Why the Fed’s Repo Operations Are Not More QE

Published on
February 28th, 2020
54 minutes

Why the Fed’s Repo Operations Are Not More QE

Danielle DiMartino Booth ·
Featuring Lacy Hunt

Published on: February 28th, 2020 • Duration: 54 minutes

Since the Federal Reserve began repurchase operations late last summer, many members of the media, market participants, and spectators alike have been up in arms over this recent round of Fed balance sheet expansion - calling it another round of QE. Lacy Hunt, chief economist at Hoisington Investment Management Co., tells Danielle DiMartino Booth of Quill Intelligence why the latest version of the Fed's monetary policy is not more quantitative easing. Hunt argues that, in fact, the Fed's repo operations are an effort to keep the banking system alive. He tells DiMartino Booth about the limits to Fed balance sheet expansion and answers the question, "Can the Federal Reserve Act be modernized?" Hunt explains his reasoning by tying together repo rates, yield curve inversion, and the impact that the law of diminishing returns has on the banking system, credit, and equity markets. Filmed on February 7, 2020 in Austin, Texas.



  • BN
    Benjamin N.
    10 June 2020 @ 21:55
    More Lacy!
  • TD
    Tej D.
    25 April 2020 @ 05:49
  • JM
    James M.
    11 April 2020 @ 12:35
    Legal actions allowed by the FED? The FED is an unconstitutional entity so by definition is illegal no?
  • DF
    Dominic F.
    8 March 2020 @ 07:37
    I think the Fed can't wait to go negative rates and ban cash. They'll use the virus to finish off cash altogether. I assume they think this will 'flush out' all the cash hoarded, increase the velocity of money and somehow restart the movement of money in the economy. I doubt it will work, but the storm is chasing them and they can't go back.
    • CM
      Christopher M.
      4 April 2020 @ 13:41
      If they go negative it will cause people to hoard cash.
  • DY
    Damian Y.
    22 March 2020 @ 02:54
    Lacey Hunt is one of the few people in finance who I have a lot of respect for. I don't really bother watching RV videos anymore but Lacey Hunt is one of the best in the industry. What has happened to Grant Williams? I haven't seen any of Grants videos for a while. I always enjoyed the interview that Grant did. Thanks Danielle for a great interview.
  • SS
    Sylvan S.
    8 March 2020 @ 19:39
    Does anybody know if Lacey makes his work available to the public. Where can I find it?
    • TJ
      Terry J.
      12 March 2020 @ 17:12
      Sylvan, you can find Lacy's regular insights in the comprehensive quarterly economic reviews posted on the Hoisington Investment Management website here, https://hoisingtonmgt.com/economic_overview.html
  • EO
    Eric O.
    12 March 2020 @ 15:26
    This a great conversation. Very educational on several topics: FED & REPO plumbing, bond market, Monetary theory, MMT, China's situation, debt productivity.
  • MT
    Mark T.
    10 March 2020 @ 20:11
    Is Max's sportcoat/suit jacket made out of sweatpants material?
  • IC
    Ibrahim C.
    2 March 2020 @ 03:26
    This is one of the fantastic Interviews I have ever watched in RVTV. --------------------------------------------------------------------------------------------------------------------------------------- However, as I do not find any other appropriate place to post my comment on the new level of membership tiers, I started putting it in here and I will do the same for the few at other interviews to share my views with RVTV community. I was one of them when RVTV had introduced its blockbuster commercials to sell their diverse and meaty content at 1000USD basis for 3 years. I was really liking the content and the whole wave of new videos in diverse aspects motivated me to pay this without any slightest doubt. It went on this way for a while until the mid 2019. However, if I jumped right to the latter date, the first downgrade of my membership by extending its renewal to 6 years would lose its meaning and was actually a sign which I should have understood, heralded this latest move at that time. As their Motto has changed to "Netflix of Finance" and "Free Financial information to Everyone". Then I noticed that the # of interviews, trade ideas, specific content have been noticeably reduced. Then Access happened and then the this new membership tiers. After more than 3 years, my package is now downgraded to the "Essential Tier" and haven taken out most of the significant content and this is how RVTV treats their customers with loyalty. I do not want to say anything but to leave it to you to consider what will happen next, when their hunger for money will also put them to new ways of Accesses, Tiers etc. Kudos to their marketing brains which few capitalist could make this happen! I am actually not surprised that there is no loyalty and fairness in this life, I am learning this by having this awesome examples. Thanks for being real and defending the Money instead of the People. Ibrahim
    • RS
      Ruben S.
