# News & Current Events > Economy & Markets >  QE4 Started & Nobody Noticed

## r3volution 3.0

The Fed has printed $326 billion since September 11, 2019.



This amounts to a monthly increase of $108 billion. For comparison, QE3 at its height was 'only' $85 billion per month. 

There are two components to this new QE: repo operations (essentially lending against collateral, like the ECB does) and outright asset purchases (like the Fed did during previous QE rounds). Three months ago, the repo market blew up, with interest rates spiking to extraordinary highs. What exactly caused this is still unknown, but it indicates severe stress in the financial system (i.e. someone couldn't pay their debts). The Fed responded first by offering short term repos, then longer term repos, then it restarted the asset purchase program, promising to buy $60 billion per month through at least March 2020. Of course, this is in addition to the Fed lowering the funds rate several times last year, after they realized that this economy will implode if rates return to even a small fraction of what was once considered normal.

Had the Fed not taken these actions, we'd likely be a recession right now.

If they don't ease further in the near future, it's likely that we'll soon be in a recession.

What's really worrying, however, is not so much a recession, as the prospect of the Fed easing in perpetuity to prevent one.

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## Zippyjuan

On the other hand, compared to one year ago, Fed holdings have decreased by $20 billion. https://www.federalreserve.gov/monet...centtrends.htm

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## r3volution 3.0

> On the other hand, compared to one year ago, Fed holdings have decreased by $20 billion. https://www.federalreserve.gov/monet...centtrends.htm


Right, because they stopped tightening and started loosening...

I'm not sure what your point is.

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## r3volution 3.0

The event which caused the Fed to lose their minds and suddenly restart  QE was the breaking of the normal short term debt markets.

It started in repo markets, with something called asset backed commercial paper:



^^^not normal

The ABS market is about lending to lower quality borrowers against collateral. 

Someone needed money, and the guys with the money said "no thanks," even at 5x the normal rate. 

Why? Because the collateral being offered was highly questionable, to the point that lenders wouldn't take it at any price. 

This is EXACTLY the same thing that happened in 2007.

Back then, the assets backing the asset backed commercial paper market were, ultimately, subprime mortgages.

This time, we don't know what it is, but my guess is that it's very $#@!ty corporate junk bonds.

...which would include "investment grade" trash that the ratings agencies refuse to downgrade. 

After failing in the normal repo markets, whichever $#@!banks were involved desperately sought cash wherever they could get it:



This shows the federal funds rate (the rate at which US banks lend to one another) exceeding the Fed's target.

This should pretty much never happen, because the Fed has a giant printing press and is committed to suppressing rates. 

Yet, interbank lending rates broke the Fed's target as repo rates were exploding into the stratosphere.

This represents desperate debtors seeking cash to pay their liabilities.

They couldn't get the money in repo, so they tried to get it in federal funds. 

And then, when they couldn't get what they needed in federal funds, they went overseas:



This is LIBOR, which reflects the cost of borrowing dollars outside the US.

As you can see, it shows the same rate spike as all the other charts.

This was a massive event.

And that's why the Fed went full retard three months ago.

This  was not an isolated event; this reflects a massive overhang of bad debt  which can only be serviced with the help of the Fed.

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## CCTelander

Hey now! Don't you know there's an IMPEACHMENT (read "dog and pony show") going on and that the fate of the entire civilized world likely hangs in the balance? Trivial stuff like QE4 can wait until after we save the world from that.

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## r3volution 3.0

> Hey now! Don't you know there's an IMPEACHMENT (read "dog and pony show") going on and that the fate of the entire civilized world likely hangs in the balance? Trivial stuff like QE4 can wait until after we save the world from that.


Market actors are determining the fate of the world (within the constraints imposed by jackass politicians).

Meanwhile, those jackass politicians, who ultimately caused 100% of the problem, fight over who will get the blame. 

So, same ol same ol...

P.S. Really, they should be be fighting over getting out of dodge; whichever party's in power when this blows is done.

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## r3volution 3.0

As to where this is all heading:

Liquidation, i.e. the  reallocation of presently misallocated resources, is the only solution,  but this is politically impossible, as the Fed's only true mandate is to  reelect politicians, and politicians who preside over depressions don't  get reelected. So, as always, the Fed is trying to provide a "soft  landing," i.e. print enough to allow a tad of liquidation (i.e. future  growth), but without serious unemployment (= lost elections). But they  always fail, because what they're trying to do (control, in a rational  way, the most important price in an immensely complex market economy) is  impossible. All the Fed can do is print so much that the current debt  problem is delayed., or print somewhat less, and then react to the  recession by printing that larger amount anyway. Anyway, recession or not, Fed  reacting quickly enough or not to present stresses, the long-term  situation is that the Fed is going to have to either allow total  liquidation (politically impossible - see above), or go absolutely  _ape$#@!_ with money printing, to the point that last episode's QE will be  not noticeable on a chart. And have no doubt; the Fed can and, if  politically necessary, will, monetize every $#@!ing dollar denominated liability  on planet Earth. Hyperinflation is preferable, politically, to  liquidation.

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## PRB

only liberals who hate America want to complain about so called "QE", our economy is booming and there's nothing you can do about it.

DOW is up, 401Ks are up, people are getting tax cuts, job numbers are up, and all liberals can do is whine whine whine and cry like babies because they can't stand that a reality tv show host beat a woman who wanted to be President since she was a kid. Shame.

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## PRB

> As to where this is all heading:
> 
> Liquidation, i.e. the  reallocation of presently misallocated resources, is the only solution,  but this is politically impossible, as the Fed's only true mandate is to  reelect politicians, and politicians who preside over depressions don't  get reelected. So, as always, the Fed is trying to provide a "soft  landing," i.e. print enough to allow a tad of liquidation (i.e. future  growth), but without serious unemployment (= lost elections). But they  always fail, because what they're trying to do (control, in a rational  way, the most important price in an immensely complex market economy) is  impossible. All the Fed can do is print so much that the current debt  problem is delayed., or print somewhat less, and then react to the  recession by printing that larger amount anyway. Anyway, recession or not, Fed  reacting quickly enough or not to present stresses, the long-term  situation is that the Fed is going to have to either allow total  liquidation (politically impossible - see above), or go absolutely  _ape$#@!_ with money printing, to the point that last episode's QE will be  not noticeable on a chart. And have no doubt; the Fed can and, if  politically necessary, will, monetize every $#@!ing dollar denominated liability  on planet Earth. Hyperinflation is preferable, politically, to  liquidation.


ahhhh, your wet dream of an economic collapse.

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## oyarde

> only liberals who hate America want to complain about so called "QE", our economy is booming and there's nothing you can do about it.
> 
> DOW is up, 401Ks are up, people are getting tax cuts, job numbers are up, and all liberals can do is whine whine whine and cry like babies because they can't stand that a reality tv show host beat a woman who wanted to be President since she was a kid. Shame.


I agree liberals are whiners .

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## Warlord

Good time to buy PM's right now, they should be up 20% in the next few years if the last QE event is anything to go by

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## oyarde

[QUOTE=Warlord;6896501]Good time to buy PM's right now, they should be up 20% in the next few years if the last QE event is anything to go by[/QUOT The outlook for PMs looks optimistic to me .

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## Warlord

[QUOTE=oyarde;6896529]


> Good time to buy PM's right now, they should be up 20% in the next few years if the last QE event is anything to go by[/QUOT The outlook for PMs looks optimistic to me .


Buy on the dips.  Isn't that what they say Oyarde?

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## Pauls' Revere

You must spread some Reputation around before giving it to r3volution 3.0 again.

https://www.ccn.com/the-fed-just-ble...ancial-crisis/


The Federal Reserve’s intervention in the financial system reached truly epic proportions Thursday after the central bank’s New York division announced the largest series of repo operations ever.

The announcement came mere days after the Federal Open Market Committee (FOMC) painted a rosy picture of the U.S. economy in its final policy meeting of 2019. But what the Fed says and what it does are two completely different things.
Central bankers are admitting – by their actions, not words – that crisis is brewing in the financial sector.

The New York Fed announced Thursday it’s planning to inject almost half a trillion dollars into the overnight repo market through the new year, significantly increasing intervention to ensure short-term interest rates are kept in check. The plan includes providing an additional $425 billion in short-term funding to banks in dire need of cash.

As the Financial Times reports, the nuts and bolts of the operations include $120 billion in overnight repo up to Dec. 30 and in early January, alongside $175 billion in longer-term operations.

*But if the repo market is truly broken, as evidenced by the banking sector’s dependence on daily liquidity injections, there’s a good chance it’ll spill over to the rest of the economy.*

*Where in the economy will it spill over to first? That's what I'd like to know.*

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## r3volution 3.0

> only liberals who hate America want to complain about so called "QE", our economy is booming and there's nothing you can do about it.


lulz




> The Federal Reserve’s intervention in the  financial system reached truly epic proportions Thursday after the  central bank’s New York division announced the largest series of repo  operations ever.


That's because we have the greatest, healthiest, biggerest economy ever, of course.

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## Zippyjuan

If the economy is really booming, is stimulus necessary?

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## PRB

> If the economy is really booming, is stimulus necessary?


You got it backwards

1. the economy is booming BECAUSE stimulus
2. we want to keep it booming, that's why we invest more, there's no such thing as "enough"
3. Warren Buffett 101 : when the stock goes up, BUY MORE.

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## Zippyjuan

> You got it backwards
> 
> 1. the economy is booming BECAUSE stimulus
> 2. we want to keep it booming, that's why we invest more, there's no such thing as "enough"
> 3. Warren Buffett 101 : when the stock goes up, BUY MORE.


Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election.

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## PRB

> Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election.


why do you hate America?

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## r3volution 3.0

> The Federal Reserve Bank of New York added $86.4 billion in liquidity to financial markets.
> 
> In two operations carried out Monday,  the Fed injected $36.4 billion in overnight liquidity and $50 billion  in 32-day liquidity extending into the coming New Year. Eligible banks  took far less than the $120 billion the Fed was willing to offer in the  overnight repurchase agreements, or repo, operation, while they wanted  just slightly more long-term liquidity than the Fed was offering in the  longer-term repo operation.
> 
>  As of the most recent data from last week, the Fed reported that its balance sheet had risen  to $4.1 trillion from $3.8 trillion in September. About $213 billion in  repo interventions were also outstanding then. That amount of repo  operations could rise to nearly half a trillion dollars if the eligible  banks tap all the liquidity the central bank has said it would offer  over coming days.


https://www.wsj.com/articles/new-yor...es-11576509343

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## Bern

Nobody noticed?  A lot of people have noticed.  It's been in the news since the repo rates blew out in September.  I've posted a lot about it over here:

https://www.pmbug.com/forum/f4/ameri...html#post34232

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## devil21

Fwiw, I maintain that the repo operations are doing multiple things:  1) soaking up growing government debt issuance (QE) as the dollar global standard system is dismantled 2) soaking up the associated dumping of Treasuries by foreign holders that no longer need to hold them as part of that system and the spike in rates that would accompany open market dumping (we saw that briefly end of 2018 and how stocks responded) 3) slipping fresh liquidity to troubled banks like DB.  So point is that it's a lot more than just QE4.  It's the quiet mechanism they're using to keep rates from spiking as the dollar standard is being unwound.

