20190922-Repo Changes Everything
Financial Turmoil Explained（Repo Changes Everything）:
-Why? Because this is a LOT of money. To put things in perspective, at the PEAK of quantitative easing, the Fed was injecting 80 billion a month into the global financial system.
-But the current repo event, the NY Fed is pumping 75 billion DAILY into the system thru October 10! 26x more than the peak level of Quantitative Easing.
-This is a game changer amount of money! It’s not going into the economy directly. It will filter its way thru indirectly into the economy. It will take a while for the effects to be felt.
-The repo market is basically the world’s biggest pawnshop. The banks pawn their assets at the Fed and in exchange for emergency cash.
-This time the Fed (the pawnshop owner) ran out the cash, so it kept raising the repo interest rates –at one point the rates shut up to 10%. So the Fed had to turn on the money printing machine and dumped piles and piles of money until the repo market rates were under control.
-The banks have struggled in recent days to find the cash needed to meet reserve requirements which has pushed up short-term borrowing rates. In other words, if the Fed had not stepped in, we would have a melt-down of the banks!
-How is this a game changer? Well, before this event, the US and the rest of the world were heading towards into recession. But now the US got this big injection of money, it can delay its own recession a little bit longer.
-The European countries are printing money as well but at a far less amount and NOT enough.
-The effects of this is to postpone the US falling into a recession a little long than the other countries such as Italy, German, China, UK…… As these countries fall into a recession, they will start to print money as well.
-When that happens, we will have a full-blown, what he called the ‘Great Print’。 But this repo market madness already kicked start this game. This will lead to stagflation since this money is not going to the main street. It will stay with the Big Boys.
-Stagflation means that the price are rising but the wages of average Americans aren’t rising. It’s stagnant economy with inflation at the same time. The richer get richer. The poorer get poorer.
-Eventually it will lead to hyperinflation due to too much money printed causing rising prices and a steady decline of purchasing power.
-With this, we might delay the recession till next summer but not until Presidential election in November. But Germany will probably hit recession probably in the 1st quarter of next year.
why the banks are running out of the reserve in the first place? where did the money go?
ReplyDeleteThere are rumors that some big banks are in trouble due to bad derivative debts since their fellow banks wouldn't lend them the money, they had to borrow from the Fed using their US treasuries as collateral. That is assumed that they gave Fed good collateral. For all we know, they might be using toxic debts and securities as collateral since none of their collateral was NOT disclosed. But it was reported that that was what they did in 2007 before the collapse of Lehman Brothers.
ReplyDeleteI will discuss more on this tomorrow. Something fishy is going on!