Federal Reserve - Revision history

imported>All that is Solid: /* The New York Fed */ spelling error

2024-04-21T07:37:47Z

The New York Fed: spelling error

← Older revision		Revision as of 07:37, 21 April 2024
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	At the first board meeting, '''Benjamin Strong''', a Morgan man and Jekyll Island attendee, was elected governor. He would spend the next fourteen years working tirelessly alongside '''Montagu Norman''', Governor of the Bank of England from 1920 to 1944, to reinstate an international gold standard. Norman - like the Morgans - was a Nazi collaborator and member of the Anglo-german fellowship. He funded the rearmament of Germany with loans, transferred gold from Czech to Nazi bank accounts,<ref>Blaazer, David (2005). "Finance and the End of Appeasement: The Bank of England, the National Government and the Czech Gold". ''Journal of Contemporary History''. '''40''' (1): 25–39.</ref> and was a close personal friend of nazi central bank leader, '''Hjalmar Schact'''.<ref>Forbes, Neil (2000), "Doing Business with the Nazis"</ref>		At the first board meeting, '''Benjamin Strong''', a Morgan man and Jekyll Island attendee, was elected governor. He would spend the next fourteen years working tirelessly alongside '''Montagu Norman''', Governor of the Bank of England from 1920 to 1944, to reinstate an international gold standard. Norman - like the Morgans - was a Nazi collaborator and member of the Anglo-german fellowship. He funded the rearmament of Germany with loans, transferred gold from Czech to Nazi bank accounts,<ref>Blaazer, David (2005). "Finance and the End of Appeasement: The Bank of England, the National Government and the Czech Gold". ''Journal of Contemporary History''. '''40''' (1): 25–39.</ref> and was a close personal friend of nazi central bank leader, '''Hjalmar Schact'''.<ref>Forbes, Neil (2000), "Doing Business with the Nazis"</ref>

	During the 1970s '''Petrodollar Recycling''' was largely handled through the New York Fed, with 30 percent of Saudi Arabia's total portfolio (70% of their US assets) held in a New York Fed account in 1978.<ref>David E. Spiro, ''The hidden hand of American hegemony: petrodollar recycling and international markets,'' 1999. p113</ref> This upset Arthur ~~Bums~~, Chairman of the Board of Governors, who saw this as an attempt by the New York Fed to reassert dominance.<ref>David E. Spiro, ''The hidden hand of American hegemony: petrodollar recycling and international markets,'' 1999. p108</ref>		During the 1970s '''Petrodollar Recycling''' was largely handled through the New York Fed, with 30 percent of Saudi Arabia's total portfolio (70% of their US assets) held in a New York Fed account in 1978.<ref>David E. Spiro, ''The hidden hand of American hegemony: petrodollar recycling and international markets,'' 1999. p113</ref> This upset Arthur Burns, Chairman of the Board of Governors, who saw this as an attempt by the New York Fed to reassert dominance.<ref>David E. Spiro, ''The hidden hand of American hegemony: petrodollar recycling and international markets,'' 1999. p108</ref>

	=== Monetary Operations ===		=== Monetary Operations ===

imported>All that is Solid: /* The New York Fed */ fixed order

2024-04-16T01:22:19Z

The New York Fed: fixed order

← Older revision		Revision as of 01:22, 16 April 2024
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	Real power in the system resides with the New York Fed, which conducts Open Market Operations, implements monetary policy, and deals with all international relations. Over time this concentration of influence has diffused, but only slightly.		Real power in the system resides with the New York Fed, which conducts Open Market Operations, implements monetary policy, and deals with all international relations. Over time this concentration of influence has diffused, but only slightly.

	~~During~~ the ~~1970s~~ '''~~Petrodollar Recycling~~''' was ~~largely handled through~~ the ~~New York Fed~~, ~~with 30 percent~~ of ~~Saudi Arabia's total portfolio (70%~~ of ~~their US assets) held in~~ a ~~New York Fed account in 1978~~.<ref>David E. ~~Spiro~~, ''~~The hidden hand~~ of ~~American hegemony: petrodollar recycling and international markets,~~'' ~~1999~~. ~~p113~~</ref> ~~This upset Arthur Bums, Chairman~~ of ~~the Board of Governors~~, ~~who saw this as an attempt by the New York Fed to reassert dominance~~.<ref>~~David E. Spiro~~, ~~''The hidden hand of American hegemony: petrodollar recycling and international markets~~,~~'' 1999. p108~~</ref>		At the first board meeting, '''Benjamin Strong''', a Morgan man and Jekyll Island attendee, was elected governor. He would spend the next fourteen years working tirelessly alongside '''Montagu Norman''', Governor of the Bank of England from 1920 to 1944, to reinstate an international gold standard. Norman - like the Morgans - was a Nazi collaborator and member of the Anglo-german fellowship. He funded the rearmament of Germany with loans, transferred gold from Czech to Nazi bank accounts,<ref>Blaazer, David (2005). "Finance and the End of Appeasement: The Bank of England, the National Government and the Czech Gold". ''Journal of Contemporary History''. '''40''' (1): 25–39.</ref> and was a close personal friend of nazi central bank leader, '''Hjalmar Schact'''.<ref>Forbes, Neil (2000), "Doing Business with the Nazis"</ref>

	At the ~~first board meeting,~~ '''~~Benjamin Strong~~'''~~, a Morgan man and Jekyll Island attendee,~~ was ~~elected governor. He would spend~~ the ~~next fourteen years working tirelessly alongside '''Montagu Norman'''~~, ~~Governor~~ of ~~the Bank~~ of ~~England from 1920 to 1944, to reinstate an international gold standard. Norman - like the Morgans - was~~ a ~~Nazi collaborator and member of the Anglo-german fellowship~~. ~~He funded the rearmament of Germany with loans, transferred gold from Czech to Nazi bank accounts,~~<ref>~~Blaazer,~~ David ~~(2005)~~. ~~"Finance and the End of Appeasement: The Bank of England~~, ~~the National Government and the Czech Gold".~~ ''~~Journal~~ of ~~Contemporary History~~''. ~~'''40''' (1): 25–39.~~</ref> ~~and was a close personal friend~~ of ~~nazi central bank leader~~, ~~'''Hjalmar Schact'''~~.<ref>~~Forbes~~, ~~Neil (2000)~~, ~~"Doing Business with the Nazis"~~</ref>		During the 1970s '''Petrodollar Recycling''' was largely handled through the New York Fed, with 30 percent of Saudi Arabia's total portfolio (70% of their US assets) held in a New York Fed account in 1978.<ref>David E. Spiro, ''The hidden hand of American hegemony: petrodollar recycling and international markets,'' 1999. p113</ref> This upset Arthur Bums, Chairman of the Board of Governors, who saw this as an attempt by the New York Fed to reassert dominance.<ref>David E. Spiro, ''The hidden hand of American hegemony: petrodollar recycling and international markets,'' 1999. p108</ref>

