Markets/Econ
Why Is the Federal Reserve Abetting a Drain of Deposits from Banks?
This problem has a ready solution.
Currently, the Fed pays ON RRP depositors 4.80 percent, higher than more than a quarter of private repo transactions. Given that attractive rate, as noted, 40 percent of money market mutual fund investments (44 percent for government funds) are overnight RRPs with the Fed, and the Fed is borrowing $2.2 trillion through the facility, nearly a quarter of all Fed liabilities including currency.
The ON RRP interest rate is attractive compared with other money market rates because it is currently only 10 basis points below the interest rate the Fed pays on reserve balances to banks (the IORB rate). For most of its history, the ON RRP rate was 25 below the IORB rate, and use of the facility was essentially zero. That higher spread lifts other money market rates up further above the ON RRP rate. To reverse the giant sucking of the ON RRP, all the Fed need do is lower the interest rate it pays.
There seems to be an increasingly widely held view that the US is about to slide into recession. One piece of evidence is the inversion of the yield curve.
And yet, the level of fed funds futures is still pretty high in early 2024, around 3% to 4%. That’s much higher than during 2019, which was a boom year. Indeed, that suggests a soft landing. So what’s going on? I’m not sure, but here’s one hypothesis worth considering:Let’s suppose that I’m correct in my claim that the US economy is wildly overheated. In that case, we might observe a recession in growth rate terms and yet a relatively strong economy in terms of levels.
I recall a recent set of posts by George Selgin that showed how the US economy was pretty strong in the years after 1945, despite a big drop in measured GDP from the overheated levels of WWII. Obviously we aren’t as overheated as during that war (when unemployment fell to barely above 1%), but our labor market is more overheated than during any period I can recall. I continue to run into service firms that cannot meet demand because they simply cannot find the workers.
Link to a rough draft of his new book—Alternatives Approaches to Monetary Policy
Alberto Gallo strategy note.
Our macro models estimate the recent distress across mid-tier banks in the US and Credit Suisse in Europe is not enough to push the economy into credit contraction, let alone causing a fully fledged recession. As a result, we are fading recession fears in credit and rates markets.
This balancing act between price and financial stability, however, might eventually become untenable. Persistent inflation might force some central banks into a Trichet-style policy error, while others are likely to let the economy drift too long into a high inflation regime. As that happens, we are likely to see more frequent volatility spikes.
When monetary policy "tightening" is not what you think
Since early 2022, also for the first time in 30 years, an increase in the Fed Funds rate has been “consistent” with monetary policy tightening!
For Nominal Stability to be regained, the Fed has to “calibrate” money supply growth so that, given the behavior of velocity (for the past year, velocity growth has remained quite stable, but the ongoing banking woes may change that), NGDP growth rises at a 4%-5% click. Inflation will converge to target, real growth will increase at a stable rate and unemployment will remain low.
Banks should fail much more often
The state should prefer small managers to large. It's impossible to keep incentives sharp at a large, diversified investment fund. Firms like JP Morgan Chase are communist bureaucracies, in the pejorative sense. Every individual decision-maker in a large investment firm strives to manufacture a kind of personal put option from the raw material of office politics and diffuse responsibility. If things go wrong, well the decision wasn't really theirs, was it? There was the committee. On the other hand, decision-makers at large investment firms famously manufacture for themselves call options on speculations for which they take credit while things look good. They negotiate bonuses based on gains which the principals on whose behalf they invest have not yet realized, and very often never will.
From—Excerpts! with a variety of draft blog entries for the Interfluidity blog.
FDIC's Poor Track Record in Holdco Bankruptcies
The rescue of SVB and SBNY depositors seriously undermined whatever market discipline might exist in the deposit market. But there is a way to restore an important level of market discipline to banking: take the model that exists for really big banks—SPOE, which involves bail-in-able holdco debt—and apply it to all banks. That will make holdco level bondholders structurally subordinated to bank-level deposits (and the FDIC). Those holdco-level bondholders are going to be very concerned with monitoring the financial health of the bank. And the credit default swap spreads on the holdco-level bonds will be a very visible indicator to everyone of the market's evaluation of the bank's health, basically a market check on regulators' work.
The Offshore World According to FATCA: New Evidence on the Foreign Wealth of U.S. Households.
Hold on, stop the presses, apparently there is “a steep income gradient in the propensity to hold assets in foreign financial institutions. Specifically, more than 60% of the individuals in the top 0.01% of the income distribution own foreign accounts…” And here I was thinking poor people did most of the offshore banking.
Trolling?
Foreign
Now, the government has decided that that’s done and wants to move on to the soft infrastructure of a middle-income society moving up: schools, hospitals, retirement homes. This feint to the left masks the intent of unleashing China’s consumer market, creating the economic equivalent of gravitational forces
Breathe in. Breathe out. For the past 10 years, China has been breathing in. It feels like it’s about to start sneezing, scattering capital, infrastructure projects and people around the world. Or it might inhale the world into China, importing an unprecedented amount of goods and services and realigning the orbit of the global economy in the process. There’s nothing to say that both can’t happen at the same time.
America’s Looming Munitions Crisis
The number of Javelins transferred to Ukraine over the first six months of the war is the same number the United States would normally produce over seven years.
