The Fed’s “Expedited, Closed” Meeting Is Pure Kabuki Theatre

More like Theatre of the Absurd, will all due respect and apologies to Albert Camu and Samuel Beckett.

The Fed announced a “meeting under Expedited Procedures” that will take place on Monday, November 23.  The “matter(s) considered” is a “review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks (regional).   You can see the notice as posted on the Fed website.

This meeting appears to be much ado about nothing – with all due respect to Shakespeare. Why?  The matter to be considered is the rates charged to banks under the Fed’s “Primary Credit” program – LINK.   This is commonly, generically referred to as the “discount window.”

Historically the discount window was the mechanism used by the Fed to enable member banks to borrow on a short term basis to meet temporary liquidity issues.  With the development of financial market technologies and the liberal use of the printing press since 1980, the discount window – i.e. the Primary Credit program – is rarely used.  The current rate charged to discount window borrowers is 50 basis points above the Fed Funds rate.

Let’s take a look under the hood (click on image to enlarge):


The table above is from the Fed’s latest update on its balance sheet. I’ve shaded in yellow the assets (loans to banks) that would be subject to the Fed’s “advance” and “discount” rates, which are the topic of the “emergency” meeting. If you take a magnifying glass to the numbers, you’ll see that there’s only $105 million that’s been borrowed from the Fed’s “discount window.” It’s next to meaningless in the context of the Fed’s $4.4 trillion balance sheet.

If you are interested, you can read the press releases from the last two monthly meetings which dealt with the discount rate policy:  LINK

It is highly likely that the Fed will raise the discount rate at Monday’s meeting.  It will have absolutely no affect on the Fed’s overall monetary policy and no affect on the economy. However, it will definitely reinforce the Fed’s poker face with regard to the outcome of its December FOMC monetary policy zoo-fest.

In fact, the Fed has in the past raised the discount rate to signal a tighter stance in monetary policy only to whiff on raising Fed Funds rates.  It’s pure Kabuki Theatre.

I really don’t know if the Fed will call its own bluff and raise the Fed funds rate.  It doesn’t really matter.  If the Fed raises rates it will trigger another move straight up in the dollar, which will further crush U.S. manufacturing exports.    I also have a feeling, although I can’t prove it, that even a small increase in bank funding rates (repo rates) would possibly trigger an “uncoiling” of some big derivatives trades in which the TBTF’s are stuck.

One last comment.  The KC Fed manufacturing survey was released today.  It nudged into positive territory after registering negative to highly negative readings for the previous 8 months in  a row.  It turns out, if scan through the details of the report – KC Fed manufacturing survey – you’ll see that the reading of 1 (“one”) in the composite index was achieved using “seasonal adjustments.”

It appears that the composite index was “juiced” both with seasonal adjustments and with expectations six months out – aka the “hope index.”  A further, deeper reading of the report shows that on a not seasonally adjusted year over year comparison basis  the “composite index” was -5 (negative five) for November.  In addition, the production index was negative to deeply negative on this basis for 10 of the last 11 months.  Ditto for average employee workweek, shipments and new orders for exports.  In other words, the economy is in bad shape and getting worse.

The Fed may well raise in December.  But if it does, it will throw the U.S. economy into a depression that will make the 1930’s depression look fun.  Having said that, I believe that the sudden and covert meeting called for Monday is nothing more than an opportunity to use a hike in the meaningless discount rate to jawbone/frighten the market into believing in December’s Santa Clause appearance just after the FOMC meeting.

16 thoughts on “The Fed’s “Expedited, Closed” Meeting Is Pure Kabuki Theatre

  1. Dave, I believe next week will be the 911 deux for U.S. Why? Because on 11-24-2015, Tuesday is the ninth month and the eleventh day (911) on the Jewish calendar. It is also given on the cover of the January 2015 Economist Magazine in symbolic terms and deciphered by one smart guy (Marshall Swing) on the silver doctors website yesterday. ThePowersThatBe need another 911 at this time but this will be the Big One that brings down the world financial system. As you and others wrote, something broke back in September ’15 – 60 days ago, but They have been keeping it together till Their “Go Date.” We know These are the same despots that were behind the first 911. God bless.

        1. OK I missed MP’s “Bo Baloney” comment so I posted your’s to be fair. But that’s enough name-calling on here. Let’s keep it civil and opinions limited to markets/politics.

          1. I’m with you Dave. No more from me. For some reason I let this get to me which I don’t usually let happen. There is a lot more anecdotal evidence that this week is going to Big and Bad for us all.

