Open the floodgates; the flood of money printing is coming again?

In the past week, the Federal Reserve balance sheet surged by $300 billion.

I’m reminded of a popular political rule: “The more people and the more fanfare, the less important it is”.

Every time there is a solemn, big, unanimous vote, it is either something that has been decided for a long time, or it is something that does not matter.

Every time there is nothing, two or three people or even one person arbitrarily, often about the future direction of the country and the nation, is very important.

The “essence” of this political rule, the Federal Reserve is obviously very well placed.

You know, since the Federal Reserve in early 2022 pretend to put forward the “reduction”, has been a year, so long, the Fed’s balance sheet “reduction of the total size”, only 620 billion dollars:.

The announcement to the world to collect money, solemnly, a year later, collected $ 620 billion.

When the bailout of the U.S. banking sector printing money, as if nothing happened, a week passed, printed 300 billion dollars.

With the printing of money, is there any major problem in the U.S. banking industry?

If there is, it must still be printing money is not large enough to match the bank debt and spending!

In 2009, the United States financial crisis bailout period, the former U.S. Treasury Secretary Timothy Geithner (Timothy Geithner), has publicly said this sentence.

“I would like to have money piled up in the window, more than enough to match the debt that may arise”.

Corresponding to the result of this money printing by the Fed is the surge in the price of gold in the past week.

In the case of the Fed balance sheet size does skyrocket, many people then believe that the Fed is once again opening the floodgates, restarting QE, moving aggressively from tapering to expansion, and that the bull market in all types of risk assets is coming again ……

This well, or to calm a little bit of the good

How should I put it?

The Federal Reserve printing money is indeed printed, but you have to seriously break it down, and with the previous QE printing money is different.

Every Thursday, the Federal Reserve will thunderously and regularly disclose its balance sheet changes as of that date, it is from its disclosure, and we find the “truth” of its open floodgates.

Now, let’s go a little deeper and compare in detail the balance sheets released by the Fed on March 9 and March 16 (observe the last column of the two tables below) to see how the Fed is actually “printing money” this time.

According to the comparison of the two tables, the main increase in Fed assets in the past week includes three areas.

(1) primary market loans (Primary Credit): This mainly refers to the liquidity obtained by financial institutions through the Fed’s discount window (discount window) borrowing, the latest data is $152.9 billion, compared with $4.6 billion a week ago, a net increase of $148.3 billion, the part of the loan implementation of the three-month term discount rate, the term of 90 days, the interest rate 4.75%.

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(2) Bank Term Funding Program (BTFP), this item, is the project set up by the Federal Reserve after the collapse of Silicon Valley Bank, at present, the total size of the entry loan is only $11.9 billion, it is estimated that this week this data will increase some, according to the Federal Reserve’s description of the BTFP, the program loan period of one year, interest rate 4.69%.

3) Other credit extensions (Other credit extensions), this item mainly refers to the Fed’s additional credit support for FDIC deposit insurance, last week’s size was 0, this week’s size of $142.8 billion, all net increase – this money is mainly for those commercial banks that have problems with depositors’ deposits are insured, and the amount is not necessarily used much.

In addition to these three items, the rest of the Fed’s programs, such as the size of Treasury bonds and MBS that had been held to maturity, actually did not increase, and even saw a small decline.

In this sense, the Fed’s current tapering process has not ended; you could say it, while collecting water, while releasing water.

Thinking of the math problems constantly rehearsed in elementary school, after so many years, finally understand the good intentions of the teacher back then.

However, as I said before, this time the “expansion”, and the previous QE printing money, or different.

Whether it is the 2008-2014 QE and table expansion, or the 2019-2021 unlimited QE and table expansion, whether it is the purchase of long-end Treasury bonds and MBS, or the purchase of short-term Treasury bonds, the Fed has been holding the asset after the purchase of the asset, regardless of the maturity issue. To put it bluntly, it is through the secondary market purchases, on the one hand, depresses the interest rate of treasury bonds, and on the other hand is directly to the market to send money, the overall increase in the size of the liquidity of the market, so there will be a general increase in asset prices.

However, the current “expansion”, whether it is the discount window, BTFP or credit to the FDIC, is essentially a loan, only a very short term (3 months or 1 year), and only to face the commercial banks suffering from liquidity crisis, and not for the secondary market ” Helicopter money”, in this case, the overall size of the market banknote does not necessarily increase.

Why is it not likely to increase? This is because the recent liquidity crises of several regional banks may make many banks more cautious about extending credit to enterprises and individuals in the short term, so as not to put them in a liquidity crisis and go bankrupt. Without this credit derivation, the size of broad money (credit) in the market will not only increase, but may even decrease.

In fact, before the implementation of unconventional monetary policies such as QE in the 2008 global financial crisis, the Fed’s monetary policy, in addition to the normal maintenance of the size of the balance sheet, has always been to use the discount window to implement bailouts for commercial banks in trouble. So, this time the Fed’s action, to some extent, can be said to be a monetary policy “return”.

For those who are not familiar with the operation of the Chinese financial system, the Fed’s “expansion” can be seen as a chain of refinancing of commercial banks by the Chinese central bank.

Central bank – commercial banks – (other financial institutions) – enterprises and individuals (real economy)

In contrast, in 2008 and 2020 QE, the Fed went directly to the market, buying Treasuries and MBS from all sellers, and the money flowed directly to commercial banks, other financial institutions, enterprises and individuals.

Source: Surfing News, “Liquidity Economics: The Last “Scavenger”: A Brief History of the Federal Reserve’s Quantitative Easing Policy

Not only that, in the QE process opened in 2008 and 2020, the Fed has been simultaneously implementing the 0 interest rate policy – under the 0 interest rate policy, the U.S. 10-year Treasury yields fell to historic lows, as the anchor of all major asset classes prices, are soaring, the chickens are coming home to roost.

At this stage, the U.S. federal funds rate is still as high as 4.5%, at least in the short term, it seems unlikely that the Fed will lower the federal funds rate to 0 again, regardless of the bond market, stock market or housing market, are subject to 4.5% of this heavy “gravity” squeeze, the universal sky, the chicken and the dog rose to heaven The probability is that the “situation” will not occur.

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In short, the Fed’s money printing and meter expansion over the past week is so different from 2008 and 2020 –

That it is OK to say it opened the floodgates and restarted QE.

It’s okay to say it didn’t release water and restart QE.

 

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