Will QE3 be cloaked in Repos?

[WildspitzE]

Re: Will QE3 be cloaked in Repos?

hit enter by mistake on my previous post...

even if the fed announced it was buying mbs's, i don't think it would do the housing market all that much good. i think the most effective thing ben could do is to stop paying the banks interest on reserves, or even impose a negative rate/charge on reserves. but that would mean going against the interests of the banks, so i don't see it happening. instead we will proceed into the maelstrom,

absolutely agree... if the Fed wanted to force the banks to lend, and hit the monetary nitrous oxide button, they could charge rates on reserves. however, and aside from being against the interests of the banks, this could get away from them quickly. i think a long time ago when we were all speculating about this i asked if they could do a tiered or matrix approach, where different amounts of excess reserves would get charged different rates to try to force banks to lend parts of such reserves...a controlled nuke so to speak. however, this is all uncharted monetary experiments, so i doubt it will ever happen. it was fun to speculate about it though.

i think each stimulus is weaker. qe1 [tarp, et al] produced a huge, fairly long run. qe2 produced a weaker and briefer run- less than a year. and qe2.5 hasn't really helped equities at all, has it? the most important thing that ben has done lately for the equity markets is to reopen the swap lines to the european cb's.

if there is no big hint from jackson hole, i foresee equities dropping hard. if there is a big hint, i imagine a weak and ultimately [and it won't take long] failing rally. that will be the last chance to sell or short. [how's that for a big prediction?] i expect a hint.

this is all in the context of expecting continued dysfunction in european leadership. i get no credit if that item is accurate- it's like forecasting the sun to rise in the east.

only time will tell, but it sounds like very reasonable call. i also expect a hint, but i think it will be more show and no go (like you, i think it will fizzle). my opinion is that europe has thrown a monkey wrench into the mix, and that they are playing a waiting game for as long as they can.... just like the rest of us. if europe breaks, then you would see something more than a "hint"...

[WildspitzE]

Re: Will QE3 be cloaked in Repos?

the fever pitch approaches.... speculation of what the fed will do is being discussed everywhere i look or go. here's one:

Bernanke to aid recovery with gradual boost in dosage
http://ca.reuters.com/article/busine...BrandChannel=0

"...
NO BIG GUNS

Against that backdrop, Bernanke appears unlikely to reach for dramatic measures, but the Fed could be primed to gradually boost the dosage for the ailing economy over the coming months.

One initial step might be simply to use verbal communication. It could commit to maintain its balance sheet, which has ballooned to $2.8 trillion from a pre-crisis level of around $900 billion, at this high level for an extended period of time -- even adding a timeframe just as it has for the fed funds rate.

Another measure would be to put downward pressure on medium to long-term interest rates, where mortgages are fixed and corporations borrow, by taking steps to weight the mix of assets in the Fed's balance sheet toward longer-maturity instruments. This can be done either by replacing its maturing securities with longer-term ones, or by actively exchanging shorter maturities with longer ones.

"Last year at Jackson Hole when the Chairman laid the groundwork for QE2, inflation was rapidly decelerating -- the opposite is true at present," Deutsche Bank economist Carl Riccadonna wrote to clients.

"As a result, if the Fed does move toward additional accommodation, it may first try to extend the average maturity of its portfolio rather than further expand its asset holdings."

..."

this portfolio mix change is being pushed hard as of late, the key question there is will they use sales or collections on existing assets or new money to purchase the longer tenored assets in lieu of shorter tenors, but it appears that it will be one of the formers if you ask tout tv/analysts (i don't think sales are an option but i may be wrong).

tick tock tick tock...

[mmr]

Re: Will QE3 be cloaked in Repos?

Banks will just respond to a decline in interest on excess reserves by imposing deposit fees or the like, effectively creating a negative interest rate for depositors. With minimal new lending opportunities and the requirement to hold equity against non-earning cash, the situation will just turn into a big game of hot potato with each bank trying to push depositors to take their cash elsewhere. (You may have to give them a toaster to keep your money there.)

That could also be the deathknell for money market funds, which are already subsidizing operating losses (the minimally positive short-term rates now don't generate enough of a spread to cover operating costs; if rates go negative, the funds will likely close to new investors or shut down altogether). I have no idea of the extent to which this might affect the commercial paper market and other short-term funding markets.

Negative nominal rates might stimulate consumption, but in this environment, you could see crazy things like large investors taking possession of physical cash (if the fees to protect the physical cash are less costly than leaving the cash in a bank to earn a negative rate.)

