Thursday, May 23, 2019

Fed Minutes

Interesting reveal in latest Fed minutes where we can now see the FOMC exhibiting some understanding of the Accounting relationship between the Treasury General Account fluctuation and Reserve composition here; excerpt:

The deputy manager reviewed developments in domestic money markets. Reserve balances declined by $150 billion over the intermeeting period and reached a low point of just below $1.5 trillion on April 23. The decline in reserves stemmed from a reduction in the SOMA’s agency MBS and Treasury holdings of $46 billion, reducing the SOMA portfolio to $3.92 trillion, and from a shift in the composition of liabilities, predominantly related to the increase in the Treasury General Account (TGA).
The TGA was volatile during the intermeeting period. In early April, the Treasury reduced bill issuance and allowed the TGA balance to fall in anticipation of individual tax receipts. As tax receipts arrived after the tax date, the TGA rose to more than $400 billion, resulting in a sharp decline in reserves over the last two weeks of April. Against this backdrop, the distribution of rates on traded volumes in overnight unsecured markets shifted higher. The effective federal funds rate (EFFR) moved up to 2.45 percent by the end of the intermeeting period, 5 basis points above the interest on excess reserves (IOER) rate.

And btw last year same issues with TGA and Reserve composition and seasonality effects on these balances around Tax Day BUT..... no mention of TGA in last year's minutes here ... hmmmm why include this now but not then????  Evolved from the apes by random chance mutation????  I don't think so...

Well I'll tell you why and its because someone over there is getting a hold of Mike's scientific work over the last year where he has been including these effects of wild TGA fluctuations in his financial analysis that is why...  either in his subscription service or his V-logs... GUARANTEED.... lock... it.....  noooooooobody else talking about this before... noooooooobody... and then all of a sudden voila here it is in the Fed minutes... coincidence? I think NOT...

Based on these minutes, you can see Fed using Mike's analysis to try to assess the effect of these account fluctuations on their managment of their FFR but still not making the connection between these balances and the various bank regulatory ratios so still making the same error of omission as the MMT people.

Fed making (at least) TWO errors; one (BIG) error of reification where they continue to think "banks lend out the reserves!" and one error of omission where they don't exhibit understanding of the subject variation in Reserve composition effects on bank regulatory ratios and stress testing.

MMT just making the ONE error of omission, MMT of course not making the error of reification; asserting (correctly) the abstract property of Reserve Balances via analogy ("it like points on a scoreboard!") always being a big part of the MMT dialectic thesis.

But Mike gets credit for this at least small step forward for the Fed imo...