The metric to see is how many of the borrowers actually pay the overnight/term loans back and how many don't, thus sticking the Fed with the Treasuries.

eta: A very under-reported aspect to the repo stuff is that at the same time the repo market broke down, JPM's balance sheet reported a huge shift out of cash and into bond holdings.  No details about where those bonds came from but JPM's free cash to loan out disappeared and was replaced by bond holdings.  Now the Fed is taking in bonds and giving out cash...

eta2:  CNBC asked Greenspan this morning about repo.  Greenspan's answer had absolutely nothing whatsoever to do with repos.  Some ramble about P/E ratios, instead.  Obviously they don't want to talk at all about what's really going on.

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## Zippyjuan

> Fwiw, I maintain that the repo operations are doing multiple things:  1) soaking up growing government debt issuance (QE) as the dollar global standard system is dismantled 2) soaking up the associated* dumping of Treasuries by foreign holders* that no longer need to hold them as part of that system and the spike in rates that would accompany open market dumping (we saw that briefly end of 2018 and how stocks responded) 3) slipping fresh liquidity to troubled banks like DB.  So point is that it's a lot more than just QE4.  It's the quiet mechanism they're using to keep rates from spiking as the dollar standard is being unwound.
> 
> The metric to see is how many of the borrowers actually pay the overnight/term loans back and how many don't, thus sticking the Fed with the Treasuries.
> 
> eta: A very under-reported aspect to the repo stuff is that at the same time the repo market broke down, JPM's balance sheet reported a huge shift out of cash and into bond holdings.  No details about where those bonds came from but JPM's free cash to loan out disappeared and was replaced by bond holdings.  Now the Fed is taking in bonds and giving out cash...
> 
> eta2:  CNBC asked Greenspan this morning about repo.  Greenspan's answer had absolutely nothing whatsoever to do with repos.  Some ramble about P/E ratios, instead.  Obviously they don't want to talk at all about what's really going on.


Which countries are dumping Treasuries?

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## acptulsa

> Which countries are dumping Treasuries?


Since when are all "foreign holders" countries?

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## Bern

https://ticdata.treasury.gov/Publish/mfh.txt

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## devil21

> Since when are all "foreign holders" countries?


A fine question for sure, and I've answered Zippy's exact question to him several times already so he's just being obtuse at this point.

It doesn't take a rocket scientist to draw reasonable conclusions about what's going on when JPM (arguably the controller of the NY Fed, John Williams is a cut-out PR guy, nothing more) suddenly shifts from a large free cash position to a large bond position and then immediately the NY Fed starts doling out fresh cash while taking in bonds.  And CLEARLY lying about it the entire time.  A ton of bonds got dumped into JPM by someone and now JPM is offloading them onto the Fed, above and beyond their routine PD take-down at Treasury auctions.





> https://ticdata.treasury.gov/Publish/mfh.txt


A txt file from the government.  Must be true.  As trustworthy as Ft Knox gold audits I'm sure.

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## Brian4Liberty

> You must spread some Reputation around before giving it to r3volution 3.0 again.
> 
> https://www.ccn.com/the-fed-just-ble...ancial-crisis/
> 
> 
> The Federal Reserve’s intervention in the financial system reached truly epic proportions Thursday after the central bank’s New York division announced the largest series of repo operations ever.
> 
> The announcement came mere days after the Federal Open Market Committee (FOMC) painted a rosy picture of the U.S. economy in its final policy meeting of 2019. But what the Fed says and what it does are two completely different things.
> Central bankers are admitting – by their actions, not words – that crisis is brewing in the financial sector.
> ...


The greatest fear is that it will overflow into money markets funds, which would have to “break the buck”. And keep in mind that money market funds are not covered by FDIC or guaranteed in any way.

IIRC, there was one money market fund that broke the buck during the last financial crisis, and that is when they went into full do anything mode. Explaining to people that their “cash” has disappeared is a tough thing to do. Too reminiscent of the Great Depression.

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## Brian4Liberty

> You got it backwards
> 
> 1. the economy is booming BECAUSE stimulus
> 2. we want to keep it booming, that's why we invest more, there's no such thing as "enough"
> 3. Warren Buffett 101 : when the stock goes up, BUY MORE.


Monetary inflation leads to asset price inflation. Keep that pyramid growing!

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## acptulsa

> A fine question for sure, and I've answered Zippy's exact question to him several times already so he's just being obtuse at this point.


Zippy's turning SPAM into an acronym:  Shown Previously As Misinformation.

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## Zippyjuan

> https://ticdata.treasury.gov/Publish/mfh.txt


Nope, nobody dumping Treasuries. Foreign holdings are actually up half a $trillion from a year ago.   Over the last six months China has reduced theirs by one percent- hardly "dumping". But it is all "secret". Only Devil21 has the inside scoop. 




> Since when are all "foreign holders" countries?


True "foreign holders" includes all investors in those countries- not just their central banks.

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## devil21

> Nope, nobody dumping Treasuries. Foreign holdings are actually up half a $trillion from a year ago.   Over the last six months China has reduced theirs by one percent- hardly "dumping". But it is all "secret". Only Devil21 has the inside scoop.


LOL should I dig up your posts from September and October when you said the repos were temporary, only overnight and only $50 billion and your statements that my assertions about what's really going on were completely wrong?  You conveniently forget to give credit when I'm RIGHT and conveniently ignore your own _very wrong_ posts.

Just for giggles, assume I am wrong.  Is that anything to celebrate?  Otherwise, the PDs are choking on so much federal debt that NO ONE IS BUYING that the Fed has to engage in this operation to keep rates from blowing the entire house of cards up.  Now ask yourself why would a foreign holder of Treasuries KEEP those assets knowing they're quickly becoming "asset non grata"?  No one is that financially suicidal.

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## Zippyjuan

> LOL should I dig up your posts from September and October when you said the repos were temporary, only overnight and only $50 billion and your statements that my assertions about what's really going on were completely wrong?  You conveniently forget to give credit when I'm RIGHT and conveniently ignore your own _very wrong_ posts.


Repos are mostly overnight. Though some can be as long at two weeks.  

https://markets.businessinsider.com/...at-are-repos-1




> Market repurchase agreements are a type of short-term loan, often used by the Fed to regulate the nation's money supply. They resemble government bonds, as they're secure, feature steady interest rates, and have set maturation dates, or "terms."
> 
> When enacting a repo operation, the US central bank sells government securities to banks with predetermined repurchase dates. The offerings come with set interest rates, which create capital over the short borrowing period which was previously not part of the country's economy.
> 
> The interest rates associated with repos are relatively low, and* most repos are repurchased the day after they're sold.* However, several multibillion-dollar repo offerings can add up to a sizeable injection of capital into the US economy.
> 
> Repos allow the Federal Reserve to slowly add cash into the economy while watching how markets react. Scheduled repo offerings grant time for policy adjustment, as do the short-term nature of the agreements. Instead of maturing over a span of months or years,* these overnight agreements* aren't traded and don't see their value fluctuate.





> Here's the Federal Reserve Bank of New York's latest schedule for repo operations through fall 2019, according to the bank's September 20 release.
> 
> September 27: at least $75 billion in overnight repos, and at least $30 billion in 14-day repos
> September 30 to October 10: at least $75 billion in overnight repos
> 
> "After October 10, 2019, the Desk will conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined," the bank wrote.
> 
> It also clarified that the government assets being offered and subsequently repurchased include Treasury bonds, agency debt, and agency mortgage-backed securities Additional details about each repo offering will be released each afternoon for the following day's operation, according to the Fed.



Interactive chart of Fed Repurchase Agreements Outstanding:  https://fred.stlouisfed.org/series/RRPTTLD

As of 12/18/19 it shows $13 billion outstanding.

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## devil21

> Repos are mostly overnight. Though some can be as long at two weeks.  
> 
> https://markets.businessinsider.com/...at-are-repos-1


That article is from September 26!  LOL keep going...

Moving the goalposts, as always.  You said they were overnight only.  They're not.  You said they were temporary.  They're not.  You said it was only $50billion.  It's not.  And no end in sight if you listen to the Fed mouthpieces non-answers when asked about it.

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## Zippyjuan

> That article is from September 26!  LOL keep going...
> 
> Moving the goalposts, as always.  You said they were overnight only.  They're not.  You said they were temporary.  They're not.  You said it was only $50billion.  It's not.  And no end in sight if you listen to the Fed mouthpieces non-answers when asked about it.


Link was to show what repos are.  Figures do change over time. 

Check the chart showing Repo agreements for the latest figures.  As of 12/18 it shows $13 billion outstanding. https://fred.stlouisfed.org/series/RRPTTLD




> Observation:
> 
> 2019-12-18:* $13.362*
> 
> Units: * Billions of US Dollars*, Not Seasonally Adjusted
> 
> Frequency:  Daily
> 
> This series is constructed as the aggregated daily amount value of the RRP transactions reported by the New York Fed as part of the Temporary Open Market Operations.
> ...

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## devil21

> Link was to show what repos are.  Figures do change over time. 
> 
> Check the chart showing Repo agreements for the latest figures.  As of 12/18 it shows $13 billion outstanding. https://fred.stlouisfed.org/series/RRPTTLD


That is a chart of reverse repo operations, the Fed borrowing cash from banks to drain reserves, not loaning cash to boost reserves.  Wrong chart.

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## Zippyjuan

> That is a chart of reverse repo operations, the Fed borrowing cash from banks to drain reserves, not loaning cash to boost reserves.  Wrong chart.


What is the right one? Link?

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## devil21

> What is the right one? Link?


I'm not digging through the Fed's website to try to prove your case for you.  I suspect the relevant chart is probably "unavailable for maintenance" though.

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## r3volution 3.0

> Nobody noticed?  A lot of people have noticed.  It's  been in the news since the repo rates blew out in September.  I've  posted a lot about it over here:
> 
> https://www.pmbug.com/forum/f4/ameri...html#post34232


I didn't mean that I'm the first person to write about it, obviously. 

I meant that people aren't seeing this on the evening news.




> Fwiw,  I maintain that the repo operations are doing multiple things:  1)  soaking up growing government debt issuance (QE) as the dollar global  standard system is dismantled 2) soaking up the associated dumping of  Treasuries by foreign holders that no longer need to hold them as part  of that system and the spike in rates that would accompany open market  dumping (we saw that briefly end of 2018 and how stocks responded) 3)  slipping fresh liquidity to troubled banks like DB.  So point is that  it's a lot more than just QE4.  It's the quiet mechanism they're using  to keep rates from spiking as the dollar standard is being  unwound.


The following is a fluff piece designed to make everything seem just fine:




> The New York Fed injected $58.75 billion into financial markets via two repurchase agreement, or repo, operations.  One came in an overnight repo totaling $52.65 billion that saw eligible  banks take in far less than the $120 billion the Fed was willing to  provide. The Fed’s 13-day repo saw particularly low demand with dealers  seeking $6.1 billion against the $35 billion the Fed was willing to  offer.
> 
> The Fed also bought $7.5 billion in Treasury bills  Tuesday. That compared with the $31.18 billion eligible banks wanted to  sell to the Fed.


https://www.wsj.com/articles/banks-d...re-11576599769

Meanwhile, if you go to the NYFed's site and look at the primary dealer data, they're bursting with treasuries.

So, they don't want to borrow overnight or otherwise short term on treasury collateral; they want to sell treasuries outright.

That  could still be liquidity issues (good collateral isn't much good if  repo markets are nonfunctional), or maybe that collateral isn't so good.  

