tag:blogger.com,1999:blog-648884752216444797.post571895710659083147..comments2024-03-28T09:59:13.754-07:00Comments on bionic mosquito: More on the Fed and Interest Ratesbionic mosquitohttp://www.blogger.com/profile/12002548958078731031noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-648884752216444797.post-7440849843513890802015-10-06T14:12:27.854-07:002015-10-06T14:12:27.854-07:00Thank you for your succinct reply, and for your en...Thank you for your succinct reply, and for your enlightening previous post which fully addressed my question.Anonymoushttps://www.blogger.com/profile/05607499840061428100noreply@blogger.comtag:blogger.com,1999:blog-648884752216444797.post-48165560054902185372015-10-05T19:57:47.415-07:002015-10-05T19:57:47.415-07:00I think until they sell enough assets to soak up $...I think until they sell enough assets to soak up $2 trillion ++ of excess reserves, selling assets might have little effect. But I am not sure....<br /><br />http://bionicmosquito.blogspot.com/2015/09/the-fed-and-interest-rates.htmlbionic mosquitohttps://www.blogger.com/profile/12002548958078731031noreply@blogger.comtag:blogger.com,1999:blog-648884752216444797.post-46038267131197873622015-10-05T15:30:15.216-07:002015-10-05T15:30:15.216-07:00The Fed can increase interest rates indirectly by ...The Fed can increase interest rates indirectly by selling some of its assets. <br />It could thereby expose enough malinvestments to push the USA into a recession. I doubt that the Fed could precisely control any interest rates in this fashion. If the Fed did sell enough assets to raise rates on the 10 year T-bills by just 50 basis points, who would benefit? Who would be hurt? The answers could guide us in predicting whether the owners of the Fed could profit from rising rates.<br />Why should we be assured that the Fed will not sell assets to raise rates?<br />Anonymoushttps://www.blogger.com/profile/05607499840061428100noreply@blogger.comtag:blogger.com,1999:blog-648884752216444797.post-4796279984815857852015-10-04T16:37:50.476-07:002015-10-04T16:37:50.476-07:00Thank you for the comment, Mr. Engel.
"...do...Thank you for the comment, Mr. Engel.<br /><br />"...doesn't mean that the stock and bond market bubbles more broadly aren't there to crash."<br /><br />I don't expect asset prices to fall as dramatically or rapidly as they did in 2008. I believe the excess reserves provide liquidity sufficient to allow time for the Fed to react before asset owners are forced to sell due to lack of liquidity.<br /><br />"In other words, there really wasn't an uncontrollable collapse that would have wiped out the western world..."<br /><br />I think for several months it was relatively uncontrolled; I do not think it would have wiped out the western world had markets been allowed to clear naturally.bionic mosquitohttps://www.blogger.com/profile/12002548958078731031noreply@blogger.comtag:blogger.com,1999:blog-648884752216444797.post-11767591210365297252015-10-04T15:00:01.833-07:002015-10-04T15:00:01.833-07:00"...I have come to a similar conclusion. The..."...I have come to a similar conclusion. The financial system is “more resilient to shocks.” The “higher capital and liquidity requirements” are in the excess reserves." <br /><br />I agree... as long as it is clear that just because the financial industry is more resilient (due to the reasons you mentioned), doesn't mean that the stock and bond market bubbles more broadly aren't there to crash. <br /><br />"Only that I don’t envision an almost uncontrollable collapse as occurred in 2008." I assume you mean in the financial industry specifically. I too don't think the financial industry will be as exposed as it was last time. However, I think David Stockman does a great job in The Great Deformation in explaining the extent to which the "financial armageddon" was exaggerated in 2008. In other words, there really wasn't an uncontrollable collapse that would have wiped out the western world, per the insane claims of Hank Paulson-- the damage was limited to a handful of the over-leveraged and exposed banks. C.Jay Engelhttps://www.blogger.com/profile/16254402183759801061noreply@blogger.com