FED Still Pumping Like Crazy

The current FED Funds rate is 1.75%, so the FED charges member banks 1.75% for short term loans used supposedly to maintain banks required liquidity ratio, but banks are only willing to pay consumers somewhere between 0.1 and 0.2 % for short term deposits.  If there was any competition for short term money, why would banks only pay consumers diddly squat when the alternative is almost 10 times greater?  Because they are not.  They are not stupid.  The liquidity banks need is finding its way into banks through some other FED operation, maybe some sort of repurchase agreement.  The low consumer short term deposit rates are a clear indication that the banking system is flush with funny money.  The FED has not to any great extent tightened credit or it would show up in short term bank rates as the banks were forced to complete in the market for deposits.  The FED pump is still running hard.  The FED must still believe inflation is transitory so no real tightening is needed, they just aren't saying it out loud.  

Regards,

Douglas

Banking Act of 1933 (Glass-Steagall) | Federal Reserve History

Parabola

https://fred.stlouis...eries/RRPONTSYD

Parabola

 

https://fred.stlouis...eries/RRPONTSYD

Reverse repo agreemenrs put a floor under the market whe

Parabola

 

https://fred.stlouis...eries/RRPONTSYD

He's talking about the Fedral Funds rate. Notice how that chart coincides with the establishment of the SRF in'21 (standing Repo facility). The goal of the SRF is too curtail upward movement of rates in the overnight market. They don't want that to spill over in the Federal Funds rate. The reverse repo's were established to put a floor under the over night rates. The overnight market is usually for people like Goldman or Morgan Stanley, investment banks that do not have depositors, when they get short cash, they go to the overnight market.

http://www.technical...mbust062022.png

That 0.2% rate I noted was for a short term 1 month CD not a checking account. The money market demand account at the credit union I use in the States is paying something around  0.1% or maybe less.  Banks are not competing for deposits.  Heck they used to compete.  They even used to give away free prizes for deposits.  I think my sister still has a rocket shaped coin bank that a bank gave our dad for a deposit he made in the early 1960's.    The picture below is for one just like it for sale on Ebay for $110.  These days you're lucky if you even get a howdy-do when you walk in a bank. They don't need depositors when there's plenty of FED funny money sloshing around.  

Regards,

Douglas

That 0.2% rate I noted was for a short term 1 month CD not a checking account. The money market demand account at the credit union I use in the States is paying something around  0.1% or maybe less.  Banks are not competing for deposits.  Heck they used to compete.  They even used to give away free prizes for deposits.  I think my sister still has a rocket shaped coin bank that a bank gave our dad for a deposit he made in the early 1960's.    The picture below is for one just like it for sale on Ebay for $110.  These days you're lucky if you even get a howdy-do when you walk in a bank. They don't need depositors when there's plenty of FED funny money sloshing around.  

 

 

Regards,

Douglas

Unless the FED money is free or costs less than 0.2% interest rate, it makes no sense.

If banks must pay 1.75% FED fund's rate, why would the bank not want depositor's money costing only 0.1-0.2%? 

I had one of these!

Billionaire Seth Klarman sees value in gold; nobody should own cryptocurrencies - interview with Harvard Business School'

"Interest rates are starting to move higher, and they should move higher because they've been held artificially low for a long time," Klarman said in the Harvard Business School interview. "I think it's going to jolt some people, and even the system, when they start to move higher."

 

"The market has priced in five or six increases this year alone. What's hard to think about is whether the Fed will raise rates into a slowing economy and a melting-down financial market," he said. "My guess is they'll chicken out at some point."

The bond market has been in a bull market for 35 years, and the current selloff could be a big shock for investors who have been forced to take more risks to find better yields.

"I can't see the point of crypto," he said. "It has this feel to me of being like catnip for techies. The idea that we're using more energy than the country of Iceland, to mine extra crypto, to solve math problems that don't need to be solved, seems crazy to me."

 

Edited by Rogerdodger, 22 June 2022 - 01:07 PM.