Either way, it's pretty odd. 





> The metric to see is how many of the borrowers actually pay the  overnight/term loans back and how many don't, thus stickingthe Fed with  the Treasuries


Look at the ECB's balance sheet.

Most of that is loans, not outright purchases.

Well, they call them loans, but they're perpetually rolled over and will never be repaid, so...




> eta: A very under-reported aspect to the repo stuff is that at  the same time the repo market broke down, JPM's balance sheet reported a  huge shift out of cash and into bond holdings.  No details about where  those bonds came from but JPM's free cash to loan out disappeared and  was replaced by bond holdings.  Now the Fed is taking in bonds and  giving out cash...


Do you have a source for that?




> eta2:  CNBC asked Greenspan this morning about repo.  Greenspan's  answer had absolutely nothing whatsoever to do with repos.  Some ramble  about P/E ratios, instead.  Obviously they don't want to talk at all  about what's really going on.


I forgot he was still alive, TBH...

Anyway, tomorrow's ~4:30pm EST release of the Fed's balance sheet should be pretty enlightening.

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## devil21

> Do you have a source for that?


https://www.zerohedge.com/markets/fe...eally-happened

source article but pay walled
https://www.ft.com/content/cb88f676-...4-36acbbb0d9b6




> I forgot he was still alive, TBH...


He was relatively lucid in the rest of the interview so his ramble about P/E ratios in response to being asked about repos stuck out plainly.

As a side note, at the same time JPM has amassed a 161 million oz physical silver COMEX position and is taking whatever gold they can collect from the (nearly bust) COMEX.  They're very quietly following a transformative playbook.

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## r3volution 3.0

> https://www.zerohedge.com/markets/fe...eally-happened
> 
> source article but pay walled
> https://www.ft.com/content/cb88f676-...4-36acbbb0d9b6


Thanks

That doesn't make sense, though, right?

If JPM's buying treasuries hand over fist, why is the Fed getting oversubscribed?

ZH:




> overnight general collateral rate briefly did something nobody had ever expected it to do, when  it exploded from 2% to about 10% in minutes, an absolutely  unprecedented move, and certainly one that was seen as impossible in a  world with an ocean of roughly $1.3 trillion in reserves floating  around.


There's a theory floating around that excess reserves aren't really excess reserves.

That is, they're all obligated already in some way, such as in overnight repos. 

How else do you explain JPM or anyone else refusing a free arb between IOER and repo, fed funds, or libor?

It has to be either fear of risk (of what?) or simple lack of cash (in which case excess reserves aren't excess).

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## devil21

> Thanks
> 
> That doesn't make sense, though, right?
> 
> If JPM's buying treasuries hand over fist, why is the Fed getting oversubscribed?
> 
> ZH:


That assumes they're actually buying them, as opposed to acting as an intermediary for other entities seeking to offload them away from the open market.  Chinese, for example, could approach JPM for a "loan" and hand over Treasuries as collateral.  Essentially JPM doing a repo for Chinese.  But if the Chinese entity doesn't repay, JPM is stuck with the collateral and it goes onto JPMs books.  Force repo market to lock up by ceasing to fund overnight loans, Fed printer steps in, JPM unloads Treasuries onto Fed.  Fed ends up as bagholder entity and the Treasuries never hit the open market and never affected rates.





> There's a theory floating around that excess reserves aren't really excess reserves.
> 
> That is, they're all obligated already in some way, such as in overnight repos. 
> 
> How else do you explain JPM or anyone else refusing a free arb between IOER and repo, fed funds, or libor?
> 
> It has to be either fear of risk (of what?) or simple lack of cash (in which case excess reserves aren't excess).


I'd read about that theory if you have a link to share.

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## Bern

> ...
> How else do you explain JPM or anyone else refusing a free arb between IOER and repo, fed funds, or libor?
> ...


I thought this was a pretty accessible and plausible explanation:

https://monetary-metals.com/treasury...report-22-sep/

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## devil21

One other under-reported aspect of repo was that the Fed responded to a FOIA request for info about WHO was getting the fresh cash.  Reply was "We'll tell you in 2 years."

Sure sounds to me like the Fed is going to be the bagholder for outstanding Treasuries that are and will be dumped by foreign holders, via repo operations over the next couple years as the global dollar standard unwinds.  Then the Fed in it's current iteration is killed and the associated FRN denominated debt is repudiated.  See my old thread in this subforum titled "Interesting Canadian Appeals Court ruling" to get the bigger picture.

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## acptulsa

> Sure sounds to me like the Fed is going to be the bagholder for outstanding Treasuries that are and will be dumped by foreign holders, via repo operations over the next couple years as the global dollar standard unwinds.  Then the Fed in it's current iteration is killed and the associated FRN denominated debt is repudiated.


In this way the banks are first repaid, and only then the public's money becomes officially and legally worthless.

----------


## Pauls' Revere

> The greatest fear is that it will overflow into money markets funds, which would have to break the buck. And keep in mind that money market funds are not covered by FDIC or guaranteed in any way.
> 
> IIRC, there was one money market fund that broke the buck during the last financial crisis, and that is when they went into full do anything mode. Explaining to people that their cash has disappeared is a tough thing to do. Too reminiscent of the Great Depression.


Any good sites to watch indicators for those?

----------


## Madison320

> Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election.


Yup. That's exactly right. 

The problem is that you were arguing the reverse when Obama was president. There's a word for that:

hy·poc·ri·sy
/həˈpäkrəsē/

noun
the practice of claiming to have moral standards or beliefs to which one's own behavior does not conform; pretense.

----------


## Madison320

> The Fed has printed $326 billion since September 11, 2019.
> 
> 
> 
> This amounts to a monthly increase of $108 billion. For comparison, QE3 at its height was 'only' $85 billion per month. 
> 
> There are two components to this new QE: repo operations (essentially lending against collateral, like the ECB does) and outright asset purchases (like the Fed did during previous QE rounds). Three months ago, the repo market blew up, with interest rates spiking to extraordinary highs. What exactly caused this is still unknown, but it indicates severe stress in the financial system (i.e. someone couldn't pay their debts). The Fed responded first by offering short term repos, then longer term repos, then it restarted the asset purchase program, promising to buy $60 billion per month through at least March 2020. Of course, this is in addition to the Fed lowering the funds rate several times last year, after they realized that this economy will implode if rates return to even a small fraction of what was once considered normal.
> 
> Had the Fed not taken these actions, we'd likely be a recession right now.
> ...



This is just a wild guess but I think one potential bubble popping moment might be when the Fed's balance sheet hits a new high. What's that, another 2 or 3 months maybe when it hits 4.4T or whatever the old high is?

----------


## Madison320

> As to where this is all heading:
> 
> Liquidation, i.e. the  reallocation of presently misallocated resources, is the only solution,  but this is politically impossible, as the Fed's only true mandate is to  reelect politicians, and politicians who preside over depressions don't  get reelected. So, as always, the Fed is trying to provide a "soft  landing," i.e. print enough to allow a tad of liquidation (i.e. future  growth), but without serious unemployment (= lost elections). But they  always fail, because what they're trying to do (control, in a rational  way, the most important price in an immensely complex market economy) is  impossible. All the Fed can do is print so much that the current debt  problem is delayed., or print somewhat less, and then react to the  recession by printing that larger amount anyway. Anyway, recession or not, Fed  reacting quickly enough or not to present stresses, the long-term  situation is that the Fed is going to have to either allow total  liquidation (politically impossible - see above), or go absolutely  _ape$#@!_ with money printing, to the point that last episode's QE will be  not noticeable on a chart. And have no doubt; the Fed can and, if  politically necessary, will, monetize every $#@!ing dollar denominated liability  on planet Earth. Hyperinflation is preferable, politically, to  liquidation.


I agree, it has to end with high inflation. That's the only thing that will stop the government from taking the path of least resistance, which is borrowing and printing.

And before someone replies, "But Japan!" remember that there are 1000 Zimbabwes, Argentinas and Venezuelas for every Japan. Besides that I don't want to work 80 hours a week and live in a closet just to keep the government from wrecking the currency.

----------


## Zippyjuan

> Yup. That's exactly right. 
> 
> The problem is that you were arguing the reverse when Obama was president. There's a word for that:
> 
> hy·poc·ri·sy
> /həˈpäkrəsē/
> 
> noun
> the practice of claiming to have moral standards or beliefs to which one's own behavior does not conform; pretense.


Different times- different economies. Limited stimulus can help turn things around in a recession (though I did say that QE after the first round was not necessary- stimulus has diminishing returns).  You don't juice a steady economy like we have now.

----------


## Madison320

> Different times- different economies. Limited stimulus can help turn things around in a recession (though I did say that QE after the first round was not necessary- stimulus has diminishing returns).  You don't juice a steady economy like we have now.


Right, so you agree that after around 2011 you can substitute "Obama" for "Trump" and the statement would be just as true:

Your statement:

"Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."

So do you agree this is true after 2011?

"Obama wants negative interest rates and heuge QE so he can look amazing just in time for the election."

----------


## Bern

> ...
> In this step by step analysis, we will put together the week by week numbers from the Fed and the Treasury, uncover what is being hidden behind a veil of complexity, and show the simple truth - about 90% of recent federal government deficit spending has effectively been funded at below market rates by simply creating the new money.
> ...


http://danielamerman.com/va/ccc/F1DefFund1219.html

----------


## Paul799

Thanks to r3revolution, devil21 & all for this thread, 
which allowed me finally to reach a better understanding of what repo operations are.


So, the Fed is monetising US federal debt through POMO and repo operations







http://danielamerman.com/va/ccc/F1DefFund1219.html


Even if Zippy for once had been right, only through POMO the Fed has been monetising 60-70% the new US federal debt in the last 3 months




I think everybody is wondering how long before the system breaks down.
Japan shows that it can long at least several years

----------


## Zippyjuan

One year ago (December 18, 2018), the Federal Reserve held $2.300 trillion in US Treasuries.  
As of this week- December 19, 2019 they held $2.287 trillion in US Treasuries. Meanwhile, the amount of US Treasuries increased by almost $1 trillion. 

https://www.federalreserve.gov/releases/h41/current/

----------


## acptulsa

> One year ago (December 18, 2018), the Federal Reserve held $2.300 trillion in US Treasuries.  
> As of December 19, 2018 they held $2.287 trillion in US Treasuries. Meanwhile, the amount of US Treasuries increased by almost $1 trillion. 
> 
> https://www.federalreserve.gov/releases/h41/current/


Gee, Zippy, we're sorry if this is too adult a conversation for you to follow.





> That assumes they're actually buying them, as opposed to acting as an intermediary for other entities seeking to offload them away from the open market.  Chinese, for example, could approach JPM for a "loan" and hand over Treasuries as collateral.  Essentially JPM doing a repo for Chinese.  But if the Chinese entity doesn't repay, JPM is stuck with the collateral *and it goes onto JPMs books.*  Force repo market to lock up by ceasing to fund overnight loans, Fed printer steps in, JPM unloads Treasuries onto Fed.  Fed ends up as bagholder entity and the Treasuries never hit the open market and never affected rates.


When the Fed holds collateral, but the loan hasn't defaulted yet, is that collateral on the Fed's books yet?  No?  Well there's the answer.

----------


## Zippyjuan

> Gee, Zippy, we're sorry if this is too adult a conversation for you to follow.
> 
> 
> 
> 
> When the Fed holds collateral, *but the loan hasn't defaulted yet*, is that collateral on the Fed's books yet?  No?  Well there's the answer.