	=== Monetary Operations ===		=== Monetary Operations ===

imported>All that is Solid: /* Interest on Reserves (Demand) */

2024-04-13T04:06:45Z

Interest on Reserves (Demand)

← Older revision		Revision as of 04:06, 13 April 2024
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	[[File:INTEREST ON RESERVES1.png\|thumb\|330x330px\|Interest on Reserves Diagram]]		[[File:INTEREST ON RESERVES1.png\|thumb\|330x330px\|Interest on Reserves Diagram]]
	Another way to affect demand is by changing interest on reserves. Until 2008, the Federal Reserve did not pay interest on reserves banks held with them. First authorized by Congress 2006 with implementation scheduled for 2011, the program was fast tracked in response to the crisis. This was pursuant of Fed policy: buying up toxic assets while minimizing the effect this would traditionally have had on general liquidity. Fed officials feared the federal funds rate would dip below their target and cause price instability. <blockquote>To avoid this outcome, the Fed "sterilized" the effect of liquidity injections on the overall economy: It sold an equal amount in Treasury securities from its own account to banks. Sterilization offset the injections' effect on the monetary base and therefore the overall supply of credit, keeping the total supply of reserves largely unchanged and the fed funds rate at its target. Sterilization reduced the amount in Treasury securities that the Fed held on its balance sheet by roughly 40 percent in a year's time, from over $790 billion in July 2007 to just under $480 billion by June 2008. However, following the failure of Lehman Brothers and the rescue of American International Group in September 2008, credit market dislocations intensified and lending through the Fed's new lending facilities ballooned. The Fed no longer held enough Treasury securities to sterilize the lending.		Another way to affect demand is by changing interest on reserves. Until 2008, the Federal Reserve did not pay interest on reserves banks held with them. First authorized by Congress 2006 with implementation scheduled for 2011, the program was fast tracked in response to the crisis. This was pursuant of Fed policy: buying up toxic assets while minimizing the effect this would traditionally have had on general liquidity. Fed officials feared the federal funds rate would dip below their target and cause price instability. <blockquote>To avoid this outcome, the Fed "sterilized" the effect of liquidity injections on the overall economy: It sold an equal amount in Treasury securities from its own account to banks. Sterilization offset the injections' effect on the monetary base and therefore the overall supply of credit, keeping the total supply of reserves largely unchanged and the fed funds rate at its target. Sterilization reduced the amount in Treasury securities that the Fed held on its balance sheet by roughly 40 percent in a year's time, from over $790 billion in July 2007 to just under $480 billion by June 2008. However, following the failure of Lehman Brothers and the rescue of American International Group in September 2008, credit market dislocations intensified and lending through the Fed's new lending facilities ballooned. The Fed no longer held enough Treasury securities to sterilize the lending.


	This led the Fed to request authority to accelerate implementation of the IOR policy that had been approved in 2006. Once banks began earning interest on the excess reserves they held, they would be more willing to hold on to excess reserves instead of attempting to purge them from their balance sheets via loans made in the fed funds market, which would drive the fed funds rate below the Fed's target for that rate. When the Fed stopped sterilizing its liquidity injections, the monetary base (which is comprised of total reserves in the banking system plus currency in circulation) ballooned in line with Fed lending, from about $847 billion in August 2008 to almost $2 trillion by October 2009. However, this did not result in a proportional increase in the overall money supply (Figure 1). This result is likely due largely to an undesirable lending environment: Banks likely found it more desirable to hold excess reserves in their accounts at the Fed, earning the IOR rate with zero risk, given that there were few attractive lending opportunities. That the liquidity injections did not result in a proportional increase in the money supply may also be due to banks' increased demand to hold liquid reserves (as opposed to individually lending those excess reserves out) in the wake of the financial crisis<ref>The Effect of Interest on Reserves on Monetary Policy, Federal Reserve Bank of Richmond, 2009[https://web.archive.org/web/20231004123632/https://www.richmondfed.org/publications/research/economic_brief/2009/eb_09-12#:~:text=On%20October%2013%2C%202006%2C%20the,%2C%20to%20October%201%2C%202008. https://web.archive.org/web/20231004123632/https://www.richmondfed.org/publications/research/economic_brief/2009/eb_09-12#:~:text=On%20October%2013%2C%202006%2C%20the,%2C%20to%20October%201%2C%202008.]</ref></blockquote>In the graph, IOR allows the Fed to place a floor on the federal funds rate (the horizontal line in the supply curve), because banks have little reason to lend at rates below the rate of interest they receive on their reserve balances. The rate is determined by the Board of Governors.		This led the Fed to request authority to accelerate implementation of the IOR policy that had been approved in 2006. Once banks began earning interest on the excess reserves they held, they would be more willing to hold on to excess reserves instead of attempting to purge them from their balance sheets via loans made in the fed funds market, which would drive the fed funds rate below the Fed's target for that rate. When the Fed stopped sterilizing its liquidity injections, the monetary base (which is comprised of total reserves in the banking system plus currency in circulation) ballooned in line with Fed lending, from about $847 billion in August 2008 to almost $2 trillion by October 2009. However, this did not result in a proportional increase in the overall money supply (Figure 1). This result is likely due largely to an undesirable lending environment: Banks likely found it more desirable to hold excess reserves in their accounts at the Fed, earning the IOR rate with zero risk, given that there were few attractive lending opportunities. That the liquidity injections did not result in a proportional increase in the money supply may also be due to banks' increased demand to hold liquid reserves (as opposed to individually lending those excess reserves out) in the wake of the financial crisis<ref>The Effect of Interest on Reserves on Monetary Policy, Federal Reserve Bank of Richmond, 2009[https://web.archive.org/web/20231004123632/https://www.richmondfed.org/publications/research/economic_brief/2009/eb_09-12#:~:text=On%20October%2013%2C%202006%2C%20the,%2C%20to%20October%201%2C%202008. https://web.archive.org/web/20231004123632/https://www.richmondfed.org/publications/research/economic_brief/2009/eb_09-12#:~:text=On%20October%2013%2C%202006%2C%20the,%2C%20to%20October%201%2C%202008.]</ref></blockquote>In the graph, IOR allows the Fed to place a floor on the federal funds rate (the horizontal line in the supply curve), because banks have little reason to lend at rates below the rate of interest they receive on their reserve balances. The rate is determined by the Board of Governors.

