Nobody will unwind their balance sheets in any substantial or meaningful way, ever. QT ending because asset values came down 10% from all time historical highs should make this abundantly clear. It's a post-2008 world, and the new mandate is to smash that VIX to zero.

Every central bank on the planet is engaged in this competitively, and none of them will stop until they manage to destroy their respective currencies. Bear in mind that the 100 year Austrian bond yields close to 1%, so the smart money is betting that it will take over a century for this to ever end.

Not that there's not problems with what, I agree, is in many ways QE4. Just that a number very near to 0 getting divided by 2 is not really the biggest one.

BoA and Chase can attract sufficient deposits without offering 2.0% on savings. Your credit union may need to offer higher rates to attract sufficient deposits.

Ummm, the fact that the fed is printing money for the banks seems to indicate otherwise?

It isn't immediately clear to me if there is a problem in the repo market (experts, please chime in!). It appears there were some side effects of various new regulations put in place since the last recession which resulted in a recent short term high demand for liquidity. This need for liquidity was satisfied by the central bank and everything worked the way it was supposed to work.

If the banks mis-manage money to the point where the health of the system is at risk, the Fed creates more money to rescue them from their bad decisions. The Fed is then hailed as a heroic and necessary institution for 'saving [the economy|the banks|people's savings|our way of life]' by said banks. The incentive structures here are outrageous.

Problems will not be resolved if the punishment for running out of money is being given money. However if that is the approach to be taken there is no justification for not giving everyone free money when they run in to troubles. Except the fact that we all know the unfair advantage being given to the banks can't be scaled up to everyone without collapsing the economy.

https://www.economist.com/sites/default/files/images/2019/09...

Point remains that 0%-2% is decidedly a 2 times in 250 years style emergency rate.

There is no such thing as “emergency interest rates”. Rate targets are set based on, primarily, balancing employment and inflation concerns, and there is no special “emergency” threshold.

> When do we expect the emergency to end ad rates to go back to the good old 3-5% band from prior to 2008?

That 3-5% band “prior to 2008” only goes back to 2005, when rates were again below 3%, for longer than the period from 2005-2008 where they were in that range.

Some of it is broad economic conditions, but mostly it's just that the Fed has been covering for the failure of Congress to act when needed; Congress has more powerful and focussed economic tools and is really intended to be the primary actor for everything but smoothing the edges of economic fluctuations, but has been largely asleep at the switch (when not actively reinforcing negative conditions) for the past couple of decades.

The emergency will never end until the US defaults. When the Fed started quantitative tightening, by something like 25 bps, it caused the markets to tank. The Fed is no longer an independent institution; just like Yellen made Obama look good, Powell is making Trump look good. The right thing to do is raise interest rates to 10-15%; I suspect the real rate is somewhere there, possibly even higher. It will be very painful in the short-term, but recovery/rehabilitation always is.

I couldn't agree more, but I don't think that anyone in a position to stop it will ever do so given the dire consequences that are sure to follow. Unfortunately our entire economic and political system is based on kicking the can down the road and hoping that it doesn't fall apart until someone else is in charge.

I respectfully disagree that interest rates of 10-15% would be good for the economy, in either the short or long term.

Because banks aren't around to make the customers money, they are there to give the shareholders dividends.

Fine, but that doesn't entitle them to free money from the Fed.

Quantitative easing (QE), also known as large-scale asset purchases, is a monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy.

The fed is buying treasuries and MBS's on a nightly and ongoing basis from the banks to the tune of $100B. Is that not large scale? Are those not assets? Is this not injecting liquidity into the economy?

Hell, you can actually see the increasing fed balance sheet from their own data! https://fred.stlouisfed.org/series/WALCL

I think the program's ended, but it was nice when it was available.

I watch corporate bonds and the same thing is going on. It's a giant shit show right now. Things are gradually heading in an ominous direction and I did reallocate my investments some just in case. The problem is, you can't rely on bonds anymore, either. So I'm in MM funds at the moment, and those have shitty returns and high fees.

The next defensive stage downward for me is precious metals hidden at home. I hate to even imagine doing that, but I won't pay negative rates on savings when gold and silver are available.

1% compounded monthly is what I intended to say, as opposed to compounded continuously or yearly.

Or 1/12th of a percent monthly return compounded monthly?

Isn't your second statement the same as the first? 1200 dollar balance returns $1 per month, or $12 per year?

In this case where x = 1% (or .01) they're so close it almost doesn't matter. For x = 10% it's a lot clearer.

That said, it's also not equal to (1 + y) ^ 12, where y is whatever value is needed to have (1 + y) ^ 12 = 1 + x.

If you're getting 12% annually on anything, count me in.