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Zhong Lu

Someone Explain to Me What's Going On

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(edited)

https://www.ft.com/content/71849166-e02d-11e9-b112-9624ec9edc59

Preferably in simple language.  Credit to Zerohedge to pique my interest in this topic.  

As I see it: banks don't want to do repo.  So repo needs to go to non-banks.  So if non-banks can't do it, then Fed has to do it.  But Fed can't do it too much because it'll screw up the Fed in other ways.  Right? 

Also, Zerohedge is making noise about corporate debt.  How big of a problem is it? 

Edited by Zhong Lu

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FT paywall...

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(edited)

Also, I'm telling you: money does grow on trees.  How else would you explain where all this money is coming from? 250 billion or something mentioned in the Zerohedge article.  From where? 

Edited by Zhong Lu

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30 minutes ago, Zhong Lu said:

Also, I'm telling you: money does grow on trees.  How else would you explain where all this money is coming from? 250 billion or something mentioned in the Zerohedge article.  From where? 

Quantative easing round 4?

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12 hours ago, Zhong Lu said:

Also, I'm telling you: money does grow on trees.  How else would you explain where all this money is coming from? 250 billion or something mentioned in the Zerohedge article.  From where? 

Actually, as far as banks are concerned, money Does grow on trees. 

Here's a simplified scenario. You deposit $1000 with a bank for a CD term of two years. As far as the bank is concerned that's Their money, not yours for those two years. You've heard of Basel III right? That determines how out of whack a bank gets to be on their capitalization ratio. In English that means the bank Only gets to borrow $20,000 because they've got your $1000 for two years as an "asset". They take $1000 they borrowed and buy Treasuries (this covers their ass), the other $19k they spend how they like, loaning to other institutions, credit card customers, you name it. 

You guessed it, they don't Really need to buy that Treasury Bill, they just need to "borrow" it for the 2year term. Rehypothecated. There's more, but I've got to run for a bit

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