imported>All that is Solid: /* Requirement Ratio (Demand) */ added long quotation about IOR introduction during 2008

2024-04-13T04:06:10Z

Requirement Ratio (Demand): added long quotation about IOR introduction during 2008

← Older revision		Revision as of 04:06, 13 April 2024
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	==== Requirement Ratio (Demand) ====		==== Requirement Ratio (Demand) ====
	[[File:REQUIREMENT RATIO.png\|thumb\|301x301px\|Requirement Ratio Diagram]]		[[File:REQUIREMENT RATIO.png\|thumb\|301x301px\|Requirement Ratio Diagram]]
	Open Market Operations and the Discount Rate effect supply, but the Federal Reserve has two more methods, each effecting demand. First, they can change the '''requirement ratio''', which is the amount of reserves banks are required to keep in the with the fed. Because these reserves cannot be used for investment, ''increasing the required reserves '''increases demand,''' shifts demand for funds right, lowering the federal funds rate'', ~~and~~ vice-versa.		Open Market Operations and the Discount Rate effect supply, but the Federal Reserve has two more methods, each effecting demand. First, they can change the '''requirement ratio''', which is the amount of reserves banks are required to keep in the with the fed. Because these reserves cannot be used for investment, ''increasing the required reserves '''increases demand,''' shifts demand for funds right, lowering the federal funds rate'' (increasing liquidity), or vice-versa.

	==== Interest on Reserves (Demand) ====		==== Interest on Reserves (Demand) ====
	[[File:INTEREST ON RESERVES1.png\|thumb\|~~258x258px~~\|Interest on Reserves Diagram]]		[[File:INTEREST ON RESERVES1.png\|thumb\|330x330px\|Interest on Reserves Diagram]]
	Another way to affect demand is by changing interest on reserves. Until 2008, the Federal Reserve did not pay interest on reserves banks held with them, ~~when it~~ was ~~introduced as~~ an ~~additional form~~ of ~~leverage~~. ~~Paying~~ interest on reserves allows the Fed to place a floor on the federal funds rate (the horizontal line in the supply curve), because banks have little reason to lend at rates below the rate of interest they receive on their reserve balances. The rate is determined by the Board of Governors.		Another way to affect demand is by changing interest on reserves. Until 2008, the Federal Reserve did not pay interest on reserves banks held with them. First authorized by Congress 2006 with implementation scheduled for 2011, the program was fast tracked in response to the crisis. This was pursuant of Fed policy: buying up toxic assets while minimizing the effect this would traditionally have had on general liquidity. Fed officials feared the federal funds rate would dip below their target and cause price instability. <blockquote>To avoid this outcome, the Fed "sterilized" the effect of liquidity injections on the overall economy: It sold an equal amount in Treasury securities from its own account to banks. Sterilization offset the injections' effect on the monetary base and therefore the overall supply of credit, keeping the total supply of reserves largely unchanged and the fed funds rate at its target. Sterilization reduced the amount in Treasury securities that the Fed held on its balance sheet by roughly 40 percent in a year's time, from over $790 billion in July 2007 to just under $480 billion by June 2008. However, following the failure of Lehman Brothers and the rescue of American International Group in September 2008, credit market dislocations intensified and lending through the Fed's new lending facilities ballooned. The Fed no longer held enough Treasury securities to sterilize the lending.

			This led the Fed to request authority to accelerate implementation of the IOR policy that had been approved in 2006. Once banks began earning interest on the excess reserves they held, they would be more willing to hold on to excess reserves instead of attempting to purge them from their balance sheets via loans made in the fed funds market, which would drive the fed funds rate below the Fed's target for that rate. When the Fed stopped sterilizing its liquidity injections, the monetary base (which is comprised of total reserves in the banking system plus currency in circulation) ballooned in line with Fed lending, from about $847 billion in August 2008 to almost $2 trillion by October 2009. However, this did not result in a proportional increase in the overall money supply (Figure 1). This result is likely due largely to an undesirable lending environment: Banks likely found it more desirable to hold excess reserves in their accounts at the Fed, earning the IOR rate with zero risk, given that there were few attractive lending opportunities. That the liquidity injections did not result in a proportional increase in the money supply may also be due to banks' increased demand to hold liquid reserves (as opposed to individually lending those excess reserves out) in the wake of the financial crisis<ref>The Effect of Interest on Reserves on Monetary Policy, Federal Reserve Bank of Richmond, 2009[https://web.archive.org/web/20231004123632/https://www.richmondfed.org/publications/research/economic_brief/2009/eb_09-12#:~:text=On%20October%2013%2C%202006%2C%20the,%2C%20to%20October%201%2C%202008. https://web.archive.org/web/20231004123632/https://www.richmondfed.org/publications/research/economic_brief/2009/eb_09-12#:~:text=On%20October%2013%2C%202006%2C%20the,%2C%20to%20October%201%2C%202008.]</ref></blockquote>In the graph, IOR allows the Fed to place a floor on the federal funds rate (the horizontal line in the supply curve), because banks have little reason to lend at rates below the rate of interest they receive on their reserve balances. The rate is determined by the Board of Governors.

