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The Repo Crisis and The Fed: Part 2

Monetary Policy is the government’s most important economic policy tool.  If you really want to understand how the Fed conducts Monetary Policy, you must understand the Fed’s weekly report on the “Factors Affecting Reserve Balances”. The previous Macro Watch video began analyzing the “Factors Affecting Reserve Balances” in order to show, in detail, how the Fed…
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The Repo Crisis and The Fed

On September 16th, the interest rate in the overnight Repo Market shot up to nearly 10%.  It should have been below 2.25%. There was no shortage of Reserves to lend.  There were nearly $1.4 trillion of Reserve Balances that day.  Therefore, there was an unwillingness to lend among the institutions holding the Reserves.  The Fed had to step in…
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Quantitative Easing Round Four

A new round of Quantitative Easing began yesterday when the Fed announced that it would create $60 billion a month to buy US government securities. Although I have long expected the resumption of QE, I find the suddenness and size of QE4 startling.  It could signify the Fed is aware of a grave problem somewhere in…
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Expect More Rate Cuts

Credit Growth in the United States has been the most important driver of economic growth for decades, so it is important to monitor it closely.  If it expands by less than 2% a year (adjusted for inflation), the economy goes into recession.  Therefore, when credit growth is weak, the Fed is forced to loosen monetary policy to…
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