  Are you assuming that everybody is defaulting on their loans?  What is the default rate?

----------


## Bern

> One year ago (December 18, 2018), the Federal Reserve held $2.300 trillion in US Treasuries.  
> As of December 19, 2018 they held $2.287 trillion in US Treasuries. ...


Would be interesting to see the data charted over time instead of picking two data points.  The Fed was shrinking it's balance sheet until $#@! got real.  It has expanded again dramatically in a short time frame.  Back to where we started, except momentum/velocity is in the opposite direction and much stronger.

----------


## acptulsa

> Are you assuming that everybody is defaulting on their loans?  What is the default rate?


Are you assuming nobody is defaulting on their loans?  You were the one trying and failing to convince people the Fed has no more bonds in its possession than it did a year ago.

----------


## Zippyjuan

> Are you assuming nobody is defaulting on their loans?  You were the one trying and failing to convince people the Fed has no more bonds in its possession than it did a year ago.


A bank does not own collateral unless the loan defaults.  Then they typically sell the collateral to recover the losses from the loan. A bank defaulting on a loan from the Fed would be in a bad spot and harm their reputation- costing them business. The would have a hard time borrowing from anybody after that and a hard time attracting new depositors.  Default on Fed loans is  very rare.

----------


## acptulsa

> A bank does not own collateral unless the loan defaults.


Correct.  And that's why the Fed's books do not prove what you were pretending the Fed's books do prove.

I'm so glad you were able to catch up with the class.  Now try not to go astray again.

----------


## Zippyjuan

> Correct.  And that's why the Fed's books do not prove what you were pretending the Fed's books do prove.
> 
> I'm so glad you were able to catch up with the class.  Now try not to go astray again.


Collateral is not on the Fed books because the Fed does not own the collateral. They don't own those Treasuries.  The bank taking out the loan owns those Treasuries. Just as they did before they took out the loan- the ownership did not change.

----------


## acptulsa

> Collateral is not on the Fed books because the Fed does not own the collateral. They don't own those Treasuries.  The bank taking out the loan owns those Treasuries. Just as they did before they took out the loan- the ownership did not change.


So we have treasuries the Fed is holding, but which are not included in the figures you posted.  And you cannot prove they don't have more now than they did a year ago, because if the Fed told you how much collateral they're holding they'd feel the need to shoot you.

Is all this review leading up to a point?

----------


## r3volution 3.0

> That assumes they're actually buying them, as opposed to acting as an intermediary for other entities seeking to offload them away from the open market.  Chinese, for example, could approach JPM for a "loan" and hand over Treasuries as collateral.  Essentially JPM doing a repo for Chinese.  But if the Chinese entity doesn't repay, JPM is stuck with the collateral and it goes onto JPMs books.  Force repo market to lock up by ceasing to fund overnight loans, Fed printer steps in, JPM unloads Treasuries onto Fed.  Fed ends up as bagholder entity and the Treasuries never hit the open market and never affected rates.


That's a very plausible explanation.

I tend to think that, ultimately, this is all a matter of disturbingly high treasury issuance (and/or lack of real demand therefor).

The latest data on the PDs that I've seen still show them bursting at the seams. 

(whoops, guess spending, not taxing, is the real cost after all...)




> I'd read about that theory if you have a link to share.


IIRC, the non-excess excess reserve theory is from Luke Gromen:




Both of those fellows have highly interesting opinions.

----------


## r3volution 3.0

> This is just a wild guess but I think one potential bubble popping moment might be when the Fed's balance sheet hits a new high. What's that, another 2 or 3 months maybe when it hits 4.4T or whatever the old high is?


At the current rate, yea, couple months.

When the next recession arrives, they're going to go berserk and blow up the Y axis.

----------


## r3volution 3.0

> I agree, it has to end with high inflation. That's the only thing that will stop the government from taking the path of least resistance, which is borrowing and printing.
> 
> And before someone replies, "But Japan!" remember that there are 1000 Zimbabwes, Argentinas and Venezuelas for every Japan. Besides that I don't want to work 80 hours a week and live in a closet just to keep the government from wrecking the currency.


Misallocators gonna misallocate...

What happens when, one day fairly soon, Japan goes into recession, the BOJ prints half a trillion dollars, and GDP goes_ more_ negative?




In other words, resource misallocations can only go so far until you get _secular_ negative economic growth, which is rather the end of the game. The terrified citizens of Tokyo have delayed the reckoning through their wonderfully low-time preference behavior, but their government has wasted every cent of those massive savings in nonsensical ditch-digging.

And this is exactly where we're heading unless the politicians...

Nevermind, this is where we're heading.

Godzilla cometh (and Keynes, in this long-term, is dead, so what does he care)

----------


## Zippyjuan

> This is just a wild guess but I think* one potential bubble popping moment might be when the Fed's balance sheet hits a new high*. What's that, another 2 or 3 months maybe when it hits 4.4T or whatever the old high is?


So when things go back to where they were for most of the last five years that will suddenly cause a collapse? https://fred.stlouisfed.org/series/WALCL

----------


## Bern

> It looks like the year-end repocalypse that was predicted by Credit Suisse strategist Zoltan Pozsar is not going to happen this year after all.
> 
> Today's Term Repo which matures on January 7 saw $28.8BN in security submissions ($13.85BN in TSYs, $14.95BN in MBS), below the $35BN in total availability.
> 
> As such, this was the second term repo since the start of the Fed's emergency repo program that covered the year-end "turn" with a maturity of Jan 2, and was not fully overalotted. ...
> ...
> In his latest comment on the repo market, Curvature's Scott Skyrm noted that "once the term RP operations switch to being undersubscribed, it either means most of the Street's year-end funding need is fulfilled, or banks are close to their balance sheet limits." ...
> ...
> Meanwhile, despite the lack of oversubscribed repo for two operations in a row, repo doomsayer Pozsar refuses to throw in the towel and in an interview posted by Bloomberg on Friday, the Credit Suisse analyst said "it's not over" yet, saying that "if the yearend is less of a problem because of the repo bazooka we got from the Fed, and if the message of my report played a part in getting that bazooka, then that’s a nice way to be proven wrong." However, he then added ominously that "now we’re getting into a point in the year when balance-sheet problems are going to flare up, and I think the system will get gummed up again."
> ...


https://www.zerohedge.com/markets/re...-down-doomsday

----------


## oyarde

I went ahead and played some Goszilla live today anyway .

----------


## Madison320

> Different times- different economies. Limited stimulus can help turn things around in a recession (though I did say that QE after the first round was not necessary- stimulus has diminishing returns).  You don't juice a steady economy like we have now.


Asking you for the second time. I feel a negative rep coming:

Right, so you agree that after around 2011 you can substitute "Obama" for "Trump" and the statement would be just as true:

Your statement:

"Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."

So do you agree this is true after 2011?

"Obama wants negative interest rates and heuge QE so he can look amazing just in time for the election."

----------


## Madison320

> So when things go back to where they were for most of the last five years that will suddenly cause a collapse? https://fred.stlouisfed.org/series/WALCL


It's a psychological barrier. Remember that the when the Fed launched QE they promised it was only temporary and they'd reduce it back down after the emergency. The fact that it's going to hit a new high might pop the bubble.

And it's not going to creep back up to the 4.5 T mark and sit there. It's going to blow thru it like a hot knife thru butter. Next stop 5 T.

----------


## Madison320

> Misallocators gonna misallocate...
> 
> What happens when, one day fairly soon, Japan goes into recession, the BOJ prints half a trillion dollars, and GDP goes_ more_ negative?
> 
> 
> 
> 
> In other words, resource misallocations can only go so far until you get _secular_ negative economic growth, which is rather the end of the game. The terrified citizens of Tokyo have delayed the reckoning through their wonderfully low-time preference behavior, but their government has wasted every cent of those massive savings in nonsensical ditch-digging.
> 
> ...


I would argue that price inflation is the end of the game. If you think about it, you could print your way out of ANY economic problem if you could always print faster than the printing shows up in prices.

----------


## devil21

> That's a very plausible explanation.
> 
> I tend to think that, ultimately, this is all a matter of disturbingly high treasury issuance (and/or lack of real demand therefor).
> 
> The latest data on the PDs that I've seen still show them bursting at the seams. 
> 
> (whoops, guess spending, not taxing, is the real cost after all...)
> 
> 
> ...


It's also worth noting that actual cash withdrawn from a bank (say, as part of any Chinese "loan" scenario I posited) counts against the bank's reserves and draws down the bank's official reserves.  Cash is treated differently, accounting-wise, than the fractional reserve deposit-based digital movement of funds.  Moving digital funds between bank accounts (checks, ACH, eg) doesn't affect a bank's official reserves but withdrawing vault cash _does_.  Whenever cash is withdrawn from a bank it comes directly out of that bank's official reserves.  A good way to poke a bank in the eye is to keep withdrawing and using cash 

There's some news floating around the net recently about large amounts of physical cash and gold disappearing lately.  If cash is vanishing, it is presumably affecting bank's official reserves if any of that cash was recently taken from banks.

----------


## devil21

> Thanks to r3revolution, devil21 & all for this thread, 
> which allowed me finally to reach a better understanding of what repo operations are.
> 
> 
> So, the Fed is monetising US federal debt through POMO and repo operations
> 
> 
> 
> 
> ...


Glad it's helped.  If you want to get really crazy and wonky, read this publication by the Chicago Fed describing the nuts and bolts of the system.
https://pdfhost.io/v/ir1b43XD_MODERN..._MECHANICS.pdf





> In this way the banks are first repaid, and only then the public's money becomes officially and legally worthless.


Ashes to ashes, dust to dust?  From whence it came?  Etc.  Whatever religious cliche you want to use.  It is the Vatican's Cestui Que Trust system, after all.

----------


## oyarde

Gold is 1515.00 so I'm good .

----------


## Madison320

> Different times- different economies. Limited stimulus can help turn things around in a recession (though I did say that QE after the first round was not necessary- stimulus has diminishing returns).  You don't juice a steady economy like we have now.


Why are you ignoring my simple question? Will you get in trouble if you answer it?

Asking for the third time:

Your statement:

"Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."

So do you agree this is true after 2011?

"Obama wants negative interest rates and heuge QE so he can look amazing just in time for the election."

----------


## Zippyjuan

> Why are you ignoring my simple question? Will you get in trouble if you answer it?
> 
> Asking for the third time:
> 
> Your statement:
> 
> "Trump wants negative interest rates and heuge QE so he can look amazing just in time for the election."
> 
> So do you agree this is true after 2011?
> ...


Every president would like a good economy. `By 2011, the US had recovered a lot.  Sure, he would not mind more help but he did not publicly demand that the Fed reduce interest rates to zero and do more quantitative easing like Trump did.  He trusted the Fed to do what they thought best.

----------


## Warlord

> Every president would like a good economy. `By 2011, the US had recovered a lot.  Sure, he would not mind more help but he did not publicly demand that the Fed reduce interest rates to zero and do more quantitative easing like Trump did.  He trusted the Fed to do what they thought best.


QE started under Obama.

----------


## Zippyjuan

> QE started under Obama.


Because that is when the recession was.  We don't need QE when there isn't one.

----------


## Madison320

> Every president would like a good economy. `By 2011, the US had recovered a lot.  Sure, he would not mind more help but he did not publicly demand that the Fed reduce interest rates to zero and do more quantitative easing like Trump did.  He trusted the Fed to do what they thought best.