	==== Extraordinary Measures (2008) ====		==== Extraordinary Measures (2008) ====

imported>All that is Solid: /* Open Market Operations (Supply) */

2024-04-13T03:33:58Z

Open Market Operations (Supply)

← Older revision		Revision as of 03:33, 13 April 2024
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	First, and used more commonly than any other method since the 1980s, are '''Open Market Operations''' conducted by the New York Fed under the oversight of the Federal Open Market Committee. Primary dealers keep in contact through a dedicated desk at the NY Fed, and buy Governmental bonds from the fed using TRAPS (Trading Room Automated Processing System), a software used exclusively for these transactions. There are two types, defensive and dynamic. Defensive operations try to stabilize the market in response to some externality. For this reason, they are usually temporary measures like repo or matched sale-purchase agreements. Repo is when the fed buys securities with an understanding that they will be returned at a future data, and matched sale-purchase agreements are just the opposite, the Fed selling with an agreement for future re-acquisition. Dynamic operations, like that of Jerome Powel in March of 2023 to raise interest rates, are when the fed wants to make a change in the market, in this instance to fight inflation.		First, and used more commonly than any other method since the 1980s, are '''Open Market Operations''' conducted by the New York Fed under the oversight of the Federal Open Market Committee. Primary dealers keep in contact through a dedicated desk at the NY Fed, and buy Governmental bonds from the fed using TRAPS (Trading Room Automated Processing System), a software used exclusively for these transactions. There are two types, defensive and dynamic. Defensive operations try to stabilize the market in response to some externality. For this reason, they are usually temporary measures like repo or matched sale-purchase agreements. Repo is when the fed buys securities with an understanding that they will be returned at a future data, and matched sale-purchase agreements are just the opposite, the Fed selling with an agreement for future re-acquisition. Dynamic operations, like that of Jerome Powel in March of 2023 to raise interest rates, are when the fed wants to make a change in the market, in this instance to fight inflation.

	For an example of how this '''money creation''' might work, imagine a transaction between the Fed and Wells Fargo. Say the economy is slowing down and the Fed wants to gas it up, they might purchase 100 government securities from Wells Fargo. Wells Fargo will have less government securities (issued at the discretion of the Treasury), and Fed will have more. '''Under the federal reserve system, minimum reserves are set, and Banks are required to keep these reserves (RR) in an account at the Fed. So in return for the government issued securities, the Fed credits the account the Bank has with them. Just writes something on a line. This increases the Banks reserves, increasing the amount they can lend.''' In economese this increases the Monetary Base (and, necessarily, the Money Supply) by 100. If the bank chooses to keep it in currency rather than deposits, then reserves stay the same but the effect on the monetary base is the same. In the case of sales it is just the opposite and the money supply decreases.		For an example of how this '''money creation''' might work, imagine a transaction between the Fed and Wells Fargo. Say the economy is slowing down and the Fed wants to gas it up, they might purchase 100 government securities from Wells Fargo. Wells Fargo will have less government securities (issued at the discretion of the Treasury), and Fed will have more. '''Under the federal reserve system, minimum reserves are set, and Banks are required to keep these required reserves (RR) in an account at the Fed. So in return for the government issued securities, the Fed credits the account the Bank has with them. Just writes something on a line. This increases the Banks reserves, increasing the amount they can lend.''' In economese this increases the Monetary Base (and, necessarily, the Money Supply) by 100. If the bank chooses to keep it in currency rather than deposits, then reserves stay the same but the effect on the monetary base is the same. In the case of sales it is just the opposite and the money supply decreases.

	In the chart, purchases increase the amount of non-borrowed reserves, shifting the vertical portion of the supply curve right and thereby lowering the federal funds rate, leading to an increase in overall market liquidity. In the second, because the federal funds rate cannot fall below the interest rate paid on reserves, we hit the flat section and there is no effect on federal funds rate		In the chart, purchases increase the amount of non-borrowed reserves, shifting the vertical portion of the supply curve right and thereby lowering the federal funds rate, leading to an increase in overall market liquidity. In the second, because the federal funds rate cannot fall below the interest rate paid on reserves, we hit the flat section and there is no effect on federal funds rate

imported>All that is Solid: /* Open Market Operations (Supply) */ added an simple example to flesh out how money creation works in practice

2024-04-13T03:33:31Z

Open Market Operations (Supply): added an simple example to flesh out how money creation works in practice

← Older revision		Revision as of 03:33, 13 April 2024
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	First, and used more commonly than any other method since the 1980s, are '''Open Market Operations''' conducted by the New York Fed under the oversight of the Federal Open Market Committee. Primary dealers keep in contact through a dedicated desk at the NY Fed, and buy Governmental bonds from the fed using TRAPS (Trading Room Automated Processing System), a software used exclusively for these transactions. There are two types, defensive and dynamic. Defensive operations try to stabilize the market in response to some externality. For this reason, they are usually temporary measures like repo or matched sale-purchase agreements. Repo is when the fed buys securities with an understanding that they will be returned at a future data, and matched sale-purchase agreements are just the opposite, the Fed selling with an agreement for future re-acquisition. Dynamic operations, like that of Jerome Powel in March of 2023 to raise interest rates, are when the fed wants to make a change in the market, in this instance to fight inflation.		First, and used more commonly than any other method since the 1980s, are '''Open Market Operations''' conducted by the New York Fed under the oversight of the Federal Open Market Committee. Primary dealers keep in contact through a dedicated desk at the NY Fed, and buy Governmental bonds from the fed using TRAPS (Trading Room Automated Processing System), a software used exclusively for these transactions. There are two types, defensive and dynamic. Defensive operations try to stabilize the market in response to some externality. For this reason, they are usually temporary measures like repo or matched sale-purchase agreements. Repo is when the fed buys securities with an understanding that they will be returned at a future data, and matched sale-purchase agreements are just the opposite, the Fed selling with an agreement for future re-acquisition. Dynamic operations, like that of Jerome Powel in March of 2023 to raise interest rates, are when the fed wants to make a change in the market, in this instance to fight inflation.

	~~Purchases~~ increase the amount of non-borrowed reserves, shifting the vertical portion of the supply curve right and thereby lowering the federal funds rate, leading to an increase in overall market liquidity. In the second, because the federal funds rate cannot fall below the interest rate paid on reserves, we hit the flat section and there is no effect on federal funds rate		For an example of how this '''money creation''' might work, imagine a transaction between the Fed and Wells Fargo. Say the economy is slowing down and the Fed wants to gas it up, they might purchase 100 government securities from Wells Fargo. Wells Fargo will have less government securities (issued at the discretion of the Treasury), and Fed will have more. '''Under the federal reserve system, minimum reserves are set, and Banks are required to keep these reserves (RR) in an account at the Fed. So in return for the government issued securities, the Fed credits the account the Bank has with them. Just writes something on a line. This increases the Banks reserves, increasing the amount they can lend.''' In economese this increases the Monetary Base (and, necessarily, the Money Supply) by 100. If the bank chooses to keep it in currency rather than deposits, then reserves stay the same but the effect on the monetary base is the same. In the case of sales it is just the opposite and the money supply decreases.

