Saturday, September 28, 2019

Reserve projections from 2014

Revealing paper from 5 years ago from these two authors who seem to be providing advice again recently.

Their chart shows Depository system reserves ideally being reduced to zero in a few years from now; I'd like to know how that could happen if there is a Depository reserve requirement of 10% of deposits and system deposits are $13T right now? 

Algebra anybody???  anybody????

BTW you can also see the big spike up they did in Sept. 2008 flipping the leverage ratio and caused the GFC but I digress.. lets just get back to reserves for now ... because they might be getting ready to do the same type thing again:

If  you were reducing Depository reserves down towards 1.3T like they just did (never mind system to ZERO as the paper suggests ????)  there wouldn't be enough reserves at Depositories to meet the system level reserve regulatory requirement of about 10% and the FF market would trip off like you just saw... there simply wouldn't be enough reserves in the system .... much less any for lending... you're simply putting your whole system into regulatory violation..

So you can see what happened here with these people it seems as though perhaps the Fed people followed the path indicated in this paper and were merrily they roll along reducing the reserve balances towards zero like Mr. Magoo and inevitably hit the threshold 2 weeks ago at around this $1.3T level... now they are all scratching their heads like "wuh happan???".

So now this week these same two authors are going all around advising to increase system reserves by $250B over 26 weeks. 

Which if they do that then we're just gonna end up at the same problem in about 2 or maybe 3 years when Deposits rise to $15.5T.

Algebra anybody???  anybody????

And as always while the Reserve Assets at the Depositories are being increased you're gonna be acting to reduce the bank regulatory leverage ratios retarding credit creation and yielding even more economic under performance and immediate lower risk asset prices which may cause other problems...

So you haven't really fixed anything; at least not imo...  and maybe getting ready to cause even more problems and chaos ... SCARE-EEEEEEEY!!!!

We just don't have the right kind of people working on any of this stuff... we need to get better people in there...