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  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    If the Fed had not created the xxxx Trillion it did during the financial crisis, what do you think the prevailing market rate of interest would have been for short term borrowing? What do you think MBS would have sold for in an open market? What do you think banks would have done to pay depositors for cash they desperately needed? What do you think the US Government would have had to pay primary dealers to buy government securities?

    And let me ask a corollary question. If cash is so invaluable, how come people are willing to pay more than 100% APR at the money loan store or more than 24% for their credit card?

    Oct 31 01:44 PM | Likes Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    Today yes. When the Fed uses tools like QE to sell and then re-buy at the price they want to pay, issuances of Government Bonds to and then back from POMO dealers.... yes. They also have the ability to determine what maturity profile they want to attack as far as the yield curve is concerned. So, do they set in not directly, but indirectly for sure.
    Oct 31 01:39 PM | 1 Like Like |Link to Comment
  • Wall Street Breakfast: Global Shares Jump After BOJ Eases Policy [View article]
    Bob - Perhaps they should have been more thoughtful about their original decision.
    Oct 31 01:34 PM | Likes Like |Link to Comment
  • Wall Street Breakfast: Global Shares Jump After BOJ Eases Policy [View article]
    I was thinking about that last night. A lot of stories gone cold. Ex. What ever happened to the AWOL military guy that got released in exchange for Al Queda prisoners?
    Oct 31 12:41 PM | Likes Like |Link to Comment
  • Wall Street Breakfast: Global Shares Jump After BOJ Eases Policy [View article]
    Reminds me. Some years ago I entered a Wells Fargo Bank on Halloween. There was a sign posted on the door, "Please remove all masks prior to entering." I wondered if everyone would comply :-)
    Oct 31 12:39 PM | Likes Like |Link to Comment
  • Nikkei soars, yen slides, after BOJ unexpectedly eases monetary policy [View news story]
    BOJ move helps the $ and drives down gold. What could be better for Central Bankers who own the world's reserve currency?
    Oct 31 11:15 AM | Likes Like |Link to Comment
  • It's Essential The Federal Reserve Discusses Inequality [View article]
    Let's see.... at 12% mortgages, how many new apartment buildings do you think would be built with stagnant real wages?
    Oct 31 09:45 AM | Likes Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    And the other point of QE was to increase asset prices. Unfortunately (or probably what they intended anyway) those asset prices were increased to the benefit of people who already have lots of money. So then the question once again is this, "Did the Fed's meddling produce any significant benefit to the 90% of the people who live in this country who hold little or no wealth?"
    Oct 31 09:24 AM | 1 Like Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    If you don't believe the Fed sets the market rates by setting the underlying policy rates, and intervening in the markets, then you are welcome to your opinion.
    Oct 31 09:21 AM | Likes Like |Link to Comment
  • It's Essential The Federal Reserve Discusses Inequality [View article]
    If I go to buy an Apartment building and capitalize the rents/net income at a 10x rate in 2008 and then at a 6x rate in 2014, the price of the building has increased in nominal terms and rents will go up.

    If I have a house valued at $300,000 and mortgage rates drop, the monthly payment goes down and the seller can sell the house with a higher price (affordable with lower mortgage rates) and the cash due at selling will put more money in the seller's hands (nominally).

    If I have a cash flow from operations in 2008 and I discount it to come up with stock valuation at 6% and then in 2014 at 4%, the nominal value of the enterprise has increase.

    And now famously, if the Fed wants to buy MBS from holders who got in trouble and they decided to price them at 2% yield instead of the existing coupon rate, then the price of those securities goes up.

    If the Fed lowers interest rates and insurance companies receive 50 basis points less in investment income, then new payouts to pension funds will be lower, disposable income lower and thus the relative cost higher.

    If the Fed lowers interest and savers have less income to spend, then the relative cost of all they buy will be a higher proportion of total income.
    Oct 30 04:36 PM | Likes Like |Link to Comment
  • It's Essential The Federal Reserve Discusses Inequality [View article]
    Cap rate.
    Discount rate used in DCF analysis.
    Oct 30 03:46 PM | Likes Like |Link to Comment
  • It's Essential The Federal Reserve Discusses Inequality [View article]
    To Wit:

    "Moreover, ultra easy monetary policies have a wide variety of undesirable medium term effects ‐ the unintended consequences. They create malinvestments in the real economy, threaten the health of financial institutions and the functioning of financial markets, constrain the “independent “ pursuit of price stability by central banks, encourage governments to refrain from confronting sovereign debt problems in
    a timely way, and redistribute income and wealth in a highly regressive fashion."

