Tag Archives: Federal Reserve

The Solvency Problem, by Doug Noland

Central banking—socialized credit—has blown up history’s biggest credit bubble, not capitalism. Now that the bubble is popping, its is crucial that the blame is correctly assigned. From Doug Noland at creditbubblebulletin.blogspot.com:

Being an analyst of Credit and Bubbles over the past few decades has come with its share of challenges. Greater challenges await. I expect to dedicate the rest of my life to defending Capitalism. One of the great tragedies from the failure of this multi-decade monetary experiment will be the loss of faith in free market Capitalism – along with our institutions more generally.

Somehow, we must convince younger generations that the culprit was unsound finance. And it’s absolutely fixable. Deeply flawed, experimental central banking was fundamental to dysfunctional markets and resulting deep financial and economic structural impairment. The Scourge of Inflationism. If we just start learning from mistakes, we can get this ship headed in the right direction.

Over the years, I’ve argued for “rules-based” central banking that would sharply limit the Federal Reserve’s role both in the markets and real economy. The flaw in “discretionary” central banking was identified generations ago: One mistake leads invariably to only bigger blunders.

Continue reading

Helicopter Money for Wall Street, by Wolf Richter

In case you were worried that Wall Street might catch the coronavirus, fear not. An insane amount of central bank balance sheet expansion is meant to keep Wall Street feeling chipper. Time will tell if it does so. From Wolf Richter at wolfstreet.com:

Fed’s assets spike to high heaven to bail out the imploded Everything Bubble it had worked so hard to inflate over the past decade.

Total assets on the Fed’s weekly balance sheet, released this afternoon, spiked by $586 billion in one week, to $5.25 trillion. This doesn’t even include yet the bulk of the mortgage-backed securities (MBS) the Fed bought over the past two weeks because the Fed books them when its trades settle, and MBS trades take a while to settle. So they will show up later.

Over the past two weeks, total assets have ballooned by $942 billion – again not including the bulk of the MBS it bought during that time, which will be booked when they settle. Money creation at its finest:

If the Fed had sent that $942 billion it created over the past two weeks to the 130 million households in the US, each household would have received $7,250. But that didn’t happen. That was helicopter money for Wall Street.

Continue reading

Confirmed: Fed Bailed Out Hedge Funds Facing Basis Trade Disaster, by Tyler Durden

What would a financial crisis be without bailouts for a lot of scummy types who don’t deserve it? From Tyler Durden at zerohedge.com:

Back in December, when the world was still confused about what exactly happened before (and after) the September repocalypse – which has since exploded thousand-fold resulting in the Fed now doing daily $1 Trillion repo operations – we said that in addition to the implicit bailout of JPM (which we described here first, and subsequently others), by restarting its repo operations the Fed was also bailing out dozens of hedge funds engaging in highly levered trades involving a relative value compression trade in the Treasury cash/swap basis… almost identical to what LTCM was doing ahead of its 1998 bailout, which is also why we titled the article “The Fed Was Suddenly Facing Multiple LTCMs.”

In a nutshell, the article explained why and how the return of the Fed’s repo ops was nothing more than the Fed preemptively bailing out all those hedge funds that would have imploded had basis trades gone haywire. Below is a key excerpt from that post:

One increasingly popular hedge fund strategy involves buying US Treasuries while selling equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or difference in price between the two. While on its own this trade is not very profitable, given the close relationship in price between the two sides of the trade. But as LTCM knows too well, that’s what leverage is for. Lots and lots and lots of leverage.

We also said that “hedge funds such as Millennium, Citadel and Point 72 are not only active in the repo market, they are also the most heavily leveraged multi-strat funds in the world, taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They achieve said leverage using repo.”

Continue reading→

The Coronavirus, Fear, and Elitist Driven Market Insanity, by William Murray

The insanity attendant on the coronavirus will kill far more than the coronavirus will. From William Murray at ronpaulinstitute.org:

undefinedFear is contagious: Fear is more contagious than any virus could ever be, and the media has really fed the fear factor when it comes to the coronavirus.