You are blinded by your loyalty to the democratic party.

The only difference between Obama and Trump is that Obama OWNED the Federal Reserve. They kept rates at zero for his entire 8 year reign and printed 3.5 trillion!!! Compare that to Trump, as soon as Trump got elected they started raising rates and reducing QE.

----------


## Madison320

> Because that is when the recession was.  We don't need QE when there isn't one.


The recession ended by 2011. Obama didn't need QE2, QE3 and ZIRP for his last 5 or 6 years. Obama had the Fed under his thumb. Trump can only dream of having the kind of influence that Obama had.

----------


## Zippyjuan

> You are blinded by your loyalty to the democratic party.
> 
> The only difference between Obama and Trump is that Obama OWNED the Federal Reserve. They* kept rates at zero for his entire 8 year reign* and printed 3.5 trillion!!! Compare that to Trump, as soon as Trump got elected they started raising rates and reducing QE.


Which rates were zero (they were very low but not quite zero)?  I would agree that QE after the first round was not necessary (there is diminishing returns- you need to exponentially increase it to continue the same effect). I also thought they could have started raising rates sooner.  Do you think they should have stayed low and QE continued?

----------


## PRB

> Because that is when the recession was.  We don't need QE when there isn't one.


why do you hate America?

----------


## Madison320

> Which rates were zero (they were very low but not quite zero)?  I would agree that QE after the first round was not necessary (there is diminishing returns- you need to exponentially increase it to continue the same effect). I also thought they could have started raising rates sooner.  Do you think they should have stayed low and QE continued?


They should never have done QE at all and they should've let rates find their free market level. Which would have been much higher than 0%. And they never should've borrowed trillions of dollars every year. As with most members here I don't think the government should print, borrow and ZIRP to boost the economy in the short run (at the expense of a much bigger crash in the future).

Since your only argument that Obama didn't influence the Fed is that rates were not 0% but a tiny hair above 0%, I rest my case.

----------


## r3volution 3.0

> I would argue that price inflation is the end of the game. If you think about it, you could print your way out of ANY economic problem if you could always print faster than the printing shows up in prices.


I think we're saying the same thing in different ways. 

The fundamental economic problem is that the state's policies are diverting increasingly large quantities of resources toward relatively unproductive (if not actually consumptive) enterprises (e.g. "zombie companies"). Since the state finances these redistributions through inflation (because of political limits to conventional taxation), the end result will be inflationary. Barring a radical political change that would curb the growth of the state's economic interventions, we're going to experience declining economic growth and rising inflation. We should expect a repeat of the 1970s, except this time there will be no Volcker on a white horse. The misallocations are much worse now than they were c. 1980, and the liquidation required to correct them would be so painful that a Volcker-esque policy is politically impossible. I don't see any plausible argument for any outcome other than massive devaluation. That doesn't mean that there can't be a traditional, deflationary recession at some point (or several points) over the course of this future, because the Fed isn't always able to predict exactly when and how much it needs to print to prevent one, but they aren't going to allow the kind of cleansing liquidation that's necessary to fix the system. If they launched nearly half a trillion not-QE QE during relatively good times, imagine what they're going to do if/when GDP actually goes negative one quarter. Draghi's "whatever it takes" wasn't hyperbole.

P.S. If you look at a chart of the federal funds rate, note how there have been lower highs and lower lows each cycle since c. 1980. In a way, that tells the whole story. There's lot of talk by central bankers and mainstream economists about the zero bound and unconventional monetary policy, even leaking into the popular press, but the silence as to _why_ we're at this point, or what it really _means_, is deafening. They treat it like some kind of technical difficulty solvable by tweaking the XYZ lending facility, when actually it represents the terminal crisis of this monetary system.

----------


## Zippyjuan

> I think we're saying the same thing in different ways. 
> 
> The fundamental economic problem is that the state's policies are diverting increasingly large quantities of resources toward relatively unproductive (if not actually consumptive) enterprises (e.g. "zombie companies"). Since the state finances these redistributions through inflation (because of political limits to conventional taxation), the end result will be inflationary. Barring a radical political change that would curb the growth of the state's economic interventions, we're going to experience declining economic growth and rising inflation. We should expect a repeat of the 1970s, except this time there will be no Volcker on a white horse. The misallocations are much worse now than they were c. 1980, and the liquidation required to correct them would be so painful that a Volcker-esque policy is politically impossible. I don't see any plausible argument for any outcome other than massive devaluation. That doesn't mean that there can't be a traditional, deflationary recession at some point (or several points) over the course of this future, because the Fed isn't always able to predict exactly when and how much it needs to print to prevent one, but they aren't going to allow the kind of cleansing liquidation that's necessary to fix the system. If they launched nearly half a trillion not-QE QE during relatively good times, imagine what they're going to do if/when GDP actually goes negative one quarter. Draghi's "whatever it takes" wasn't hyperbole.
> 
> P.S*. If you look at a chart of the federal funds rate, note how there have been lower highs and lower lows each cycle since c. 1980.* In a way, that tells the whole story. There's lot of talk by central bankers and mainstream economists about the zero bound and unconventional monetary policy, even leaking into the popular press, but the silence as to _why_ we're at this point, or what it really _means_, is deafening. They treat it like some kind of technical difficulty solvable by tweaking the XYZ lending facility, when actually it represents the terminal crisis of this monetary system.


Also important to note that the rate of inflation has also significantly declined since the 1980s.  Lower inflation means lower interest rates.

----------


## Working Poor

All I can say is that prices are going up. To me that means the currency is being devalued. I am not sure if it because of inflation or deflation  but, both seem like they are the same to me.

----------


## tebowlives

> Also important to note that the rate of inflation has also significantly declined since the 1980s.  Lower inflation means lower interest rates.


Really? You're going to post the made up inflation rate which doesn't take into account quality? Or correctly measure the cost of health care coverage?
Something gets priced too high, take it out of the measure. And don't account for technology. That's like saying the Redskins are the same quality product as the Patriots. You're weak on that topic too.

----------


## devil21

USMCA Trump quote from ZH article:

He added that the deal is “good for China, and our long term relationship,” before adding that “250 Billion Dollars” will be returning to the US thanks to Beijing’s promise to scale up imports.
-----------

In other words, China sending dollars back.  They don't need them anymore.  Trade in Treasuries, receive dollars, send dollars back for real goods.  The future is Americans working for the East, instead of the recent history of the other way around.  I for one welcome our new Chinese overlords and hope to be of great service.  Xiexie.

----------


## Swordsmyth

> USMCA Trump quote from ZH article:
> 
> He added that the deal is “good for China, and our long term relationship,” before adding that “250 Billion Dollars” will be returning to the US thanks to Beijing’s promise to scale up imports.
> -----------
> 
> In other words, China sending dollars back.  They don't need them anymore.  Trade in Treasuries, receive dollars, send dollars back for real goods.  The future is Americans working for the East, instead of the recent history of the other way around.  I for one welcome our new Chinese overlords and hope to be of great service.  Xiexie.


LOL

China will collapse if it loses many more dollars and it will collapse due to further increased tariffs if it doesn't.

----------


## devil21

> LOL
> 
> China will collapse if it loses many more dollars and it will collapse due to further increased tariffs if it doesn't.


You're still maintaining the narrative that Chinese pays the tariffs? LOL indeed.  Tariffs are a cover story for dollar devaluation, imported goods costing more, that's all.

----------


## Zippyjuan

> USMCA Trump quote from ZH article:
> 
> He added that the deal is “good for China, and our long term relationship,” before adding that “250 Billion Dollars” will be returning to the US thanks to Beijing’s promise to scale up imports.
> -----------
> 
> In other words, China sending dollars back.  They don't need them anymore.  Trade in Treasuries, receive dollars, send dollars back for real goods.  The future is Americans working for the East, instead of the recent history of the other way around.  I for one welcome our new Chinese overlords and hope to be of great service.  Xiexie.


China may buy "up to" $250 billion in goods over the next two years.   There will still be a trade deficit and dollars will still in net flow to China.  The agreement basically takes us back to November in the Trade war.  They aren't going to trade in Treasuries and hand the US cash dollars.  

https://www.ft.com/content/a01564ba-...3-9a26f8c3cba4




> The agreement specified that* purchases “will be made at market prices based on commercial considerations”* and that “market conditions” would affect the timing



Chinese companies would have to want to buy $200 billion worth of more goods from the US for it to actually happen.

----------


## Swordsmyth

> You're still maintaining the narrative that Chinese pays the tariffs? LOL indeed.  Tariffs are a cover story for dollar devaluation, imported goods costing more, that's all.


China either pays the tariffs or loses the sales.
Either way they lose dollars they desperately need to pay their gigantic dollar denominated debt.

----------


## PRB

> Also important to note that the rate of inflation has also significantly declined since the 1980s.  Lower inflation means lower interest rates.


hey troll. how about you stop destroying our conspiracy theory that hyperinflation is coming any day now? we need to sell gold or else my kids will be homeless.

----------


## Madison320

> I think we're saying the same thing in different ways. 
> 
> The fundamental economic problem is that the state's policies are diverting increasingly large quantities of resources toward relatively unproductive (if not actually consumptive) enterprises (e.g. "zombie companies"). Since the state finances these redistributions through inflation (because of political limits to conventional taxation), the end result will be inflationary. Barring a radical political change that would curb the growth of the state's economic interventions, we're going to experience declining economic growth and rising inflation. We should expect a repeat of the 1970s, except this time there will be no Volcker on a white horse. The misallocations are much worse now than they were c. 1980, and the liquidation required to correct them would be so painful that a Volcker-esque policy is politically impossible. I don't see any plausible argument for any outcome other than massive devaluation. That doesn't mean that there can't be a traditional, deflationary recession at some point (or several points) over the course of this future, because the Fed isn't always able to predict exactly when and how much it needs to print to prevent one, but they aren't going to allow the kind of cleansing liquidation that's necessary to fix the system. If they launched nearly half a trillion not-QE QE during relatively good times, imagine what they're going to do if/when GDP actually goes negative one quarter. Draghi's "whatever it takes" wasn't hyperbole.
> 
> P.S. If you look at a chart of the federal funds rate, note how there have been lower highs and lower lows each cycle since c. 1980. In a way, that tells the whole story. There's lot of talk by central bankers and mainstream economists about the zero bound and unconventional monetary policy, even leaking into the popular press, but the silence as to _why_ we're at this point, or what it really _means_, is deafening. They treat it like some kind of technical difficulty solvable by tweaking the XYZ lending facility, when actually it represents the terminal crisis of this monetary system.


I think it was at the last Fed meeting at Jackson Hole I saw this interview with a guy from India. The interviewer asked him something like: "Why can't you just lower rates (in India) to promote growth?" He replied: "We're not like you, we have to worry about inflation." 

It's like we're in this fantasy world where the laws of economics have been suspended. But it can't last forever.

----------


## devil21

Now China has caught a little cold that threatens the dollar trade recycling scheme...

hmm....

----------


## devil21

Tesla going parabolic, in conjunction with Fed repo cash injections directly into the Wall St. banking sector.  ~100B today.

