Quantitative tightening step-by-step
- tags
- Monetary systems
This is a follow-up on Quantitative Easing step-by-step.
The chain goes as follows:
- Investor wants to buy treasuries with deposit (swap)
- Bank settles payment (deposit -> reserve) with treasuries | reduces reserves and deposit liabilities
- Treasury issues new UST -> gets payment in reserve -> pays Fed for UST | nothing changes
- Fed extinguishes the reserves
- The Fed has no idea what the QT is actually doing, and has changed strategy several times before stopping
- The Fed had no idea how much reserve banks need
- Banks have too much reserve
- Fed stopped QT because Repo rate exploded (it has no idea why) and even restarted QE
TODO Why did repo rate explode in 2019 if banks have too much reserve?
- reserve may be non-uniformly spread out, so QT lead to a reserve crisis for small banks but not for larger ones.
- Pas assez de dette à horison < 1y
- JPM aurait fait exprès de ne pas sortir l'argent pour faire exploser le repo et le QT avec