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"How much effect on interest rates can the Fed have as long as banks have vastly more reserves than they need?"
If banking lending starts to shift into high gear, which would convert some of the excess reserves held on account at the Fed into "required reserves", the Fed would merely have to raise the O/N rate it pays on the excess reserves to a high enough level to compete with private sector loan demand.
Right now what they are doing is price setting the bonds at LOWER prices ("to get a good deal for the taxpayers...") thus RAISING interest rates...
IF they ever stop doing this (and that is a BIF IF...) while still maintaining the ZIRP then, all morons will again say "who will buy them now?" and bonds will RALLY strong just like after the QE2 and rates will finally be able to collapse to Japan-like levels...
then the Fed will be sitting on huge unrealized gains in their "portfolio" and they will SELL them and make $Bs of "profits for the taxpayers" and turn these profits over to the UST to both "balance the budget" and "drain all the reserves" at the same time. while high-five-ing each other and everyone will think they are national heroes....
5 comments:
This article referenced shows that the banks take the credited money and subvert the sovereignty of the USD.
QE benefitted emerging economies since banks took their money to brics like Argentina south africa turkey.
Mmt wise this was pro imports yo usa and will strengthen the dollar as the Fed unwinds QE.
Now they will try to bring the money home after popping the bric bubbles.
Balancing budgets Argentina interest rates up ... sounds like 2001.
How much effect on interest rates can the Fed have as long as banks have vastly more reserves than they need?
They can set official rates in money markets rather than only on interbank reserve markets. Most of the emerging world does this.
"How much effect on interest rates can the Fed have as long as banks have vastly more reserves than they need?"
If banking lending starts to shift into high gear, which would convert some of the excess reserves held on account at the Fed into "required reserves", the Fed would merely have to raise the O/N rate it pays on the excess reserves to a high enough level to compete with private sector loan demand.
Right now what they are doing is price setting the bonds at LOWER prices ("to get a good deal for the taxpayers...") thus RAISING interest rates...
IF they ever stop doing this (and that is a BIF IF...) while still maintaining the ZIRP then, all morons will again say "who will buy them now?" and bonds will RALLY strong just like after the QE2 and rates will finally be able to collapse to Japan-like levels...
then the Fed will be sitting on huge unrealized gains in their "portfolio" and they will SELL them and make $Bs of "profits for the taxpayers" and turn these profits over to the UST to both "balance the budget" and "drain all the reserves" at the same time. while high-five-ing each other and everyone will think they are national heroes....
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