Short Rates Plunge, Fourth Turning, Meet the Djinn

Economic Reports:

• Retail Sales: -0.4% m/m [prior +3.1% m/m], contraction.
• Industrial Production: +0.0% m/m [prior +0.27% m/m], contraction
• CPI-Urban: +0.37% m/m [prior +0.51% m/m], inflation
• Producer Prices (Input): -0.47% m/m [prior +0.71% m/m], deflation.

In addition, Fed balance sheet climbed this week by $297 billion [+3.44% w/w].  “Money printing” is back.  Except: Wolf provides some interesting details (Source – WolfStreet) that describe which parts of the balance sheet increased:

• Discount Window: +160 billion
• BTFP: +12 billion
• Loans to FDIC: +142 billion

The brand-new BTFP program was billed as unlimited piles of free money for the Banksters: “Hey Fed, here is a stack of low-yielding 10-year bonds I just bought, which I picked up at a 25% discount.  Now gimme par.”  Fed says yes, but there’s a catch: the discounted bonds must have been purchased by said bankster before March 12, 2023, or else No Par For You.  By the numbers, BTFP isn’t playing a huge role in the bailout.  Mostly, the money is flowing from the Discount Window (which is the entire reason the Fed exists – so injured banks can hand over a book of good loans, and receive temporary cash in exchange, so they don’t die), as well as hopefully-temporary loans floated to FDIC to facilitate asset sales of the broken banks.  BTFP is just 4% of the total.

More technical detail: the Fed’s Discount Window lends money to cash-starved banks using the fair market value of the asset, usually with a 1-5% haircut (“the Discount”) subtracted out.  But for the current situation, the haircut has been eliminated.  So the Fed now effectively has a No-Discount Window.  But that’s still not “par” – at least as far as I can tell anyway – although I read different things in different places.  If you want more detail, see what the “Bank Policy Institute” has to say about the recent actions:  BPI.

As I said, it is pretty technical stuff.  Best I can figure – it’s just the Fed being the Fed, and the BTFP is helping, but only by a small amount – at least right now anyway.