@JoshCrumb's Threads
@roysebag @GreekFire23 @fleckcap Iâll deal w/international question 2nd, hard to manage twitter thread! ..yes push back is they can always sell bonds to pay IOER & fight inflation. But this seems illogical. How would they manage inflation expectations when credit &/or inflation risk pricing now dumped on mkt?
@roysebag @GreekFire23 @fleckcap A t-bond has either no credit risk (just print) or no inflation risk (expectations anchored), it canât lack both risk premiums together in an inflationary environment, only in a âdisinflationaryâ environment
@roysebag @GreekFire23 @fleckcap Thatâs why they should have reversed balance sheet when they âcouldâ (turns out they never could anyway). ..as for international q...remember energy & hard assets become an interesting piece of the puzzle here.
@roysebag @GreekFire23 @fleckcap When bidding duration assets out of market (t-bond, mortgage) for new CB liability (cash), static net asset balance sheet doesnât change, but bank has more reserve liquidity & time pref. That delta is first shadow inflation (& remember its a dynamic system & that delta moves)..
@roysebag @GreekFire23 @fleckcap When âdonât fight Fedâ also reprices stock of duration risk lower (higher bond price), thatâs 2nd (dynamic) delta & wealth transfer, & a showdow inflation bomb palaces in the market. ..but the total net assets outside Fed donât change significantly (statically), & hope is..
@roysebag @GreekFire23 @fleckcap ..that new cash flows into new duration risk further down quality & therefore new risk in market employs labour at margin. Assuming Phillips curve works (has been bad assumption of late), inflation not significantly more than marginal labor as net asset change not significant..
