Interesting. Effect of Unlimited QE Works?
American Economics Thread
- Thread starter Bernard
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Interesting. Effect of Unlimited QE Works?
It only works if you're a reserve currency and the country you have declared an extreme competitor is buying $41 billion of your bonds per month...
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Deleted member 15949
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And how do those transmission mechanisms work?
I would say that is fake news.
Walk the streets. That gives an idea of what is going on.
This pandemic is different with the lock downs. The small business owner does not go bankrupt, they walk away.
If you run away and go into hiding from your creditors, I do not believe they put that on some official bankruptcy declaration lists.
Just get out of town.
Haha yes. Imagine that your enemy is coming with a knife for your throat and you say:
Wait! Have this $10000 and go buy an automatic weapon, and an RPG so you can get me easier that way
Seems small industries generally do not declare bankruptcy Chapter 11. Another consequence is increasing zombie firms.
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The US labor market is recovering swimmingly. Money is free
Read something a few months ago that listing of businesses such as restaurants in New York City in the advertising pages or Yelp or publications like that, that went down 50%.
A ballpark figure, that half of those businesses were gone. Did they declare bankruptcy? Who knows, but it does not really matter, because they are still gone.
That reverse multiplier effect has to go through the general economy, which the US government has countered by giving handouts.
Again, this process must run its course before anyone can figure out anything else IMHO.
So if the FED awards a repo at 0.0, that is essentially giving the money away for free.
Remember what a reverse repo is.
"A reverse repurchase agreement, or "reverse repo", is the purchase of with the agreement to sell them at a higher price at a specific future date."
So the foreign banks purchase the reverse repo agreement, getting money right now, and get to sell it back to the FED at a higher price later. Since there is no interest rate on the agreement they can hold it to expiration with no downsides.
Sounds unsustainable? It is.
"foreign banks have absorbed just over $350 billion in reserves"
"t foreign banks too are now chock-full of reserves. The use of the facility has never been this high outside of quarter-end turns, and the fact that the use of the facility is this high on a sunny day mid-quarter means that banks don’t have the balance sheet to warehouse any more reserves at current spread level"
So far, all this free money has poured back into the US stock market (although prices may have peaked in Feb).
So we are due for a severe shakeup in the markets this year. The music may be ending, and it will be the FED who is holding the bag. Only time will tell.