      2 March 2020 @ 16:10
      agree 100%
    • JL
      James L.
      3 March 2020 @ 21:49
      totally agree 100%. i may not renew. such a slap in the face.
    • JL
      James L.
      3 March 2020 @ 21:49
      You better be reading this Raoul
    • JC
      Joe C.
      4 March 2020 @ 18:10
      Agree. I made that same long term commitment with the expectation that my level of access would not be reduced over the term of the commitment. And now I need to upgrade my account (for $300) to receive access to the monthly thematic deep-dives. Ultimately, I'm just a guy with a pretty low-level job outside the financial community who has learned a lot here over the years. RV is now cashing checks from big time financial institutions who want access for their entire workforce, so I'm sure my feelings carry little weight. But let's not kid around, RV used guys like me to fund the growth that is allowing them to cash those checks right now. Meanwhile, I can no longer afford a membership at the country club I was told I was a founding member of. RV has done important work giving a platform to countless individuals with a great deal of knowledge who otherwise would not have been heard over the past several years. But now that those voices have been heard and appreciated, they are being given wider access -- numerous free podcasts featuring those same voices are released on a weekly basis (and these are often released real-time, something you can't get on RV without surmounting the massive paywall). So that's the risk of the game they're playing: I won't be renewing my membership when it expires in 2023 -- cord cutting a la the cable industry. Anyways, again, RV will be fine without me. Raoul can disregard the above.
    • M.
      Milton .. | Founder
      4 March 2020 @ 19:23
      Folks, To some of you I've talked in private so I'll keep it short. The concept of tiered content produced or released by Real Vision has existed since 2016 when we first launched Publications which was meant to offer you a "little bit more" supported by research from contributors. Back then we had the same lineup of content on the TV platform as now, 4-5 videos a week, sometimes even less. The big problem for us was that marketing these platforms was a major pain. You, the members got bombarded by emails, we had to constantly do this because new members join everyday so who knows how many of them are serious about their investments and want actual research. Essential or TV as we used to know it is a great all around tier that offer you very high quality interviews for a small yearly price. Anyone who wants to upgrade should have the chance to do it without being pushed by us. If he or she finds value in the content then it's only fair that he pays a little more. So far, live talks have been more successful than reports so the decision to change Think Tank to Access is at least at this point, proving to be a good one. I'm sorry if you're not liking what you are seeing right now. I'd want everyone to give it some time as there will be improvements but the major update is that we finally have everything we produce in one place and this is extremely important for us so amazing reports and videos don't stay hidden. M
    • HM
      Hugh M.
      9 March 2020 @ 14:14
      @Ibrahim C. Agree with you 100%. Additionally, my subscription (now labelled 'Essential') which was $180 the last couple of years will now be $239 (33% increase) although there's a blanked out button (can't press it) to renew at $180. So what's the renewal fee for the degraded 'Essential' package which is up for renewal in May? In summary: is 'Essential' increasing by 33%?
  • YC
    Ywan C.
    9 March 2020 @ 12:20
    Dr Hunt is a titan when it comes to economics. However, I feel like he does not talk enough about the impact of the twin deficits - the Luke Gromen gambit that no one is more short of dollars than the US Government. What will that do to the picture he paints about the dollar and treasury rates when the sheer amount of debt the US Government needs to issue is so big, that they simply may not be able to find sufficient number of borrowers at very low rates. Rates will have to rise to find borrower or the Fed will have to implement QE4/5/6 etc..
  • PC
    Pinder C.
    9 March 2020 @ 01:19
    Great video, Lacey and Danielle bring a contrarian voice that bubble vision refuses to air.
  • GR
    Grant R.