[jk]

Re: Will QE3 be cloaked in Repos?

Banks will just respond to a decline in interest on excess reserves by imposing deposit fees or the like, effectively creating a negative interest rate for depositors. With minimal new lending opportunities and the requirement to hold equity against non-earning cash, the situation will just turn into a big game of hot potato with each bank trying to push depositors to take their cash elsewhere. (You may have to give them a toaster to keep your money there.)

That could also be the deathknell for money market funds, which are already subsidizing operating losses (the minimally positive short-term rates now don't generate enough of a spread to cover operating costs; if rates go negative, the funds will likely close to new investors or shut down altogether). I have no idea of the extent to which this might affect the commercial paper market and other short-term funding markets.

Negative nominal rates might stimulate consumption, but in this environment, you could see crazy things like large investors taking possession of physical cash (if the fees to protect the physical cash are less costly than leaving the cash in a bank to earn a negative rate.)

isn't this what would be the aim of such a policy? if you've been holding off on a purchase while you have money in the bank, your willingness to spend would certainly be nudged by having to pay to keep your money on deposit. and you'd rather stock up on something than watch your savings shrink as you make repeated purchases. in general, purchases would be brought forward in time.

[dcarrigg]

Re: Will QE3 be cloaked in Repos?

isn't this what would be the aim of such a policy? if you've been holding off on a purchase while you have money in the bank, your willingness to spend would certainly be nudged by having to pay to keep your money on deposit. and you'd rather stock up on something than watch your savings shrink as you make repeated purchases. in general, purchases would be brought forward in time.

Deleted.

[GRG55]

Re: Will QE3 be cloaked in Repos?

Growing. But just barely...

GDP Revision: U.S. Economy Grew Just 1.0% in Second Quarter

August 26, 2011 9:05 AM EDT

The U.S. economy grew at a worse than-expected 1.0 percent rate in the second quarter, the U.S. Commerce Department announced Friday, in its second estimate for the quarter, as lower export growth and a slowdown in inventory build-up braked the world's largest economy to near-stall speed. What's more, the January to June 2011 period was the weakest growth since the recovery started in mid-2009...

Under the "keep all options open" strategy for Jackson Hole, here's Bullard leaving the door open for more QE...

From the FT:

August 26, 2011 12:20 am

Fed policymaker says QE is ‘most potent weapon’

By Robin Harding in Jackson Hole, Wyoming

Further quantitative easing would be the US Federal Reserve’s most effective tool if it needs to do more to stimulate the US economy, but an “Operation Twist” to extend the maturity of its balance sheet might not have much effect, a leading Fed policymaker has warned.

“I think QE is our most potent weapon,” said James Bullard, president of the St Louis Fed...

[mmr]

Re: Will QE3 be cloaked in Repos?

On the margin, that's true, although with the present level of uncertainty, many savers are too worried to spend a portion of their savings today on something that they don't critically need, taking the risk that they won't have access to their (modestly deflated) base of savings at some future date when they might really need it. Until inflationary expectations among the general population of savers resets upwards massively (i.e., the fear of losing savings through inflation outweighs the desire to maintain access to at least some liquid savings in the future), I don't see this having much of a beneficial impact to the economy.

(Those living paycheck to paycheck may well have more firsthand experience with the ongoing inflation, but they obviously don't have any means to increase spending except through borrowing, assuming that they can still access the credit system at all now that underwriting standards have tightened.)

As for the practical implications of QE to the banking system, I happened upon this article: "U.S. Banks Seek Relief on Swelling Deposits".

[doom&gloom]

Re: Will QE3 be cloaked in Repos?

http://www.traderview.com/Global_Insights.cfm

Take a listen to the Thursday Aug 25th show...

[cjppjc]

Re: Will QE3 be cloaked in Repos?

http://www.traderview.com/Global_Insights.cfm

Take a listen to the Thursday Aug 25th show...

Please recap if you would. My attention span is not what it once was.

[doom&gloom]

Re: Will QE3 be cloaked in Repos?

Please recap if you would. My attention span is not what it once was.

that the Fed still has plenty of tools at their disposal.

[cjppjc]

Re: Will QE3 be cloaked in Repos?

that the Fed still has plenty of tools at their disposal.

Thanks. They may have many tools. But they might need sharpening.

[GRG55]

Re: Will QE3 be cloaked in Repos?