			In the chart, purchases increase the amount of non-borrowed reserves, shifting the vertical portion of the supply curve right and thereby lowering the federal funds rate, leading to an increase in overall market liquidity. In the second, because the federal funds rate cannot fall below the interest rate paid on reserves, we hit the flat section and there is no effect on federal funds rate

	==== Discount Rate (Supply) ====		==== Discount Rate (Supply) ====
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	==== Extraordinary Measures (2008) ====		==== Extraordinary Measures (2008) ====
	Above are the conventional methods of monetary policy. In some circumstances, they become insufficient. In particular, there is what is known as the '''Zero-Lower Bound Problem'''. Interest rates, for obvious reasons, cannot be negative, so as they approach zero there comes a point where nothing further can be done. If the economy is still unresponsive, the Fed can, as it did in 2008, take extraordinary measures. One method was to '''extend the term of discount loans''', giving banks longer to pay them back. Another was the '''Term Auction Facility''', through which the Fed extended 3.8 trillion in collateralized loans at rates below the discount rate. The auctions were administered by the New York Fed though loans were offered through all twelve of the Federal Reserve Banks. At the same time, the Fed also began to make '''large scale purchases of toxic assets'''.		Above are the conventional methods of monetary policy. In some circumstances, they become insufficient. In particular, there is what is known as the '''Zero-Lower Bound Problem'''. Interest rates, for obvious reasons, cannot (usually) be negative, so as they approach zero there comes a point where nothing further can be done. If the economy is still unresponsive, the Fed can, as it did in 2008, take extraordinary measures. One method was to '''extend the term of discount loans''', giving banks longer to pay them back. Another was the '''Term Auction Facility''', through which the Fed extended 3.8 trillion in collateralized loans at rates below the discount rate. The auctions were administered by the New York Fed though loans were offered through all twelve of the Federal Reserve Banks. At the same time, the Fed also began to make '''large scale purchases of toxic assets'''.
	<references />		<references />
	[[Category:Good Articles]]		[[Category:Good Articles]]

imported>All that is Solid: /* Discount Rate (Supply) */

2024-04-13T03:12:28Z

Discount Rate (Supply)

← Older revision		Revision as of 03:12, 13 April 2024
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	==== Discount Rate (Supply) ====		==== Discount Rate (Supply) ====
	[[File:DISCOUNT RATE.png\|thumb\|366x366px\|Discount Rate Diagram]]		[[File:DISCOUNT RATE.png\|thumb\|366x366px\|Discount Rate Diagram]]
	A second supply targeting method is to charge the discount rate. Banks can borrow from each other or from the Fed. If they borrow from each they they face the federal funds rate. If they borrow from the Fed they face the discount rate. Since 2003, Reserve Banks establish the primary credit rate at least every 14 days, subject to review and determination of the Board of Governors.		A second supply targeting method is to charge the discount rate. Banks can borrow from each other or from the Fed. If they borrow from each other they they face the federal funds rate. If they borrow from the Fed they face the '''discount rate.''' Since 2003, Reserve Banks establish the primary credit rate at least every 14 days, subject to review and determination of the Board of Governors.

	Federal Reserve Banks have three main lending programs for depository institutions — primary credit, secondary credit and seasonal credit. Primary credit is offered on a very short-term basis as a backup rather than a regular source of funding, and borrowers are not required to seek alternative sources of funds before requesting. Secondary credit is also short term and is offered to banks not eligible for primary credit. It is meant to get people back to normal market funding. Seasonal credit is available to relatively small depository institutions to meet regular seasonal funding needs.		Federal Reserve Banks have three main lending programs for depository institutions — primary credit, secondary credit and seasonal credit. Primary credit is offered on a very short-term basis as a backup rather than a regular source of funding, and borrowers are not required to seek alternative sources of funds before requesting. Secondary credit is also short term and is offered to banks not eligible for primary credit. It is meant to get people back to normal market funding. Seasonal credit is available to relatively small depository institutions to meet regular seasonal funding needs.

