kevin kirwin's Profile

In Abidjan, effectively the capital of the Cote d'Ivoire, or Ivory Coast, restaurants have stick- and gun-wielding guards who walk you the fifteen feet or so between your car and the entrance, giving you an eerie taste of what American cities might be like in the future.

... Even in quiet zones none of the governments except the Ivory Coast's maintains the schools, bridges, roads, and police forces in a manner necessary for functional sovereignty.

This week I’m begging your forbearance as we take a bit of a detour into the operational weeds of monetary policy. The geek factor is high, I know, but there truly have been some historic changes afoot over the past months.

To review, effective Nov. 6—as noted in Wednesday’s blog post—the Federal Reserve unwrapped a new approach to its daily operations in overnight interbank markets (in which the federal funds rate is determined). Rather than sending you scurrying down the page, here’s the deal in a nutshell:

1. The federal funds rate is the interest rate at which depository institutions borrow and lend to each other, on an overnight basis, balances (or reserves) deposited with the Fed.

2. The Fed—actually the folks who implement Open Market Operations at the Federal Reserve Bank of New York—manages the federal funds rate to an FOMC-set target by altering the total quantity of reserves available to the banking system.

3. In the old days (pre-October 6 when the Fed first began paying interest on reserves using a different interest-rate regime), these reserves paid no interest. Banks, as a consequence had every incentive to economize on their reserve balances. As a consequence of that fact, depository institutions would respond to an injection of reserves by trying to sell them off. That might work for one bank, but not the banking system as a whole, and in the end the banks would collectively have to be “persuaded” to hold the additional reserve balances. The persuading factor would, of course, be a lower federal funds rate.

4. In the new regime (post-November 6), banks can deposit reserve balances with the Federal Reserve, earning exactly the interest rate they would receive by taking those reserves and lending them out in the federal funds rate market. Beyond some point, then, an increase in reserves should have no impact on the federal funds rate, as banks should simply absorb any injection of reserves into the system. In other words, the Fed can ex

1,550 MW Economic Simplified Boiling Water Reactors (ESBWR) at Grand Gulf. The company however has not yet decided whether it will build the new reactor.

If the company decides to move forward with the new reactor, it could cost an estimated $6.2 billion (at an industry estimate of about $4,000 per kilowatt) and could enter service post 2017.

Reuters quote in story "One MW powers about 500 homes in Mississippi"