Best guess is at Jackson Hole there will be no concrete new action but lots of equivocating from the Fed.

It will do everything to keep all its options open ["yes, inflation expectations have risen, but inflation is low and will decline; yes, the economy is soft, but here's all the reasons we expect it to improve; yes, unemployment is high, but here's why it won't go any higher; yes, aggregate demand is soft, but here's why it should pick up; blah, blah, etc"].

The other ace the Fed has going for it at Jackson Hole this year is the distraction of Europe. It would not surprise me to find that many of the papers, and the official spin put to the MSM reporting is that "Europe is the problem" and the USA is fine. It is always politically acceptable and convenient to blame foreigners for your problems...

Poker-faced Bernanke buys more time for Fed options

JACKSON HOLE, Wyoming | Sun Aug 28, 2011 12:18pm EDT

(Reuters) - Like a skilled poker player, Federal Reserve Chairman Ben Bernanke kept some cards close to his vest when facing fellow central bankers in cowboy country...

...He acknowledged slower-than-hoped-for growth in the world's largest economy and warned that high long-term unemployment could leave lasting scars...

...Detailed analysis by Fed staff economists on the possible benefits of further balance sheet measures may also help a core group of Fed policymakers close to Bernanke, that includes Vice Chair Janet Yellen and New York Fed President William Dudley, overcome skepticism about the effectiveness of new moves.

"They're done and they know it. They've got nothing left," scoffed an analyst attending the conference...

[c1ue]

Re: Will QE3 be cloaked in Repos?

Poker-faced Bernanke buys more time for Fed options

Sorry, couldn't help but think this:



I think Lady Gaga has a better Poker Face than Bernanke does.

[photon555]

Re: Will QE3 be cloaked in Repos?

What we need are a group of guaranteed spending entities, or GSE's. I am a patriotic cititzen so I volunteer myself to be the nucleus of such a group. Please forward large sums of cash and/or credit to me and I will spend/distribute the loot, er... funds as rapidly and widely as possible. We have five grown children so we already have the inner circle of a dedicated GSE. I am sure with the proper marketing, er... appeal to traditional American values, that we can entice other patriotic citizens to participate in the regrowth of our economy. This program should not be confused with Welfare, which supports lazy people who don't want to work. I can assure you that shopping is a difficult and time consuming job. It requires stamina, skill, and determination to buy things which you don't really need, and for which you must then find a place to store. In fact, this could also spinoff a green shoot into the housing market since people will need bigger houses in which to keep their GSE purchases. I really don't see any downside, unlike those other obviously inflationary and economy skewing plans discussed above. Just let the American people get busy doing what they do best. Shop!

[lektrode]

Re: Will QE3 be cloaked in Repos?

What we need are a group of guaranteed spending entities, or GSE's. I am a patriotic cititzen so I volunteer myself to be the nucleus of such a group. Please forward large sums of cash and/or credit to me and I will spend/distribute the loot, er... funds as rapidly and widely as possible. We have five grown children so we already have the inner circle of a dedicated GSE. I am sure with the proper marketing, er... appeal to traditional American values, that we can entice other patriotic citizens to participate in the regrowth of our economy. This program should not be confused with Welfare, which supports lazy people who don't want to work. I can assure you that shopping is a difficult and time consuming job. It requires stamina, skill, and determination to buy things which you don't really need, and for which you must then find a place to store. In fact, this could also spinoff a green shoot into the housing market since people will need bigger houses in which to keep their GSE purchases. I really don't see any downside, unlike those other obviously inflationary and economy skewing plans discussed above. Just let the American people get busy doing what they do best. Shop!

SIGN ME UP!!!
i still say that if congress in 09-10 hadnt bailed out their masters in lower manhattan, but instead simply went ahead (vs backwards with the bailouts of the auto/municipal unions) and immed launched _massive_ infrastructure rebuilds, that not only would the 'recession' have truly ended (because it truly has NOT) but we would have another sustainable boom in construction etc, THAT WOULDVE PUT FAR MORE PEOPLE TO WORK THAN ANYTHING PROPOSED THUS FAR.

and fugetabout the pie in the sky crap that the administration keeps babbling on about = more drivel from academia, like more college degrees? PUHLEEEEZE louise!

roads, bridges, harbors, powerplants that are all 30-50years old and falling apart/deteriorating at a rapidly increasing pace, as the dipshits in DC fight about how they will be rearranging the deckchairs...