Tag Archives: Federal Reserve

Federal Reserve’s Latest Bailouts More Proof Bad Times Ahead, by Ron Paul

The Fed’s bailout of the repo market looks ominous. From Ron Paul at ronpaulinstitute.org:

Since September 17, the Federal Reserve Bank of New York has pumped billions of dollars into the repurchasing (repo) market, the first such intervention since 2009. The Fed has announced that it will continue to inject as much as 75 billion dollars a day into the repo market until November 4.

The repo market provides a means for banks that are temporarily short of cash to obtain short-term (usually one day) loans from other banks. The Fed’s interventions were a response to a sudden cash shortage that caused interest rates for these short-term loans to climb to 10 percent, far above the Fed’s target rate.

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The Repo Market Incident May Be The Tip Of The Iceberg, by Daniel Lacalle

Unfortunately, Daniel Lacalle may be right. From Lacalle at dlacalle.com:

The Federal Reserve has injected $278 billion into the securities repurchase market for the first time. Numerous justifications have been provided to explain why this has happened and, more importantly, why it lasted for various days. The first explanation was quite simplistic: an unexpected tax payment. This made no sense. If there is ample liquidity and investors are happy to take financing positions at negative rates all over the world, the abrupt rise in repo rates would simply vanish in a few hours.

Let us start with definitions. The repo market is where borrowers seeking cash offer lenders collateral in the form of safe securities.  Repo rates are the interest rate paid to borrow cash in exchange for Treasuries for 24 hours.

Sudden bursts in the repo lending market are not unusual. What is unusual is that it takes days to normalize and even more unusual to see that the Federal Reserve needs to inject hundreds of billions in a few days to offset the unstoppable rise in short-term rates.

Because liquidity is ample, thirst for yield is enormous and financial players are financially more solvent than years ago, right? Wrong.

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The Illusion of Control, Part Two, by Robert Gore

The coming chaos

Part One

The US government has gone all in on taxation, redistribution, spending, expansion of its power, ever more intrusive laws and regulations, the increasing curtailment of liberty, debt funding, and debt-based “money” it and the Federal Reserve produce at will. The coercion and fraud implicit in these measures have been poisons on American political culture and are destroying the US economy and way of life.

Control, illusory or otherwise, requires resources. Government produces nothing, so the resources must be taken or borrowed. The economic grave it’s digging for itself is the greatest threat to the US government’s control. Taxation discourages production. Regulation throws sand in the economy’s gears and can stop it entirely. Steadily mounting debt and its consequent debt service exact an increasing toll. Most US debt funds consumption, which generates no offsetting return, not production, which potentially does.

Monetary flim-flam—the central bank using its created-at-will debt to buy the government’s created-at-will debt—is embraced in some particularly deluded quarters as a panacea, but it’s really a perpetual motion snare. Nothing is created or produced, so it’s tempting to say the central bank-government fiat debt exchanges have the same economic effect as two people exchanging twenty-dollar bills.

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The Fed Created The Everything Bubble And A Liquidity Crisis – What Happens Next? by Brandon Smith

The Federal Reserve’s emergency measures in the repo market don’t address the dollar liquidity crisis. From Smith at alt-market.com:

It’s an interesting dynamic that the Federal Reserve has conjured in the decade after the 2008 credit crash. They spent several years using artificial stimulus measures to inflate perhaps the largest financial bubble in the history of the US, and then a couple years ago something changed. They addicted markets and investors to easy cash only to then cut off the flow of monetary heroin. The system was so dependent on the Fed’s “China White” that all it took to give everyone the shakes was interest rate hikes to the neutral rate of inflation and a moderate balance sheet selloff. Now, the system is dying from shock and it’s too late for intravenous stimulus to save it.

For many this might seem unprecedented, but it’s really rather common. The Fed has a long history of inflating bubbles using easy liquidity and then imploding those bubbles with the tightening of credit. It also has a long history of pretending like it is trying to save the economy from crisis when it is actually the source of the crisis. As Congressman Charles Lindbergh Sr. warned after the panic of 1920:

“Under the Federal Reserve Act, panics are scientifically created; the present panic is the first scientifically created one, worked out as we figure a mathematical problem…”

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Repo Market Guru: “Whatever Changed Last Week Is Clearly Still A Problem” by Tyler Durden

There’s been a lot written about the repo market the last couple of weeks, much of it by people who don’t know what the repo market it. From Tyler Durden at zerohedge.com:

Last week around this time, most of the self-described repo experts on twitter and elsewhere were pounding the table, screaming to anyone who would listen that the unprecedented spike in overnight general collateral repo from 2.25% to 10% was a non-event, and reflects one-time items such as the mid-September tax remittance, the rapid build up of cash in the Treasury’s general account and a flurry of Treasury settlements.

Alas, as we warned, and as the NY Fed today confirmed, the sudden heart attack in the critical, overnight funding market has turned out to be anything but a one-time event. First, as we saw first thing this morning, the latest repo overnight repo operation was the most oversubscribed yet, with $91.95BN in securities tendered for $75BN in reserves, the most yet since the Fed resumed these “unclogging” operations after a decade plus hiatus.

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Wall Street’s Pitiful Bitch, by David Stockman

The Fed’s main mission has become the care and feeding of speculators so the stock market stays afloat. From David Stockman at lewrockwell.com:

It doesn’t get more pathetic than this. After the Fed’s “disappointing” 25 basis point rate cut, divided FOMC vote and failure to guarantee more cuts just around the corner, Pusillanimous Powell saw the markets barfing and therefore stumbled forth with the following 20-word ignition switch:

It is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought.”

And then the algos were off to the races the moment Powell implicitly confirmed that QE4 is indeed on the way. At exactly 2:50pm stocks spiked and the dollar slumped.

So there can no longer be any doubt at all that the Mighty Fed has been reduced to the status of Wall Street’s pitiful bitch and that the Donald might as well fire Chairman Powell and replace him with, well, a weathervane.

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David Stockman on the Coming Financial Panic and the 2020 Election

When the next financial crisis hits, there won’t be a central bank rescue. From David Stockman at internationalman.com:

International Man: We seem to be near the top of the “everything bubble.” Almost nothing is cheap… anywhere. What are your thoughts on where people should put their money for prudence and for profit?

David Stockman: I would recommend recognizing that the “everything bubble” is the most extreme, exaggerated, severe financial bubble in world history. It will inevitably collapse, and there will be massive losses, even greater than occurred in 2008 and 2001.

So, the first thing is to stay out of the casino. By that, I mean the financial-market stocks, bonds, and everything else.

These markets are so artificial. They’re just chasing what the central banks are doing. There’s no honest price discoveries or supply and demand; nobody’s discounting the future of economic growth, productivity, and investment. You’ve got the chart monkeys, 29-year-old day traders who are in charge of the market.

When the big correction comes, there are going to be massive losses, and the panic will be great. All correlations will go to 1—which means everything will fall: the good, the bad, and the indifferent.

There’s this old saying among traders that when the cops raid the house of ill repute, they carry out the good girls, the bad girls, and the piano player too. That’s essentially what’s going to happen.

You can’t be saved by picking high-yielding stocks or conservative blue chips or stocks that provide daily necessities like food—it doesn’t matter. Everything’s overpriced right now because of this huge financial distortion.

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