Thread by @iamkoshiek

So many terms being thrown around here! SARB, IMF, QE, BBW *clears search history*.

Here's are cheat codes to the most burning questions [THREAD]

1. Why don’t we print money? The US is printing money!

La Casa de Papel (Money Heist for the unrefined) has created this monster. There’s nobody with a machine printing bank notes.

What they are doing is stimulating the economy by increasing liquidity.

2. How do you increase liquidity?

The government is a broke boi so they issue loans (treasuries) to the market. The Federal Reserve (“Fed”) is the central bank of the US (not a restaurant).

The Fed gives banks cash in exchange for buying these treasuries. It’s an “asset swap”

3. How does it trickle down and stimulate the economy?

Money supply starts to increase once banks lend out this cash.

QE works best when interest rates are close to zero. Why? Banks are incentivized to extend more loans to make more money because interest rates are so low

4. What if banks can’t let out the money?

You’re fucked. Can happen when banks don’t have enough capital

It’s unlikely since large corporates are vampires that suck on every bit of liquidity during a crisis. So they will usually draw down on short term and revolving facilities

5. What does the Fed do with all those treasuries it bought?

It sits on their balance sheet. This balance sheet balloons faster than someone on “My 600lb Life”.

The Fed balance sheet is expected to reach $9tn by the end of the year.

6. Wait, that’s an explosion waiting to happen?!

100%, yes.

It becomes a nightmare to unwind. The Bank of Japan is holding over 100% of its entire GDP on its balance sheet. Here's a chart from @FT showing how bloated central bank balance sheets are.

7. Is the SARB doing something similar to the Fed?

Yes, they are. The SARB is buying back treasuries with the intention of providing liquidity.

(This GIF accurately shows what SARB stimulus looks like compared to Fed stimulus)

8. Can you simply print money and NOT purchase treasuries?

You could, if you wanted an apocalypse. You’re going from exchanging cash for assets to exchanging cash for nothing. Basically, this will devalue the currency below the last season of Game of Thrones. Worthless!!

9. Instead of the IMF loan, why don’t we just sell off SAA, Eskom and Denel?

The IMF loan is at near zero interest (there could be some minor facilitation and admin costs). The one benefit is the increased scrutiny. The SA government have repeatedly lost credibility.

10. Let's sell off SAA and make some cash

You’re really not going to get much for SOEs, probably worth less than a barrel of May WTI oil.

Weren’t those were negative?

Exactly…

11. Why is inflation different between SARB stimulus and a R500bn IMF loan?

Firstly, the IMF loan is not R500bn (it’s closer to R80bn). The issue isn’t “hyperinflation” since inflation right now is at 4.1%. The IMF loan works MUCH better since it’s a capital direct injection.

12. Why is IMF better and quicker?

Relying entirely on a treasury repurchase programme and buying up bonds in a market with thin volumes... and then still waiting months for it to reach the man on the street is a poor game plan.

The IMF loan would also be cheaper.

13. How else can we get money quickly into the system?

One reason Uncle Cyril opted for child support grants – is it’s the quickest way to get money to people.

Right now people need cash, pushing out tax liabilities, giving payment holidays on mortgages - all of it helps.

14. Make Finance Great Again #MFGA