2009-09-29blogspot.com

First and most simply because, as notorious criminal Willy Sutton once said, that is where the money is. And if it stays there, the Fed must find a way to affect it to drain liquidity while mitigating the effects of their actions on specific institutions and sectors of the financial system.

Secondly, there is a strong possibility that the Fed's initial attempts to drain will not only involve reverse repos, but also an increase in the interest rate which it pays on the excess reserves.



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