Federal Spending Is Beyond Insane

[para bellum]

They are if they are large enough to qualify for primary credit.

Primary credit isn't Fed Funds.

It's borrowing frrom the Fed at the Fed funds rate, whatever you want to call it is fine with me. This topic can't be discussed without a lot of oversimplification and I don't really care about semantics, the labels change too often.

Part of QE was to do what I described- pay a higher IOER rate than the Fed Funds rate.

You said banks could borrow from the Fed and earn more on the increased reserves. They can't.

The Fed is not currently paying a higher IORB rate than the Discount credit rate- it's ten basis points below. That hasn't always been the case.

When has IORB been higher than the Discount rate?

Under Bernanke, it was a 25 basis point rate differential. It's reflected on the Fed lending graph as a large spike in lending, about 80% of which was paid back inside 6 months. It was part of QE to inject capital into the financial system. IIRC it was about a trillion dollars total.

The Fed couldn't just give the banks money, they had to loan it. But the banks didn't really want the money, and the Congress was talking about capping CEO salaries and a lot of other things that made bankers uncomfortable. So the Fed paid all the banks to take the money (to obscure the ones that really were insolvent), and hid the free money in the transactions via interest and repo rates.

The banks could pay back the money they never really borrowed, and are perfectly happy operating within their opaque system. They love the perpetually low interest rates and shadow banking, and the CEO's didn't have an angry Congress poking it's nose into their compensation packages.

You're right, I said they "are" when on that point I should have said "were". The real arbitrage in the repo markets is still going on, with the fed allowing the banks to front-run them on the rates.

The balance sheet shows just how much the Fed has propped up the system by purchasing mortgage backed securities and treasury bonds.

 

[ding]

Every time a bill, note or bond matures, we pay the principal.

You sure about that?

An EE savings bond is a U.S. Treasury security. It earns interest until it reaches 30 years or until you cash it, whichever comes first.​

​

EE bonds issued since May 2005 earn a fixed rate of interest. When you buy the bond, you know the rate of interest it will earn.​

​

For an EE bond bought from November 2021 through April 2022, the rate is 0.10%. Regardless of the rate, at 20 years the bond will be worth twice what you pay for it. If you keep the bond that long, we make a one-time adjustment then to fulfill this guarantee.​

​

Older EE bonds earn interest in different ways. More on EE Bond Rates​

Buying savings bonds — TreasuryDirect

www.treasurydirect.gov

 

[ding]

So we're not "just paying the interest"?
Thanks.

Principle and interest. Earlier you said we pay the principle. We pay the principle and interest.

I wonder if I'm the only person who sees your silly word games as insufferable. Can you possibly be more obtuse?

insufferable: too extreme to bear; intolerable.
obtuse: annoyingly insensitive or slow to understand.

In case you were wondering what those words meant. As long as we are going to play word games.

 

[Toddsterpatriot]

It's borrowing frrom the Fed at the Fed funds rate, whatever you want to call it is fine with me. This topic can't be discussed without a lot of oversimplification and I don't really care about semantics, the labels change too often.

Under Bernanke, it was a 25 basis point rate differential. It's reflected on the Fed lending graph as a large spike in lending, about 80% of which was paid back inside 6 months. It was part of QE to inject capital into the financial system. IIRC it was about a trillion dollars total.

The Fed couldn't just give the banks money, they had to loan it. But the banks didn't really want the money, and the Congress was talking about capping CEO salaries and a lot of other things that made bankers uncomfortable. So the Fed paid all the banks to take the money (to obscure the ones that really were insolvent), and hid the free money in the transactions via interest and repo rates.

The banks could pay back the money they never really borrowed, and are perfectly happy operating within their opaque system. They love the perpetually low interest rates and shadow banking, and the CEO's didn't have an angry Congress poking it's nose into their compensation packages.

You're right, I said they "are" when on that point I should have said "were". The real arbitrage in the repo markets is still going on, with the fed allowing the banks to front-run them on the rates.

The balance sheet shows just how much the Fed has propped up the system by purchasing mortgage backed securities and treasury bonds.

View attachment 610930

It's borrowing frrom the Fed at the Fed funds rate, whatever you want to call it is fine with me.

Banks don't borrow from the Fed at the Fed Funds Rate.
The Fed Funds Rate is what the banks borrow from each other at.
If you borrow from the Fed, you pay the Discount Rate.

The Fed couldn't just give the banks money, they had to loan it. But the banks didn't really want the money,

Are you kidding? The banks needed the money like never before.

 

[para bellum]

Banks don't borrow from the Fed at the Fed Funds Rate.
The Fed Funds Rate is what the banks borrow from each other at.
If you borrow from the Fed, you pay the Discount Rate.

I just showed you that those rates were the same for the big banks. Also, not all banks will borrow at the fed funds rate, only the ones with the best credit get that from the lending bank, or if they will need US Treasuries as collateral.

Are you kidding? The banks needed the money like never before.

Chase didn't need it. Wells Fargo didn't need it. BONY-Mellon didn't need it.

Citibank needed it, Bank of America needed it. Washington Mutual needed it but didn't get it. Anyone who was overexposed to mortgage backed securities saw their liquidity freeze up since no one would lend on those assets. Citibank almost failed, WaMu did and was absorbed by Chase, etc. There was a big consolidation of commercial and investment banks, backstopped by the TARP.

It was the repo fails on mortgage backed securities that set it all in motion. It's a huge slice of daily operating capital, when short-term credit froze up, the defaults were immediate. They didn't have the cash they were counting on, they had worthless paper that no one wanted.

The Fed had to force the capital on all the big banks because their main concern was a run on all the banks. The Fed continues to prop up the real estate market by purchasing mortgage backed securities.

 

[Toddsterpatriot]

I just showed you that those rates were the same for the big banks. Also, not all banks will borrow at the fed funds rate, only the ones with the best credit get that from the lending bank, or if they will need US Treasuries as collateral.

Chase didn't need it. Wells Fargo didn't need it. BONY-Mellon didn't need it.

Citibank needed it, Bank of America needed it. Washington Mutual needed it but didn't get it. Anyone who was overexposed to mortgage backed securities saw their liquidity freeze up since no one would lend on those assets. Citibank almost failed, WaMu did and was absorbed by Chase, etc. There was a big consolidation of commercial and investment banks, backstopped by the TARP.

It was the repo fails on mortgage backed securities that set it all in motion. It's a huge slice of daily operating capital, when short-term credit froze up, the defaults were immediate. They didn't have the cash they were counting on, they had worthless paper that no one wanted.

The Fed had to force the capital on all the big banks because their main concern was a run on all the banks. The Fed continues to prop up the real estate market by purchasing mortgage backed securities.

I just showed you that those rates were the same for the big banks.

Fed Funds is not the same as the Discount Rate.