imported>All that is Solid: /* Morgan the Fixer */

2024-04-13T03:02:44Z

Morgan the Fixer

← Older revision		Revision as of 03:02, 13 April 2024
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	=== Morgan the Fixer ===		=== Morgan the Fixer ===
	Morgan had a reputation for fixing these kind of problems. Back in 1893 he had all but single-handedly diffused a similar crisis. In 1890 when the Barings bubble collapsed in Argentina, British capital fled the new world, spurred along by fears that the US government would begin experimenting with bimetallic currency.<ref>Chernow, Ron. ''The House of Morgan'', p 105</ref> In 1893, with US gold reserves evaporating, Grover Cleveland approached John Pierpont Morgan Sr. and August Belmont Jr., the American representative of the London Rothschilds.<ref>Spence, Richard B. ''Wall Street and the Russian Revolution: 1905-1925'', p42</ref> They offered him him $50 million at 3.75%, an outrageous rate which Cleveland declined. But on the night of February 7th Morgan and his coterie arrived at the white house; informed that they could not simply drop in on the President of the United States, Morgan replied “I have come down to see the president, and I am going to stay here until I see him,” and there he waited, playing solitaire through the night.<ref>Chernow, ''The House of Morgan,'' 109</ref> In the morning they were received, and Cleveland told them a public issue of bonds, as opposed to their private scheme, had been decided on. Morgan declared this impossible, and Cleveland asked for his alternative.<blockquote>Pierpont laid out an audacious scheme. The Morgan and Rothschild houses in New York and London would gather 3.5 million ounces of gold, at least half from Europe, in exchange for about $65 million worth of thirty-year gold bonds. He also promised that gold obtained by the government wouldn’t flow out again. This was the showstopper that mystified the financial world—'''a promise to rig, temporarily, the gold market''' .... When the syndicate bonds were offered, on February 20, 1895, they sold out in two hours in London, in only twenty-two minutes in New York.<ref>Chernow, ''The House of Morgan,'' 110</ref></blockquote>So in 1907, when the sky was falling on top of New York finance, Morgan seemed the man to call. ~~Morgan~~ formed a team of young bankers loyal to him, including '''Henry P. Davison''' of First National Bank and '''Benjamin Strong''' of ~~his~~ own Bankers Trust. He sent these men to audit Knickerbocker's books, and found them wanting. Knickerbocker was allowed to fail October 22.<ref name=":2">Chernow, ''The House of Morgan.'' 166-67</ref>		Morgan had a reputation for fixing these kind of problems. Back in 1893 he had all but single-handedly diffused a similar crisis. In 1890 when the Barings bubble collapsed in Argentina, British capital fled the new world, spurred along by fears that the US government would begin experimenting with bimetallic currency.<ref>Chernow, Ron. ''The House of Morgan'', p 105</ref> In 1893, with US gold reserves evaporating, Grover Cleveland approached John Pierpont Morgan Sr. and August Belmont Jr., the American representative of the London Rothschilds.<ref>Spence, Richard B. ''Wall Street and the Russian Revolution: 1905-1925'', p42</ref> They offered him him $50 million at 3.75%, an outrageous rate which Cleveland declined. But on the night of February 7th Morgan and his coterie arrived at the white house; informed that they could not simply drop in on the President of the United States, Morgan replied “I have come down to see the president, and I am going to stay here until I see him,” and there he waited, playing solitaire through the night.<ref>Chernow, ''The House of Morgan,'' 109</ref> In the morning they were received, and Cleveland told them a public issue of bonds, as opposed to their private scheme, had been decided on. Morgan declared this impossible, and Cleveland asked for his alternative.<blockquote>Pierpont laid out an audacious scheme. The Morgan and Rothschild houses in New York and London would gather 3.5 million ounces of gold, at least half from Europe, in exchange for about $65 million worth of thirty-year gold bonds. He also promised that gold obtained by the government wouldn’t flow out again. This was the showstopper that mystified the financial world—'''a promise to rig, temporarily, the gold market''' .... When the syndicate bonds were offered, on February 20, 1895, they sold out in two hours in London, in only twenty-two minutes in New York.<ref>Chernow, ''The House of Morgan,'' 110</ref></blockquote>So in 1907, when the sky was falling on top of New York finance, Morgan seemed the man to call. He formed a team of young bankers loyal to him, including '''Henry P. Davison''' of First National Bank and '''Benjamin Strong''' of Morgan's own Bankers Trust. He sent these men to audit Knickerbocker's books, and found them wanting. Knickerbocker was allowed to fail October 22.<ref name=":2">Chernow, ''The House of Morgan.'' 166-67</ref>

	At this point, even Morgan felt himself out of his depth, and he sought government assistance. Already, back in September, with crisis all but inevitable, Morgan had appealed directly to Theodore Roosevelt. At that time, the Treasury shifted millions of dollars to commercial bank deposits around the nation and tried to limit government withdrawals. Now, October 23, Morgan and other bankers met at a Manhattan hotel with Treasury Secretary George B. Cortel, and the following day Cortel put $25 million in government funds at Pierpont’s disposal.<ref name=":2" /> Through the rest of October and into November Morgan affected a series of last minute miracles, saving the New York Stock Exchange, a number of trusts, and New York City itself. By November, the Treasury was again intervening, issuing "$150 million in low-interest bonds and certificates and permitted the banks to use the government securities as collateral for creating new currency — an expedient device for pumping up the money supply in a hurry."<ref>Greider, William. ''Secrets of the Temple: How the Federal Reserve Runs the Country''. Simon and Schuster, 1989. p278</ref> Effectively, the alliance between Morgan and the US treasury was attempting to act as a central bank by providing emergency liquidity.		At this point, even Morgan felt himself out of his depth, and he sought government assistance. Already, back in September, with crisis all but inevitable, Morgan had appealed directly to Theodore Roosevelt. At that time, the Treasury shifted millions of dollars to commercial bank deposits around the nation and tried to limit government withdrawals. Now, October 23, Morgan and other bankers met at a Manhattan hotel with Treasury Secretary George B. Cortel, and the following day Cortel put $25 million in government funds at Pierpont’s disposal.<ref name=":2" /> Through the rest of October and into November Morgan affected a series of last minute miracles, saving the New York Stock Exchange, a number of trusts, and New York City itself. By November, the Treasury was again intervening, issuing "$150 million in low-interest bonds and certificates and permitted the banks to use the government securities as collateral for creating new currency — an expedient device for pumping up the money supply in a hurry."<ref>Greider, William. ''Secrets of the Temple: How the Federal Reserve Runs the Country''. Simon and Schuster, 1989. p278</ref> Effectively, the alliance between Morgan and the US treasury was attempting to act as a central bank by providing emergency liquidity.

