Tuesday, March 21, 2017

Looking at the Fed balance sheet for explanations

A lot of questions on the blogs about the 2.4T in excess deposits and treasuries held, among others.

From the point of view of sandbox, the issue is why hasn't the Treasuries held changed much during the three interest adjustments.  Rates have gone up three fold, the Treasury  seems unconcerned.  For the sandbox, that is a pit boss is awaiting some very rare event from a trader. The trader should at least play the even money bet, unless the trader has good inside information..

In the pits, the amortization process is meant to cause deposits and loans to adjust, it is the aggregate error the traders need to correct. So Treasury does not respond.  There must be some gin or loss induced that should cause an adjustment in Treasuries deposit and loans amounts.

So, as the theory goes, odds without replacement means that the odds of a large government liquidity event increase over time.  The excess deposits shows activity, response. So the deposits are systematically taking bit error from loans, all government. Without replacement, a very large government reaction is expected.

Moral hazard run amok
The Fed got put into the role of Treasury's investment accountant, quite a conflict with its role as manager of monetary risk. Senators are running around guaranteeing 10% monetary safety,they have inflation adjustments everywhere. Yet the senators cannot manage the budget without the debt cartel.
It is the whole three color issue with central banking, an it is not going to be solved this round of technology, except by proliferation of fair traded, two color pits.  Bankers are starting to get the idea, fair traded means contractual binding of the exchange volatility enabled by autotrading.  Regulation is hugely simplified, contracts are enforced, congestion observable and managed.

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