Tag Archives: Repo rate

The Fed’s Money Printing Escalates

Last week the Fed announced that it was going to start buying $60 billion in T-Bills per month at least into Q2 2020.  The Fed will also rollover the proceeds as the T-Bill’s mature. The rationale was to address the decline in the “non-reserve” liabilities of the Fed.  So what are “non-reserve” liabilities?  Federal Reserve Notes.

The directive as written was “Fed Speak” which means that the Fed would print $60 billion per month for the next 4-6 to months cumulatively.  If it’s only 4 months, it means that the Fed will be printing at least a quarter trillion dollars which apparently will be become permanently part of the Fed’s balance sheet.

Chris Marcus invited me onto this Arcadia Economics podcast to discuss probably reasons why the Fed has ramped up its money printing operations despite explaining a month ago that it was only temporary to address quarter-end issues:

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An Unavoidable Global Debt Implosion

“[Whatever] the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. a new banking crisis is not only in the making, for which the repo problem serves as an early warning, but it could escalate quite rapidly.” Alasdair Macleod, “The Ghost of Failed Bank Returns”

The delinquency and default rate on consumer and corporate debt is rising. This creates funding gaps and cash flow shortfalls at banks. In a fractional banking system, banks only have to put up $1 of reserve for every $9 of money loaned. When the value of the loans declines because of non-performance, it requires capital – cash liquidity – to make up the shortfall in debt service payments received by the banks. In simple terms, the banks are staring at a systemic “margin call.”

To be sure, the current repo funding shortfall may subside. But it will not fix the underlying causes (Deutsche Bank, CLO Trusts, subprime debt, consumer debt, derivatives), which are likely leading up to another round of what happened in 2008 – only worse this time.

Chris Marcus of  Arcadia Economics  invited me to discuss my thoughts on the meaning behind the sudden need for the Fed to inject $10’s of billions into the overnight bank lending system:

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You can learn more about  Investment Research Dynamics newsletters by following these links (note: a miniumum subscription period beyond the 1st month is not required):  Short Seller’s Journal subscription information   –   Mining Stock Journal subscription information

Repo Rates And Gold: Something Big Is Happening

“We can ignore reality, but we cannot ignore the consequences of ignoring reality.” – Ayn Rand

Something big is happening beneath the surface of a Dow and S&P 500 trading near all-time highs. The soaring repo rate, more demand for overnight Fed funding loans than is being supplied and a big move in the price of gold since the end of May are clear indicators.

The global financial system is unsustainably over-leveraged. This problem is compounded by the massive increase in OTC derivatives. The U.S. financial system, in exceptional fashion, leads the way. Trump calls it “the greatest economy ever.” Yet the Fed was unable to “normalize” the Fed Funds Rate back up to just the historically average level without crashing the financial system. In fact, the Fed couldn’t even get halfway there before it had to reverse course and take rates lower plus hint a more money printing.

Phil Kennedy of Kennedy Financial hosted me plus Larry Lepard (mining stock fund manager) and Jerry Robinson (economist and trend trader)  to discuss what appears to be a giant margin call on the global financial system and where we think the price  of gold is headed:

NOTE:  I will be analyzing the signal being sent by the soaring repo rate this week and why it may be evidence that the fractional reserve banking fiat currency system is collapsing in my Short Seller’s Journal this week. You can learn more about my newsletters here  Short Seller’s Journal  and here  Mining Stock Journal. Two weeks ago I presented ROKU as a short at $169 and last week Tiffany’s (TIF) at $98. So far my put play on ROKU has been a home run.