imported>All that is Solid: /* Morgan the Fixer */

2024-04-13T03:01:59Z

Morgan the Fixer

← Older revision		Revision as of 03:01, 13 April 2024
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	=== Morgan the Fixer ===		=== Morgan the Fixer ===
	Morgan had a reputation for fixing these kind of problems. Back in 1893 he had all but single-handedly diffused a similar crisis. In 1890 when the Barings bubble collapsed in Argentina, British capital fled the new world, spurred along by fears that the US government would begin experimenting with bimetallic currency.<ref>Chernow, Ron. ''The House of Morgan'', p 105</ref> In 1893, with US gold reserves evaporating, Grover Cleveland approached John Pierpont Morgan Sr. and August Belmont Jr., the American representative of the London Rothschilds.<ref>Spence, Richard B. ''Wall Street and the Russian Revolution: 1905-1925'', p42</ref> They offered him him $50 million at 3.75%, an outrageous rate which Cleveland declined. But on the night of February 7th Morgan and his coterie arrived at the white house; informed that they could not simply drop in on the President of the United States, Morgan replied “I have come down to see the president, and I am going to stay here until I see him,” and there he waited, playing solitaire through the night.<ref>Chernow, ''The House of Morgan,'' 109</ref> In the morning they were received, and Cleveland told them a public issue of bonds, as opposed to their private scheme, had been decided on. Morgan declared this impossible, and Cleveland asked for his alternative.<blockquote>Pierpont laid out an audacious scheme. The Morgan and Rothschild houses in New York and London would gather 3.5 million ounces of gold, at least half from Europe, in exchange for about $65 million worth of thirty-year gold bonds. He also promised that gold obtained by the government wouldn’t flow out again. This was the showstopper that mystified the financial ~~world—a~~ promise to rig, temporarily, the gold market .... When the syndicate bonds were offered, on February 20, 1895, they sold out in two hours in London, in only twenty-two minutes in New York.<ref>Chernow, ''The House of Morgan,'' 110</ref></blockquote>So in 1907, when the sky was falling on top of New York finance, Morgan seemed the man to call. Morgan formed a team of young bankers loyal to him, including '''Henry P. Davison''' of First National Bank and '''Benjamin Strong''' of his own Bankers Trust. He sent these men to audit Knickerbocker's books, and found them wanting. Knickerbocker was allowed to fail October 22.<ref name=":2">Chernow, ''The House of Morgan.'' 166-67</ref>		Morgan had a reputation for fixing these kind of problems. Back in 1893 he had all but single-handedly diffused a similar crisis. In 1890 when the Barings bubble collapsed in Argentina, British capital fled the new world, spurred along by fears that the US government would begin experimenting with bimetallic currency.<ref>Chernow, Ron. ''The House of Morgan'', p 105</ref> In 1893, with US gold reserves evaporating, Grover Cleveland approached John Pierpont Morgan Sr. and August Belmont Jr., the American representative of the London Rothschilds.<ref>Spence, Richard B. ''Wall Street and the Russian Revolution: 1905-1925'', p42</ref> They offered him him $50 million at 3.75%, an outrageous rate which Cleveland declined. But on the night of February 7th Morgan and his coterie arrived at the white house; informed that they could not simply drop in on the President of the United States, Morgan replied “I have come down to see the president, and I am going to stay here until I see him,” and there he waited, playing solitaire through the night.<ref>Chernow, ''The House of Morgan,'' 109</ref> In the morning they were received, and Cleveland told them a public issue of bonds, as opposed to their private scheme, had been decided on. Morgan declared this impossible, and Cleveland asked for his alternative.<blockquote>Pierpont laid out an audacious scheme. The Morgan and Rothschild houses in New York and London would gather 3.5 million ounces of gold, at least half from Europe, in exchange for about $65 million worth of thirty-year gold bonds. He also promised that gold obtained by the government wouldn’t flow out again. This was the showstopper that mystified the financial world—'''a promise to rig, temporarily, the gold market''' .... When the syndicate bonds were offered, on February 20, 1895, they sold out in two hours in London, in only twenty-two minutes in New York.<ref>Chernow, ''The House of Morgan,'' 110</ref></blockquote>So in 1907, when the sky was falling on top of New York finance, Morgan seemed the man to call. Morgan formed a team of young bankers loyal to him, including '''Henry P. Davison''' of First National Bank and '''Benjamin Strong''' of his own Bankers Trust. He sent these men to audit Knickerbocker's books, and found them wanting. Knickerbocker was allowed to fail October 22.<ref name=":2">Chernow, ''The House of Morgan.'' 166-67</ref>

	At this point, even Morgan felt himself out of his depth, and he sought government assistance. Already, back in September, with crisis all but inevitable, Morgan had appealed directly to Theodore Roosevelt. At that time, the Treasury shifted millions of dollars to commercial bank deposits around the nation and tried to limit government withdrawals. Now, October 23, Morgan and other bankers met at a Manhattan hotel with Treasury Secretary George B. Cortel, and the following day Cortel put $25 million in government funds at Pierpont’s disposal.<ref name=":2" /> Through the rest of October and into November Morgan affected a series of last minute miracles, saving the New York Stock Exchange, a number of trusts, and New York City itself. By November, the Treasury was again intervening, issuing "$150 million in low-interest bonds and certificates and permitted the banks to use the government securities as collateral for creating new currency — an expedient device for pumping up the money supply in a hurry."<ref>Greider, William. ''Secrets of the Temple: How the Federal Reserve Runs the Country''. Simon and Schuster, 1989. p278</ref> Effectively, the alliance between Morgan and the US treasury was attempting to act as a central bank by providing emergency liquidity.		At this point, even Morgan felt himself out of his depth, and he sought government assistance. Already, back in September, with crisis all but inevitable, Morgan had appealed directly to Theodore Roosevelt. At that time, the Treasury shifted millions of dollars to commercial bank deposits around the nation and tried to limit government withdrawals. Now, October 23, Morgan and other bankers met at a Manhattan hotel with Treasury Secretary George B. Cortel, and the following day Cortel put $25 million in government funds at Pierpont’s disposal.<ref name=":2" /> Through the rest of October and into November Morgan affected a series of last minute miracles, saving the New York Stock Exchange, a number of trusts, and New York City itself. By November, the Treasury was again intervening, issuing "$150 million in low-interest bonds and certificates and permitted the banks to use the government securities as collateral for creating new currency — an expedient device for pumping up the money supply in a hurry."<ref>Greider, William. ''Secrets of the Temple: How the Federal Reserve Runs the Country''. Simon and Schuster, 1989. p278</ref> Effectively, the alliance between Morgan and the US treasury was attempting to act as a central bank by providing emergency liquidity.

