One of the defining characteristics of the 2011 crisis was dollar swaps. Almost all attention was paid to PIIGS and focus on the European banks holding their debt, as well as the very real possibility that all would break up the euro. Behind all that was the same dollar troubles as in 2008, and for the very same reasons. The [...]
Now that the FOMC has announced its intentions, it has to sit back and wait to see if it can actually do anything. This is the direct consequence of using the federal funds rate as the primary target, as it is a dead market that nobody really uses anymore. The only reason the Fed is still leaning on federal funds [...]
Every other central bank in the world has at some point shifted their monetary policy framework to the world of secured short-term funding rather than unsecured. That shows the primacy of repo as opposed to what has been used almost exclusively in the US (and related eurodollars). The Federal Reserve has discussed letting go of the federal funds target before, [...]
The main problem with looking at the financial world from a “dollar” funding perspective is that there really is no such monolithic existence. The funding conditions in Russia may be very different than those of Swiss banks; they also may be far too similar. Given the impossibility of direct observation, being left outside and searching for interior clues that bubble [...]
Commentary has not been able to ignore changes in the Fed’s balance sheet mechanics with all the potential systemic shifts occurring as QE ends and the FOMC contemplates going even further. As I said last week, the total balance of bank “reserves” declined but not due to anything other than an operational test of the Fed’s Term Deposit Facility (TDF). [...]
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