Posts tagged 'IOER'

The Fed’s balance sheet and an expert commentary problem

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

Learn more

| Subscribe to Cardiff's posts
| Mar 13 18:37 | Comment |

Alan Blinder closes his op-ed in today’s Wall Street Journal:

Is there a way out? Here’s one thing that could help. As I have argued for some time, the Fed should reduce the interest rate it pays on the roughly $1.7 trillion of banks’ excess reserves. If it did so, banks would keep less cash on deposit at the Fed. The liberated funds would probably flow mainly into the money markets, but some would probably find their way into increased lending—which would give the economy a little boost. Read more

A floor with a few holes

| Feb 04 09:30 | Comment |

The great debate over interest on excess reserves (IOER), base money and short term debt used ‘the floor’ analogy to describe what happens to short term interest rates. But that might not have been quite the right analogy, at least in the US case.

Izzy has already covered Manmohan Singh’s excellent paper and presentation. In it he raises a few points in regard to the supposed floor that IOER sets for rates, and it is worth exploring it a bit more. Read more

Once you turn base money into short-term debt, can you go back?

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Learn more

| Subscribe to Izzy's posts
| Jan 16 17:35 | Comment |

Forget about the $1 trillion coin debate.

The most exciting wonky discussion being had right now is between Steve Randy Waldman and Paul Krugman over whether “base money” and short-term debt are perfectly substitutable or not, and what that may or may not mean for central bank policy.

We confess that we have a bit of a vested interest here because for a long time we’ve been arguing much the same point as Waldman.

That’s not to say that Krugman is necessarily wrong; he may just be taking Waldman slightly too literally. Read more

A reason to be bullish short-term USTs

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Learn more

| Subscribe to Izzy's posts
| Nov 23 2012 15:10 | Comment |

What we love about Bank of America Merrill Lynch’s ‘Liquid Insight’ team is that when they make calls on Treasuries and rates, they account for the impact of collateral markets and the repo effect — not to mention the general shortage of safe assets.

Take the following chart from their latest note: Read more

QEternity, the FDIC guarantee, liquidity and a pumpkin

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Learn more

| Subscribe to Izzy's posts
| Sep 25 2012 19:12 | Comment |

Okay, who’d forgotten that FDIC deposit insurance for non-interest-bearing transaction accounts expires at the end of December?

We confess, it did slip our minds – momentarily. Read more

An idea better kept in reserve

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

Learn more

| Subscribe to Cardiff's posts
| Sep 10 2012 18:50 | Comment |

Yichuan Wang had a spectacular, wonky post trying to adjudicate a debate about interest on excess reserves that I’ve been having with David Beckworth and Dan Carrol.

I’ve been meaning to write about it for a while, but unfortunately a very lengthy recap is needed first, or it won’t make sense to the new reader. The three of you already familiar with the debate should skip ahead to the next section. Read more

The unintended consequences of QE: not what you think

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Learn more

| Subscribe to Izzy's posts
| Aug 29 2012 12:06 | Comment |

By now, everyone is familiar with the mantra that QE is [arghh!] money-printing and that a major unintended consequence could be a chronic and uncontrollable inflation. (One could call this the goldbug, Austrian, Republican case).

Less well known, perhaps, is the theory that QE could be just as unexpectedly deflationary — because long-term micro yields come to threaten a number of financial sectors outright, as well as general expectations of risk-free returns which lead to capital destructive feedback loops. Read more

A response to market monetarists on IOER

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

Learn more

| Subscribe to Cardiff's posts
| Jul 30 2012 12:00 | Comment |

A big thanks to economist David Beckworth, one of FT Alphaville’s favourite bloggers, for his characteristically smart and polite post in response to our thoughts on why lowering or eliminating IOER is a problematic idea.

(In our post we had asked what the market monetarists thought of the issues we raised.) Read more

IOER, negative rates, and Ben

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

Learn more

| Subscribe to Cardiff's posts
| Jul 20 2012 18:39 | Comment |

The ECB’s recent decision to lower its deposit rate to zero raised speculation in the market that the FOMC might be considering the reduction or elimination of the 0.25 per cent interest the Fed pays on excess reserves.

Bernanke himself hadn’t mentioned the idea lately prior to his testimony before Congress this week, and it hasn’t come up in FOMC minutes since last September’s meeting. Yet the market continues to price in the possibility of a cut, as Barclays analysts noted this morning: Read more

Why cutting IOER could be suicidal

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Learn more

| Subscribe to Izzy's posts
| Sep 14 2011 09:25 | Comment |

By Jove! Someone’s finally got it.

Cutting interest on excess reserve is a hugely risky option for the Fed, and could do more damage than good (leading even to major systemic issues). We’ve said as much, and now RBC Capital markets makes the same argument too. But much more eloquently (dare we say). Read more