I am by no means playing down the deadly Covid-19 coronavirus. It is a killer. Depending on the reporting nation, it appears that on average 3.4 percent of every 100 who catch the coronavirus die. Those are not good odds.

Adding to the problem, the Center for Disease Control allowed the virus to spread in the United States out of an act of pure stupidity. The CDC refused to allow testing of those with coronavirus symptoms unless they had visited certain areas of China. And what about those who were exposed at airports, restaurants and stores? People died of the coronavirus in the United States before the CDC diagnosed a single case.

Because most of those infected are asymptomatic the scope of the spread of Covid-19 could only have been accurately measured by random testing. But months after the first actual warning from China there were not even enough test kits produced in the United States to test those with symptoms. Random testing still is impossible. Even citizens returning from hotspots in the first half of March were not tested at airports.

Continue reading

Things Have Changed, by James Howard Kunstler

The coronavirus, and more pertinently governments’ response to it and the financial collateral damage, may change things permanently. Eventually something good might come of it, but things are going to be rocky for awhile. From James Howard Kunstler at kunstler.com:

At least in wartime, the bars stay open. That’s how you know this is a different thing altogether from whatever else you’ve seen in your lifetime. Even those of us who signed up for this trip — that is, who expected a long emergency — may be a little bit in cosmic awe at just how much shit is flying into the ol’ fan. I know I am. The gods must have glugged down a mighty draft of Dulcolax.

Did you get the feeling, as I did, watching the Sanders-Biden debate last night — the inadequate versus the irrelevant — that the world they were blathering about possibly doesn’t exist anymore? The world of institutions that actually function? Like, the ones that conjure up whatever sum of money you demand to keep all the wheels spinning? Remember that Hemingway line about the guy who went broke? Slowly, then all at once. That’s us. Medicare for all now? Really? More like, a year from now every physician in America may be the equivalent of the old country doc toting a black bag around to home visits. Unfortunately, there aren’t enough horses left in America, and the few buggies we’ve got are all in the museum.

Continue reading

Nothing to Fear But Fear Itself, by Jim Quinn

The Fourth Turning is going into exponential hyperdrive. From Jim Quinn at theburningplatform.com:

“So, first of all, let me assert my firm belief that the only thing we have to fear is…fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and of vigor has met with that understanding and support of the people themselves which is essential to victory. And I am convinced that you will again give that support to leadership in these critical days.”- Franklin D. RooseveltMarch 4, 1933

Franklin D. Roosevelt spoke these words during his first inauguration at the depths of the Great Depression in 1933. The narrative taught in government schools is how FDR’s words invigorated the nation and inspired the people to show courage in the face of adversity. His terminology was that of a general leading his troops into battle.

What is not taught in government schools or proclaimed by the propaganda spewing fake news media were the dictatorial type actions taken by FDR over the next month after his “inspirational” speech. He was the first Democrat president to not let a crisis go to waste. The day after his inauguration, Roosevelt assembled a special session of Congress to declare a four-day bank holiday, and on March 9 signed the Emergency Banking Act.

Continue reading→

Anyone with courage and clear thinking will do extremely well, by Simon Black

“If you can keep your head when all about you Are losing theirs and blaming it on you” (Rudyard Kipling, If) then you stand a good chance of coming out ahead over the long haul. From Simon Black at sovereignman.com:

The year 1348, in the words of historian A.L. Maycock, was the closest that humanity ever came to going extinct.

That was the year the Black Death descended on the European continent. And many historians today estimate that it killed as much as 60% of Europe’s population.

Italy was hit especially hard by the plague. Port cities like Venice were accustomed to receiving ships from all over the world, and many of them carried the Yersina pestis bacteria which caused the plague.

And it was out of this pandemic that the first modern public health measures emerged.

Venice created a special council to reduce the outbreak… and one of their first decrees was to ban infected (or suspected) ships from docking.

Plus, any traveler who arrived from a plague-infested area was required to isolate themselves for a period for 40 days, or quaranta journi in Italian. This is the origin of the word quarantine—it’s a reference to the 40-day isolation period during Bubonic Plague.

Even when the worst was over, though, the effects of the plague were disastrous.

Continue reading