The Fed is losing money because it’s paying high interest on reserve balances relative to the low-interest assets it mopped up in the early part of this decade.
And (we’ll get back to that later I feel it is necessary to point out that there is more than that) . . .
If I buy a brick from you for $1, then later you buy it back to me for $101,
that is like you giving me $100 in “free money,” right?
If a bank buys some security or bond from the Fed for $1, then the Fed buys it back for $101, that is also like the Fed giving charity (welfare) to the banks, right?
LOL I think you are reaching for justifications and you know it.
(Not the least of my evidence: We both know bonds have been falling.)
I am getting a little off my original point here (my bad. I switched to talking about reverse repo.) Anyway since May 2023 the Fed has been dumping free welfare money into banks via reverse. I don’t know how big the discount it (10%??) but the total volume involved is over $2 Trillion.
Geee, give banks billions and billions of welfare you have never given them before, and then declare “Gee the banks are stable,” is not the definition of “stability” I was taught in econ class.
No, I’m really not. The value of an asset is not fixed.
Why is a reverse repo “welfare”? It’s just a short-term liquidity swap. The rate is basically the Fed funds rate and a tad higher than interest on reserves
In short, I think you’re pulling a fire alarm where there is no fire.
I believe President Trump’s idea is to due away with the debt ceiling altogether. It was enacted in the belief that “Congress will eventually do the right thing, if we force them to either reduce the deficit or play a dangerous game of chicken every so often they will do the right thing and reduce the deficit.”
Well, we have tried that for decades and the first part never happened."
Well reverse repo is nearly finished, so even if I spent the time to convince you I am right, it would matter little. (which is why I regret entering it it into this conversation.)
As for “pulling the fire alarm” yes I am bearish on the economy while most are bullish. It not a whackjob postion it it a minority one. There is no shortage of people who point to the debt crisis, the SS crisis, the profit crisis the soon-to-bebond crisis and conclude “actually the economy sucks and the stockmarket is waaaay overpriced the probems have been painted over by leftover helicopter money from the COVID era.”
Oh I certainly don’t have a problem with a bear-ish view on the economy. I think it’s pretty warranted, actually - While we might disagree on which fundamentals are a problem, I agree that many of “the fundamentals” point to serious problems ahead. The bond vigilantes are licking their lips and reloading ammo.
The money for those projects had already been procured. It just hadn’t been awarded yet. So those announcements wouldn’t affect the deficit or debt. Already baked in.
That is a really crazy way to look at things (as if spending and deficits etc don;t hurt as long as we already counted it.)
“I imagined myself spending $1million for a cup of coffee or a war in Iraq r a payoff to Elon Musk, I have not done this crazy stupid harmful thing yet, but if you stop me from doing it ‘it doesn’t count’ because I already imagined it.”