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Fed May Have To Drain As Much As $1 Trillion In Liquidity To Push Rates 25 bps Higher
It's 2:00:01 pm and the Fed has just announced it will hike rates by 25 bps while using very dovish language to convey that just like "tapering was not tightening" in 2013, so "tightening isn't really tightening", and unleashing a massive buying order.
So far so good. But the real question is what does this mean for post-kneejerk market dynamics, and the one most important variable of all: liquidity.
The all too crucial, and overdue, answer to this question will be delivered when the Fed releases its "implementation note" concurrently with the FOMC statement which should explain all the nuances of just how the Fed will adjust the IOER-Reverse Repo piping that will be crucial to pull of the rate hike in practice, something which has been stumping
Two weeks ago, we cited repo-market expert E.D. Skyrm who calculated that moving general collateral higher by 25bps would require the Fed draining up to $800 billion in liquidity: "In 2013 on my website, I calculated that QE2 moved Repo rates, on average, 2.7 basis points for every $100B in QE. So, one very rough estimate moved GC 8 basis points and the other 2.7 basis points per hundred billion. In order to move GC 25 basis points higher, in a very rough estimate, the Fed needs to drain between $310B and $800B in liquidity."
That may be conservative.
According to Citigroup's latest estimate, the liquidity drain could be substantially greater. Here is the take of Jabaz Mathai
There will be a separate document from the NY Fed with details around the operational aspects of the liftoff. Of primary interest will be the size of the overnight reverse repo facility that the Fed will put in place to pull short rates higher. We don’t think it will be unlimited, but a size large enough that will keep short rates from falling below the 25bp floor – and the size could be as high as $1tn.
Putting this liquidity drain in context, the entire QE2 injected "only" $600 billion in liquidity in the span of many months, suggesting that as of tomorrow, the Fed may drain as much as 166% of its entire second quantitative easing operation overnight.
Whether that liquidity is inert and can be easily released by banks, and more importantly, non-banks without resulting in any additional risk tremors is the first $640 billion question that the Fed is facing. The second, third and fourth? Assuming a linear relationship and another 3 rate hikes until the end of 2014, this means that by the time short term rates hit 1%, the Fed may have soaked up as much $4 trillion in liquidity. Here one thing is certain: a $1 trillion drain may not have a material impact when starting from a $2.6 trillion excess reserve base. $4 trillion, however, will leave a mark (the Fed's entire balance sheet is $4.5 trillion) especially once the market starts to discount just how the rate hike plumbing takes place.

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Buy The Fucking Drain?
Hah ha ha ha ha haha That's gonna hurt them 0% financed deals, Me Wall Street, no?
The thing about lying and talking out of both sides of your mouth is you eventually can't keep the charade going any longer. The day comes when it no longer works and the truth comes out. The truth always wins in the end. Today is that day for the Federal Reserve.
I really wish the best to everyone here at ZH, because we called it, we felt it, we KNEW it way back in 2009 / 2010. Soon, we will be proven right, it will be easy for all to see - it's going to be hard not to gloat, and it would be prudent not to. Will we be targets by hate filled sheeple who are jealous. They called us crazy, foolish, doomers, haters. I think we are just common scene thinkers who value truth, justice and facts.
When Janet has to reverse course and announce QE4 and the subsequent reversal of the so called, "tightening", watch out. The dollar is going to roll over hard and it won't be gradual. Good luck yellen and the sheeple, you sure are going to need it because your luck just ran out, that manipulation is about over. No matter what Yellen does, even if she keeps it at zero, it's effectively over. We knew it.
That which cannot be sustained, won't be. Do those ivory tower eCONomists still believe in infinite eCONomic growth in a closed system with finite resources?
good luck with that!
same as it ever was...
We all know where they are going to remove that "liquidity". They are going to empty the pensions like they have been doing.
Yeah, let's see how that goes down.
Bail-Ins, bitchez...it's going to happen eventually.
Get your shit outta the bankster system now while you still can.
That’s Gonna Leave A Mark
Old Yellen's not going to harm anyone. She's a nice old granny type. She's not going to hurt you....
We hear a giant flushing sound in the bond market, so lets wipe out a huge pile of liquidity...this will be interesting........