    Ultra Easy Monetary Policy and the Law of Unintended Consequences
    William R. White
    Dallas Fed
    Oct 30 03:45 PM | Likes Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    netbluesky -

    "Central banks usually implement monetary policy by setting the short-term nominal interest rate, such as the federal funds rate in the United States."

    Monetary Policy Alternatives at the Zero Bound:
    An Empirical Assessment
    Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack
    2004-48


    "We describe and provide evidence for a new channel, the scarcity channel, which has been the dominant channel for MBS purchases over the last two years. MBS risk premia came down substantially by 2011 as financial conditions stabilized, yet empirical evidence shows that MBS purchases by the Fed continued to have a beneficial effect in lowering MBS yields. This has occurred through a scarcity channel. The Fed’s purchases of a substantial amount of the new issuance of MBS has led to a scarcity premium on the production coupon MBS (i.e. MBS backed by new mortgage originations), at times driving spreads on MBS relative to Treasury yields below zero."

    The Ins and Outs of LSAPs
    Arvind Krishnamurthy and Annette Vissing-Jorgensen1


    "The central banks of the advanced market economies (AME’s) 3 have embarked upon one of the greatest economic experiments of all time ‐ ultra easy monetary policy. In the aftermath of the economic and financial crisis which began in the summer of 2007, they lowered policy rates effectively to the zero lower bound (ZLB). In addition, they took various actions which not only caused their balance sheets to swell enormously, but also increased the riskiness of the assets they chose to purchase. Their actions also had the effect of putting downward pressure on their exchange rates against the currencies of Emerging Market Economies (EME’s). Since virtually all EME’s tended to resist this pressure4, their foreign exchange reserves rose to record levels, helping to lower long term rates in AME’s as well.

    After the recession of 2009, the economies of the AME’s seemed to be operating well below potential, and inflationary pressures remained subdued. Indeed, various authors used plausible versions of the Taylor rule to assert that the real policy rate required to reestablish a full employment equilibrium (and prevent deflation) was significantly negative. Such findings were used to justify the use of non standard monetary measures when nominal policy rates hit the ZLB.

    An important source of concern was whether lower policy rates would be effectively transmitted along the yield curve to longer maturities.

    Very low “risk free” rates, dominated by the actions of central banks, can also mislead and contribute to costly misallocations. Moreover, it is possible that easy monetary conditions actually impede, rather than encourage, the reallocation of capital from less to more productive uses."

    Federal Reserve Bank of Dallas
    Globalization and Monetary Policy Institute
    Working Paper No. 126


    "At the heart of our explanation of the primary channel of expansionary monetary policy. With an interest rate on reserves above the market rate, the process operates in the opposite direction: Banks prefer to hold reserves over other assets, risk adjusted. They protect their reserve holdings rather than trying to foist them on other banks. An expansion of reserves contracts the economy. The Fed could halt this drag on the economy by cutting the rate paid on reserves to zero or perhaps -25 basis points.

    The central danger in the next two years is that the Fed will yield to the intensifying pressure to raise interest rates and contract its portfolio well before the economy is back to normal."

    The Routes into and out of the Zero Lower Bound
    Robert E. Hall
    Oct 30 01:11 PM | 1 Like Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    Um...let's see... who set the interest rate the Fed paid on MBS and Treasuries it bought? And how did that interest rate compare to market rate of interest on those same securities had they been forced to sell into the market that existed at that time. And let's see.... when the Fed buys Treasuries back from the primary dealers, who sets the price the Fed is willing to pay? So, then the question is....what is the market rate of interest that banks should be paying on deposits?
    Oct 29 04:24 PM | 1 Like Like |Link to Comment
  • Why Do Banks Want Our Deposits? Hint: It's Not To Make Loans [View article]
    Free checking? Nope $3.50 a month to return images when I write a few checks a month. Online banking....nope don't use....what else....nothing. Want more....yep...some interest.

    I think I want more for allowing a bank to be in business.
    Oct 29 09:28 AM | 2 Likes Like |Link to Comment
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