{"id":30428,"date":"2018-02-01T10:01:37","date_gmt":"2018-02-01T15:01:37","guid":{"rendered":"http:\/\/olduvai.ca\/?p=30428"},"modified":"2018-02-01T10:01:37","modified_gmt":"2018-02-01T15:01:37","slug":"qe-the-gift-that-just-kept-giving-is-now-taking","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=30428","title":{"rendered":"QE…The Gift That Just Kept Giving…Is Now Taking\u00a0"},"content":{"rendered":"

QE…The Gift That Just Kept Giving…Is Now Taking\u00a0<\/span><\/a><\/h3>\n
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I know the Federal Reserve doesn’t effectively create money or directly monetize.\u00a0 I know this because then Fed chief, Ben\u00a0Bernanke, told us so (HERE<\/a>).\u00a0 But still, something has me wondering about that exchange, now almost a decade ago.\u00a0 The simplest of math.<\/p>\n
\nThe plan to utilize quantitative easing and avoid direct monetization went like this.\u00a0 The Fed would digitally conjure “money” to buy the US Treasury\u00a0bonds and Mortgage Backed Securities (remove assets from the market) from the big banks.\u00a0 However, the Fed would force those banks to\u00a0deposit the newly conjured\u00a0“money” at the Federal Reserve.\u00a0 This would avoid the trillions of newly created dollars\u00a0from going in search of the remaining assets (particularly levered from somewhere between 5x’s to 10x’s…turning a trillion into five to 10 trillion…or more).<\/div>\n

The chart below shows the Federal Reserve balance sheet (red line)\u00a0and the quantity of those newly created dollars that the recipients of those dollars, the banks, deposited at the Federal Reserve (blue line).\u00a0 But the green line is the\u00a0quantity of newly created dollars that have “leaked” out…also known as “monetized”.<\/p>\n

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The interplay of QE and excess reserves resulted in the peak QE impact taking\u00a0effect\u00a0long after QE was tapered and had ceased (chart below).\u00a0 The trillions in assets remaining with the Fed, but the new cash no longer under lock and key\u00a0at the Fed.<\/p>\n
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The impact of $800+ billion of pure monetization from late 2014 through year end 2016 was spectacular.\u00a0 In the hands of the largest banks (multiplied by “conservative” leverage somewhere between 5 to 10x’s)\u00a0easily\u00a0amounting to trillions in new cash looking for assets.\u00a0 A “bull market” beyond belief should not have been surprising.<\/div>\n

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…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

QE…The Gift That Just Kept Giving…Is Now Taking\u00a0 I know the Federal Reserve doesn’t effectively create money or directly monetize.\u00a0 I know this because then Fed chief, Ben\u00a0Bernanke, told us so (HERE).\u00a0 But still, something has me wondering about that exchange, now almost a decade ago.\u00a0 The simplest of math. The plan to utilize quantitative […]<\/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":[49,63,68,18287,303,534,536,7926,661,662,3650],"class_list":["post-30428","post","type-post","status-publish","format-standard","hentry","category-economics","tag-balance-sheet","tag-banks","tag-ben-bernanke","tag-economica-blog","tag-fed","tag-monetary-policy","tag-money","tag-mortgage-backed-securities","tag-qe","tag-quantitative-easing","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30428","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=30428"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30428\/revisions"}],"predecessor-version":[{"id":30429,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30428\/revisions\/30429"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=30428"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=30428"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=30428"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}