    5 March 2020 @ 23:47
    Very good guest, and interviewer, didn't interrupt much, only stopped Lacy's thoughts once by 18:10.
  • EK
    Edward K.
    5 March 2020 @ 16:16
    Can we get a financial rapper named "Little M"?
  • TJ
    Terry J.
    4 March 2020 @ 16:40
    Danielle was spot on at the outset of this video when she introduced Lacy as a legend. Many others have been labelled bond kings by Wall Street commentators, but Lacy is the King for me as virtually every prediction he has made about the Treasury market and interest rates since I have been following him for than a decade has proved correct! The man is a genius and I could listen to his economic and market comments for hours! Thank you RV.
  • FC
    Fran C. | Contributor
    3 March 2020 @ 23:44
    I wish Lacey was our Fed Chairman
  • CT
    Crispim T.
    2 March 2020 @ 19:34
    It's beautiful to see Bitcoin (BTC) rise so much in only 11 years. Central banks and their shenanigans are doomed. The Fed are kings of theft - reckoning will come.
  • OC
    Otto C.
    2 March 2020 @ 18:05
    Fantastic interview!!! Real Vision subscription is worth every penny
  • JH
    Joseph H.
    2 March 2020 @ 17:56
    "Flailing about" but resolute in their commitment to keep flailing. Great interview.
  • VS
    Victor S. | Contributor
    2 March 2020 @ 16:40
    Lacy laws mean nothing _ the law of the land -the Constitution -article 1 section 10 says No state shall - “emit bills of credit”( THE FEDERAL GOVT CAN ONLY COIN $) . PAPER - this is a federal reserve note ie a fraud on the people to say the Fed is not the Govt or a State -it is for the purpose of the Reserve act of 1913. Its a lawyers scam on technicalities. And the velocity of M2 is declining because the Fed pay banks NOT TO LOAN MONEY.
  • CG
    Christopher G.
    1 March 2020 @ 14:21
    US10Y 1.156% Feb 28
    • CG
      Christopher G.
      1 March 2020 @ 14:22
      Real Rate -0.28%
    • DS
      David S.
      2 March 2020 @ 07:43
      I understand the reasons to discuss the "real rate net of CPI" but for me the only rate that is "real" is the nominal rate available. If I had billion to keep safe I would not be thinking about real rate after deducting CPI. I would park the money in the best prevailing rate I could find risk adjusted. The bond market does not care about my CPI. On a 20 year bond do you have any idea what your CPI will be year-by-year? DLS
  • TN
    Tim N.
    2 March 2020 @ 07:17
    What a fantastic interview. It's such a joy listening to an expert with a rich history of knowledge to draw illustrations. Thanks RV and DDB.
  • CK
    Curtis K.
    2 March 2020 @ 01:33
    What a terrible machine drives the gears of our world economy. If our financial engineers were designing real vehicles, they would consume more fuel, emit more toxins, and break down more with every new model year. Enjoyed this interview. The question I have is how to put strong dollars to lasting productive use (especially when you are already “comfortably” exposed to monetary metals)?
  • SP
    Steve P.
    1 March 2020 @ 22:47
    The market gives its actors credit for what they’re doing. Sums it up!
  • SS
    Shawn S.
    28 February 2020 @ 23:46
    Would love to have heard how he thinks we get out of this mess.
    • NI
      Nate I.
      1 March 2020 @ 04:05
      Or what the end game will be. Best trade in all of recorded history for anyone who can figure that one out.
    • mm
      michael m.
      1 March 2020 @ 22:41
      in other recent interviews, he has used the word "austerity" as a viable solution.
  • RA
    Robert A.
    1 March 2020 @ 19:56
    This was the best interview Danielle has ever done and probably the most difficult one for her as well (IMO) as she was much, much improved on her verbal “reactions” and picked her spots quite carefully to have Lacy focus on a few gems we all wanted to hear him speak to. Agree with all the wonderful comments about Lacy and his work over the years. Great curation Danielle and an almost perfect interview technique on this one—“less is more” ain’t easy, but you nailed it!
  • JQ
    James Q.
    28 February 2020 @ 10:23
    Great interview however it's not a fractional reserve banking system..
