Tuesday, July 31, 2012

Jeff Cox — Here's What Fed May Do Instead of More QE

The plan works in a fairly simple manner: In the UK's case, the BofE is lending short-term government bills to banks, which use the securities as collateral to borrow money from the central bank at a rock-bottom rate — about 0.25 percent — and then make loans.
Banks can borrow up to 5 percent of the value of their existing loan books, and the loans from the BofE are four years in duration.
The program is similar to something the Fed tried, with considerable success, during the financial crisis that exploded in 2008....

The Fed's program was called the Term Asset-Backed Securities Loan Facility and allowed primary dealers to borrow Treasury bills from the Fed in exchange for depositing collateral.
Read it at CNBC
Here's What Fed May Do Instead of More QE
Jeff Cox | Senior Writer

11 comments:

Detroit Dan said...

This is breaking my brain. Sounds like pure BS to me...

Detroit Dan said...

Is this just another way of giving free money to banks in the hope that they will make more private loans? This doesn't seem at all equitable or desirable, unless you're a bank shareholder...

Tom Hickey said...

DD: "Is this just another way of giving free money to banks in the hope that they will make more private loans?"

Yep.

Dan Kervick said...

OK, I don't get it entirely. But banks can already borrow funds at "rock-bottom rates" right? But some of them are out of collateral? So you lend them the collateral so they can borrow from you???? At what rate do you lend the collateral?

And what is this business about stealth? Is the idea that the Fed thinks it has to hide further QE because it is worried about inflation expectations?

Tom Hickey said...

This is part of the shell-game where the Fed gives the financial system free money in the hope that they will increase private lending instead of just taking the money and running — like they did last time the Fed tried this. I don't know whether it would pass the smell test this time around.

David said...

One, Two, Three, Four,
We don't need QE 3 and 4
Five, Six, Seven, Eight,
Public spending is really great.
Fiscal!
Fiscal!
Fiscal!
Fiscal!

y said...

Five, Six, Seven, Eight,
The bankers have won, we're all too late.

y said...

Nine, Ten, Eleven, Twelve,
Buy guns and gold, and save yourselves.

Leverage said...

FDO15 must be happy. Bankers win again. More free money for banks, more debt for the 99%, if they are willing to take it.

But this last bit is what is problematic with all this dumb central-bank-financial complex dumb solutions (like NGDP targeting).

These all presume the borrower will keep borrowing forever and 'at all costs'. to channel more income to corporations and wealthy individuals. Who in his right mind thinks this can work forever?

paul said...

…"more debt for the 99%, if they are willing to take it."…

if they are willing AND ABLE to take it. I have doubts about the able part.

Anonymous said...

Treasury pulls a QE4 = $100 trillion platinum coin. Senioriage leaves the House with no leverage, and bond holders out in the cold.

Worth a try