Total coincidence I'm sure.  Equity markets are most certainly not tracking Fed repo operations. 

https://www.zerohedge.com/markets/li...rt-repo-crisis

----------


## Zippyjuan

> Tesla going parabolic, in conjunction with Fed repo cash injections directly into the Wall St. banking sector.  ~100B today.
> 
> *Total coincidence I'm sure.*  Equity markets are most certainly not tracking Fed repo operations. 
> 
> https://www.zerohedge.com/markets/li...rt-repo-crisis


Fed started putting money into the repo markets in September.  Did Tesla stocks soar then?  Has the stock market in general soared?   Or just specific stocks?

----------


## Brian4Liberty

> Tesla going parabolic, in conjunction with Fed repo cash injections directly into the Wall St. banking sector.  ~100B today.
> 
> Total coincidence I'm sure.  Equity markets are most certainly not tracking Fed repo operations. 
> 
> https://www.zerohedge.com/markets/li...rt-repo-crisis





> Ominously, the massive demand for term repo today means that the liquidity crisis that continues to percolate just below the surface of the market and has clogged up the critical plumbing within the US financial system, is getting worse, not better, and today's massive oversubscription indicates that one or more entities continues to face a dire shortage of reserves, i.e., cash. As for what they are doing with that cash, one look at Tesla this morning may provide an answer.


And Tesla had a drop at the end of the day. Sounds like some boys on Wall St. are day trading with no interest Fed loans. Nothing to see here, move along.

Moral hazard and malinvestment, as Ron Paul would say.

----------


## devil21

> Fed started putting money into the repo markets in September.  Did Tesla stocks soar then?  Has the stock market in general soared?   Or just specific stocks?


"Agenda 2030" stocks sure have and continue to.  If it's a stock related to Agenda 2030 goals, it has as much Fed cash as it needs to continue operations.  Obviously Musk has known that Tesla _will not be allowed to fail as an Agenda 2030 company_, hence his constant mocking of shorts and blatant disregard for securities law.

----------


## Zippyjuan

> "Agenda 2030" stocks sure have and continue to.  If it's a stock related to Agenda 2030 goals, it has as much Fed cash as it needs to continue operations.  Obviously Musk has known that Tesla _will not be allowed to fail as an Agenda 2030 company_, hence his constant mocking of shorts and blatant disregard for securities law.


How have other "Agenda 2030" stocks performed?  Have they also been soaring since September?




> it has as much Fed cash as it needs to continue operations.


How much money has the Fed given to Tesla?  Other Agenda 2030 companies? 

(Rising stock prices don't give any new money to a company- they got their money when they sold shares.  It is the share holders who benefit from the rising stock prices- not the company- unless they own their own shares and even then they would not realize any of those gains unless they sold their stock).

----------


## devil21

> How have other "Agenda 2030" stocks performed?  Have they also been soaring since September?


Pretty much all the spy tech stocks, autonomous car stocks, food delivery stocks, rent-a-thingie stocks, streaming propaganda social engineering tv stocks.  They're all under the umbrella of Agenda 2030 stocks.  They've all done well since the PPT was turned on in Jan 19 and have continued to do well.  Record NASDAQ and SP500 today, no?  They're all for conditioning people to a reduced standard of living in Gaza-like controlled movement cities.  Living in jail cells without even realizing it...  




> How much money has the Fed given to Tesla?  Other Agenda 2030 companies?


Who knows.  The Fed open market operations aren't audited and what is audited is a rubber stamp.  Remember how we needed an act of Congress to find out about the trillions doled out in secret?




> (Rising stock prices don't give any new money to a company- they got their money when they sold shares.  It is the share holders who benefit from the rising stock prices- not the company- unless they own their own shares and even then they would not realize any of those gains unless they sold their stock).


Gee, I'm glad to know that.  There haven't been giant routine buyback programs going on for the last 10 years or anything like that, has there?  
Then there's stock as collateral for debt raising so yes rising valuations do (or at least can) give new money to a company.  The higher the stock value, the better the collateral it is, the more debt the company can secure to keep the lights on even when they're otherwise a money losing zombie corp.  As long as the Fed keeps pumping new cash into Wall St, the stock market is artificially held up, valuations are artificially held up, debt interest rates are suppressed, which allows Agenda 2030 companies to finish their social and physical engineering projects.  That is, until the curtain is pulled back and we find out they're mostly just institutionally supported _Enrons_.  Book cooking, money laundering operations is what the markets have become.

Tell us again Zip how repo was only overnight and only for a few days, won't you please?

----------


## Pauls' Revere

> I went ahead and played some Goszilla live today anyway .


Saw B.O.C. play Godzilla live back in the day.

----------


## oyarde

> Saw B.O.C. play Godzilla live back in the day.


I think I have seen them at least three times . Great music .

----------


## devil21

Fed just announced HUGE bond buying program.  $1.5T number floated.

https://www.cnbc.com/2020/03/12/fed-...purchases.html

----------


## devil21

fun thread to review.  fed still pledging to prop up tesla via outright corporate bond buying while 401ks crash into nothingness.

----------


## Warlord

> fun thread to review.  fed still pledging to prop up tesla via outright corporate bond buying while 401ks crash into nothingness.


Gold was up 70 bucks today.  They can only suppress it for so long.

----------


## devil21

> Gold was up 70 bucks today.  They can only suppress it for so long.


Really, who is still talking about _tariffs_ now?

There's a big part of me that wants to rub Zip's, Swordy's and other noses in this turn of "news" but they're gone....so whatevs.

Treasuries are backed entirely by the working stiff's ability to pay interest to the bankers on debts, that's it.  No worky=no taxy=no value.

----------


## Warlord

> Really, who is still talking about _tariffs_ now?
> 
> There's a big part of me that wants to rub Zip's, Swordy's and other noses in this turn of "news" but they're gone....so whatevs.
> 
> Treasuries are backed entirely by the working stiff's ability to pay interest to the bankers on debts, that's it.  No worky=no taxy=no value.


If you have some spare time i highly recommend :

http://www.ronpaulforums.com/showthr...4-hour-Q-amp-A

----------


## devil21

Ding ding ding.  What do I win?  

The article claims the Treasury ends up taking back all the Treasuries as bagholder and that may happen (I said the Fed would be ultimate bagholder) but close enough for government work.  Ashes to ashes, dust to dust.  The $#@! was never real in the first place.

https://finance.yahoo.com/news/feds-...110052807.html




> In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.
> 
> This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.


Fwiw, it don't agree with the author's belief that stocks markets will ramp in response.  These various debt instruments, that the Fed is buying, that are being "repatriated" (and canceled out) were the basis of much of the point values of the indexes in the first place, especially since probably 2001 but maybe as far back as early 1970's when the dollar became backed by fairy tales (Dow 3000-5000), along with general currency in circulation.  Basic accounting says those entries have to be zero'ed out to balance the books and the associated points on the indexes removed also.  Hence also the push to remove FRN cash from circulation as much as practical.  They are liabilities that originated from Treasuries.

---------------
I should also incorporate my other long running threads about this grand plan:
http://www.ronpaulforums.com/showthr...-money-is-done

and

http://www.ronpaulforums.com/showthr...-the-US-dollar

----------


## devil21

Now the Fed will be 'repoing' Treasuries held by other central banks

https://www.zerohedge.com/markets/fe...n-central-bank




> this time to foreign central banks, in the form of a repo facility targeting "foreign and international monetary authorities", i.e. foreign central banks which will be allowed to exchange Treasuries held in custody at the Fed for US dollars.


Treasury issue dumping is in full effect now.

----------


## oyarde

> Now the Fed will be 'repoing' Treasuries held by other central banks
> 
> https://www.zerohedge.com/markets/fe...n-central-bank
> 
> 
> 
> Treasury issue dumping is in full effect now.


Yes. That is set to run up to Oct 06 right now .

----------


## Bern

Fed balance sheet this Thursday is going to be very interesting.  The FIMA repos don't start until next week.  Fed balance sheet a week from Thursday is going to also be very interesting.

----------


## Bern

4/2/20:  $ 5.859T

Fed balance sheet will break $6T for sure next week.  Will it hit $7T with the FIMA repos?

----------


## Krugminator2



----------


## Krugminator2

> Here's the REAL truth from Schiff on Powell/Yellen/Bernanke: *'As clueless as ever!'.
> 
> *


Peter Schiff has three equity funds. Here is how they have performed. Posted without comment

https://europacificfunds.com/funds/gold-fund/ 
Cumulative performance of his gold fund since it started 2013= -9.53% over seven years

Cumulative performance of his International Value fund since 2010= -25.86%. 
https://europacificfunds.com/funds/value-fund/

https://europacificfunds.com/funds/small-companies-fund
Cumulative Performance  of his  Emerging Markets Small Cap funds = .99% since 2010. 

Here is how the S&P 500 etf has performed since 2010 not including dividends= +132%

----------


## Warlord

Updated with Schiff Podcasts talking about Powell/Yellen/Bernanke. 

Check them out  @devil21and  @Krugminator2

----------


## Warlord

> Peter Schiff has three equity funds. Here is how they have performed. Posted without comment
> 
> https://europacificfunds.com/funds/gold-fund/ 
> Cumulative performance of his gold fund since it started 2013= -9.53% over seven years
> 
> Cumulative performance of his International Value fund since 2010= -25.86%. 
> https://europacificfunds.com/funds/value-fund/
> 
> https://europacificfunds.com/funds/small-companies-fund
> ...


Are you sure your looking at the right funds ?

*Why Peter Schiff’s international fund is up over 35% year-to-date
*
https://www.cnbc.com/2016/09/07/pete...tual-fund.html

2016.

I don't invest with Schiff though I listen to him on economics and politics because he tells the truth using common sense Austrian economics.

----------


## Krugminator2

> Are you sure your looking at the right funds ?


Yes. The fund you linked to has lost a quarter of its value since inception. It also did well in 2016 when gold miners rallied. I am taking the performance right off the prospectus on his site which was updated last week.

----------


## Warlord

> Peter Schiff has three equity funds. Here is how they have performed. Posted without comment
> 
> https://europacificfunds.com/funds/gold-fund/ 
> Cumulative performance of his gold fund since it started 2013= -9.53% over seven years
> 
> Cumulative performance of his International Value fund since 2010= -25.86%. 
> https://europacificfunds.com/funds/value-fund/
> 
> https://europacificfunds.com/funds/small-companies-fund
> ...





https://www.youtube.com/watch?v=dVW5LKPBe3k

Skip to 31:50 he talks about his 'underperforming' funds and points out he is doing very well now and it's just the beginning.  Morning Star has raised his 4 year performance from 1 star to 4 star.  He talks about the gold stocks and Newmont which he owns a bunch of and is up 32% on the year.

----------


## Krugminator2

> Are you sure your looking at the right funds ?


Yes. The fund you linked to has lost a quarter of its value since inception. It also did well in 2016 when gold miners rallied. I am taking the performance right off the prospectus on his site which was updated last week.

Gold  miners were up almost 100% on the year in 2016 when your CNBC was written. I don't see so well. How have they done the rest of the time outside of the small window when they promo was written.

----------


## Warlord

> Yes. The fund you linked to has lost a quarter of its value since inception. It also did well in 2016 when gold miners rallied. I am taking the performance right off the prospectus on his site which was updated last week.
> 
> Gold  miners were up almost 100% on the year in 2016 when your CNBC was written. I don't see so well. How have they done the rest of the time outside of the small window when they promo was written.
> https://bigcharts.marketwatch.com/ad...false&state=12


Read my previous posts. He specifically talks about the so called undeperformance. He is not going to invest in a bubble (US stocks). He was waiting for a specific outcome which is now happening and will continue to happen.

