QE Infinity
Quantitative Easing (QE) is financial jargon for printing money. Today, the New York Federal Reserve announced that they would print an additional $1.5 trillion (inflation) today and tomorrow in the repo market because of the coronavirus with even more inflation to follow to keep the repo rate low.
The Repo Rate is the interest rates which banks pay on overnight or short-term lending backed by bonds as collateral in the repo market.[1]
The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released a statement. In brief,
“The first such purchases will begin tomorrow, March 13, 2020. Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020. Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to 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.
These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.”[2]
The supply shock from the quarantines around the world is making the recession obvious. The Fed can not allow interest rates to rise so they are printing money to keep interest rates low.[3]
The Federal Reserve Chairman even admitted that rising interest rates will pop financial bubbles back in 2012.[4]
“I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.” -Jerome Powell, Chairman of the Federal Reserve, then member of the Board of Governors, Oct 2012 Federal Open Market Committee Meeting.
“Fixed-income,” may refer to bonds, pensions, salaries, stocks that pay dividends, or any set payment method over a period of time. It is jargon.
The phrase, “Not worth a Continental,” may soon be well known for the same reason that it was said in the early Republic: the USA are broke and they’ll print the paper money to pay their bills until the dollar is worthless.[5]
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.“ -Former Federal Reserve Chairman Alan Greenspan, Meet the Press, August 7, 2011.
[1]https://www.hamiltonmobley.com/blog/risky-debt
[2]https://www.newyorkfed.org/markets/opolicy/operating_policy_200312a
[3]https://www.hamiltonmobley.com/blog/5zs9y5c9h9swjmer70vp6emq9n0pc9
[4]https://www.hamiltonmobley.com/blog/interest-rates-and-inflation
[5]https://www.hamiltonmobley.com/blog/not-worth-a-continental