      1. Hey genius, (that’s the worst thing Dave will allow me to call you) just hold your name calling for a few more days. I promise I will not say “I told you so” when TPTB’s “Go Date” arrives and the collapse begins in earnest. That alone will be enough pain for your *#@*# ass.

  2. My bet the topic of discussion at their closed meeting is gold.
    They have deliveries that can’t be made.
    They need a war desperately to take the limelight away from a collapsing economy and all the other people’s gold they sold into the market to keep a lid on the price.
    My bet is that they will indeed raise interest rates by a quarter point just to further smash the price of gold.
    Use any and all weakness in the paper price of gold to unload the paper fraud known as Federal Reserve Notes and buy all you can afford.

    By the way….END THE FED.

  3. The FED has painted themselves into a corner with the 5% unemployment print … no longer any need for emergency rates with unemployment printing in the 5% range.

  4. So, if the FED goes for the quarter point and the dollar then sails past 100 in the relative basket of currencies, all dollar dominated debt then becomes harder to service, US exports decline (except for military hardware of course), mortgage rates rise crimping the struggling housing market, stocks sink as money pours into bonds, imports increase raising the US trade deficit thereby exporting more dollars which offsets the declining raw material imports of China, and the US dollar once again saves the day, and buys time until Hillary can really fix the state of the nation….What did I miss?

  5. Ronan Manly tweeted on this December gold summit a couple days ago. (See link at bottom)
    “Officially endorsed by the China Gold Association and the Shanghai Gold Exchange, the 10th China Gold & Precious Metals Summit 2015 will be convening 300+ top professionals from across the value chain including mining companies, refiners & fabricators, bullion dealers, mints, gold & commodities exchanges, central banks, investment & bullion banks, trading houses, money managers, brokerage firms, independent consultancies, jewelers, trade associations as well as policymakers.

    Now at its 10th anniversary, the conference will highlight an update regarding the trading rules, trading products, trading members and a yuan-denominated gold benchmark in particular on the SGE’s international board, the implications for China’s gold market from the country’s Belt and Road Initiative, and price trends and supply & demand fundamentals for gold, silver and platinum group metals amidst growing uncertainty over the timing of a U.S. rate rise, a stronger U.S. dollar, a plunge in commodity prices, a slowdown in China and growing optimism about the U.S. economy.

    Conference Spotlights
    ◆ Uncovering China’s roadmap for internationalization of the gold market and overseas development strategy of the gold
    mining industry against the backdrop of the country’s Silk Road initiative
    ◆ Unveiling the trading rules for a Chinese fix and the plan for trading products and trading participants expansion on the
    Shanghai International Gold Exchange
    ◆ Finding out where gold, silver and platinum group metals will be headed amidst a delayed Fed rate hike, a
    strengthening U.S. dollar and a generally recovering U.S. economy…”
    “Ronan Manly ‏@ronanmanly Nov 18
    Krastsvetmet and Union of Gold Producers of Russia are both sponsors for this year’s China Gold Summit @KoosJansen

    Ronan Manly ‏@ronanmanly Nov 18
    Trading rules for yuan-denominated Chinese SGE Gold fix to be unveiled at China Gold Summit 2015, Shanghai, 9-10 Dec

  6. Didn’t the central banks extend some scam-loan facility to Glencore back in September that was supposed to last 2 months, and is expiring around now?

  7. USD “hegemony” must prevail. This is not a matter of the USD and bullion’s polarized relationship, but a matter of their development on the basis of symbiosis. If you think the FED is tricky, you have no idea how right you are. There is a yin-yang of liquidity emerging thanks to the very early introduction of asset based, debt-free liquidity by way of the market. The yin needs some yang for its health and survival.

    Debt currency is an integral and imperative part of that yin-yang relationship as we add debt-free gold and silver (unit of account by it weight) into circulation. The addition of this real capital and added liquidity will allows debt based fiat to find indebted hands that need it and it can be safely withdrawn through conventional debt servicing.

    The symbiosis , governed by a process of market osmosis, requires some added protection of the fiat paradigm (debt) because this is the only side that can actually go bankrupt in the technical sense. Bullion can take it on the chin and never go to ZERO.

    Bankers are more preoccupied with liquidity than they are with the price point. Nothing new. Price restraining on bullion is more likely to subside when the stuff starts to flow ! That’s when the appreciation will be enhanced, based mostly on the new application as a real-time currency.

    It is light that comes out of darkness in the proper order of creation. Nothing new.
    A picture speaks a thousand words.

  8. The meeting might actually be to figure out what to do about the Fed Oversight and Reform bill or “audit the fed” , as the last thing they need is to be reviewed.

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