Fed Balance SheetSubmitted by Mega-Lithium t3_120143p in wallstreetbets
key-wavelength t1_jdfo5hj wrote
Reply to comment by SeemoarAlpha in Fed Balance Sheet by Mega-Lithium
Yeah, but when they turn around to buy bonds with it, it will drive yields down, undermining the Fed's ability to raise rates.
Wander21 t1_jdfuz6x wrote
It's a cash reserve for bank to survive, and BTFP rate is overnight rate + 10bps, don't make sense using expensive money to buy bonds yield lower cash than that
DYTTIGAF t1_jdg0yjw wrote
Currency was created and inserted into the economy nonetheless. What happens when banks "do what they're supposed to do" which is lend it out and leverage that pile of capital 10X or more?
They have 0% reserve requirements since those restrictions were lifted during COVID.
It's not this particular instance but the steady stream of customers (Signature, First Republic, etc.). Who's next U.S. Bancorp, or Comerica?
The solution is accountability. Fraud and loss cannot constantly be subsidized. It's the moral hazard. Banks saying: "Fuck it. Let's be stupid. The Fed will make us whole".
There's no discipline. Every skinned knee get to go to the emergency room paid for by a third party.
nyse125 t1_jdglem2 wrote
If you're referring to the march 2020 QE/money printing program then yes but otherwise no new money has been injected into the economy since.
DYTTIGAF t1_jdgpeww wrote
You do realize these banks use their balance sheets for collateral?
We're getting ready to seen a tsunami of withdrawals in the next 60 days once the public's recognition of the fact takes hold that the FDIC can cover just 1.5% of all demand deposits.
Businesses, non profits, LLC, teaching institutions, and of course retirees holding above $250,000 with bank CD's all decide to seek saftey immediately.
Your going the see the folly of the decision to drop the reserve requirements to 0%.
MMM does not calculate "fear and greed" in any of its theoretical assertions. It leaves out the nastiness of a capital collapse from consideration. It leaves out the brutality and fear of the counter parties in a financial transaction.
I've been there. I've experienced it first hand. This is the moment that all the undisciplined behavior by these banks is going to be discovered and brought to the light.
Banking and capital preservation needs a "hard discipline" to make sure capital allocation is accountable and controlled.
Otherwise (as you saw with Credit Suisse last weekend) executives run for cover and all the skills that were supposed to keep a collapse from happening... disappears.
nyse125 t1_jdgs2ir wrote
All of this is moot since fed is providing liquidity to these banks as needed on a loan expiring in a year.
Mega-Lithium OP t1_jdhgnrd wrote
Fed already has almost 9 trillion on its balance sheet. Where is this money gonna come from?
nyse125 t1_jdi6g7r wrote
Banks are borrowing from the fed. The fed already has cash on hand...
DYTTIGAF t1_jdgv8tx wrote
No. That would be the nationalization of the banking system for the $19 trillion sitting in deposits (if people lose confidence). You can only play this game for so long. The FDIC as of last week had $128 billion and the balance sheet of the Fed is at almost $10 trillion. This would make the US Dollar worthless.
The US Dollar would be crushed. We are at risk of losing Reserve Currency Status if this gets out of control.
It's the mentality the Fed can : lend, promise, backstop, and securitize their way out of this jam.
Remember in 2008 they had a balance sheet of less than $1 trillion. Now in 2023 it's $10 trillion.
nyse125 t1_jdgvzdf wrote
Unless the fed, for whatever reason, stop or cannot provide temporary liquidity then sure you can debate ifs and how's. The fact of the matter remains, BTFP is here to give temporary ease while their balance sheet should reduce a year from now.
Considering the fact that BTFP is a new isntallment in their toolkit, assumptions regarding this is nothing but a baseless conspiracy. US dollar can absolutely not be destroyed in this process because while BTFO is a deflationary process, as rate cuts kick in eventually everyone will conveniently forget about the possible problems this "would've" caused.
DYTTIGAF t1_jdgxt5p wrote
No. It's confidence in the currency that cannot remanufactured with policy statements.
Please document in the last 30 years when the Federal Reserves "toolkit" has reversed the dollars decline in purchasing power. You can submit 1 example (not hard).
The truth is you cannot. It's just one on acronym after another (QE #1-#4, Operation Twits, PPP supported check dispersonal, Corpirate Debt Purchading Normalization, etc).
The destruction of the currency will occur with a 25% decline (its the 1 to 100 leverage in the currency futures markets that would create the choas).
We shall find out soon. I personally give the Federal Reserve 60 days before price discovery in the currency markets concludes the Russian ruble, or Chinese yuan will offer a better store of value than the US Dollar.
