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Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
Today we discuss 13 additional articles 'behind the wall'.
The fact is that all currencies which we unthinkingly use incorporate a historic element. The digitizalization of currencies does not eliminate the historic element. Digital currencies DERIVE from paper currencies, and paper currencies, ALL of them, derive from original monetary units which were various quantities of gold or silver.
True, except for the word "original". Price is neglecting the fact (Graeber, 2011) that the use of metals for money came after the use of accounts of credit as the means of exchange, according to archeological records. The IOU is the original form of money and so credit predates precious metals or any other commodity based exchange system in an organized society. The use of gold and silver came into use because there were no means of generalizing accounts of credit outside of local communities and a means was needed to enable exchanges over greater distances.
We need to face the challenge of understanding how to operate monetary systems but using a flawed view of human history will not help.
"There have been a number of positive credit developments since S&P downgraded the U.S. I'm not sure the ratings companies expected the degree of contraction in the annual deficit that we've seen."
Last week another WWRT discussion covered the question about whether the Fed's reverse repos were effectively "sanitizing" (offsetting) current QE purchases. Since then Econintersect has not seen further publications on that thesis. The next article discussion is copied from last week.
Stuber's logic may be confusing. He says the average per day for reverse repos by the Fed is $80.577 billion and he gives that exact same amount as the amount of liquidity withdrawn for the entire month. Since the Fed is selling and then rebuying the securities in a reverse repo, Econintersect would argue that only the difference between sell and higher buy is actually added to the system and nothing is withdrawn even for a full banking day.
(Note: There are actually 49 repos in Stuber's table so his average should have been slightly higher, $82.22 billion.)
There is an "overnight" (it is sometimes over weekend) liquidity removal for the financial system agents buying the securities from the Fed's SOMA (System Open Market Account, dealing in assets on the Fed's balance sheet) with a repo agreement to sell them back the next day (or after weekend) to the Fed. The Fed is actually creating reduced overnight liquidity by the total amount of reverse repos it assumes at any specific time and is adding a permanent level of liquidity equal to the sell-buy back spread paid to the same financial institutions. The financial institutions are buying a very small higher level of long-term liquidity (and financial system balance sheet asset increase) in return for a very much larger short-term (overnight) reduction in liquidity.
The $4.029 trillion total is merely a cumulative currency "float" for the transactions, with a current "float" never exceeding $130.74 billion at any time (and averaging about $57 billion per day for the 71 days starting 02 January 2014 and ending 13 March 2014). Thus the amount of long-term liquidity added is the buy-sell differential per day (0.03% from the table provided by Stuber), which totals $57 billion x 71 days x 0.0003 = $1.21 billion.
(Note: This rate per day is probably on the low side so the liquidity added may well be up to as much as $2 billion or slightly more. Some of the per day rates in this time period were less than 0.02% per day, but others were found as high as 0.05% per day.)
This in no way sterilizes the $150+/- billion QE liquidity injection over the same 2+ months. The net effect is a small increase in total financial system liquidity over the total period and a small improvement in positive cash flows for financial system participants. There are overnight reductions in liquidity averaging $82 billion counting only banking days or $57 billion counting calendar days. These are all reversed the next banking day.
The Fed claims the reverse repo operations are a tool to improve the ability to "manage short-term interest rates".
Stuber claims the actions by the Fed are in a desperate attempt to stem a decline in the value of the dollar and shows the following chart:
Patrimonial capitalism-and the landed or urban gentry living off of inherited wealth-was dealt a mortal blow by the Great Depression and World Wars. But it's making a comeback, and the only way to stop it might be a worldwide tax on capital.
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