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Treasury General Account: Difference between revisions
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If the debt issuance is not being supported by MMF and the reverse repo facility, a large percentage of the issuance will have to be supported by a drain of bank reserves. Some analyst suggest a rapid falling reserves level could potential be negative for risk assets and credit growth. | If the debt issuance is not being supported by MMF and the reverse repo facility, a large percentage of the issuance will have to be supported by a drain of bank reserves. Some analyst suggest a rapid falling reserves level could potential be negative for risk assets and credit growth. | ||
The problem from this scenario is that the FED has adopted an ample reserves framework <ref>https://www.newyorkfed.org/newsevents/speeches/2022/zob220908#:~:text=In%20this%20system%2C%20an%20ample,over%20short%2Dterm%20interest%20rates.&text=The%20Federal%20Reserve%20had%20been,during%20the%20Global%20Financial%20Crisis.</ref>, and has estimated that the level of reserves needed in an ample reserves regime is equivalent to the average level of reserves in December 2019 as a share of nominal GDP (NGDP), or 8 percent, about $2 trillion. <ref>https://www.newyorkfed.org/medialibrary/media/markets/omo/omo2021-pdf.pdf</ref> | The problem from this scenario is that the FED has adopted an ample reserves framework <ref>https://www.newyorkfed.org/newsevents/speeches/2022/zob220908#:~:text=In%20this%20system%2C%20an%20ample,over%20short%2Dterm%20interest%20rates.&text=The%20Federal%20Reserve%20had%20been,during%20the%20Global%20Financial%20Crisis.</ref>, and has estimated that the level of reserves needed in an ample reserves regime is equivalent to the average level of reserves in December 2019 as a share of nominal GDP (NGDP), or 8 percent, about $2.2 trillion. <ref>https://www.newyorkfed.org/medialibrary/media/markets/omo/omo2021-pdf.pdf</ref> | ||
This means that debt issuance coming from reserves, will likely drain all remaining excess reserves available, leaving the finantial system fragile. This situation combined with QT and deposit outflows that also drains bank reserves, would leave the banking very constrain a significant headwind for risk assest, credit creation and the economy. | This means that debt issuance coming from reserves, will likely drain all remaining excess reserves available, leaving the finantial system fragile. This situation combined with QT and deposit outflows that also drains bank reserves, would leave the banking very constrain a significant headwind for risk assest, credit creation and the economy. | ||