We fund our national debt with short term sovereign debt products such as T-Bills and Notes. You have investors worldwide who are watching the principle destruction occurring on the balance sheets of the banks.
They're not stupid. Why would they roll over that debt for another 6 months to a year? They won't (resulting in a no bid at the debt auctions).
This is the real dilemma the Treasury is staring down tonight.
We shall see.
TSLA240c t1_jdhw559 wrote
Do you honestly believe banks will magically be liquid in a year?
The second the Fed goes to unwind this program it will put us right back in the same boat. This happens every single time the Fed attempts to unwind it’s “temporary” liquidity programs.
The only way to unwind debt is to bankrupt it or monetize it, borrowing from Visa to Amex is a stall tactic not a solution.
nyse125 t1_jdi6ujq wrote
You honestly believe fed won't concoct some more bullshit to kick the can down the road as long as the massive bubble of everything still remains affordable to live under?
As long as QT is still in play this is hardly an issue. Fed might as well outright bail them out than resorting to BTFP even a year from now to avoid any stress in the financial markets as they always do.
TSLA240c t1_jdifaxz wrote
They will absolutely come up with some more bullshit to kick the can with things already unaffordable.
QT isn’t in play any more, they’ve undone the last 5 months in a matter of 2 weeks. This endless monetization of debt instead of allowing it to bankrupt out naturally just increases the money supply causing inflation. The Fed is simultaneously raising rates to slow inflation while injecting cash to permanently monetize bad debts that can never be repaid.
nyse125 t1_jdiit6t wrote
> they’ve undone the last 5 months in a matter of 2 weeks.
I dont think you understand how BTFP works. The "spike" in the balance sheet isnt QT being turned off but after the treasury interest is forfeited, the balance sheet should go back down a year from now. Again, this is literally providing temporary liquid to the banks. If QT was undone we wouldn't have a single red day this past week.
TSLA240c t1_jdil6gl wrote
The Fed is still slowly allowing government bonds to lapse while simultaneously buying new bonds from banks to the tune of a net gain of +400b over the past 2 weeks, that’s QE not QT.
And here I thought you understood that this isn’t going to be temporary. Banks will be in no better position a year from now when these bonds start to lapse and the Fed begins some new “temporary and definitely not money printing” program.
nyse125 t1_jdj04k7 wrote
QE is inflationary and bullish but BTFP is deflationary and hawkish. Like I said, the markets would be a lot more positive if what you thought was true.
Money printing is insanely bullish but we haven't crossed that line yet and there isnt anything that suggests such.
TSLA240c t1_jdj7h0r wrote
BTFP in the short term is definitely inflationary it converts bad/long term debts into cash monies. It only becomes deflationary when all those bonds are repaid to the Fed in a year removing the “temporarily” added liquidity from the economy. Which, I mean, come on.
Also your sauce was last updated Feb 28
nyse125 t1_jdj8zb2 wrote
Wrong. BTFP is when banks give the fed their treasuries and receive money in return, BUT AGREE TO SWAP BACK IN ONE YEAR. It looks the same on balance sheets, but it’s wildly different, especially because this deal is structured as a loan and the banks PAY overnight plus 10 bp for the privilege.
If a bank takes out 100B in BTFP, 1 year from now they will need to pay the fed 100B, plus ~4.5B in interest on the loan, AND they forfeit the ~2.5B on the treasuries interest. From the perspective of the fed, their balance sheet INCREASES by 100B right away, and then DECREASES by $107B in one year.
Literally the only reason for banks to take this loan is to give cash to depositors who are making withdrawals. It costs the bank -7% annualized. They do this to avoid realizing a -40% loss by selling treasuries to raise cash to give depositors.
Contrast this with QE, where the fed buys the treasuries from the banks for twice what they paid for them, and banks realize a 50% gain overnight and get to keep it forever.
Wildly different.
You will also not get "up to date" information anywhere on the M2 money supply.
TSLA240c t1_jdjdgnb wrote
You’re literally describing QE.
> Quantitative easing (QE) is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity.
The central bank is buying bank securities to stimulate economic activity by ensuring liquidity keeps flowing.
What gives you any indication that in a year when the Fed asks for their $400b+ back the banks will be in any shape to repay?
The Fed hasn’t ever been able to string together 12 months of QT but surely this time it will be different.
nyse125 t1_jdjeyyz wrote
A year is a long way away for the Fed not to be just like - yeah keep it, which is the most likely scenario what you'll see a year from now and maybe then you can cheer QE. So no, it is not QE now because their balance sheet in this case goes down a year from now as it stands, as I have said many times just now.
QE = Banks realize a hefty gain and keep their bonds forever
BTFP = Take a mild loss but protect your depositors as Fed will give temporary liquidity.
