Danielle DiMartino Booth—a trenchant critic of the Fed with an insider’s experience and knowledge—offers an explanation of what’s going on with the banking system and the Fed. In a lengthy tweet. I won’t pretend I understand this stuff, but I’ve framed her exchanges in the full thread as a Q&A. Before we get started, here’s a link to her book to establish her cred in this regard, for people unfamiliar with her:
Fed Up: An Insider's Take on Why the Federal Reserve Is Bad for America
So, first Luongo’s summary, then Danielle:
MY FIRST LONG TWEET.
Before ANY of more misinformation spreads on what I sometimes call “this damn platform, which capitalizes on sensationalism and misinformation,” this is why the Fed’s balance sheet grew last week by $298B.
The Discount Window at the Fed is OPEN. Discount Window borrowing increased $140.5 billion in one week taking total to $152.8 billion. (Prior weekly record was $111 billion in 2008 during the financial crisis per @business)
An additional $11.9 billion was borrowed from the Fed’s new Bank Term Funding Program [BTFP].
$142B in Fed Loans “Includes loans that were extended to depository institutions established by the FDIC. The Federal Reserve’s loans to these depository institutions are secured by the collateral and the FDIC provides repayment guarantees."
$7 billion in Treasuries fell and $2B in MBS rolled off the Fed’s as part of the Fed’s ongoing QT program.
What does it all mean? Don’t ask me! But the answers and exchanges in the followup shed some light. Well, these answers are more or less conclusory, but …
Q: you can [call] it what you want but the fact that stocks are pumping means Fed's is distributing drugs to drug addict market.
Q: How can you deny that 140bn of short term loans i[s] an increase in the feds balance sheet is anything other than QE?
Q: There’s also #OpEx tmrw. Lots of dealer positioning, short-covering, etc. can’t solely say this is “liquidity” driven risk-on rally. Anyone who pays any sort of attention knows commercial loans & lending is going to take a hit, & lag effects are inbound.
Q: And this is inflationary.
DDB: Liquidity drying up.
Q: How is liquidity drying up when more money is being infused into the banking system?
Q: Why use discount window when BTFP has “better” terms? Is it restricted to only banks with poor risk management?
DDB: Wasn’t up & running in time.
Q: Inflationary only if money spent on real goods and services, these are simply held as deposits this is Pretty simple. Exactly why fed could wind down TARP loans without deflating economy. Now Covid bucks and massive stimulus, that shit was inflationary.
Q: I suspect the taxpayers pick up the tab as usual.
DDB: Nope. Not a penny.
Q: Hi Danielle, the Federal reserve’s new program has them paying banks full price for bonds the market has since discounted, right?
So the “cost” is that the FR could have taken the money and purchased new bonds at the treasury for a better return
Q: Not even close. They aren’t buying any bonds. They are extending lines of credit, which banks can collateralize with certain securities at their par value, so as to not force them to realize a loss on the HTM securities.
Q: So this doesn’t provide liquidity into the markets in a way QE would?
Q: Correct me if I'm wrong, but the injection of liquidity is for bank to bank lending to cover existing deposits. This isn't necessarily inflationary, rather, allows the Fed to pursue elevated interest rates for longer without breaking the banking system and forcing a pivot.
That last comment seems to get to the heart of things. Powell will continue to increase rates to destroy the Eurodollar system and take back US control of the dollar.
Again, do I understand all this? No. But the narrative sounds plausible, seems to fit the facts as we know them—not just pulled out of thin air.
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As an addendum to the SVB meltdown, Kim Strassel goes for woke regarding the lack of oversight (SF out to lunch) and the gushing of free money out of DC (climate worship-biotech etc), all leading to a kinda “California” type disaster:
Giddey up Mr. Powell. Giddey up