----------


## Krugminator2

> Read my previous posts. He specifically talks about the so called undeperformance. He is not going to invest in a bubble (US stocks). He was waiting for a specific outcome which is now happening and will continue to happen.


Morningstar rates relative to asset class. Peter Schiff has recommended international stocks and gold stocks  for the last decade, which would have lost you money. https://www.investmentnews.com/peter...s-stocks-31335 So basically you had to miss the bull market of a lifetime and lose money for a decade. Okay. Probably not a good strategy. 

BTW I am bullish on gold and gold miners over the coming years.

This post was the exact bottom day in gold. 



> It is funny there no gold threads right now when it actually makes sense to be a gold bull. There were all sorts of them in 2013 during euphoria. A couple of interesting factoids.
> 
> Here is the average return of gold miners when you have selloffs like this.

----------


## devil21

> 5/7/20 - $ 6.769 T
> 
> Just a $66B increase (over last week).  Looks like the Fed now owns $4B in the "Commercial Paper Funding Facility II LLC".


Any indication who the 4B went to?  4B via the Fed, but really from the Treasury via the ESF would cover a bunch of Citadel's daily wash trading.

https://www.federalreserve.gov/newse...y20200317a.htm

The Fed specifically cites 13(3) as the authority for this program.  4B is pretty much nothing for corporate bond issuance but sure will buy up large chunks of S&P futures overnight.  All of the S&P gains now are from _overnight futures buying_.  PPT money laundering via blatant FRA violations and the taxpayer is on the hook for all of it.




> The Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the CPFF from the Treasury's Exchange Stabilization Fund (ESF). The Federal Reserve will then provide financing to the SPV under the CPFF. Its loans will be secured by all of the assets of the SPV.

----------


## Bern

> Any indication who the 4B went to? ...


I haven't seen any detail on it.  I only just now (when I looked prior to my last post) noticed the line item in the report.  Apparently they started reporting on it with the April 16 report.  It went from $0 -> $0.95B -> $2.71B -> $3.347B -> $3.948B. A drop in the bucket of the overall balance sheet for sure, but it would be interesting to know which zombies the Fed are helping to continue to eat brains.

Wolf Richter posted another analysis of the balance sheet report:

https://wolfstreet.com/2020/05/08/fe...ust-jawboning/

I'm not sure he noticed the CPFF line item as he says they haven't bought junk bonds yet...

----------


## devil21

Fed says it is starting junk bond ETF buying today.  Markets seem unimpressed so far and the pledged figures in the ZH link are relatively small.
https://www.zerohedge.com/markets/fe...-you-need-know

I'll still believe it when the balance sheet reflects it.  Besides, buying ETFs isn't the same as buying the underlying asset so buying any ETF is bigly violating 13(3).  They could have maybe played loose with the FRA if they'd actually bought junk bonds with proper diligence under 13(3).  But ETFs are market funds that contain bonds, so the Fed isn't actually even buying bonds.  Whenever someone buys an ETF, they're not buying the underlying asset (usually, except in rare cases like GLD where physical delivery may be possible), they're just buying a trading vehicle that reflects the assets held in trust by the ETF issuer.  So if the SPV is buying the ETF, the Fed/SPV isn't buying the bonds themselves.  Blackrock holds the junk bonds in LQD.  StateStreet holds the bonds in JNK.

----------


## r3volution 3.0

> Fed says it is starting junk bond ETF buying today.  Markets seem unimpressed so far and the pledged figures in the ZH link are relatively small.
> https://www.zerohedge.com/markets/fe...-you-need-know
> 
> I'll still believe it when the balance sheet reflects it.  Besides, buying ETFs isn't the same as buying the underlying asset so buying any ETF is bigly violating 13(3).  They could have maybe played loose with the FRA if they'd actually bought junk bonds with proper diligence under 13(3).  But ETFs are market funds that contain bonds, so the Fed isn't actually even buying bonds.  Whenever someone buys an ETF, they're not buying the underlying asset (usually, except in rare cases like GLD where physical delivery may be possible), they're just buying a trading vehicle that reflects the assets held in trust by the ETF issuer.  So if the SPV is buying the ETF, the Fed/SPV isn't buying the bonds themselves.  Blackrock holds the junk bonds in LQD.  StateStreet holds the bonds in JNK.


It's all about expectations; they're trying to delay things, to maintain the magic act.

Sooner or later, LQD and JNK are going to get wrecked if they don't get bought by the Fed.

...along with pretty much everything else. 

Therefore, they will get bought.

----------


## Bern

5/14/20 - $6.982T

$213B increase.  Biggest weekly increase in a month after steadily declining increases.

----------


## oyarde

213 billion . Now we are getting somewhere .

----------


## r3volution 3.0

> 5/14/20 - $6.982T
> 
> $213B increase.  Biggest weekly increase in a month after steadily declining increases.


The crackheads at Wall and Broad disliked the anti-NIRP comments, I suppose, so Powell had to throw some more crack at them.

----------


## devil21

> 5/14/20 - $6.982T
> 
> $213B increase.  Biggest weekly increase in a month after steadily declining increases.


Anything in the junk bond SPV yet?

----------


## Bern

Yeah, $305 million worth.  They started buying Tuesday, so balance sheet report just shows the first two days or so of activity.  They are just getting started.

https://wolfstreet.com/2020/05/14/fe...-a-huge-rally/

----------


## devil21

> Yeah, $305 million worth.  They started buying Tuesday, so balance sheet report just shows the first two days or so of activity.  They are just getting started.
> 
> https://wolfstreet.com/2020/05/14/fe...-a-huge-rally/


Thanks.  It's nice to document when the Fed officially and publicly violated the FRA even if a tiny amount by today's standards.

----------


## Madison320

> The crackheads at Wall and Broad disliked the anti-NIRP comments, I suppose, so Powell had to throw some more crack at them.


I have a feeling that 30 years from now there'll be books written about the "Great Dollar Collapse" and how dumb everyone was to think we could just print our way to prosperity. 

And then 60 years from now they'll be saying "this time it's different!".

----------


## r3volution 3.0

> I have a feeling that 30 years from now there'll be books written about the "Great Dollar Collapse" and how dumb everyone was to think we could just print our way to prosperity. 
> 
> And then 60 years from now they'll be saying "this time it's different!".


Something about rhyming...

----------


## Madison320

> Something about rhyming...


That went over my head, I need a hint.

----------


## devil21

> That went over my head, I need a hint.


History doesn't repeat but it does rhyme.

----------


## Bern

5/21/20 - $7.085T

$103B increase. Less than half of last week's increase.




> Federal Reserve purchases of exchanged-traded funds invested in corporate debt totaled $1.8 billion in the first six days of the program, according to data published Thursday.
> ...


https://www.bloomberg.com/news/artic...nd-etfs-so-far

----------


## r3volution 3.0

> That went over my head, I need a hint.


Go whitewash something.

----------


## devil21

Rumors/reports that now-bankrupt Hertz bonds are part of the Fed's portfolio now via the ETF buying.  If true and not simply a meme, chalk up another 13(3) violation, as obviously there was no diligence done before the purchase so as to ensure the Fed wasn't buying bonds of insolvent corps nor shielding taxpayers from untenable risks.

----------


## Madison320

> Go whitewash something.


I figured it out from the devil21's hint, your's was an advanced jeopardy hint.

----------


## Krugminator2

> Rumors/reports that now-bankrupt Hertz bonds are part of the Fed's portfolio now via the ETF buying.  If true and not simply a meme, chalk up another 13(3) violation, as obviously there was no diligence done before the purchase so as to ensure the Fed wasn't buying bonds of insolvent corps nor shielding taxpayers from untenable risks.



I am not sure where I stand on the Fed purchasing junk bonds. Seems like a bad idea and soft bailout to junk bond holders but maybe not. From a quick Google search they just bought junk bond ETFs which is what you said.

Your reasoning wouldn't factor into at all whether it made sense to buy junk bonds. If you are buying a portfolio of high yield bonds, some are going to default. That's why they yield more.  This isn't an untenable risk as you said. Over time the Fed will make more by owning junk bonds than regular corporate bonds whether they do any due diligence or not.

That said, I can't articulate whether it makes sense to buy them or not buy them as part of monetary policy. It would seem this would be very distortionary to markets though but maybe it is necessary for liquidity.

----------


## oyarde

> I am not sure where I stand on the Fed purchasing junk bonds. Seems like a bad idea and soft bailout to junk bond holders but maybe not. From a quick Google search they just bought junk bond ETFs which is what you said.
> 
> Your reasoning wouldn't factor into at all whether it made sense to buy junk bonds. If you are buying a portfolio of high yield bonds, some are going to default. That's why they yield more.  This isn't an untenable risk as you said. Over time the Fed will make more by owning junk bonds than regular corporate bonds whether they do any due diligence or not.
> 
> That said, I can't articulate whether it makes sense to buy them or not buy them as part of monetary policy. It would seem this would be very distortionary to markets though but maybe it is necessary for liquidity.


Ya I don't see how it is necessary .

----------


## devil21

> I am not sure where I stand on the Fed purchasing junk bonds. Seems like a bad idea and soft bailout to junk bond holders but maybe not. From a quick Google search they just bought junk bond ETFs which is what you said.


13(3) does not grant authority to purchase ETFs, period.  ETFs of defaulting bonds is icing on the cake.




> Your reasoning wouldn't factor into at all whether it made sense to buy junk bonds. If you are buying a portfolio of high yield bonds, some are going to default. That's why they yield more.  This isn't an untenable risk as you said.


Read 13(3) and the qualifications required for the Fed buying bonds.  It explicitly states that the taxpayer shall not be put at risk and that the issuer proves it is not otherwise insolvent.  Obviously neither of those circumstances have been met, if indeed the Fed now is on the hook for ETFs that contain bonds that are already insolvent.  The whole reason they had to buy was because no one with any sense would lend money to companies that were likely to go out of business.  The whole thing is a giant violation of the Fed's charter.  "The Fed can only loan, it can not spend."  Creating a money laundering shell company to spend newly created money into the stock market directly is not a loan.  It is spending.




> Over time the Fed will make more by owning junk bonds than regular corporate bonds whether they do any due diligence or not.


Irrelevant since the Fed is violating 13(3) by this whole operation.  Whether they "make" money (a ridiculous statement on its face for obvious reasons...that's all the Fed does is "make" money) is irrelevant. 




> That said, I can't articulate whether it makes sense to buy them or not buy them as part of monetary policy. It would seem this would be very distortionary to markets though but maybe it is necessary for liquidity.


Everything the Fed and Treas has done since middle of last year has distorted markets.  Now they're just finishing off the demolition of anything resembling a market and breaking the law in the process.  Must be nice to create shell companies for the express purpose of money laundering, since when anyone else does that they go to prison for 20 years.

