Tag Archives: Liquidity

There are three things the markets have going for them right now, and none of them have anything to do with the Federal Reserve. More and more conditions resemble the early thirties in that respect, meaning no respect for monetary powers. This isn’t to say we are repeating the Great Depression, only that the paths available to the system to use in order to climb out of this mess have similarly narrowed. That’s what’s ultimately going to matter the most, not what...

We got hate mail after publishing Silver Backwardation Returns. It seems that someone thought backwardation means silver is a backward idea, or a bad bet. “You are a *&%#! idiot,” cursed he. “Silver is the most underpriced asset on the planet,” he offered as his sole supporting evidence. He doesn’t know that backwardation means scarcity, not that a commodity’s price is too high. Since we wrote that on March 2 (our Reports are always based on the prior Friday’s...

The year 2019 should be remembered as the year of repo. In finance, what happened in September was the most memorable occurrence of the last few years. Rate cuts were a strong contender, the first in over a decade, as was overseas turmoil. Both of those, however, stemmed from the same thing behind repo, a reminder that September’s repo rumble simply punctuated. To be frank, every year should be the year of repo. But by and large nobody cares because no one can see...

Despite the name, the Fed doesn’t actually intervene in the US$ repo market. I know they called them overnight repo operations, but that’s only because they mimic repo transactions not because the central bank is conducting them in that specific place. What really happened was FRBNY allotting bank reserves (in exchange for UST, MBS, and agency collateral) only to the 24 primary dealers. These were repos only between those entities and the Federal Reserve. It had...

They remain just as confused as Richard Fisher once was. Back in ’13 while QE3 was still relatively young and QE4 (yes, there were four) practically brand new, the former President of the Dallas Fed worried all those bank reserves had amounted to nothing more than a monetary head fake. In 2011, Ben Bernanke had admitted basically the same thing. But who was falling for it? The stock market, sure. Investors on Wall Street are still betting as if it will work any day...

There’s been an unusual level of honesty coming out of Liberty Street of late. Not total honesty but certainly more than the usual nothing denials and dismissals. If you don’t immediately recognize the reference, that’s the street in NYC where FRBNY and its Open Market Desk resides. What is supposed to be the moneyed centered of the universe. After all, as Ben Bernanke famously threatened in November 2002, that’s the printing press. Or is it? In my own conversations...

Journal of Monetary Economics, with Markus Brunnermeier. PDF. When does a swap between private and public money leave the equilibrium allocation and price system unchanged? To answer this question, the paper sets up a generic model of money and liquidity which identifies sources of seignorage rents and liquidity bubbles. We derive sufficient conditions for equivalence and apply them in the context of the “Chicago Plan”, cryptocurrencies, the Indian de-monetization experiment, and Central...

Accepted for publication in the Journal of Monetary Economics, with Markus Brunnermeier. (NBER wp.) When does a swap between private and public money leave the equilibrium allocation and price system unchanged? To answer this question, the paper sets up a generic model of money and liquidity which identifies sources of seignorage rents and liquidity bubbles. We derive sufficient conditions for equivalence and apply them in the context of the “Chicago Plan”, cryptocurrencies, the Indian...

CEPR Discussion Paper 13778, June 2019, with Markus Brunnermeier. PDF. (Local copy of NBER wp.) We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the “Chicago Plan,” cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In...

NBER Working Paper 25877, May 2019, with Markus Brunnermeier. PDF. (Local copy.) We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the “Chicago Plan,” cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we...