imported>All that is Solid: /* Necessity: the 1907 Crisis */

2024-04-13T02:59:58Z

Necessity: the 1907 Crisis

← Older revision		Revision as of 02:59, 13 April 2024
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	=== Necessity: the 1907 Crisis ===		=== Necessity: the 1907 Crisis ===
	Despite the grumblings of certain bankers, the question of currency/banking reform could wait so long as economic conditions allowed it to be ignored. After the 1907 Crisis, bankers ''as a class'' could no longer ignore it. As they so often do, the crash followed a period of feverish speculation. By the fall of 1906, this boom was beginning to drain English gold across the Atlantic, and the Bank of England took notice. As Frank Vanderlip reported to James Stillman, “The Bank of England is extremely nervous on the subject of gold exports.”<ref>Lowenstein, Roger. ''America’s Bank: The Epic Struggle to Create the Federal Reserve''. New York: Penguin Press, 2015. p 58</ref> Later that fall, the Bank of England dropped the hammer.<blockquote>London raised its interest rate from 3.5 percent to 6 percent. The Reichsbank in Berlin raised rates as well. Since international capital ever flows to where the yield is highest, these moves inevitably induced investors to ship their gold back across the Atlantic. The Bank of England further insulated the mother country from the overheated American economy by directing British banks to liquidate the finance bills—short-term loans—that they provided to American firms, thereby tightening credit.<ref>Lowenstein, Roger. ''America’s Bank: The Epic Struggle to Create the Federal Reserve''. New York: Penguin Press, 2015. p 59</ref></blockquote>When the Mercantile National Bank, along with a number of failing trusts, appealed to the Clearing House for aid, the Clearing House demanded the "immediate resignation of Messrs. Heinze, Morse, and Thomas from all their banking connections."<ref>Allen, F.L., G. Morgenson, and M.C. Miller. ''The Lords of Creation: The History of America’s 1 Percent''. Forbidden Bookshelf Series. Open Road Integrated Media, Incorporated, 2017. <nowiki>https://books.google.com/books?id=4fwnswEACAAJ</nowiki>. 111</ref> For days on end the newspapers blared the casualties of the Clearing House sterilization campaign. As the spectacle grew, the public began to balk, and a run on banks and banking trusts ~~was the result~~.		Despite the grumblings of certain bankers, the question of currency/banking reform could wait so long as economic conditions allowed it to be ignored. After the 1907 Crisis, bankers ''as a class'' could no longer ignore it. As they so often do, the crash followed a period of feverish speculation. By the fall of 1906, this boom was beginning to drain English gold across the Atlantic, and the Bank of England took notice. As Frank Vanderlip reported to James Stillman, “The Bank of England is extremely nervous on the subject of gold exports.”<ref>Lowenstein, Roger. ''America’s Bank: The Epic Struggle to Create the Federal Reserve''. New York: Penguin Press, 2015. p 58</ref> Later that fall, the Bank of England dropped the hammer.<blockquote>London raised its interest rate from 3.5 percent to 6 percent. The Reichsbank in Berlin raised rates as well. Since international capital ever flows to where the yield is highest, these moves inevitably induced investors to ship their gold back across the Atlantic. The Bank of England further insulated the mother country from the overheated American economy by directing British banks to liquidate the finance bills—short-term loans—that they provided to American firms, thereby tightening credit.<ref>Lowenstein, Roger. ''America’s Bank: The Epic Struggle to Create the Federal Reserve''. New York: Penguin Press, 2015. p 59</ref></blockquote>When the Mercantile National Bank, along with a number of failing trusts, appealed to the Clearing House for aid, the Clearing House demanded the "immediate resignation of Messrs. Heinze, Morse, and Thomas from all their banking connections."<ref>Allen, F.L., G. Morgenson, and M.C. Miller. ''The Lords of Creation: The History of America’s 1 Percent''. Forbidden Bookshelf Series. Open Road Integrated Media, Incorporated, 2017. <nowiki>https://books.google.com/books?id=4fwnswEACAAJ</nowiki>. 111</ref> For days on end the newspapers blared the casualties of the Clearing House sterilization campaign. As the spectacle grew, the public began to balk, and a run began on banks and banking trusts.

	Already, the American economy was headed toward crisis. More immediately, the crisis was caused by the failure of a bid to corner the copper market by F. Augustus Heinze of the United Copper Company in collaboration with his brother Otto and the notorious Charles W. Morse. Over mid-October an attempt was made to squeeze short sellers, but the attempt failed. Heinze and company were ruined.<blockquote>the damage done by these failures would probably have been limited had Heinze and his friends not been bankers as well as gamblers. Heinze was president of the Mercantile National Bank; Morse and Thomas were directors of it... depositors naturally became suspicious and began to withdraw their funds. Suspicion spread to the Morse chain of banks, too. The Mercantile, finding its cash being drained away by uneasy depositors, applied to the New York Clearing House for help.<ref>Allen, F.L., G. Morgenson, and M.C. Miller. ''The Lords of Creation: The History of America’s 1 Percent''. Forbidden Bookshelf Series. Open Road Integrated Media, Incorporated, 2017. <nowiki>https://books.google.com/books?id=4fwnswEACAAJ</nowiki>. p109</ref></blockquote>Because of the extreme degree to which the boards of these banks and trusts interlocked, the crisis was virulent. Morse was associated with Charles T. Barney of Knickerbocker Trust Company, who lent him money on occasion. One of the largest in New York, Knickerbocker Trust was targeted by the Clearing House, which demanded resignations. This, coupled with the National Bank of Commerce's refusal to any longer clear their checks, spelled destruction for the trust. On October 21st executives met in a popular restaurant to discuss the emergency. They resolved that only Morgan could save them, and called on him early the following morning.		Already, the American economy was headed toward crisis. More immediately, the crisis was caused by the failure of a bid to corner the copper market by F. Augustus Heinze of the United Copper Company in collaboration with his brother Otto and the notorious Charles W. Morse. Over mid-October an attempt was made to squeeze short sellers, but the attempt failed. Heinze and company were ruined.<blockquote>the damage done by these failures would probably have been limited had Heinze and his friends not been bankers as well as gamblers. Heinze was president of the Mercantile National Bank; Morse and Thomas were directors of it... depositors naturally became suspicious and began to withdraw their funds. Suspicion spread to the Morse chain of banks, too. The Mercantile, finding its cash being drained away by uneasy depositors, applied to the New York Clearing House for help.<ref>Allen, F.L., G. Morgenson, and M.C. Miller. ''The Lords of Creation: The History of America’s 1 Percent''. Forbidden Bookshelf Series. Open Road Integrated Media, Incorporated, 2017. <nowiki>https://books.google.com/books?id=4fwnswEACAAJ</nowiki>. p109</ref></blockquote>Because of the extreme degree to which the boards of these banks and trusts interlocked, the crisis was virulent. Morse was associated with Charles T. Barney of Knickerbocker Trust Company, who lent him money on occasion. One of the largest in New York, Knickerbocker Trust was targeted by the Clearing House, which demanded resignations. This, coupled with the National Bank of Commerce's refusal to any longer clear their checks, spelled destruction for the trust. On October 21st executives met in a popular restaurant to discuss the emergency. They resolved that only Morgan could save them, and called on him early the following morning.