There would be no reason for equities and bonds to drop if this was literally QE. Those definitions for QE and BTFP are nuanced so unless you don't see it in action it doesn't paint the entire picture.
TSLA240c t1_jdjngne wrote
It’s QE now because they are exchanging an illiquid asset for a liquid one. In a year if they repay it you can say it’s not QE.
I have no idea what you’re talking about QE always carries an interest rate with it, are you confused with government bailouts or the repo market?
Equities have been mixed but not down considering what a shit show of a week it’s been. It’s also possible this fresh liquidity will just blunt the effects of the rate increases.
nyse125 t1_jdkuk8w wrote
> It’s QE now because they are exchanging an illiquid asset for a liquid one.
How many times bruh, it is NOT. LMAO. Just becaise its an asset swap does not make it QE. It's a temporary backstop from the fed. What's not clicking?
TSLA240c t1_jdkxos3 wrote
What’s not clicking for you? You can’t just say it’s not then contradict yourself.
QE is an asset swap. It’s a swap of cash (asset) for government/corporate bonds (asset).
There is an argument that it’s not “money printing” since it has to be “repaid” but since the Fed just rolls over the debt forever it’s essentially as if the money were printed and injected into the economy.
nyse125 t1_jdkziwq wrote
Clearly you still haven't grasped BTFP if you still beleive it's QE. Then how come stocks arent greeen 24/7? Also they dont roll over the debt forever with this, we dont know what they'll do a year from now.
TSLA240c t1_jdl73z2 wrote
It is QE, just go and Google QE so we can put this to bed.
Stocks have been relatively green over the past week. Given how much catastrophically terrible news we’ve received it shows something ain’t kosher in the system.
Yes these aren’t supposed to roll over but we see time and time again the second the Fed goes to unwind it’s balance sheet something in the economy breaks and they reverse course, exactly like what we’re seeing once again with BTFP.
nyse125 t1_jdlegip wrote
If you read what I said then you'll literally realize how it's different. Even the btfp definition on Barron's suggests this too.
Proof-Brother1506 t1_jdjhy9u wrote
Whelp, fuck your bitch and the clique you claim. Me and my homie JD about to bomb on all y'all. Ain't one of y'all got sickle cell or something?
LegendsLiveForever t1_jdgavop wrote
That's not how that works...
Banks create loans out of thin air.
​
MMT’s view of how the credit mechanism works has since been confirmed by publications of the Bank of England and the Deutsche Bundesbank. This proves the conventional money supply theory to be scientifically outdated, because it claims that commercial banks are dependent on savings or central bank balances for lending, i.e. they “lend” savings or central bank deposits when they extend credit.
​
​
https://ibb.co/HBNSCyg - QE DOES NOT cause inflation.
Mega-Lithium OP t1_jdid9g6 wrote
I respectfully disagree
QE is not just an asset swap. The “banks” also goose the stock market and the economy through the resulting easy money policy
LegendsLiveForever t1_jdjkmw7 wrote
If, as some claim, the sale of new Treasury securities inhibited spending which kept prices from rising, then QE would have done the reverse, which it didn't. QE (QT) is just another bank buying (selling) gov securities.
In Japan, 0% rate policy for some 30 years along with massive 'money printing' QE, debt/gdp over 200%, minimal natural resources. Not without problems, but world class public infrastructure, universal healthcare, education, low unemployment, low inflation.
Source: https://ibb.co/12pw2Q0 https://ibb.co/Tt3qWdX
any bank can operate indefinitely with negative equity if the regulators allow it and continue to insure its deposits etc.)
DYTTIGAF t1_jdgd59m wrote
Sure. I heard those explanations 3 years ago. That's why the Federal Reserve has had to raise rates 9 times to address the problems associated with "theories" of how things are supposed to happen and the "reality" of what actually did.
[deleted] t1_jdgfoz5 wrote
[removed]
key-wavelength t1_jdfw1rz wrote
Oh, damn, thanks for the correction.
SeemoarAlpha t1_jdfvu56 wrote
Kind of depends, some banks need the liquidity to satisfy withdrawals or anticipated withdrawals. Many that are withdrawing are buying short term treasuries or putting it in money markets and that does have an effect on shorter duration bonds. As you move out the yield curve, look at the unprecedented whipsawing of the 2-year treasuries, the 10 year hasn't been as violent. The 10 year is what impacts the mortgage rates. Business loans are in the middle and that's where the fed wants to extinguish demand to reduce the money supply and quell inflation. It isn't an exact science and throw in the lag effect and you can see how mistakes can be made on the upside and the downside.
Viewing a single comment thread. View all comments