.net<\/em>Historically the Fed would meet their targeted interest rate in the interbank market by conducting open market operations,\u00a0id est<\/em>\u00a0buying and selling securities on the margin from designated primary dealer banks to affect available reserves and hence the rate of interest. As a side note, in this \u02c8market\u02c8 demand will indeed create its own supply. \u02c8Market signals\u02c8 emanating from banks eager to expand their balance sheet will put pressure on interest rates, and hence prompt the Fed to buy securities in order to add reserves in order for them to maintain rates at their \u02c8appropriate\u02c8 level. This Keynesian creation is thus the only \u02c8market\u02c8 that actually operates according to Keynesian principles; whereby demand dictates the\u00a0level<\/em>\u00a0of supply.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n

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Unintended consequences of lift-off in a world of excess reserves Bar a disastrous NFP print this coming Friday the US Federal Reserve will change the target range for the Federal Reserve (Fed) Bank\u2019s Funds rate from the current level of zero \u2013 25bp to 25 \u2013 50bp on December 16th. \u00a0The Fed will effectively raise […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[8135,303,305,430,467,534,1939],"class_list":["post-14883","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bawerk-net","tag-fed","tag-federal-reserve","tag-interest-rate","tag-keynesian-economics","tag-monetary-policy","tag-zirp"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14883","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14883"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14883\/revisions"}],"predecessor-version":[{"id":14884,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14883\/revisions\/14884"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14883"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14883"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14883"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}