    • tr
      tom r.
      29 February 2020 @ 21:38
      Most of the Real Vision, now members, are investors looking for specific investments in detail. I heard nothing really beneficial in this interview between two very bright people. Half were facts and half opinions. Certainly nothing to get excited about.
    • DS
      David S.
      1 March 2020 @ 17:15
      Trades are not made in a vacuum. A trade could be considered an action within a narrative. This discussion gives you insight to the setting of the narrative. I know this sounds academic, but active traders are looking for any edge or insight to help them. DLS
  • BS
    Bevyn S.
    1 March 2020 @ 16:50
    Not sure if you look at these comments, but thank you for the knowledge & viewpoint Dr. Hunt! Very educational. Love seeing your big picture / framework. Also, anyone else loving this intro beat? Awesome choice Danielle.
  • GE
    Glenn E.
    1 March 2020 @ 13:49
    I am an engineer and have experience in nonlinear effects. Basically, nonlinear control systems are difficult to control they can lead to chotic systems. That is why one tries to work in a nartow pseudo linear mode. In structural applications nonlinear systems lead to buckling effects where a small increase in load will collaspe the building. As an engineer, i appreciate the analysis of the quess.
    • BS
      Bevyn S.
      1 March 2020 @ 16:33
      Engineer here too. Loved my controls course and remember seeing positive feedback loops in my labs w/ sensors & hardware. Non-linearity can be scary and destructive lol
  • CG
    Christopher G.
    1 March 2020 @ 14:05
    Real Rate on the US02Y is -0.44% as of Friday. US20Y is -0.0% as of Friday. Legality or not, negative rates are here.
  • DS
    David S.
    29 February 2020 @ 19:44
    I would like to hear Lacy interviewed every month.
    • PD
      Peter D.
      1 March 2020 @ 11:31
      Perhaps every quarter .... it would coincide with his outlooks, which he issues every three months....
  • CW
    Christopher W.
    1 March 2020 @ 04:50
    The Fed Chairman we all deserve and need
  • JH
    Jesse H.
    29 February 2020 @ 15:18
    Love Lacy Hunt and this was interesting along the way, but concerned that some of the economic models he is referencing and assuming as true are actually false and do not describe the economy accurately. Case in point - the whole mention of banks as “financial intermediaries,” which we now know that they aren’t...they create money when they loan it into existence, especially in the digital age we live in. This and many other examples bothered me here just because you cannot assess what is happening in the economy with incorrect mental / economic models.
    • JH
      Jesse H.
      29 February 2020 @ 15:21
      Economics really annoys me as an engineer because it is the only “science” where the top people in the field completely disagree on how things work. You don’t see this in Physics, Chem or Biology at all in my experience, though admittedly those are hard sciences. Human behaviour and the amorphous world of money creation and capital flows - onshore AND offshore - is MUCH shadier and more difficult to accurately understand. In fact, I’m not sure anyone does understand it. Jeff Snider likely comes closer than most of us.
    • JH
      Jesse H.
      29 February 2020 @ 15:35
      Greatly enjoyed the last 5 min. And absolutely - whether or not QE was necessary, it DEFINITELY exacerbated wealth and income inequality.
    • sm
      sam m.
      1 March 2020 @ 03:37
      It is true that money is loaned into existence but that is not how funding capacity is managed at an individual bank level. There is no guarantee that the funds will end up in an account of an different customer at that bank when the borrower spends the funds they were loaned. The individual bank will forecast what it thinks will happen to its deposit base but it will manage its funding capacity (deposits, bonds, equity) as if it is an intermediary of this funding capacity.
  • FB
    Floyd B.
    29 February 2020 @ 23:06
    Excellent interview,giving a perspective and opinion out of the mainstream. Note the importance of historical perspective,hard study and experience! Danielle your timing of questions,context and flow were exceptional.
  • WG
    Wade G.
    29 February 2020 @ 22:49
    I've learned more reading Lacy Hunt's quarterly updates than perhaps from any other source-- even thou they're short (thou dense) and limited in scope. Thanks RV and Danielle for a great interview. Please bring him back when u can.
  • OM
    Omar M.