Good post Hitlery
Everything is fine, settle down people - CNBC said so.
"If the Fed is raising rates, it's a sign of a healthy economy and that's ultimately good news. Maintain that long-term perspective," McBride advised.
Yes the end of the fraud may be here today. But they got an extra 6 years out the lies and manipulation. It was a no brainer. On their part. I'm sure they wish they could get another 6 years. But doesn't look possible. So finally maybe truth will be making a comeback. I look forward to it. But I will not gloat.
Drain that much will require minimum two or three flushes.
Septics tank that much liquidity can accommodate?
"Why don't we confiscate some GOLD to help the FED during their times of trouble"
"I think credit availability remains quite constrained," Yellen said. "And I think we are seeing quite a bit of reluctance given the job market … for young people to buy homes."
WTF!
> 1 Trillion+ Dollars in Auto Loans!
> 1.2 Trillion Dollars in Student Loans!
> 14 Trillion Dollars in outstanding mortgage debt!
With a lot of that being Subprime...and she thinks "Credit is Constrained"?
Local furniture shop is offering 0% to finance a fucken couch valued at $499 or more!..and there are LINES at the stores finance office!
Holy Fuck! Someone please ask her to define "Unrestrained Credit"?
We offer $100 credit if you finance with 0% APR, and we offer free delivery too. You can't get better furniture than Amish Built!
Americans credit lines have outpaced their cash flows....this will not end well at current levels of credit/income. If more credit is put into their hands it gets even worse.....this will not end well.
Does anybody here sort of find Yellen, dare i say, sexy? Ok, her pussy is maybe for the Gartman-esque lard-ass 50+ crowd no doubt. But I bet if you put it in her, warm and KYed, it might actually feel fine.
.....dude.....
Fuck it, I upvoted him.
You hear someone start a conversation like "I once slept with a grandma that looked like Moe" and you are tuning in.
pods
Dude, you need to see a shrink chop,chop.
I was thinking 'slaughterer' is Donald Trump. It would take a sick fuck like Trump to think sexy thoughts about Grandma Yeller.
You're not funny at all.
Huma and Hildabeast up voted you
What I find sexy about Yellen is the gold chain around her neck. Don't look at what the central bankers say, look at what they do....
it's gold plated tungsten
Im in the over 50 crowd and I wouldn't touch that with your junk
Dude..... That comment is just wrong.
Do it Dip$hits, drain that swamp...
https://pmpaspeakingofprecision.files.wordpress.com/2010/02/crap-excavat...
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Gee, just 8 weeks on ZH and now trolling your 12 euro silver scam???? You've already been busted for this just a couple months ago dude. Get lost scumbag.
https://bitcointalk.org/index.php?topic=1218804
Don't buy anything from these assholes or you'll lose whatever you paid and will have no way to get it back. You have been warned.
Hopefully the Tyler's ban these fuckers from the site quick.
What? I can't trust The Beatles?
We all live in a troll free community
A troll free community
A troll free community
Buy the $$$Liquid Plumber...
Hey, they can sell some of the trillions of $$ of US Treasury notes they have been buying, right?
hahahahahahha
bu bu but......
Jason Bateman is giving us the thumbs up, while fixing the plumbing.... ALL IS WELL!
Or the Fed might just decide to raise the rate on the excess reserves trusting that self-interested banks will not lend money over night to each other if they can get a better rate from the Fed.
No drain, and more ultra-risk-free money to the big banks. What's not to like?
Trying to implement the unimplementable?
I'd say there's a 99% chance they won't raise the interest rates.
That's my hunch too. [But what would I know, I'm just some necromancess from another galaxy].
sufficient EM headwinds and commodity issues to delay a rate increase into q2 2016.....
Now is that a BTFD moment? dunno
Hell, I think they will raise rates just to show they can and they spin off some bullshit remark about how good it is to do so and then the DOW +400. I hope I am worng.
D-Day for Fiat Credit System: https://youtu.be/v_5QBJx0Im8
They will announce a rate hike with a massive side helping of PPT buying. Sell the fucking and GTFO.
