Fed Reverse Repos Reveal Big Cracks In The Financial System

Since the Fed’s QE program largely tapered at the end of 2014 (note:  the Fed still used interest on its mortgage holdings to buy more mortgages), the size and volatility of the Federal Reserves reverse repo operations with banks – especially foreign banks – has been continuously increasing:

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The most likely explanation for this is growing liquidity problems in the western banking system connected to increasing instability in OTC derivatives. While all fingers point to Deutche Bank, DB is just one player in large game in which every player is inextricably connected.  But the eventual derivatives financial nuclear melt-down will probably be triggered by DB, and the fact that the ECB enabled Deutsche Bank to cheat on the BIS-mandated bank stress tests reinforces this view:  ECB Allow DB To Cheat.

The scale and severity of this problem is going to explode now that the U.S./western housing and auto loan bubbles are beginning to pop.

In today’s Shadow of Truth episode, we discuss some possible meanings embedded in the two graphs above plus a couple other topics not covered by the mainstream financial media propaganda:

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2 thoughts on “Fed Reverse Repos Reveal Big Cracks In The Financial System

  1. My take on the Venezuelan gold swap with Deutsche Bank.

    Firstly in a Venezuelan everybody gets paid when I used to do them we were talking 5% nowadays I guess its 2%.
    Secondly Deutsche Bank will have a huge exposure to Venezuela not only in loans but also the Hermes program and the trade debt guarantee by the German state. If Venezuela gets a right of set off in the swaps ,which is now normal as swaps have a higher priority under the rules than loans, Venezuela will be many times covered on its gold price exposure to Deutsche Bank so even if gold goes up say 5* they will be probably be covered. The swap makes sense to get the country out of a hole.
    Thirdly with sovereign syndication structures it is entirely possible to peg the security to other peoples debt – hypothecate the interest of the participants in the syndicated loan. This would on sale of the gold by Deutsche Bank would free up absolutely free money just like MF Global and John Corzine.

    All in all a great deal. Less corporate finance more corporate burglary.

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