tag:blogger.com,1999:blog-2232587951592761390.post4013951525373830962..comments2008-04-14T10:17:42.054-05:00Francisconoreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2232587951592761390.post-83151202524426736782008-04-14T10:17:00.000-05:002008-04-14T10:17:00.000-05:00Should be required reading for most Fed watcher's.<BR/><BR/>(1) Friedman's "high powered money" (MO) is not a base [sic] for the expansion of the money supply.<BR/><BR/>(2) "have been calling “banks” and whose proper name is “depository institutions.” There is ANOTHER set of FINANCIAL INTERMEDIARIES (other than depository institutions) and investors, such as Bear Stearns or Lehman Brothers". NEVER are the member commercial banks (depository insitutions) financial intermediaries in the lending process. THIS IS THE MOST PERVASIVE ERROR IN ECONOMICS.<BR/><BR/>From a systems viewpoint, member commercial banks as contrasted to financial intermediaries never loan out, and can’t loan out, existing deposits (saved or otherwise); including existing transaction deposits, or time deposits or the owner’s equity or any liability item. <BR/><BR/>When MCBs grant loans to, or purchase securities from, the non-bank public (which includes every institution, the U.S. Treasury, the U.S. Government, state, and other governmental jurisdictions), and every person, except the commercial and the Reserve Banks; they acquire title to earning assets, by initially, the creation of an equal volume of new money-transaction deposits.Flow5http://www.blogger.com/profile/13910212017849902362noreply@blogger.comtag:blogger.com,1999:blog-2232587951592761390.post-7145742213456224862008-03-31T08:12:00.000-05:002008-03-31T08:12:00.000-05:00Excellent review of the Fed's new tools. There are some reserve banks that use Credit Reserve Ratio (CRR) as a tool for monetary policy. What are the merits & demerits of using CRR as monetary policy tool?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2232587951592761390.post-46633154719438611472008-03-25T09:12:00.000-05:002008-03-25T09:12:00.000-05:00jefb:<BR/>You're right about both, as far as I can tell. The PDCF extends cash loans, whereas the TSFL extends Treasury loans (swaps Treasurys for other securities).<BR/>The Fed can (and will) offset the PDCF loans with open market operations though.Franciscohttp://www.blogger.com/profile/07037104984110610259noreply@blogger.comtag:blogger.com,1999:blog-2232587951592761390.post-76179350702697410042008-03-25T06:06:00.000-05:002008-03-25T06:06:00.000-05:00I guess PDCF does increase the level of reserves and the assets of the Fed and thus monetary base (see Fed FAQ on PDCF: http://www.ny.frb.org/markets/pdcf_faq.html). It is cash-for-bonds to primary deaers who normally only get cash on the initiative of the FOMC trading desk through open-market operations.<BR/><BR/>TSLF is bonds-for-bonds, which is the reason TSLF does not lead to an increase in the monetary base. Prmimary dealers get Treasury Bills for riskier paper under the TSLF.JefBnoreply@blogger.comtag:blogger.com,1999:blog-2232587951592761390.post-45261706959750156162008-03-24T20:10:00.000-05:002008-03-24T20:10:00.000-05:00Nemo:<BR/><BR/>Thanks for the correction. Yes, the <A HREF="http://www.newyorkfed.org/aboutthefed/fedpoint/fed18.html" REL="nofollow">New York Fed's page</A> is somewhat more explicit about the collateral that is acceptable at the discount window. They say:<BR/><BR/><I>In 1999, the Federal Reserve expanded the range of acceptable collateral to include such items as investment-grade certificates of deposit and AAA-rated commercial mortgage-backed securities. Other acceptable collateral consists of U.S. Treasury securities, state and local government securities, collateralized mortgage obligations (AAA), consumer loans, commercial and agricultural loans, and certain mortgage notes on one-to-four-family residences.</I><BR/><BR/>This seems to be the same type of collateral as that allowed at the TSLF. And, as you say, TAF requires the same collateral as the discount window.Franciscohttp://www.blogger.com/profile/07037104984110610259noreply@blogger.comtag:blogger.com,1999:blog-2232587951592761390.post-422922056386949322008-03-24T00:58:00.000-05:002008-03-24T00:58:00.000-05:00Thanks for the summary.<BR/><BR/>Regarding the TSLF, you write:<BR/><BR/><I>Borrowers must pledge collateral for these loans, but the minimum quality of the assets is even lower than for the TAF (it includes federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS).</I><BR/><BR/>Are you sure? According to the <A HREF="http://www.federalreserve.gov/monetarypolicy/taffaq.htm#q7" REL="nofollow">TAF FAQ</A>, the TAF accepts the same collateral as the discount window. According to the <A HREF="http://www.frbdiscountwindow.org/cfaq.cfm?hdrID=21&dtlID=#c1" REL="nofollow">discount window FAQ</A>, a wide variety of collateral is already accepted, including both agency and non-agency asset-backed securities, etc.<BR/><BR/>My understanding is that the TSLF and PDCF do not expand the collateral being accepted, but they <B>do</B> essentially extend the discount window to non-depository institutions. This, and not the collateral, is their truly novel (and frankly somewhat disturbing) feature.Nemohttp://self-evident.org/noreply@blogger.comtag:blogger.com,1999:blog-2232587951592761390.post-83911951765838873122008-03-23T23:22:00.000-05:002008-03-23T23:22:00.000-05:00Excellent summary.<BR/><BR/>In the current circumstance the US Feb has indeed accepted the risk. But will the risk be realised and will the electorate pay for this?<BR/><BR/>The circumstance is much different: Lets have luch vs. Let me buy you lunchAnonymousnoreply@blogger.com