    29 February 2020 @ 20:57
    Lacy Hunt, awesome as always. The REAL BOND KING :) Love his fund. Danielle did an awesome job as well Thx RV.... Pls have Lacy Hunt on more often
  • JE
    James E.
    29 February 2020 @ 20:55
    Always a joy to listen to Dr. Hunt.
  • ME
    Michael E.
    29 February 2020 @ 17:25
    Dr. Hunt is truly legend. Most economists change their view like Ben & his buddies. Mr. Hunt should get a Noble prize for his economic theories which it has been right on.
  • SS
    Sam S.
    29 February 2020 @ 15:59
    For myself, the first and best discussion regarding MMT----talk about manipulation of the world economy----blood in the streets-------any future political discussion by anyone in Congress to amend the Federal Reserve Act----get out and run for high ground. Blood in the streets.
  • RM
    Robert M.
    29 February 2020 @ 03:38
    You need to read the Hoisington Investment Letter released each quarter. Thanks to Lacey, I set up a position in long treasuries, against all the projections of the yield curve steepening, which proved extremely beneficial this week. Believe his call on on long term rates is correct.
    • JA
      John A.
      29 February 2020 @ 12:24
      Made the same move due to Lacy, David Rosenberg, and Raoul Pal. Best trade in my portfolio, and thanks to all 3 of them.
    • tc
      thomas c.
      29 February 2020 @ 15:34
      Me too. Big week. Been following Hoisington Newsletter for over 10 yrs and did hold the fund for a while. It outperforms all others. And he has been consistantly correct over that timespan.
  • RK
    Roger K.
    29 February 2020 @ 14:44
    Wealth of knowledge and wisdom. Pure gold! Thank you.
  • SG
    Sven G.
    29 February 2020 @ 12:03
    I had not heard of Mr Hunt before... was a pleasure learning from such an articulate gentleman. Very good interview by DDB :D
  • GC
    George C.
    28 February 2020 @ 13:46
    Always learn something from Dr. Hunt. What a gem. But there were about 5 questions I wish would have been asked that weren't. A bit frustrating.
    • DD
      Dylan D.
      29 February 2020 @ 06:04
      Perhaps ask them in the forum and someone will reply
  • mk
    michael k.
    29 February 2020 @ 03:58
    Great. Lacy gets it. Daniel too and did a great job. 112 today on the 10-year so question might already be answered at the end by next week
  • DN
    D N.
    29 February 2020 @ 02:31
    Great to have someone on who really understands banking flow channels. When he said 'I advised on 3 ALM committees' at the banks I knew the talk was gonna be very legit.
  • WW
    William W.
    28 February 2020 @ 23:46
    One of the best interviews I have seen. Sure wish Lacy was behind the wheel at the Fed.
  • VR
    Vladimir R.
    28 February 2020 @ 23:21
    Best interview so far this year.
  • BH
    Bin H.
    28 February 2020 @ 23:05
    Long time waiting
  • JG
    Jordan G.
    28 February 2020 @ 20:46
    This is one of the best talks I've seen yet. Thank you for the amazing pick.
  • WS
    William S.
    28 February 2020 @ 19:32
    More cowbell!
  • PB
    Pieter B.
    28 February 2020 @ 18:33
    Easily one of my favourite interviews on RV! Brilliant!
  • IA
    Ibrahim A.
    28 February 2020 @ 18:31
    Probably one of the very best guests / interviews RV has ever had 10/10
  • DS
    David S.
    28 February 2020 @ 18:20
  • JA
    John A.
    28 February 2020 @ 17:39
    Excellent video. Really good timing on releasing this video given what is going on right now.
  • SW
    Scott W.
    28 February 2020 @ 15:59
    16 cents above ten-year @ $1 and falling...
  • NR
    Nathan R.
    28 February 2020 @ 14:08
    This may be the most significant RV interview in the past 12 months. Bravo
  • CB
    Cliff B.
    28 February 2020 @ 12:18
    Danielle, Excellent interview with Lacy. Thank you so much.
  • PJ
    Peter J.
    28 February 2020 @ 11:27
    One of the best Thinkers around, great interview