Bernanke hint at QE3 in conference call today?

[flow5]

Re: Bernanke hint at QE3 in conference call today?

SOMA's security asset mix & maturity holdings

[flow5]

Re: Bernanke hint at QE3 in conference call today?

The source of IORs is not homogeneous: System Open Market Account (SOMA), holdings: r

[flow5]

Re: Bernanke hint at QE3 in conference call today?

The Emergency Economic Stabilization Act of 2008 accelerated the effective date

[cjppjc]

Re: Bernanke hint at QE3 in conference call today?

Is it just me or does anybody understand what Flow5 is saying?

Flow5 maybe in a langauge I can understand please.

[flow5]

Re: Bernanke hint at QE3 in conference call today?

I always write in code because its classified as top secret by the U.S. Goverment. I deleted it just for you.

[Adeptus]

Re: Bernanke hint at QE3 in conference call today?

I always write in code because its classified as top secret by the U.S. Goverment. I deleted it just for you.

What you really mean is that while you apprently may have exceptional insight into Federal Reserve policy (assuming you wrote the below), your copy/paste skills may be lacking. Here, let me help you...


Source: http://www.duffminster.com/times/node/197

Paying Interest on Excess Reserves - The FED's New Policy Tool



Submitted by flow5 on Wed, 03/16/2011 - 15:34 to: www.dufminster.com

• The Federal Reserve

The Emergency Economic Stabilization Act of 2008 accelerated the effective date in the provisions for the Financial Services Regulatory Relief Act of 2006 (legislation whereby the BOG could pay interest on both excess, & required, reserves - to October 1, 2008). The payment of interest on these accounts altered the character of the member bank's District Reserve Bank balances.

First, while the monetary base expands when the volume of excess reserves expands, the monetary base is not now, nor has ever been, a base for the expansion of new money & credit. Take currency, which comprised 92% of the base on Aug 2008, & subsequently fell to 43% of the base at present. An increase in the currency component of the base is contractionary - unless offset by open market operations of the buying type.
Second, with IORs (54% of the base), inter-bank demand deposits (IBDDs) held at the District Reserve banks (owned by the member banks), have been transformed from cash assets, to highly liquid, bank earning assets.
Only excess & required reserves are remunerated. Contractual clearing balances receive earnings credits, but there is no FRB rebate (to the owner), associated with the currency component of the monetary base. I.e., neither currency held by the non-bank public, nor vault cash (& associated ATM networks), are paid interest on their holdings.

And in the process, IORs have become the FUNCTIONAL EQUIVALENT of required reserves, not short term T-bills. T-bills are settled upon maturity, or are liquidated at a discount.
IORs sport a "floating", remuneration rate (currently consonant with the 1 year "Daily Treasury Yield Curve Rate"). Interest is paid on the DFI’s IBDDs balances averaged over the reserve maintenance period (7 or 15 days, depending upon the institution), & credited 15 days after the close of the respective maintenance period (unlike overnight FFs or repos).
I.e., the BOG’s policy rate "floats" (like an adjustable rate mortgage), via a series of either, cascading, or stair-stepping, interest rate-pegs. I.e., as with ARMs, a "note is periodically adjusted based on a variety of indices". Similarly, "Among the most common indices (for ARMs), are the rates on 1-year constant-maturity Treasury (CMT) securities".

The remuneration rate is a monetary policy "tool", it is the Central Bank's target rate's "floor" (a hypothetical policy otherwise known as the "Friedman rule").
IORs are not just an asset swap. IORs are assets defined by economists to be outside-of-the properties normally assigned to the money aggregates. I.e., IORs are not a medium of exchange. They do not circulate. They do not require Basell II regulatory capital. Of the money properties, excess reserves still serve as a unit-of-account, a store-of-value, a standard-of-value, standard-of deferred payments, & a guarantor of liquidity & solvency.
In their present state, IORs are a credit control device. IORs absorb bank deposits (which offset the expansion of the FED’s liquidity funding facilities on the asset side of its balance sheet, as well as QE1’s & QE2’s MBS, & Treasury purchases).
I.e., if the BOG raised the average reserve ratios on member bank deposits, the volume of required, or legal reserves would increase. If the BOG raised the remuneration rate on excess, & required reserves (vis a’ vis other competitive instruments and yields), the volume of IBDDs would likewise increase.

By increasing the volume of un-used excess reserves outstanding (the ratio of reserves to deposits), the BOG absorbs, or reduces, the CB system’s lending capacity (either by siphoning the liquidity out of, or limiting the expansion of, the collective system of banks).. That's exactly like raising reserve ratios, or traditionally "tightening" monetary policy. Raising the volume of excess reserves held by the member banks is therefore contractionary, not inflationary.
If, on the other hand the FED lowered the remuneration rate on excess reserves (the FLOOR on interest rates, not the CEILING), the volume of excess reserves would fall (given the opportunity to make bankable loans & investments).
IORs are riskless, guaranteed, & are a hedge against higher interest rates (i.e., promise even higher, & safer returns as the economy expands). I.e., IORs are a defense against rising rates & falling prices, until the bank judges it is safe to capture higher yields).

IORs eliminate the motivation of the banks to lend within the short-end segment of the yield curve. “Reserve velocity “ declined from its peak in December 2007 of 353, to 2.4 as of December 2010. Reserve velocity is defined as the ratio of the average daily value of TRANSACTIONS on FEDWIRE, divided by the DAILY AVERAGE VALUE OF IBDDs (reserves held at the Federal Reserve).
IORs are the bank’s primary liquidity reserves (clearing balances) - despite the day-light credit backstop, borrowing FED funds, etc. (i.e., FED-WIRE, Fed Funds, day-light credit, & contractual clearing balances have declined conterminously).
As Dr. Richard Anderson (V.P. St Louis FED), states: "Remember that "excess reserves" is an accounting concept, not a physical item. The physical item (asset) is deposits at Fed Res Banks. These deposits may be used to satisfy statutory reserve requirements; any "excess" deposits are labeled as "excess reserves." This terminology dates from the 1920s, and I find it obsolete."

Now, anybody care to translate that into Layman's English?
Thanks