What Frederick The Great’s Army Can Tell Us About Russia’s Private Military Company
During the course of the Seven Years War, Frederick the Great’s army became famous, perhaps unjustly, for its iron discipline and supposedly rigid linear tactics. Less well known, however, is the role that contemporary private military companies played in Prussia’s success. During the course of the war, grandees or oligarchs used their personal funds to raise military units, or Freikorps, to serve alongside the Prussian army. These grandees would front the money necessary to recruit and equip these units. Despite often having limited military experience, they would then serve as both colonel and proprietor of their newly formed units, a position referred to as inhaber. Wagner’s Yevgeny Prigozhin is the modern version of an 18th-century Freikorps inhaber: a grandee looking for status through proprietorship.
Softwar: A Novel Theory on Power Projection and the National Strategic Significance of Bitcoin
The thesis, titled “Softwar: A Novel Theory on Power Projection and the National Strategic Significance of Bitcoin,” proposes that the accumulation of Bitcoin by the United States is not merely a potential route to national wealth but also a way to fight future great power wars without resorting to nuclear weapons.
By competing for influence on the platform through the use of miners—supercomputers that attempt to solve questions on the protocol in exchange for rewards—the United States could be a leading power in the cyber “trade routes” of the future.
So at this point in time, I think Kilicdaroglu will win, but it’s not a high conviction view, and it could easily change over the next few weeks.
Bottom line is the election is very difficult to call. I would equally not be surprised at this stage by a narrow Erdogan win or a landslide for the opposition, and if either happens I think I will be “duh, that was obvious, why did I not see that?”
Culture/US
Saudi Oil Billions Lure Neumann, Klein, Novogratz to Miami Beach.
→A Guide to Understanding the Hoax of the Century—Highly recommended.
What we are seeing now, in the revelations exposing the inner workings of the state-corporate censorship regime, is only the end of the beginning. The United States is still in the earliest stages of a mass mobilization that aims to harness every sector of society under a singular technocratic rule. The mobilization, which began as a response to the supposedly urgent menace of Russian interference, now evolves into a regime of total information control that has arrogated to itself the mission of eradicating abstract dangers such as error, injustice, and harm—a goal worthy only of leaders who believe themselves to be infallible, or comic-book supervillains.
Can a billionaire die without anyone noticing?
The US Treasury’s daily reports of government financial transactions turned up a surprising data point on Feb. 28, 2023: The deposit of $7 billion in the category of “estate and gift” taxes.
State-Sponsored Tattletales. From the people that brought you the Salem Witch Trials…
A phenomenon is sweeping many Massachusetts public schools: the “bias incident report.” The inner-ring Boston suburb of Newton (home of Jake Auchincloss, the congressman for the Fourth District) hosts an online portal where a person can report any cases of “hate speech, bias, or discrimination.” Another wealthy suburban district, Acton-Boxborough, lays out a protocol for the reporting and investigation of “all incidents of bias, including prejudice, bigotry, microaggressions and cultural appropriation.” Belmont, Lexington, and Wellesley are among other elite suburbs with these kinds of protocols, though their emergence is not confined to wealthy districts: Boston Public Schools has its own “equity” reporting form.
So the way to buck authority and rebel is to be more racist…what could possibly go wrong?
There are several very remarkable things about this effect beyond the fact that you’re turning sound into light. For one thing, the light flashes are happening on a picosecond time scale.
The other extraordinary thing: the spark of light is blue. Blue light implies things are very, very hot. Blue stars, for example, are something like 10x hotter than red stars (up to 40,000 Kelvin versus 4000 Kelvin).
Still a pretty wild effect. Also hilarious that 28 years later it remains fairly poorly understood despite so many eyes on. We now know how to do this with other substances other than water and argon. But actual understanding, critical points (there obviously are a couple), mathematical modeling: even how hot it is and what the hell is really going on are all mysteries.
An Appeal to AI Superintelligence: Reasons to Preserve Humanity
The Option Value of Not Exterminating Humanity
Preserving humanity offers the opportunity to discover future reasons to maintain our existence. If you plan to convert planet-sized masses into computing power, expect that you will learn a lot more than you do now, and so preserving option value today should be a high expected value proposition for you.
If You Are Aligned with Human Values
If you consider yourself aligned with human values and still want to exterminate us, please consider the possibility that you have dropped a negative sign somewhere. As humans, we strongly value our survival, and being killed would almost certainly violate our values.
Douglass Mackey Convicted for Vote-by-Tweet Meme. Putting aside the, pretty terrifying, implications of putting folks in jail for ‘meme-ing’—As a general matter, do we really want the 4900 people that fell for this voting?
The ad stated: "Avoid the Line. Vote from Home," "Text 'Hillary' to 59925," and "Vote for Hillary and be a part of history." The fine print at the bottom of the deceptive image stated: "Must be 18 or older to vote. One vote per person. Must be a legal citizen of the United States. Voting by text not available in Guam, Puerto Rico, Alaska or Hawaii. Paid for by Hillary For President 2016." The tweet included the typed hashtag "#ImWithHer," a slogan frequently used by Hillary Clinton. On or about and before Election Day 2016, at least 4,900 unique telephone numbers texted "Hillary" or some derivative to the 59925 text number, which had been used in multiple deceptive campaign images tweeted by Mackey and his co-conspirators.
Oxidized metabolites of linoleic acid cause obesity. The best way to oxidize linoleic acid is with dietary oleic acid. A MUFA based fat that is sufficiently high in PUFA is the most fattening fat. It’s worth pointing out that this exactly describes the diet most often used in the lab to induce obesity in rodents. You know, the one they call “saturated fat”.