Monetarists freaking out that their “Monetary Base!” has fallen over 20%…
Aggghhhh! Welcome to the Global #liquidity cliff edge!
— CrossBorder Capital (@crossbordercap) July 5, 2022
Supply of all #USD Worldwide... including off-shore #Credit crunch ahead...@rbrtrmstrng @gnoble79 @leadlagreport pic.twitter.com/IYrazECWEf
But it looks like the increased transfer to the Fed’s new RRP facility subtracts from their “monetary base!” …. so now all these monetarist’s are freaking out that we’re going to crash…
The dumb Fed people add new reserves “to lend out!” to point where they put their own depositories into violation of their own regulations … so have to create a new accounting gimmick to remove reserves from depositories (that they just put in!) … so now other dumb monetarists freak out that we’re going to crash….
And you leftoid guys here say this is all some “vast neoliberal conspiracy!” by all the crafty “neoliberals!” to get over on the poors… 🤔
Who is more stupid them or you guys?
They’re a lost cause…. So sorry to say imo it’s you guys… sober up….
Probably all that is needed for their minds to collapse completely is for some entity in the government sector to issue some perpetuals.
ReplyDelete" The dumb Fed people add new reserves “to lend out!” to point where they put their own depositories into violation of their own regulations … so have to create a new accounting gimmick to remove reserves from depositories (that they just put in!) "
ReplyDeleteWhich clearly wasn't the case because they know how the bank of Canada operated for years with zero reserve balances.
It was a story a fairy tale to scare the children as they say around a campfire farting like blazing saddles.
So why did they do it ?
PANDEMIC survival kit.
Step 1: Slash interest rates to zero
Step 2: Perform QE by the $billion to strip interest income out of the economy.
Step3: To control bank lending load the banks with $ trillions of reserves and use the rate on the RRP to regulate it. As bank lending is inflationary as well.
Job done.
With inflationary pressures now either non existent and bank lending down to a trickle. All they had to do was fiscal so people could sit at home and use fiscal to concentrate on the supply side constraints.
They failed. They didn't throw any fiscal at the bottle necks they expected the free market tooth fairy to fix the bottle necks for them. That is what they got wrong.
Instead of throwing fiscal at the bottlenecks they started talking about the size of the deficit and debt. Instead of fixing the supply side.
Then carried out a war with Ukraine that was planned for when Hillary won but Trump got in the way. A war they had been planning since 2012. Couldn't back out in case they lost the next election.
That just made everything worse because they hadn't finished fixing the supply side caused by the pandemic.
Slashing rates to zero, QE and loading up the banks with trillions of reserves to restrict bank lending were all the correct calls in 2020.When they shut down the economy.
Because they know how it works.
Unwinding it all in the middle of a war has turned out to be a huge problem when Russia has most of the important commodities everybody needs.
What would you have done in 2020 with the economy shut down in 2020?
Raised rates, QT, allowed the banks to lend out whatever they wanted ?
Nope.
You would have done what they did. You would have tried to get rid of all the inflationary pressures from the interest income channels and bank lending to leave room for the HUGE fiscal bazooka they were about to fire in the form of furlough payments and one off payments.
Leaving the supply side constraints and bottle necks to be fixed by the free market tooth fairy was one of the biggest mistakes they made.
With the tools the FED has at their disposal in 2020 when the economy was completely closed down.
ReplyDeleteSlashing rates to zero, massive QE and trying to stop the banks from lending was the only fools they had to make room for the fiscal bazooka they had planned.
Inflation was the HUGE worry they had at that point in time. Especially when they the government had already committed to pay people to sit at home and get paid for not producing.
Listing all the tools the FED has what would you have done to make room for the massive fiscal bazookas?
Listing all the tools the FED has what would you have done to reduce bank lending and to try and regulate bank lending g when the economy was closed down ?
After all it was you and Mike that told everybody how loading up the banks with trillions of reserves regulates bank lending ?
At that point in time in 2020. Yes, The lied through their teeth in what they were actually doing as they pulled the green curtain back. But because they know how it works attacking the interest income channels and bank lending was the absolute correct call. With the tools they had at their disposal.
They had to,to make room for the massive fiscal bazookas.
I'd love to hear with the tools The FED had available what you would have done differently? With the economy shut down.
" The dumb Fed people add new reserves “to lend out!”
ReplyDeleteNope that is a fairy tale they use when it suits them.
They know fine well it isn't true. BOE did a paper on it and the Bank of Canada operated with zero reserves for decades.
The last thing they are is dumb. They know fine well it is not true.
You and Mike provided the reason why they did what they did. Why they loaded up the banks with trillions of reserves.
You can't have it both ways Matt. To fit your narrative and framing.
BOE has a better handle on things than the Fed…
ReplyDeleteThat doesn’t make the Fed not full of dumb monetarists who typically reify abstractions of Accounting Science…
But....
ReplyDeleteIF as you say loading up the banks with trillions worth of reserves reduces bank lending.
IF putting a wee valve on the RRP facility allows some bank lending to go through.
IF adjusting the rate of the wee valve ( which they did adjust after they set it up) on the RRP facility tries to regulate the flow of bank lending.
Was that the right thing to do if inflation scared you to death when the economy closed down ?
They had already dealt with the interest income channels that also scared them to death by massive QE and slashing the interest rate to zero.
Especially when they were about to fire massive fiscal bazookas.
IF you and Mike are correct about the amount of reserves effecting bank lending. What they did makes perfect sense does it not ? At a time when the economy was closed down.
How else and what tools were they going to use to reign in bank lending if they were terrified of the inflationary effects from bank lending with the economy closed down?
After all they had just slashed the interest rate to zero to make bank lending cheap. They would obviously need to off set that move of cheap loans when they set the rate to zero.
Was loading the banks with trillions of reserves the way they did it ? Was that their off set after slashing the interest rate to zero to attack the interest income channels ?
Makes absolute perfect sense and the correct call IF you and Mike are right about reserve balances effecting bank lending.
IF you and Mike are right it just shows once again they know how it works. Regardless of the fairy tales They feed the public.
IF you and Mike are correct and They know the effect loading trillions of reserves has on bank lending.
ReplyDeleteAll the tools they have at their disposal there was no other way to try and reduce and control the flow of bank lending. At a time when the economy was closed.
If they were terrified of the inflationary effects of bank lending what else could they do to try and reign it in?
Nothing....
If you and Mike are correct it was a genius move not only to load the banks up with reserves but adding a wee release valve with a rate to allow important bank lending to go through.
All they had to do was fire the big fiscal bazooka knowing they had dampened down the inflationary effects from everywhere else.
ReplyDeleteLeaving the fixing of the supply side constraints and bottlenecks to the free market tooth fairy was their mistake. Thinking they could win a war with Russia at the same time, well that was just insanity.
I'm guessing Franko utilizes some sort of speak to type feature to post here. It's impossible to type whilst wearing a straight jacket.
ReplyDeleteRight dummy…
ReplyDeleteFoot , we have like 50 year high of their figurative “inflation!” right now…
ReplyDeleteSo what ever they did .. logically … did not prevent their “inflation!”…
In fact they are now on a jihad against their “inflation!” it’s currently all they talk about…