American Reality Check

rblong2us

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The only logical explanation I can come up with is that deflation is coming and the negative rate will climb in an attempt to outrun it .............

How this works when helicopter money is the next great idea, I cannot explain.
 

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◆ The ‘plumbing of the U.S. financial system’ is under pressure as liquidity dries up forcing New York Federal Reserve to provide massive liquidity and potentially they may be forced to move to permanent repo operations and renewed quantitative easing or QE

◆ The New York Fed appears to be set to do another $75 billion overnight repo operation today. It follows massive liquidity injections of the same size yesterday and on Wednesday, and $53.2 billion on Tuesday.

◆ The Fed is preparing a ‘temporary’ liquidity injection for a fourth straight day and there are concerns that increased signs of severe stress in the funding markets in the U.S. may force the Fed to permanently increase their reserves by electronically creating dollars in order to buy more U.S. Treasurys

◆ The Fed is deploying this ‘remedy’ for the first time in a decade, since the last global financial crisis and there are signs that we may be on the verge of another financial crisis centered on the U.S. financial and monetary system
...
https://news.goldcore.com/us/gold-b...uidity-and-potentially-permanent-repo-and-qe/
 

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Last Friday the Federal Reserve Bank of New York made it clear that its interventions in the overnight repo lending market were going to be a longer-term action. Call it what you will, the Fed has effectively returned to quantitative easing (QE) where it buys up Treasuries, Federal agency debt and agency mortgage-backed securities (MBS) from financial institutions in exchange for loans.

According to the New York Fed, the program has now been extended to at least October 10 and likely thereafter in one form or another. The Fed will be pumping in $75 billion daily in overnight repo loans while infusing $30 billion in 14-day term loans three times this week for a total of $90 billion in term loans.

The fact that there is one or more financial firms needing $30 billion on a two-week basis and can’t get it from anyone but the Fed isn’t confidence inspiring.
...
More: https://wallstreetonparade.com/2019...street-banks-from-lending-in-the-repo-market/
 

rblong2us

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at $75 billion a day the Fed is giving out a TRILLION dollars in 2 weeks

well it would be if they worked every day (-:

Does any of this money come back ?
ie is it just an overnight loan, so its the same $75 billion just getting a bit giddy ?
 

rblong2us

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ok possibly answering my question

from https://www.silverdoctors.com/headl..._campaign=Feed:+Silverdoctors+(SilverDoctors)

As one of my readers recently asked:

“The New York Fed said on Friday it would continue to offer to add at least $75 billion daily to the financial system through Oct. 10, prolonging its efforts to relieve pressure in money markets….Counting from today that’s 20 X 75B = 1.5 Trillion. Is this a form of QE? And would it avert the impending crash…?”

This is a common misconception about Fed overnight loans and repos. To put it in the simplest terms I am able – Repos are not generally cumulative long term purchases like QE is. Repos are usually OVERNIGHT LOANS that institutions like banks borrow from the Fed while offering collateral in return (secure financial assets).

Repos create TEMPORARY reserve balances, which are paid back and erased. Meaning, the Fed may offer Repos until October 10th, but this will not add $1.5 trillion to the Fed’s balance sheet. On the contrary, the Fed’s balance sheet will move relatively little as the Fed sells back the collateral it purchased, often with a haircut attached that feeds extra capital into the central bank.
So my question now is why do they only need to borrow funds overnight ?
As theres not much going on while the overnight borrowing is underway theres presumably less risk of something triggering than during the day ....
And presumably the requirement to borrow overnight is to cover a position that was created in the daytime .......... :shrug:
 
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pmbug

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Yeah, I'm not a banker, so I'm not sure about the details here. From what I've been reading, I've learned that overnight repo loans are essentially 24 hour loans used to raise short term capital (The Fed is essentially acting as a pawnbroker). Are these loans being paid back in 24 hours, or just rolled over day after day (I'm guessing this is more likely)? These things are opaque to me.
 

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Another perspective on the repo deal:
... this week, banks in aggregate abruptly needed cash buffers that are much bigger than they needed last week. ... But this week, the parties who had cash were not willing to earn a risk-free profit.

Wait. The market offers a risk-free profit, and no one is taking it? Where have we discussed this before? Oh, yeah. It is when gold backwardation becomes permanent!

