Inflation Anyone? Or the Helicopters Fly Again!
The Federal Reserve added 31.25 billion dollars in temporary reserves to the US money markets Thursday in three different operations, the latest move to keep credit markets from drying up.
The New York Fed added 7.0 billion dollars in 14-day repurchase agreements, 16 billion in seven-day repurchase agreements and 8.25 billion in one-day repos.
The Fed has injected some 200 billion dollars into the financial system since August 9...
Comments (8)
Pierre
Well, they've subsequently removed that liquidity, so this isn't an injection per se.
Published: September 6, 2007 7:55 PM
Brent
But it is becoming more than apparent that the Fed is having difficulty "defending" its chosen FFR.
It also is focusing its attention on mortgage-backed securities. What's a Fed to do?
Published: September 6, 2007 11:11 PM
G
What I don't understand is, why repos? How would a repurchase agreement help out the situation? I'd think it would only aid for as long as the repo lasted... and then things would go sour again. Or am I missing something?
Published: September 7, 2007 3:16 AM
DickF
G,
You are correct and that is why repos. The FED is acting as the lender of last resort. They are providing funds to allow lenders to step through a crisis. Their intent is not to leave the additional money in the system. It is a temporary injection.
The problem is that they have done nothing to correct the basic problems with lenders and so they have to keep injecting again and again. This is actually worst than leaving the money in the system because it jerks the borrowers and the money supply around and if it continues effectively increases the money supply anyway.
Right now I would give the FED an "F" in handling this situation because it was recognized over a year ago and they now act as if they were caught by surprise. They created the problem and now they are mishandling the correction.
Published: September 7, 2007 7:53 AM
M E Hoffer
"What I don't understand is, why repos?"
Repos do look innocuous enough, though maybe we should take a page from Bastiat...What would happen -Without- the repos being offered? The Rollover would shortly be squared.
DickF gets this correct, it's tantamount to additional credit creation.
Two other things: The movie, "Rollover", should be dug up and viewed, and www.kitco.com should be spooled up to check the U$D price of Au & Ag...
Published: September 7, 2007 8:18 AM
Keith in TX
The CPI is at fault for the Fed's slow reaction. I wrote a new post on my blog you may want to checkout called "How the 'Core CPI' number is a poor model of inflation". Pretty amazing that the Government uses "equivalent rent" to judge inflation. Ridiculous! My math proves why: http://capitaf.blogspot.com/
Published: September 9, 2007 8:14 PM
Keith in TX
I wrote a new post on my blog you may want to checkout called "How the 'Core CPI' number is a poor model of inflation". Pretty amazing that the Government uses "equivalent rent" to judge inflation. Ridiculous! My math proves why: http://capitaf.blogspot.com/
Published: September 9, 2007 8:14 PM
HMG
Not only do these temp auctions get returned but they actually sop up extra money in the system when the loan gets paid back. The loan rate is extremely low since it is based on the fed funds rate, but it does actually in the end, provide a decrease in the amount of money in the banks.
Published: August 13, 2008 9:38 AM