----------


## r3volution 3.0

> 13(3) does not grant authority to purchase ETFs, period.  ETFs of defaulting bonds is icing on the cake.
> 
> Read 13(3) and the qualifications required for the Fed buying bonds.  It  explicitly states that the taxpayer shall not be put at risk and that  the issuer proves it is not otherwise insolvent.  Obviously neither of  those circumstances have been met, if indeed the Fed now is on the hook  for ETFs that contain bonds that are already insolvent.  The whole  reason they had to buy was because no one with any sense would lend  money to companies that were likely to go out of business.  The whole  thing is a giant violation of the Fed's charter.  "The Fed can only  loan, it can not spend."  Creating a money laundering shell company to  spend newly created money into the stock market directly is not a loan.   It is spending.
> 
> Irrelevant since the Fed is violating 13(3) by this whole operation.   Whether they "make" money (a ridiculous statement on its face for  obvious reasons...that's all the Fed does is "make" money) is  irrelevant. 
> 
> Everything the Fed and Treas has done since middle of last year has  distorted markets.  Now they're just finishing off the demolition of  anything resembling a market and breaking the law in the process.  Must  be nice to create shell companies for the express purpose of money  laundering, since when anyone else does that they go to prison for 20  years.


You my friend may be overestimating the importance of the law. 

The law is whatever the state says it is, day by day. 

If  certain laws restraining Fed action prove inconvenient, those laws will  either be changed or ignored (so far they've been ignored). 

I  hear people, sensible people, say that a solvency crisis can't be solved  with liquidity. That is, the life of a bankrupt company can only be  extended for so long through increasingly lower-rate refinancing of  their debt. Eventually the company must have profits, or at least  revenues (!). That's true, in  a way, but it also lacks imagination, if  you try to see things from the perspective of a  counterfeiter communist central  banker. Right now, the Fed is buying debt to suppress rates, to allow  favorable refinancing for cronies. When they buy this debt, they collect  the associated interest payments and, eventually, principal amounts. 

But  suppose they bought the debt and cancelled it; no interest or principal  due ever (or perhaps it'll be "deferred until the crisis ends"). They  could do the same with equities. Both would amount to straight cash  gifts, to create profits, or even revenues, where none exist. If the Fed  committed to this, companies could and would take advantage of it by  issuing more debt/equity. It would be a way for the Fed to allow  companies to print their own money, in effect, albeit in a controlled  way. I'm not saying that's going to happen, but, if that needs to happen  to prevent this bubble from becoming a dumpster fire, it will happen.  And that's not even considering "MMT" (i.e. the usual welfare spending,  but a lot more, and even more obviously inflation financed).

We're currently shocked by what the Fed's doing, the sheer scale of it; I fear that in a few years, this is going to be peanuts.

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## Bern

5/28/20 - $7.145T

$60B increase over last week. Balance sheet expansion appears to be slowing down.

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## devil21

> You my friend may be overestimating the importance of the law. 
> 
> The law is whatever the state says it is, day by day. 
> 
> If certain laws restraining Fed action prove inconvenient, those laws will  either be changed or ignored (so far they've been ignored).


That much is apparently true.  I read the FAQ for the Main Street Lending Facilities they're about to roll out.  Now, "insolvency" has become a flexible term and depends on when the borrower _certifies_ that they started having funding problems.  Pretty much all of it is on the honor system and due diligence is completely left up to the loan originating bank.  The Fed will perform ZERO diligence on loans it buys through the SPV even though 13(3) requires it.  They've officially thrown the FRA out the window and it's quite possible at this point that a behind-the-scenes change has been made where the Fed is no longer the _Fed_, as we knew it previously, since it's the Treasury actively backing all of these SPVs via the ESF, with the Fed appearing to act mostly as a pass-through entity.  We won't know for years.




> I  hear people, sensible people, say that a solvency crisis can't be solved  with liquidity. That is, the life of a bankrupt company can only be  extended for so long through increasingly lower-rate refinancing of  their debt. Eventually the company must have profits, or at least  revenues (!). That's true, in  a way, but it also lacks imagination, if  you try to see things from the perspective of a  counterfeiter communist central  banker. Right now, the Fed is buying debt to suppress rates, to allow  favorable refinancing for cronies. When they buy this debt, they collect  the associated interest payments and, eventually, principal amounts.


The banks are collecting the _earned_ money up front in the form of 1% processing fees, in the case of the Main Street SPVs, in exchange for their created.  Earned money is what the banks care about since the rest of their "loans" are valueless accounting entries.




> But  suppose they bought the debt and cancelled it; no interest or principal  due ever (or perhaps it'll be "deferred until the crisis ends"). They  could do the same with equities. Both would amount to straight cash  gifts, to create profits, or even revenues, where none exist. If the Fed  committed to this, companies could and would take advantage of it by  issuing more debt/equity. It would be a way for the Fed to allow  companies to print their own money, in effect, albeit in a controlled  way. I'm not saying that's going to happen, but, if that needs to happen  to prevent this bubble from becoming a dumpster fire, it will happen.  And that's not even considering "MMT" (i.e. the usual welfare spending,  but a lot more, and even more obviously inflation financed).


The Fed can't spend, only lend.  Handing out loans that are never intended to be collected is akin is spending.  The Main Street SPVs don't require any payments until after a year.  Indeed it is quite possible, if not likely, that all of this will never be paid back nor is it intended to be.




> We're currently shocked by what the Fed's doing, the sheer scale of it; I fear that in a few years, this is going to be peanuts.


I don't see how the FRN lasts nearly that long, seeing how the petrodollar standard is unraveling in fast fashion.  Hyperinflation is the only outcome if this money creation continues and even ramps up to ludicrous speed, without the ability to export the inflation to China and Europe, military bases, etc.

But yeah your point overall is taken about the Fed and the FRA.  They've always stuck to the rules, more or less, but I guess that's out the window now and no one, especially not Congress, who are stealing money hand over fist during all of this, cares one bit.

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## Bern

6/4/20 - $7.213T
6/11/20 - $7.217T
6/18/20 - $7.143T

Incredibly, the Fed is reporting that their balance sheet actually shrunk $74B over the last week. 




> ...
> This $74 billion decline in total assets during the week was powered by a plunge in repo balances and foreign central bank liquidity swaps, while some alphabet-soup programs also unwound. And the junk-bond and ETF buying program stalled.
> 
> And there is a big shift happening: The Fed has started lending to entities, including states and banks, under programs that channel funds into spending by states, municipalities, and businesses, rather than into the financial markets. These types of programs are propping up consumption – not asset prices. That’s a new thing. I don’t think the hyper-inflated markets, which have soared only because the Fed poured $3 trillion into them, are ready for this shift.
> ...


More:  https://wolfstreet.com/2020/06/18/fe...njection-ends/

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## devil21

According to this analysis, the Fed really did mostly jawbone about corporate bond purchases.  Nowhere near the $750b cash water hose that was promised.  Their buying was, by Fed standards at least, window dressing and mostly stopped last month.

https://www.zerohedge.com/markets/po...e-month-august




> As Johnson concludes, it suddenly seems "that for now the Fed does NOT have “your back” if you’re buying overvalued companies that lose money with no end in sight" and furthermore with CPI starting to run hot "it seems the Fed may be seeing the “fruits” of its recent jawboning (i.e., creating a bond bubble and bailing out asset holders during the worst economy in our lifetime, despite not taking any real action) souring a bit."

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## Madison320

> According to this analysis, the Fed really did mostly jawbone about corporate bond purchases.  Nowhere near the $750b cash water hose that was promised.  Their buying was, by Fed standards at least, window dressing and mostly stopped last month.
> 
> https://www.zerohedge.com/markets/po...e-month-august


It's early. I think we've basically been in the same cycle since 2009. Crash - Print - Rebound - Crash - Print - Rebound ...

Except the time between crashes keeps getting shorter, and the amount it takes to print to cause a rebound keeps getting bigger.

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## r3volution 3.0

> The Fed can't spend, only lend.  Handing out loans that are never intended to be collected is akin is spending.


Exactly, what's the difference between a zero coupon perpetual bond and a gift?

The only reason they do this is to maintain the illusion that they're still in control, that they can reverse this at some point.

They can't; they will print until the currency collapses (or at least is greatly devalued). 




> I don't see how the FRN lasts nearly that long, seeing how the petrodollar standard is unraveling in fast fashion.  Hyperinflation is the only outcome if this money creation continues and even ramps up to ludicrous speed, without the ability to export the inflation to China and Europe, military bases, etc.


We're in agreement about the endgame, we'll see about timing.

It doesn't much matter from an investing point of view; gold goes up fast or _really_ fast.

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## Bern

I haven't been posting updates to this thread, but I have been watching the Fed's balance sheet via their weekly reports.  The Fed was bouncing around the $7T mark for several weeks, but it looks like the last two weeks are showing balance sheet growth again.

9/10/20 - $7.059T (6B decrease from week before)
9/17/20 - $7.113T (54B increase from week before)
9/24/20 - $7.141T (28B increase from week before) 

If the Fed averages $30B a week increase, the balance sheet should hit $8T in about 29 weeks - just over half a year.

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## r3volution 3.0

> I think we're saying the same thing in different ways. 
> 
> The fundamental economic problem is that the state's policies are  diverting increasingly large quantities of resources toward relatively  unproductive (if not actually consumptive) enterprises (e.g. "zombie  companies"). Since the state finances these redistributions through  inflation (because of political limits to conventional taxation), the  end result will be inflationary. Barring a radical political change that  would curb the growth of the state's economic interventions, we're  going to experience declining economic growth and rising inflation. We  should expect a repeat of the 1970s, *except this time there will be no  Volcker on a white horse*. The misallocations are much worse now than  they were c. 1980, and the liquidation required to correct them would be  so painful that a Volcker-esque policy is politically impossible. I  don't see any plausible argument for any outcome other than massive  devaluation. That doesn't mean that there can't be a traditional,  deflationary recession at some point (or several points) over the course  of this future, because the Fed isn't always able to predict exactly  when and how much it needs to print to prevent one, but they aren't  going to allow the kind of cleansing liquidation that's necessary to fix  the system. If they launched nearly half a trillion not-QE QE during  relatively good times, imagine what they're going to do if/when GDP  actually goes negative one quarter. Draghi's "whatever it takes" wasn't  hyperbole.
> 
> P.S. If you look at a chart of the federal funds rate, note how there  have been lower highs and lower lows each cycle since c. 1980. In a way,  that tells the whole story. There's lot of talk by central bankers and  mainstream economists about the zero bound and unconventional monetary  policy, even leaking into the popular press, but the silence as to _why_ we're at this point, or what it really _means_,  is deafening. They treat it like some kind of technical difficulty  solvable by tweaking the XYZ lending facility, when actually it  represents the *terminal crisis of this monetary system*.


The banks have become a utility whose function is to purchase treasuries, the trillions and trillions of treasuries now coming to market.

It's very much like what was done during the Second World War, with full mobilization. 

...except that, this time, the country is utterly bankrupt, in peacetime, and cannot possibly recover.

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## r3volution 3.0

> I think it was at the last Fed meeting at Jackson Hole I saw this interview with a guy from India. The interviewer asked him something like: "Why can't you just lower rates (in India) to promote growth?" He replied: "We're not like you, we have to worry about inflation." 
> 
> It's like we're in this fantasy world where the laws of economics have been suspended. But it can't last forever.


And it won't; the dollar lost nearly 10% against the euro, franc, etc, at the height of the crisis.

It will keep losing more as these crises unfold; more importantly, the dollar and its competitors are all losing against gold.

It's possible that the dollar will beat the euro, etc, for a time, while all devalue against gold. 

Gold being an international money, the only true one, it will beat all the devaluing state currencies, as it has for years.

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## devil21

Reverse repos aka reverse QE aka "tapering" already underway?

http://www.ronpaulforums.com/showthr...s-has-returned

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