The equivalent of gold backwardation has occurred in the repo market. ...
...
We can think of two reasons why banks needed to swap Treasurys for cash. Last week, there was a greater amount of Treasury bond issuance. Unlike in a transaction between banks, when a bank pays cash to the US Treasury to buy a bond, the cash goes out of the banking system until Treasury spends it with a lag. So when net Treasury bond issuance is rising, there is a net drain of liquidity from the banking system.

Also, of course the Treasury obviously cannot accept its old paper as payment for purchase of new paper! To do that would risk shining too much light on the shabby little secret of the monetary system. The Treasury bond is payable only in Federal Reserve Notes, which are backed only by Treasury paper, which is payable only…

The second reason is macroprudential regulation. Under most bank regulation, there is no difference between holding Federal Reserve liabilities and Treasury liabilities. If a bank has reserves on deposit at the Fed, or if it has short-term Treasury bills, its capital ratios are the same.

But as part of the sweeping regulations that were enacted in the wake of the 2008 crisis, there is one area where the two are not equivalent. Banks deemed too big to fail are required to have a plan of how they could be wound down in a crisis. For purposes of this wind-down process, they need to have cash—Federal Reserve liabilities only. Treasurys will not do, because the assumption is that in a crisis there may not be an orderly market or a buyer. And the bank is required by regulation to be able to fund its needs for 30 days until it can be wound down or the Federal Kraken can slap another tentacle on whatever leaking hole is causing that particular crisis symptom.

The proximate cause of the crisis this week is that settling purchases of Treasurys drained cash. Banks assumed they could raise the cash in the repo market as they always had. But this measure of so-called resolution liquidity forces the banks who have cash not to lend it. Not even when a Treasury is offered in repo.

So the Fed jumped in, offering tens of billions of dollars in repo. We have read that there was more demand than the Fed expected—more bank stress.
...
More (recommended): https://monetary-metals.com/treasury-bond-backwardation-report-22-sep/
 

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...
the NY Fed reported that in the first overnight repo operation of the quarter, ..., dealers submitted a surprisingly high $54.85BN in collateral, all of which was accepted by the Fed.
...
The continued demand for reserves, even with $139BN in liquidity locked up in 2-week term repo which expire in the second week of October, suggests that the funding shortage is anything but a calendar event, and confirms that there is an acute reserve shortage,
...
https://www.zerohedge.com/markets/ny-fed-starts-new-quarter-unexpectedly-high-55bn-repo-operation
 

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pmbug

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From the video description:
According to the NY Fed daily Repo Madness daily data disclosures the Fed is taking in as "good collateral" sometimes more than $10 billion dollars per day in mortgage backed securities (MBS) while according to the St. Louis Fed (FRED) data, the Federal Reserve has unloaded $214.515 billion dollars of MBS in the last 12 months as it stated publicly that it was selling a capped amount of $20 billion dollars of MBS per month. So something does not add up! Can both be true? Or is one of both sources of data lying?

Official St. Louis Fed (FRED) data on total mortgage backed securities (MBS) that are on the Fed's balance sheet: https://fred.stlouisfed.org/series/WSHOMCB

New York Fed daily updates on Repo Madness and what the Fed is accepting as "good collateral" including billions per day (sometimes over $20 billion dollars per day) of MBS: https://apps.newyorkfed.org/markets...=TRUE&startDate=01/01/2000&enddate=01/01/2000

The discrepancy may be over 10 fold already! And Repo Madness is Far From Over!
...
 

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Well they didnt really tell us when they doled out $7t to pretty much every bank in the western world in '09 so why would they start telling us the full story now?

Yeah they have to have a cover story for money issuance cos its not possible to keep it hidden from those pesky fed watchers but theres no reason to tell anyone who might leak the data exactly how much is being issued ..........

Proof that MMT works ?

edit - or was it $29trillion .........

$29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient

There have been a number of estimates of the total amount of funding provided by the Federal Reserve to bail out the financial system. For example, Bloomberg recently claimed that the cumulative commitment by the Fed (this includes asset purchases plus lending) was $7.77 trillion. As part of the Ford Foundation project “A Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis,” Nicola Matthews and James Felkerson have undertaken an examination of the data on the Fed’s bailout of the financial system—the most comprehensive investigation of the raw data to date. This working paper is the first in a series that will report the results of this investigation.

The purpose of this paper is to provide a descriptive account of the Fed’s extraordinary response to the recent financial crisis. It begins with a brief summary of the methodology, then outlines the unconventional facilities and programs aimed at stabilizing the existing financial structure. The paper concludes with a summary of the scope and magnitude of the Fed’s crisis response. The bottom line: a Federal Reserve bailout commitment in excess of $29 trillion.
from a link in this article -
https://wallstreetonparade.com/2019...-ballooned-by-176-billion-since-september-11/
 
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pmbug

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Proof that MMT works ?
...
Hahaha...

