Why has quantitative easing not manifested itself in inflation fears and an expected inflation premium in interest rates?  Perhaps because the demand for investment capital can flow through other channels?
Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.
Something that cannot go on forever, won't. So what are the investors doing?
It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Buying assets with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.
Gosh, did anybody take a beating on oil the last couple years? And some public balance sheets would be useful: to what extent have governments sold off their capital assets?  But to a populist, none of that matters.
Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market.
Repeat with me: in every speculative trade there is a hedged side.  But don't let that get in the way of a good story.
The Fed’s quantitative easing contributes to this collateral pool by converting less-liquid mortgage-backed securities into cash in the banks’ reserve accounts. This cash is not something the banks can spend for their own proprietary trading, but they can invest it in “safe” securities – Treasuries and similar securities that are also the sort of collateral acceptable in the repo market. Using this repo collateral, the banks can then acquire the laundered cash with which they can invest or speculate for their own accounts.
The author suggests such trading is making capital available for large businesses and privatizations, but not for small businesses.  Question: if the profits to lending to small businesses are greater, will even the clubby world of Big Banks ignore the opportunity?

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