The Fed Announces Another Flood of Easy Money

By: Ryan McMaken

The Federal Reserve announced today that it will aggressively begin injecting liquidity into the market again. From the New York Fed’s website:

Beginning Thursday, March 12, 2020 and continuing through Monday, April 13, 2020, the Desk will offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period. In addition, the Desk will also offer three one-month term repo operations, with the first operation occurring on Thursday, March 12, 2020. The amount offered for each of these three operations will be at least $50 billion.

Consistent with the FOMC directive to the Desk, these operations are intended to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation. They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus. The Desk will continue to adjust repo operations as needed to foster efficient and effective policy implementation consistent with the FOMC directive.

As Danielle DiMartino Booth put it, this is the money “bazooka reloaded.”

This new surge in pumping puts the Fed back on track to reach new highs in its total portfolio.

In other words, the Fed is now back in the business—although, in truth, it never really stopped—of buying up assets with newly created money to “stabilize” markets.

Following its days of aggressive QE, Fed assets reached over $4.5 trillion. But then the Fed started scaling back assets ever so slowly, pulling about $740 billion from that $4.5 trillion total. That all stopped late last year, though, as the Fed started injecting money into the repo market. (For more, see here.)

Since then, the Fed has readded $481 billion to its assets. And now the Fed tells us it will add “at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.”

So, the Fed will soon be back to peak asset levels.

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But what difference does it make? The Fed has been sitting on these assets for years, and so far so good, right?

Well, those with long memories will remember that the Fed said for years that it would “unwind” all its asset purchases and remove all that money it created from the real economy. But now it’s pretty clear that’s not going to happen for a few reasons:

1. These assets—such as old mortgage-based assets and other garbage from the last housing bubble—never recovered enough value to be sold off by the Fed.

2. Because those old assets never recovered, the Fed doesn’t want to sell them and thus put pressure on organizations—like banks—that still hold similar assets. In other words, if the Fed were to let those assets go, they’d likely pop various bubbles.

3. It’s basically policy now that the Fed exists to bailout banks and the financial sector forever, no matter how much it costs other sectors of the economy.

4. This has massively inflated asset prices such as stocks and real estate. That’s bad for affordability for regular people. But it’s great for billionaires.

So, this is just the latest continuation of that policy. It’s more bailing out of banks and hedge funds at the expense of those who hold dollars or compete for resources with the bailout firms and industries. By constantly favoring and bailing out bankers and other parts of the financial sector, the Fed has put all other sectors and industries at a disadvantage. As a nonfinancial enterprise, it’s hard to compete for investors and capital when the Fed has guaranteed that the financial sector will be bailed out no matter what.

This is monetary policy that was built by bankers and exists for the benefit of bankers. Every solution involves helping bankers. The Fed has no other ideas.

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