Two issues there. One is that market actions can be driven by investor sentiment. The Fed essentially admitted some years ago that they know what they are gonna do before they meet and their meetings are more about crafting a message that will have the intended effect (ie. crafting propaganda to move the markets where they want the markets to go). To the extent that the market listens to the Fed, yes, effective obfuscation of unpleasant truths helps the music keep playing.

Second however is that people can't fight or mitigate tidal forces. You can blind people to issues, but math doesn't care if people are observing it or not. The Lehman moment of 2008 didn't happen because market watchers acted on Fed messaging. Eventually, the consequences of central bank malfeasance are going to manifest regardless of how duped market actors are.

I think we are seeing this (the second issue) play out now with the repo/POMO actions by the Fed. Trying to plug holes in the dam...
 

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JPMorgan Chase & Co. says the money-market stress that sent short-term borrowing rates surging last month is likely to get much worse despite the Federal Reserve’s attempts to inject billions of dollars into the financial system.
...
JPMorgan says it’s not convinced the Fed has resolved the issues in the funding markets, according to a note from analysts led by Joshua Younger in New York. ...
...
The overnight liquidity provided by the Fed goes directly to primary dealers, whereas those most in need of it are the non-primary dealers, the JPMorgan analysts wrote. The success of the program therefore depends on how much of the liquidity is passed along, but primary dealers are deterred from doing so by rules specifying how much capital they must hold to protect against losses.

Meanwhile, a preliminary analysis of balance sheets at the largest banks based on their third-quarter results suggests they may have to cut back on repo activity even more at year-end to avoid liquidity charges.
...
JPMorgan’s note follows similar warnings from Bank of America Merrill Lynch and Goldman Sachs Group Inc., who have also attributed September’s funding stresses to factors including post-financial crisis bank regulation. Even after the Fed’s latest moves to ease the log-jam in funding markets, “intermediation bottlenecks remain,” Goldman Sachs said.
...
https://www.bloomberg.com/news/arti...-money-market-stress-likely-to-get-much-worse

Just wow. The way I read that report, it seems JPM is:
  1. confirming that they are the big whale with the liquidity problem driving the bulk of the problem in the repo market
  2. arguing that the Fed is impotent to solve the problem and the rules on balance sheets need to change. The implication being that the banks can't handle compliance with current cash reserve requirements (scary if you think too hard about it).
Looks like Monetary Metals, quoted in post 228 above, got it right.
 

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So change the compliance rules or find ways to get the money to go where its needed.

If the problem is a lack of money and the Feds only tool is to print more of the stuff, then this has to be a fixable problem .......
 

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Not everyone remembers when George Soros 'broke the Bank of England'

https://theeconreview.com/2018/10/16/how-soros-broke-the-british-pound/

On September 16th 1992, George Soros made one of the most audacious trades in recent times when he bet an enormous sum of money against the British sterling. In the process, he pocketed over a billion dollars and brought the Bank of England to its knees. Making a billion dollars is by all means no small feat, but to destroy the monetary system of Great Britain in one single day is something else altogether.
As we see the emergency money issuance going up rapidly and still no real explanation, I found myself wondering if someone had set up a similar bet, albeit a while ago when the odds were greater but as we approach the critical date, the odds are moving in favour of whoever placed the bet and the control system is unable to negate the bet like they did with the Hunt bros when they cornered the silver market ......

The banks know what is likely and are forced to position themselves as the event causes a potential cascade of failure...... But they aint talking about it .........

Perhaps a massive short against DB or a Brexit outcome ( although the pols could easily fix this )

Any thoughts ?
 

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I'm sure someone somewhere is profiting from the stress in the system. Someone always does. I'm not so sure that present circumstances require a Soros 2.0 to tip the system over the edge. From everything I've been reading over the last 12+ years, monetary authorities have just been sticking fingers in the dike as holes open and the pressure continues to build. The issue of compounding debt can't be solved by can kicking forever. And it looks like we are running out of road to kick that can.
 

rblong2us

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The slow build up of pressure as an explanation ?

Not convinced, because the issuance of money and extremely cheap / free money will buy time, as long as confidence in the banking / monetary system remains.

The sudden need, without even calling a Fed meeting and massive QE clearly required, suggests to me that something over and above the BAU challenges is imminent.
 
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