Tag Archives: Federal Reserve

“It’s About To Get Very Bad” – Repo Market Legend Predicts Market Crash In Days, by Tyler Durden

The nice thing about the headline prediction is that we’ll know fairly soon if it’s correct or not. From Tyler Durden at zerohedge.com:

For the past decade, the name of Zoltan Pozsar has been among the most admired and respected on Wall Street: not only did the Hungarian lay the groundwork for our current understanding of the deposit-free shadow banking system – which has the often opaque and painfully complex short-term dollar funding and repo markets – at its core…

… but he was also instrumental during his tenure at both the US Treasury and the New York Fed in laying the foundations of the modern repo market, orchestrating the response to the global financial crisis and the ensuing policy debate (as virtually nobody at the Fed knew more about repo at the time than Pozsar), serving as point person on market developments for Fed, Treasury and White House officials throughout the crisis (yes, Kashkari was just the figurehead); playing the key role in building the TALF to backstop the ABS market, and advising the former head of the Fed’s Markets Desk, Brian Sack, on just how the NY Fed should implement its various market interventions without disrupting and breaking the most important market of all: the multi-trillion repo market.

In short, when Pozsar speaks (or as the case may be, writes), people listen (and read).

Three Major Imbalances – Financial, Trust and Geopolitical, by Michael Krieger

Many things are out of whack and it’s only a matter of time before everything falls apart. From Michael Krieger at libertyblitzkrieg.com:

But greed is a bottomless pit
And our freedom’s a joke
We’re just taking a piss
And the whole world must watch the sad comic display
If you’re still free start running away
Cause we’re coming for you!

– Conor Oberst, “Land Locked Blues”

It’s hard to believe 2020 is just around the corner. If the last ten years have taught us anything, it’s the extent to which a vicious and corrupt oligarchy will go to further extend and entrench their economic and societal interests. Although the myriad desperate actions undertaken by the ruling class this past decade have managed to sustain the current paradigm a bit longer, it has not come without cost and major long-term consequence. Gigantic imbalances across multiple areas have been created and worsened, and the resolution of these in the years ahead (2020-2025) will shape the future for decades to come. I want to discuss three of them today, the financial system imbalance, the trust imbalance and the geopolitical imbalance.

Recent posts have focused on how what really matters in a crisis is not the event itself, but the response to it. The financial crisis of ten years ago is particularly instructive, as the entire institutional response to a widespread financial industry crime spree was to focus on saving a failed system and then pretending nothing happened. The public was given no time or space to debate whether the system needed saving; or more specifically, which parts needed saving, which parts needed wholesale restructuring and which parts should’ve been thrown into the dustbin. Rather, unelected central bankers stepped in with trillions in order to prop up, empower and reward the very industry and individuals that created the crisis to begin with. There was no real public debate, central bankers just did whatever they wanted. It was a moment so brazen and disturbing it shook many of us, including myself, out of a lifetime of propaganda induced deception.

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“The Fed Was Suddenly Facing Multiple LTCMs”: BIS Offers A Stunning Explanation Of What Really Happened On Repocalypse Day, by Tyler Durden

This is far and away the best article SLL has seen on the explanation behind the explosive move in the repo market that saw repo rates go from 2% to 10% in a matter of minutes on September 16, and has forced the Federal Reserve to essentially liquify the repo market. The repo market is where banks, hedge funds, and other institutions finance various instruments, putting up those instruments as collateral for loans for a set term by selling them and agreeing to repurchase the instruments at a higher price that embeds an interest rate. It’s a little known but incredibly important part of the financial markets. From Tyler Durden at zerohedge.com:

About a month ago, we first laid out how the sequence of liquidity-shrinking events that started about a year ago, and which starred the largest US commercial bank, JPMorgan, ultimately culminated with the mid-September repo explosion. Specifically we showed how JPM’s drain of liquidity via Money Markets and reserves parked at the Fed may have prompted the September repo crisis and subsequent launch of “Not QE” by the Fed in order to reduce its at risk capital and potentially lower its G-SIB charge – currently the highest of all major US banks.

Shortly thereafter, the FT was kind enough to provide confirmation that the biggest US bank had been quietly rotating out of cash, while repositioning its balance sheet in a major way, pushing more than $130bn of excess cash away from reserves in the process significantly tightening overall liquidity in the interbank market. We learned that the bulk of this money was allocated to long-dated bonds while cutting the amount of loans it holds, in what the FT dubbed was a “major shift in how the largest US bank by assets manages its enormous balance sheet.”

