The Federal Reserve is draining permanent U.S. banking reserves via sale of Treasury bills from its portfolio, the Federal Reserve of New York said on Wednesday.
Add:
Why are they doing this?
Making room for junk.
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March 19th, 2008 at 11:07 am
They (the FOMC) say that they have learned from the Japan experience of 1990-present, but to me, it looks like they haven’t learned… sterilizing all of their policy actions in a loosening cycle seems to me to be a path toward a ZIRP.
Not that I want the jobs of the FOMC (though I live close enough), but I would be less creative in the short run. I’m no fan of central banking, but if we’re going to have it, let’s do it right. In a loosening cycle, the monetary base needs to expand.
March 19th, 2008 at 11:19 am
And where do the primary dealers get the cash to buy those bills — the discount window?
March 19th, 2008 at 11:33 am
David:
I agree, it doesn’t appear that they have learned a thing. Ben has put himself exactly where he does NOT want to be: low nominal rates and near zero real rates.
The permanent draining could be bad news unless it is to make room for some junk from their new facilities.
March 19th, 2008 at 11:38 am
barry:
The repo market has become illiquid, there is cash for t-bills but not for normal collateral.
The demand at the t-bill sale was $53 bn for $15 bn offered.