I took your advice, sold it all last week, and bailed https://www.youtube.com/watch?v=jmZ0fJC5lwQ
A trillion here, a trillion there and soon you're talking about real (well as real as digital can get) FRNs.
So, don't raise rates that'll fix it, right!
Super FUBAR!
We should pass the Affordable Stocks Act that forces everyone into the stock market.
They did, it's called MyIRA
Don't forget Qe and NIRP. All of that destroyed the rate of returns, which forced people into riskier and riskier investments.... such as any frigging publicly traded stock. Not to mention HY bonds, which are getting destroyed now.
What a menace.
Exempt, exempt from Oblunder Care too. Fuck You!
the fed's going to drain the swamp. yeah, bitchez. /s
I am missing the fundamentals.... All of the money that the fed printed, is sitting in banks and has been earning 0% all this time? I call bullshit. That money has been borrowed and spent, and re-hypothecated into oblivion.
Banks have been running at their minimum tier 1 capital for ever.....
If you had a reverse repo and no one came...... that will be the issue.
if the fed thinks they can drain a trillion they are out of their fucking minds.
Yellen & company are at the reverse REPO window paying for US Treasuries that were never delivered...see how that printing press works 24/7?!
"The Fed cannot and will not ever raise rates."
The liquidity drain will have a great corialis effect on wealth
Normally, but the naked shorting of Treasuries (Shadow QE) will give them more printed fiat via reverse REPO window. The "new" normal.
Treasury bill rates in the secondary market are already at 25 basis points.
Which if you believe the dots are still too expensive...3s should be in the .30s.
I'm bullish on bullish
I'm bullish about your bullishness.
Hard not to feel bullish around you guys
I was born in May some I am also bullish and bullish on the market for the next few days and often full of bull and I wrecked a China shop once.
FUCK DEY ASS
some of this has been floated already, Fisher wanted them to drain off their reserves, and in his view they could reduce 1/3 WITHOUT affecting interest rates. this was maybe six months ago, (Hussman did a supportive article on the proposed idea.) if those numbers are still valid raising rates by draining reserves is not going to be easy. normally when you tighten and you have some liquidity concerns you open the discount window (see Cramer) now reverse repo is a different animal, essentaily the Fed adds reserves to bank balance sheets by offering them a better rate of interest. seems to me repo and reverse repo are the same thing, in repo the banks borrow and roll it over every thirty days, in reverse repo the Fed lends the money out and offers the banks a better rate than they could get in the market, which is 1/4 point versus NOTHING. in this instance the Fed has a lot of paper which it has sterilized and now it hands that money back. finally if the banks accept this gift what are they going to do with loan it to small businesses or go for buybacks and MA. hmm tough choice
1 T is nothing, thats about a month worth of USA QE actual. (Jim Willie)
Things happening within the corrupt system don't matter, what matters is when theres a politcal/executive decision of actors outside of the system.
" We fucked some folks " and they let me.
It's the same thing with their bris. The rabbi cuts the boys penis then he sucks on it, drinking the blood and attempting to sexually stimulate a very young boy. It's how their whole sick existence begins and nobody says anything about it.
The rabbi is around here someplace, ask him! Ask him!
So...
Basically, they have to sop up a QUARTER of their balance sheet in order to get to .25%?
I vote they go for a full 1%...they'll be easier to close.
This is subterfuge.
The FED is a Munchausen by Proxy looting operation and as such it will loot until there is no loot left then it will cash out it's chips and go away but America is just a waypoint in the overall looting of the planet.
After America is left sitting in it's own shit then the world will clamor for someone, ANYONE to save it and of course the world will rush headlong into the arms of it's very abuser to keep from losing it all.
That's how this works it's nothing more than a Munchausen by Proxy abusive relationship that will never end until the abused decide to stop it.
Our congress is starting to work like this.
It is a sickness alright all self inflicted and made possible by people who would rather be safe than free.
Like battered wife syndrome. People cling to their abusers and refuse to leave them because they see them as essential for their survival.
I don't understand this shit -
So the Fed SAYS they are raising the rate from zero to .25%.
They can say whatever they want - but that doesn't mean they have to DO anything - does it?
By anything I mean "drain liquidity" by $XX billion in a short time frame.
This is the black magic of our non-free-market, command and control, crony capitalist economy.