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The Fed’s Answer to the Ghastly Monster of its Creation, by MN Gordon

In politics and central banking, nothing succeeds like failure. The Fed’s answer for the problems its creating is more of the same, only bigger and better. From MN Gordon at economicprism.com:

The launch angle of the U.S. stock market over the past decade has been steep and relentless.  The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent.  New highs continue to be reached practically every day.

Over this stretch, many investors have been conditioned to believe the stock market only goes up.  That blindly pumping money into an S&P 500 ETF is the key to investment riches.  In good time, this conditioning will be recalibrated with a rude awakening.  You can count on it.

In the interim, the bull market may continue a bit longer…or it may not.  But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price.  A gamble that the launch angle furthers its steep trajectory.  Here’s why…

Over the past decade, the U.S. economy, as measured by nominal gross domestic product (GDP), has increased about 50 percent.  This plots a GDP launch angle that is underwhelming when compared to the S&P 500.  Corporate earnings have fallen far short of share prices.

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The Fed Detests Free Markets, by Raúl Ilargi Meijer

The Fed is head of the US banking cartel. The last thing it wants is free markets, especially in interest rates and banking risk. Interest rates are to be suppressed, and banking risk socialized. From Raúl Ilargi Meijer at theautomaticearth.com:

To be completely honest, I wrote -most of- the second part of this a while ago, and then I was thinking this first part should be part of the second, if you can still follow me. But it doesn’t really, it’s fine. I wanted to write something to address how little people know and acknowledge about how disastrous central bank policies have been for our societies and economies.

Because they don’t, and they have no clue, largely and simply because of the way central banks are presented both by themselves and by the financial press that covers them. Make that “covers”. Still, going forward, we will have no way to ignore the damage done. All the QE and ZIRP and NIRP will turn out to be so destructive for us all they will rival climate change or actual warfare. That’s what I wanted to talk about.

You see, free markets are a great idea in theory. Or you can call it “capitalism”, or combine the two and say “free market capitalism”. There’s very little wrong with it in theory. You have an enormous multitude of participants in an utterly complex web of transitions, too complex for the human mind to comprehend, and in the end that web figures out what values all sorts of things, and actions etc., have.

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What’s Been Normalized? Nothing Good or Positive, by Charles Hugh Smith

Many things that were considered abhorrent within the past few decades are now considered normal. From Charles Hugh Smith at oftwominds.com:

What’s been normalized are policies and cultural norms that seek to enrich and protect the few at the expense of the many.

When the initially extraordinary fades into the unremarkable background of everyday life, we say it’s been normalized. Put another way, we quickly habituateto new conditions, and rationalize our ready acceptance of what was previously unacceptable.

Technology offers many examples of extraordinary advances quickly becoming normalized as we habituate to new devices and behaviors, but my focus today is on policies and cultural norms that were radical departures from accepted norms at their introduction but which are now accepted as “normal.”

This normalization of extreme policies conceals the often equally extreme unintended consequences of the new policies and norms.

Let’s start with two examples which have unleashed unintended consequences that have completely distorted markets: allowing pharmaceutical companies to advertise directly to “consumers” and allowing corporations to buy back their own shares. Each of these activities had been banned for self-evident reasons, yet were allowed in the neoliberal rush to deregulate industries without regard for the long-term consequences.

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The Socialism of the Federal Reserve, by Jacob G. Hornberger

The Federal Reserve is the government’s main monetary super-planner. Whatever such an arrangement is called, it is not capitalism. From Jacob G. Hornberger at fff.org:

The Federal Reserve is the federal entity charged with determining the quantity of money in the American economy. To boost the economy, it expands the money supply. If the economy gets too “overheated,” it slows the rate of increase.

In other words, the Fed is the government’s monetary central planner. It plans the monetary affairs of hundreds of millions of people through monetary manipulation.

Central planning is a core principle of socialism. Central planning rejects the concept of economic liberty and free markets, which rely on the absence of government interference. Instead, it relies on a board of government officials who make economic decisions for hundreds of thousands or millions of people in a top-down, command-and-control manner.

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