The current situation is not QE because the money does not circulate in the economy. I think the confusion is that this bank liquidity, allows “dormant” depositor money to be shifted to other banks, or other types of deposits, but also a percentage to be reallocated to inflate assets prices, like Gold , BTC, equities, at least temporarily. So, traders are seeing that as being similar to QE, which frankly is what traders are trying to figure out here. Similar to the short term market pump after Lehman collapse. Would you agree with that?
I read your post carefully. I've been curious about this topic lately, so I visited this site for the first time. Even in Korea where I live, this topic is a hot issue these days. If it's not too much trouble, I have a question that I was curious about while reading your post.
If the discount window and BTFP loans are evaluated at market value, can't they generate deposit liquidity?
I have a question - why is the BTFP not considered QE but borrowing through the Discount Window is? It seems like the BTFP accepts less collateral (by giving loans against collateral at par value rather than market value). Even in the case of the discount window, the fed takes collateral. Could you help me understand?
Reference:
"Why is this not QE if the Fed’s balance sheet is increasing?
Because the Fed is taking in the bonds as collateral and that is what is inflating the Fed’s balance sheet. However, these are just being held as collateral against the loan given to the Banks and therefore, they will be returned as the Banks pay off the loan."
"The Discount Window “discounts” the collateral. Say the face value of treasuries is $100. The current value on the Bank’s book is $50. The Fed will lend the Bank against the $50. The BTFP will lend the Bank $100, i.e., the original face value or par value, despite the current value being $50."
I strongly disagree with your statement that is not a QE. You have to distinguish "market value" and "par value". As an example, take 10 year paper that trades at 0.9 cents per dollar. Its market value now is 0.9, BUT FED AND ONLY FED is giving you 1 USD thus creating this 0,1 USD. Please check balance sheet level, which you can find on FED st luis. How do you expain this? https://twitter.com/TaviCosta/status/1636472853498593286
This is a great read! learned a lot from this. But curious when it is said that "burden doesn’t fall on taxpayers", what does this mean exactly? Because from what I understand, the Dept. of Treasury providing $25 billion as credit protection means that the Treasury guarantees a fail safe mechanism. But doesn't money from the Treasury come from taxes? So technically, taxpayers still bear the burden? Thanks in advance.
Excellent write up, thank you. I agree.
The current situation is not QE because the money does not circulate in the economy. I think the confusion is that this bank liquidity, allows “dormant” depositor money to be shifted to other banks, or other types of deposits, but also a percentage to be reallocated to inflate assets prices, like Gold , BTC, equities, at least temporarily. So, traders are seeing that as being similar to QE, which frankly is what traders are trying to figure out here. Similar to the short term market pump after Lehman collapse. Would you agree with that?
I read your post carefully. I've been curious about this topic lately, so I visited this site for the first time. Even in Korea where I live, this topic is a hot issue these days. If it's not too much trouble, I have a question that I was curious about while reading your post.
If the discount window and BTFP loans are evaluated at market value, can't they generate deposit liquidity?
Excellent.
Very useful. Thank you.
Hey Ayesha, great article.
I have a question - why is the BTFP not considered QE but borrowing through the Discount Window is? It seems like the BTFP accepts less collateral (by giving loans against collateral at par value rather than market value). Even in the case of the discount window, the fed takes collateral. Could you help me understand?
Reference:
"Why is this not QE if the Fed’s balance sheet is increasing?
Because the Fed is taking in the bonds as collateral and that is what is inflating the Fed’s balance sheet. However, these are just being held as collateral against the loan given to the Banks and therefore, they will be returned as the Banks pay off the loan."
"The Discount Window “discounts” the collateral. Say the face value of treasuries is $100. The current value on the Bank’s book is $50. The Fed will lend the Bank against the $50. The BTFP will lend the Bank $100, i.e., the original face value or par value, despite the current value being $50."
Great write up, thank you for this! Could one conclude it is the end of QT?
I strongly disagree with your statement that is not a QE. You have to distinguish "market value" and "par value". As an example, take 10 year paper that trades at 0.9 cents per dollar. Its market value now is 0.9, BUT FED AND ONLY FED is giving you 1 USD thus creating this 0,1 USD. Please check balance sheet level, which you can find on FED st luis. How do you expain this? https://twitter.com/TaviCosta/status/1636472853498593286
This is a great read! learned a lot from this. But curious when it is said that "burden doesn’t fall on taxpayers", what does this mean exactly? Because from what I understand, the Dept. of Treasury providing $25 billion as credit protection means that the Treasury guarantees a fail safe mechanism. But doesn't money from the Treasury come from taxes? So technically, taxpayers still bear the burden? Thanks in advance.
How do you know that money hasn't been printed to cover these loans?