This non-government, non-elected, unaccountable private entity called The Federal Reserve is ILLEGALLY creating money via open market operations. When they talk of "raising rates," they mean "target" rates. To lower rates, they fraudulently use checks written on an account with $0.00 in it to buy bonds en mass at a price where mathematically, the yield is the "target rate." Obamas & Bushes then cash the kited checks (because, why not!) and spend the money on bread and circuses (i.e. war).
It's a little different to raise rates. That requires Fed non-action. They simply remove their boot from the markets neck, and hope it stands up again. (Do they actually start selling their bonds? I dunno.) That "liquidity," which before was a SIGNIFICANT percentage of the size of the market, is now absent the market, creating volatility. Markets crash, people riot, government seizes more power.... later rinse repeat.
Or maybe I'm wrong.
I'm still getting my arms around it too. It takes an understanding of how their elaborate manipulation scheme has been constructed.
A side effect of how they artificially depressed rates (buying bonds) was printing a lot of base money. That money currently sits as excess bank reserves that banks can lend out 10x over at any time.
If the Fed raises the Fed Funds rate, the rate banks have to pay each other to borrow money from each other, the banks can just ignore this and shrug because none of them need to borrow any money right now. They all sit on more money than they need to fund their loans.
That's a problem for the Fed if it's trying to raise rates. One option is to use reverse repos to "soak up" all those base reserves, but that has a similar effect to undoing all that QE they are so proud of and think is so great.
I think an interesting alternative would be if the Fed just lowered the reserve ratio to force the banks to need to borrow from each other and thus force the Fed Funds rate to be relevant again.
That is what the naked short selling of US Treasuries has been set up to do through the reverse REPO window; so the banks can still get their money with interest. In September and October; it was over a trillion per month; that was the test to see if it would work and apparently they felt confident enough to "cover their bases".
This has the effect of QE, but hidden. So with the NY FED controlling volatility, then "everything is awesome". Until the Saudi's announce they will accept payment of oil in any major currency or China announces they have 25K tonnes of gold, then it all unravels.
The dollar will rise and rise and rise and then do a vanishing act; there is too much more pensions and 401K's to rape and pillage...so the attack on the US middle-class continues as is Obummer's mandate.
right now money market funds take at least 75% of all reverse repo. they are supposedly not allowed to rehypothecate the treasuries from reverse repo.
i have my doubts.
Where is $4 Trillion. With a T !! Going to come from ???
'The Banks' are sitting on it. Stress test time? Oh yea.
An engineered collapse and the implementation of the 'UN Agenda 2030' could be just around the corner......
http://beforeitsnews.com/conspiracy-theories/2015/12/as-events-spiral-ou...
If they raise, they will lower the USD and print at the same time. As far as I know, they are raising to cover the fact they are about to drop the USD down. And yes, all exchange rates are fully rigged by CBs, just like they do it in China.
Wanna understand Fed speak,
You fucking lying bitch.
i didn't rape you, you let me fuck you, and sure as hell did fuck all to stop me.
Fucking bitch.
Now do you understand,.................bitch's
Go long the man on the white horse.
And I looked, and behold a pale horse: and his name that sat on him was Death, and Hell followed with him. -Revelation 6:8
"Assuming a linear relationship..."
And there goes the whole argument.
Even if they say they are, doesn't mean they will. Remember, these are bankers and politicians. They're livelihoods depend on lies. And who's to prove either way?
yes one would have thought they would reverse course in the same order as we got here. letting bonds mature and not rolling principle....then selling back into the mkt all the QE bonds....then raising rates. them skipping a part makes me think they will need to do 'something' with all the bonds, somehow taking them out of the mkt in some form.....which makes this article very apropos ...how do you raise rates if there is a ton of reserves.....reserves need to go first
thus a vast reduction in avail reserves (1937 anyone?), by forcing bonds onto b/d's and removing excess reserves. b/d's HAVE to participate to be a member of the system. now the banking system will be very very interested in not having these bond prices go down...and if they do, well instant insolvency?? its like a kid waking up in a f16 in flight and deciding to experiment with how to make it turn around or land.....they do not have a clue the next 48 hours might be utterly fking bizarre