NY Fed spends $53 billion to rescue the overnight lending market

Discussion in 'Markets & Economies' started by willrocks, Sep 18, 2019.

  1. willrocks

    willrocks Well-Known Member Silver Stacker

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    https://edition.cnn.com/2019/09/17/business/overnight-lending-rate-spike-ny-fed/index.html
     
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  2. Oddjob

    Oddjob Well-Known Member Silver Stacker

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  3. leo25

    leo25 Well-Known Member Silver Stacker

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    I would have assumed the FED and ever other central bank have been doing this ever since 2008. It's the only way central banks all around the world can get rates to near zero and keep them down. Banks buy government bonds from Treasury, central bank buy or repo bonds from banks, thus adding more available credit for the system and keeping down rates.

    ECB, BOC and BOJ openly talk about it, but for some reason the FED still keeps it on the low down.
     
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  4. leo25

    leo25 Well-Known Member Silver Stacker

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    The FED has recently been reducing it's securitie holdings or stopped buying new ones (That in essence means it's pulling credit out of the system). Banks have to keep buying government bonds and are left needed cash/credit. Banks are then forced to find cash fast so they go to the repo market and repo their bonds for cash to meet reserve requirements. Most of the bigger banks probably have Excess Reserves with the FED, but I'm sure many don't. Since the FED pays interest on ER the big banks rather keep it there risk free then put it into the market.

    Seems like the FED is playing games...again.
     
    Last edited: Sep 19, 2019
  5. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Haven’t they been doing a similar thing for decades by meeting shortfalls in reserve requirements in the overnight money market? In other words if there’s a balance sheet problem with the reserves held by the entire banking system at the close of a day’s business, the Fed provides the necessary funds?

    I think this is supposed to keep control over the price of funds being lent by the banks.

    Or I’m on a completely different tangent. :p
     
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  6. leo25

    leo25 Well-Known Member Silver Stacker

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    This seems like a place for Warren Mosler. Can start at 8:40, but worth watching it all.

     
    Last edited: Sep 18, 2019
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  7. leo25

    leo25 Well-Known Member Silver Stacker

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    Yes and no, the FED will allow an overdraft, but the bank will then have to find credit to balance it and meet its reserve requirement. Now sometimes the FED will be happy to lend and sometimes they will force you to go to the market first. Sometimes the FED whats to create a market crash and sometime they want to be the hero with QE or "Open market operations". :D
     
    Last edited: Sep 18, 2019
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  8. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    @leo25 I’m still getting my head around this, but does Mosler contradict your comment ?

     
  9. leo25

    leo25 Well-Known Member Silver Stacker

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    I don't think it does. So the FED will always automatically allow an "overdraft" on its reserve account to make sure everything keeps moving along, but at some point (I'm not sure how long) the "overdraft" has to be balanced. It's the same with a business bank account that allows overdraft, even if you have $0 you can still spend money, but you have to balance it to bring it back to $0. Does that make sense? That's my understanding.

    In the video i linked above, watch @ 11min mark. He will explain it.
     
    Last edited: Sep 18, 2019
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  10. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    That video is on my watch list for tonight while the old girl gets her nightly dose of crime drama. Fuck crime drama is boring, some of the female talent is good on the eye but the story lines are dull as. Economics is much more interesting.
     
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  11. leo25

    leo25 Well-Known Member Silver Stacker

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    lol well hope you can relax tonight and enjoy the talk.

    There are 7 parts all up, I've only watch the first 3 so far. The 2nd part which i linked above is very good, though near the end he says some things that goes against a very strong beliefs i had (regarding Paul Volcker). So i had to put aside my preconception and really think about it.
    The 3rd video has Yanis Varoufakis (former Greek Minister of Finance) and he talks about the European union.
     
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  12. mongrelmaple

    mongrelmaple Well-Known Member Silver Stacker

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    Now the MSM are reporting it to the blind masses

    https://www.news.com.au/finance/eco...e/news-story/44d69edd18598d48d2c878cc20e847d7

    The take home comment from the article:
    “The amount of cash in the banking system is too limited,” rate strategist at Bank of America Merrill Lynch, Mark Cabana, said in a note to clients on Tuesday.

    Just wait until markets really start to fall into recession like we’re all waiting for, and liquidity really dries up :rolleyes:
     
  13. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I think the plan is to increase liquidity.
     
  14. mongrelmaple

    mongrelmaple Well-Known Member Silver Stacker

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    Of course it is, you’re completely right. However, it’s always a case of too much is never enough with the bankers! :D
     
  15. leo25

    leo25 Well-Known Member Silver Stacker

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    Interesting talk with a big weight in the financial industry, Jeffrey Gundlach. Strong closing statement in the last minute. Not sure that’s what CNBC or Trump wanted to hear :D I wonder if he has some of the shiny stuff.

     
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  16. 66rounds

    66rounds Well-Known Member Silver Stacker

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    He reckons there's still 6-8 years of can kicking left? That's too long in my opinion, but I'll be glad if hes right.
     
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  17. leo25

    leo25 Well-Known Member Silver Stacker

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    I must have missed that part, I’ll have to watch it again. He thinks recession is here and get out of anything US dollars. Though he flip flops at times. Everyone seems to be pricing in QE. Imagine the carnage if the FED doesn’t do it :eek: maybe central banks feel its time to bring in the nets and take the fish.
     
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  18. 66rounds

    66rounds Well-Known Member Silver Stacker

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    What will a weakened USD to do the AUD and Gold in AUD? I'm guessing it will strength AUD and reduce XAU/AUD price but will also lead to increase XAU/USD. Will this wipe out the drop in price of gold in aussie dollars?

    Asking from the perspective of deciding when to make another major buy in of gold.
     
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  19. leo25

    leo25 Well-Known Member Silver Stacker

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    That’s a great question. You might have to give the RBA a call and see what they have planned for the AUD :). I think it might be hard for the USD to fall against other currency, since everyone is playing the same game. Maybe start buying some now and then wait and see what happens before you buy more. Otherwise you can buy some gold mining stocks as they have had a pull back.
     
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  20. openeyes

    openeyes Well-Known Member Silver Stacker

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    That’s the Phil Anderson timeframe. Gold seems like it will be on a upward swing into the next major downturn.

    So I think there is some time for rebuilding the stack.
     
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