Posted on 03/31/2015 7:59:48 PM PDT by concernedcitizen76
LOL!
borrow overnight for five basis points.
.05% ...per day or per year
0.25
How many dollars are they lending? Do you have a link?
“At its March 18th meeting, the Federal Open Market Committee (“FOMC”) withdrew its pledge to be “patient” about raising the Fed Funds Target Rate above its current target range of 0 to 25 basis.”
The New York Fed is a good source. Try google.
Completely agree. But is also finite if infrastructure falls apart.
later
You’re worried about traders borrowing from the Fed at 5 basis points, but you can’t show how much, if any, is lent by the Fed at that rate?
He's full of crap. Defense spending is 3% of the economy, as compared to 8% at its peak under Reagan. The problem isn't defense spending - it's non-defense and entitlements spending.
All the up to date numbers you desire can be found here.
http://www.newyorkfed.org/data-and-statistics/
“I fail to understand what good cash will be when we have notes similar to Zimbabwe.”
My fear exactly.
Fred funds rate interbank lending has declined from around $200 billion pre-crisis to $70 billion or so now. The reason has largely been because the large depository institution have left huge excess reserves at the Fed, currently exceeding required balances by $2.4 trillion, caused by QE operations. As a result, the DIs have little need to lend to each other to stay in compliance. Interbank lending now is almost all non-DIs.
Stockman is right about low cost funds, but is weak in describing the flow of funds.
Is that per month?
Also, the Fed started paying interest on excess reserves (IOER), which has reduced the incentive for depository institutions to lend (sell) fed funds at rates below IOER.
Money is lent by the Fed to private financial institutions. Would they have to report how they used it? The effect of money lent at near zero interest can be seen in the stock market bubble. The rest of the economy doesn’t seem to justify these levels.
David Stockman: Well it’s obvious that Wall Street is addicted to cheap money and unlimited flow of new liquidity into the markets. Traders can then borrow money on an overnight basis for five basis points, which is nothing. Buy anything with a yield like a ten-year or five-year bond or speculate in stocks that they think might be going up or even get fancier and go into derivatives or commodity futures or whatever. And then capture the profit or the spread between the cheap money that the fed is putting into the overnight market and the yield or profit they’re making on the asset, and they’re leveraging way up.
You know, 90 percent, 95 percent in many cases. So obviously, the whole financial market is dependent on this, but it comes at a cost. It is destroying savers in America. If you worked a lifetime and saved $100,000.00, you’re making $400.00 a year in interest from a lifetime of savings. I think there will be a revolt sooner or later of the American public against this disastrous crushing of the saver in order to essentially accommodate Wall Street’s appetite for liquidity.
http://www.businessinsider.com/stock-buybacks-are-in-a-bull-market-2015-3
CNBC reviewed the situation with corporate debt last March 2014 when it was $13.6 trillion:
Corporate debt fever rises to new record in 2014 Corporate America’s love affair with debt has intensified in 2014, with record levels of borrowing happening as feared rate increases have yet to materialize.
In total, corporate debt among non-financial companies has ballooned to $13.6 trillion, increasing 7.1 percent in the fourth quarter, according to the latest Fed data.
Companies have put all that debt—which has increased from about $11 trillion during the darkest days of the financial crisis in late 2008—to a number of uses.
The most noted from the investor perspective has been the trillion dollars or so that have gone to boost share prices through buybacks.
....................................
Here’s Stockman’s take on share buyback.
Stockman: Corporate America Is Cannibalizing Itself
Monday, 09 Mar 2015 06:20 AM
By John Morgan
American businesses are borrowing at historic high levels, but the only thing growing as a result is how fast their equity capital is vanishing, according to David Stockman, White House budget chief during the Reagan administration.
Stockman, a reliable critic of Federal Reserve policies, said much of the blame can be laid at the feet of the central bank and the bank’s Wall Street cheerleaders.
He said the Fed’s balance sheet has ballooned by 9 times since 2000, yet real net investment in the business sector has cratered by 33 percent during the same time period.
“Once upon a time businesses borrowed long term money — if they borrowed at all — in order to fund plant, equipment and other long-lived productive assets,” Stockman wrote.
“Today American businesses are borrowing like never before — but the only thing being liquidated is their own equity capital. That’s because trillions of debt is being issued to fund financial engineering maneuvers such as stock buybacks, M&A [mergers and acquisitions] and LBOs [leveraged buyouts], not the acquisition of productive assets that can actually fuel future output and productivity.”
In Stockman’s view, central bank “financial repression” — in the form of artificially low interest rates that have been orchestrated to provide a false prop to the economy — is responsible for fueling stock market bubbles that makes stock repurchases and other short-term financial engineering maneuvers profitable.
For 2015 to date, corporate bond issues total $241 billion — a giant $1.4 trillion annualized run rate, or nearly double the run rate prior to the 2008 financial meltdown, he noted. “Yet virtually all of this massive debt issuance has been cycled into after-burner fuel for the rocketing stock market. During the month of February alone, stock buybacks for the S&P 500 were a record $104 billion,” he added.
“Is it any wonder that Wall Street threatens a hissy fit upon even a hint that the Fed’s rotten regime of ZIRP [zero interest rate policy] might be ended after 80 months?”
Stockman explained that the titanic splurge in corporate debt issuance conceals the fact that real net investment in the U.S. business sector shrank sharply from $400 billion annualized in the fourth quarter of 2007 to only $300 billion annualized in the fourth quarter of 2014.
“This drastic shrinkage is something totally new under the sun, and not in a good way at all,” he declared. “So thanks for the corporate bond bubble, Fed. It’s just one more nail in the coffin of capitalist prosperity in America.
With the European Central Bank expected to start a $1 trillion quantitative easing (QE) program next week, an echo of the Fed’s QE binge, European companies could follow America’s corporate lead, Reuters reported.
“European companies are likely to join a boom in share buybacks as central bank cash floods the economy, risking criticism that they are recycling capital rather than investing to promote growth,” Reuters said.
However, the news source predicted, “Political pressure will probably grow on companies to use ultra-cheap funding for creating jobs rather than simply buying back their own shares.”
Fed discount window lending is currently at 0.75% for primary credits and 1.25% for secondary credits. Data is reported on a two-year delay. It’s not a significant number relative to excess reserves, i.e. bank deposits with / loans to the Fed.
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