As is your norm, excellent article. Particularly enjoyed your labeling the "Chart of Doom"
Point of clarity though. I believe the cumulative deficit is only 14.3b thus far (see table 6 Liabilities, Earnings and Remittances Due to the US Treasury from most recent H.4.1 https://www.federalreserve.gov/releases/h41/20221215/), but perhaps I am looking in the wrong place. How did you derive the 48b number?
John - thank you as always for the feedback, and catching this mistake! I updated the web post to correct for the error. You are right the number is $14b, which makes more sense and aligns with my own calculations of the annualized loss.
The error came from pulling the data as a monthly sum, rather than the weekly data in an attempt to make the chart look cleaner. This works for the positive remittances, but doesn't work for losses, because of the in-period vs. cumulative issue I point out in the post. While the shape of the graph was correct, the total loss was overstated.
Your feedback is invaluable, and ensures that we put out precise and accurate analysis. For example, I made sure to reference the $95bn of QT as a cap :)
I specifically noticed the nuanced (and correct) reference to QT when i first read your article last Friday :).
There is a fine line between feedback that furthers precise and accurate analysis and feedback that just makes you "that guy". I am not always on the right side of that line (just ask my wife). Glad I am here.
Great article! Thanks for explaining this. It seems to me whatever the Fed does acts against it’s own interests to a degree. I believe this is likely because the Fed is itself an unnatural institute which works against free market principles, and so the free market principles reciprocate pressure.
I would love to hear your speculative analysis on the currently discussed subject of a central bank digital currency.
I think there is definitely truth to your first statement. The Fed acts as a counterbalance to the private sector in order to try to keep the economy and price changes smooth. That is a hard job, with inherent trade offs between their dual mandates. Attempting to goal seek for one variable can often have unintended consequences elsewhere.
On the CBDC - this has to be the subject for a future TLBS post as a number of folks have brought it up (and frankly I need some time to dig into it). I do think that the recent turmoil in crypto has taken the shine off the idea, fairly or not. Stay tuned, I have it on the list.
Great questions - it's not that the Fed needs to borrow money. Rather, both of these elements are part of the Fed's toolkit to try to control interest rates. By paying interest to banks and money market funds, it puts a floor on private sector interest rates at that level. If you can lend to the Fed for 4.3% or 4.4%, you won't lend to anyone else for less than that.
Wow, I have no words to describe what I’m learning from you, is super valuable. Again, can’t thank you enough for the work that you put for free, keep it going TLBS!!
As is your norm, excellent article. Particularly enjoyed your labeling the "Chart of Doom"
Point of clarity though. I believe the cumulative deficit is only 14.3b thus far (see table 6 Liabilities, Earnings and Remittances Due to the US Treasury from most recent H.4.1 https://www.federalreserve.gov/releases/h41/20221215/), but perhaps I am looking in the wrong place. How did you derive the 48b number?
John - thank you as always for the feedback, and catching this mistake! I updated the web post to correct for the error. You are right the number is $14b, which makes more sense and aligns with my own calculations of the annualized loss.
The error came from pulling the data as a monthly sum, rather than the weekly data in an attempt to make the chart look cleaner. This works for the positive remittances, but doesn't work for losses, because of the in-period vs. cumulative issue I point out in the post. While the shape of the graph was correct, the total loss was overstated.
Your feedback is invaluable, and ensures that we put out precise and accurate analysis. For example, I made sure to reference the $95bn of QT as a cap :)
Thanks again!
TLBS
I specifically noticed the nuanced (and correct) reference to QT when i first read your article last Friday :).
There is a fine line between feedback that furthers precise and accurate analysis and feedback that just makes you "that guy". I am not always on the right side of that line (just ask my wife). Glad I am here.
Keep it coming!
Thank you Bear! Another great writeup!
Thanks for reading MrDustan
Outstanding analysis. I have been following you for a little while and have enjoyed all you have written thus far.
Thanks Ethan! Glad you enjoyed this one, and appreciate the feedback!
Great article! Thanks for explaining this. It seems to me whatever the Fed does acts against it’s own interests to a degree. I believe this is likely because the Fed is itself an unnatural institute which works against free market principles, and so the free market principles reciprocate pressure.
I would love to hear your speculative analysis on the currently discussed subject of a central bank digital currency.
I think there is definitely truth to your first statement. The Fed acts as a counterbalance to the private sector in order to try to keep the economy and price changes smooth. That is a hard job, with inherent trade offs between their dual mandates. Attempting to goal seek for one variable can often have unintended consequences elsewhere.
On the CBDC - this has to be the subject for a future TLBS post as a number of folks have brought it up (and frankly I need some time to dig into it). I do think that the recent turmoil in crypto has taken the shine off the idea, fairly or not. Stay tuned, I have it on the list.
Basic question:
Why does the Fed need the IORB and the RRP?
Why do they need to borrow this much money? $5.3trillion.
I'm sure their operational expenses aren't that high.
Is it to help the financial system to operate appropriately and efficiently?
What does the IORB/RRP accomplish? Does it make money markets less volatile?
Jus trying to understand it.
Echoing others, thank you TLBS for all the excellent learnings.
Great questions - it's not that the Fed needs to borrow money. Rather, both of these elements are part of the Fed's toolkit to try to control interest rates. By paying interest to banks and money market funds, it puts a floor on private sector interest rates at that level. If you can lend to the Fed for 4.3% or 4.4%, you won't lend to anyone else for less than that.
Thanks for reading!
Wow, I have no words to describe what I’m learning from you, is super valuable. Again, can’t thank you enough for the work that you put for free, keep it going TLBS!!
Appreciate the feedback always!
You’re absolutely welcome! Thanks for reading!