A Rigged Game. Pathetic. Played Only To Drain The Wrong, Unregulated "Reserves." :(

   (Commentary posted by Roger Erickson)



IDEAS Fantasy Economics league, a new game housed by the Federal Reserve Bank of St. Louis. It ranks living "economists" by ego? Useless diversion.

BI's hype for The Nerdiest Fantasy Sport Ever -- Fantasy Economics.

The players don't even know what charade they're making a pale imitation of.

What would Marriner Eccles & FDR think? Not much.

A game "matters?"
   How much?
   And to whom?

Only to those who don't participate in setting the rules "others" can play by ..... while the real "players" play by their own rules?

While it seems to matter a lot - nominally - to the gullible rubes, reality is that it doesn't?

While reality doesn't matter to the fake rules publishers ... the nominal scores seem to matter tremendously, to them. Merely as a divide & conquer diversion?

The deeper causality between all the fiat fills & drains?

It's all just a reserve drain of sociopathy!

Mon fiat! For JJSixpack's sake! There is a better way. 

You can't convince me that the entire population of the USA is this ignorant, dumb & listless. It's past time to put a stop to the excess nonsense & distracting games, America. It's no longer just nominal, and has spilled over into constraining our own reality.

John Jansen — Back to the Future with Reverse Repo

Victoria McGrane and Jon Hilsenrath penned a piece about a new tool for controlling short term interest rates. I do not think it is new;it is just a wrinkle on a tool very common when I worked at the Open Market Desk. In those days we called these transactions “matched sales”.  I commented on the article at the comments section of the WSJ. Here are my comments:

There is nothing novel about this as in days of yore we called this a matched sale. In those days the Open Market Desk (when necessary) would sell a very short dated T bill from its portfolio and simultaneously agree to repurchase it the next day. The dealer community got T bill collateral and the Open market Desk got “funding”. The desk also paid interest on that overnight funding and that level of interest was an important indicator of Fed policy to market participants.

The entire process is Money and Banking 101. When the Fed takes money from the street there is less money sloshing through the system as the Fed in the parlance of the day had “drained” reserves from the system. That drain would place upward pressure on the funds rate and other short rates. So this transaction was quite regular and familiar for many years through the 70s 80s and 90s….

Across the Curve

Back to the Future with Reverse Repo

John Jansen

To Be Able To Do a Drain You First Have to Do an Add

This older baby knows that to be able to help with the other baby's bath, she must first fill the cup with water before she is able to pour any water out of the cup and on to her little brother's head.

I surmise that no one ever "taught" her how to do this.  She perhaps saw her mother do this act of first filling the cup and then pouring it out and picked  up this concept in about 5 seconds at age 2 1/2.

For this concept (ie Add : Drain) you cannot "dumb it down".  You cannot make this concept "easier to understand".  This little baby in the photo above is empirical evidence that normal humans are able to understand this concept in a foundational way.

In "Soft Currency Economics", Warren Mosler writes:

The imperative behind federal borrowing is to drain excess reserves from the banking system, to support the overnight interest rate. It is not to fund untaxed spending. Untaxed government spending (deficit spending) as a matter of course creates an equal amount of excess reserves in the banking system. Government borrowing is a reserve drain, which functions to support the fed funds rate mandated by the Federal Reserve Board of Governors.

I believe that I have read that Warren has sometimes quipped: "To be able to do a reserve drain you first have to have done a reserve add", this should be simple enough.  This is a concept that 3 year old babies can and often do exhibit knowledge of, yet, many morons in economic policymaking positions, some with advanced degrees, cannot understand this concept.

To these economic imbeciles, when the US Treasury issues securities, the US government is "borrowing from grandchildren" or "borrowing from China" or my favorite: "borrowing from the future"; and there is the potential that the US "can become the next Greece"; completely blind to the fact that to be able to settle all transactions for US Treasury securities, the US government first has to provide the USD balances required for this said settlement and is in no way restrained from doing so.

This is the mental equivalent of the little baby in the above picture, trying to pour from an empty cup onto her little brother's head, not realizing that the cup had to be filled first.  But she is not stupid.  Perhaps this little baby can teach these morons who have current charge of economic policy some basic concepts of logical procedure in between her nappy-time.  Maybe she would agree to put a seminar together for them; or chair a conference in Europe.  We could get her a teenie-tiny podium.

A concept that is easily understood by babies at bath-time cannot be made simpler to understand.  Indeed, it may be a bit of a fools errand to think that we can do so.