Right. What is going on here? Really hope someone on HN can explain this in a succinct way.
Remember that banks have fractional deposits, so they might be left without money throughout the night and then have to literally be insolvent the following morning. So the Fed steps in to cover these situations.
This is important because the economy and the system in general is supposed to be doing “just swell” when there are symptoms of a disease
Where have I heard this before?
Basically there are actors borrowing at the low repo rates and using it on higher rate government backed mortgage products. Banks with money don't want to lend to these actors, hence the repo rate hike.
I didn't know higher risk firms like hedge funds, PE firms, and REITs are borrowing so heavily in the repo market.
So basically, this is the Fed just handing out cheap money to these firms. It's socialism for the super-rich.
Although, I must admit I don't understand the carry-trade dynamics that much. I hope someone else can throw some light on that!
“Powell has been adamant in pointing out that the T-bill purchases, though aimed at expanding the Fed's balance sheet and, correspondingly, bank reserves, this should not be confused with the quantitative easing that occurred during and after the financial crisis.“
https://www.cnbc.com/2019/10/11/the-fed-is-extending-its-ove...
We live in a fiat system; money is literally created out of nothing.
When money is created, it then needs to be injected into the system (economy)
This could be done any number of ways. The more transparent and straightforward though, the less of an advantage to the insider parties and the more meritocratic.
So an extremely complex, byzantine and opaque system has been created. People who are in this system will be happy to go into the many, many details of it. But they won't ever tell you why, it just is.
When I think of modern finance, I think of medieval Europe. Plenty of reasons were given as to why one person ranked above the other. Why one had access to certain things while others didn't. But in general, byzantine structures benefit the insiders at the expense of the outsiders. It's designed to be anti-meritocratic without having to claim being a decedent of the sun god.
I really fail to see why, other than avoiding meritocratic distribution, the fed doesn't open it's own lending window directly to the public.
They fret that lowering interest rates won't increase economic activity. I dare them to open those rates to the public and not see an increase in economic activity.
not out of nothing, all value is created out of shared assumptions about the future. money merely quantizes these assumptions.