Eurodollar University: Way Beyond Bank Reserves

The Crash of ’87 was a big deal, though not in the way most people remember. It was a stock market event, obviously, and those are the terms under which it has been understood. That’s not really its legacy, however, as the major shifts that began with Black Monday have had little and most often…


Bank Reserves Appendix; One Additional Case Study

Early last month, Deutsche Bank replaced one CEO pledged to paring back the bank’s ailing franchise with another committed to doing the same thing only more quickly. As I wrote at the time, “Cryan isn’t being ousted because he was wrong, but because he was right.” In comes Christian Sewing whose plans are starting to…


Bank Reserves Part 3; In Practice

There’s one final step to our examination of QE and bank reserves (you’ll need to read through at least Part 1, though Part 2 is worth the time, too). It’s all well and good to try and map out complex subjects using very simple models. That can help illuminate concepts, but we should always strive for…


Bank Reserves Part 2; If QE Was Really QT, Then Why Hasn’t QT Been QE?

Since we’ve already cracked open the accounting, it makes some sense to take our example into an important corollary examination (if you haven’t yet, you’ll need to read through Part 1). In our prior examples, we’ve assumed that the swap of risk-free assets on Bank A’s asset side is a neutral trade. That is, there…


Bank Reserves Part 1; The Great Tease

I completely understand the confusion regarding bank reserves. I really do. It’s easy to believe they are money because that’s what you’ve been taught from Day 1. Not only that, the same message is carelessly reinforced in the media every single time QE or any LSAP is referenced. Bank reserves are the aftermath of money…


What Really Happened In Europe

The primary example of globally synchronized growth has been Europe. Nowhere has more hope been attached to shifting fortunes. The Continent, buoyed by the persistence of central bankers like Mario Draghi, has not just accelerated it is actually booming. Or so they say. Last September, politicians were lining up to confidently declare as much, often…

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If There Was No QE, How Could There Be QT?

How big should the Fed’s balance sheet be? It’s a topic that has taken over a lot of academic discussions. Recall that before 2008 the level of bank reserves was practically nil. They didn’t play much of a role in any money market, required reserves or not (this should be a big clue). After four…


QE Through The Housing Channel

Even after several years of them, monetary policymakers continued to tread carefully with large scale asset purchases (LSAP). Otherwise known as quantitative easing (QE), in the US they were first announced all the way back in the darkest days of global financial panic in 2008. Yet, in 2012 and 2013 concerns remained that they could…


Transitory’s Japanese Cousin

Thomas Hoenig was President of the Federal Reserve’s Kansas City branch for two decades. He left that post in 2011 to become Vice Chairman of the FDIC. Before that, Mr. Hoenig as a voting member of the FOMC in 2010 cast the lone dissenting vote in each of the eight policy meetings that year (meaning…


Questions Not of Success, But of the Effectiveness of Illusion

Last week, Bank of Japan Governor Haruhiko Kuroda unleashed a mini-controversy with remarks he now claims were taken somewhat out of context. On March 2, speaking before Japan’s parliament, the central banker sure sounded quite confident: Right now, the members of the policy board and I think that prices will move to reach 2 percent…