Fed Balance SheetSubmitted by Mega-Lithium t3_120143p in wallstreetbets
TSLA240c t1_jdj7h0r wrote
Reply to comment by nyse125 in Fed Balance Sheet by Mega-Lithium
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.
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