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View Full Version : Discount Rate is obsolete, focus on Federal Reserve's newer weapons




socialize_me
11-24-2008, 08:56 PM
We're entering a new era folks and that means new goodies from the Federal Reserve! Many of us are still stuck on lower interest rates, how it creates inflation, etc., but I haven't heard or seen anyone bring up the newer weapons of the Federal Reserve (watch someone link me to a thread :P).

Anyway, the new focus should be on the Term Auction Facility. If you go to this website, you will see just how the Federal Reserve lends out on average $150 billion per week throughout the banking system. Here's the link:

http://www.federalreserve.gov/monetarypolicy/taf.htm

Through this tool, the obsession with the Discount Rate (or Discount Window) is overblown and obsolete. The Discount rate is 1.25% for the primary market, while 1.75% for the secondary market (1.30% for seasonal, and the Federal Funds Rate is fixed at 1.0%). However, the Term Auction Facility allows banks to place bids on the $150 billion the Federal Reserve makes available. They take the bids which include how much the banks need in loans, as well as the willingness to pay for the interest rates. The Federal Reserve then charges the lowest interest rate requested by either one of the banks and then charges the group of banks that same interest rate--usually it's around .54 or .6 percent--much less than the 1.25% discount rate which is why the discount window is basically obsolete.

Of course, the Federal Reserve has a minimum interest rate under the Term Auction Facility that no one knows precisely, but there's a good chance it's .54%. Banks then have no incentive to say they're willing to pay more than .54% for a loan of $20 billion.

The terms of these loans are structured primarily for 28 or 84 day loans---although I have seen some anomalies.

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The second tool the Federal Reserve uses now is the Commercial Paper Funding Facility (CPFF) which debuted on October 27, 2008 where the Federal Reserve gets involved in the commercial paper market to increase "liquidity" (or as we like to call it "inflation"...semantical mother fuckers). This is very similar to what it does already through Open Market Operations by buying and selling government securities on the bond market, but instead is used for private corporations. Full details are here http://www.newyorkfed.org/markets/cpff_faq.html

Hope this helped. I realize Americans are pissed about $700 billion of taxpayer dollars, but when the Federal Reserve loans $150 billion per week (Even though it's not taxpayer money) is rather tragic since we all pay for it in higher prices and diminished savings. End the Fucking Fed already!!!

socialize_me
11-24-2008, 09:05 PM
bump for anti-Federal Reservism ;)

socialize_me
11-24-2008, 09:41 PM
bump

Roxi
11-24-2008, 11:06 PM
http://www.ricesigns.com/real_pictures/bump_signs.jpg

socialize_me
11-24-2008, 11:39 PM
bump

sevin
11-24-2008, 11:45 PM
http://www.forumammo.com/cpg/albums/Upload/30.gif (http://www.forumammo.com/cpg/albums/Upload/30.gif)

socialize_me
11-25-2008, 08:43 AM
bump