Please consider a Statement Regarding Repurchase Operations from the New York Fed moments ago.
The Desk has released an update to the schedule of repurchase agreement (repo) operations for the current monthly period. Consistent with the most recent FOMC directive, to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation, the amount offered in overnight repo operations will increase to at least $120 billion starting Thursday, October 24, 2019. The amount offered for the term repo operations scheduled for Thursday, October 24 and Tuesday, October 29, 2019, which span October month end, will increase to at least $45 billion.
Repo Timeline
https://twitter.com/NorthmanTrader/status/1187088990790397952
Three Fed Statements
- Emergency repos were needed for “end-of-quarter funding“.
- Balance sheet expansion is “not QE“. Rather, it’s “organic growth“.
- This is “not monetary policy“.
Three Mish Comments
- Hmm. A quick check of my calendar says the quarter ended on September 30 and today is October 23.
- Hmm. Historically “organic” growth was about $2 to $3 billion.
- Hmm. Somehow it takes an emergency (but let’s no longer call it that), $120 billion “at least” in repetitive “overnight” repos to control interest rates, but that does not constitute “monetary policy”
On October 8, I noted Fed Seeks Firm Grip On Interest Rates, Supposedly Not QE
Mr. Powell emphasized that the coming moves are aimed at “maintaining a firm grip on very-short-term lending rates.”
“This is not QE. In no sense is this QE,” said Powell.
Effective Lower Bound
Firm Grip
It seems the Fed is still struggling to get a “firm grip” on interest rates.
Why?
Please review my September 25 post In Search of the Effective Lower Bound.
I claim these “non-emergency”, “non-QE”, “non-monetary policy” operations suggest we may already be at the effective lower bound for the Fed’s current balance sheet holding.
Mike “Mish” Shedlock
Bernanke would have said it is confined to subprime.
Check out DEEP THROAT’S blog post on this. He speculates that the Chinese are pulling USD deposits from the banking system. If u run a bank and lose your deposit base, u lose the funds that support the loan side of your balance sheet, and that makes u insolvent.
Deep Throat might be right, but the answer is probably more simple. Banks are likely simply losing trust in each other as they begin to see the end of this economic cycle. And concerns about the trade war are not helping. Positioning themselves defensively, anticipating liquidity problems due to unstable funding sources, they remember 2007 to 2009. By trying to prevent a run on the bank they are creating a run on the bank. Reminds me of Mr. Soros’s Theory of Reflexivity.
I dont know if he is right, but at least he is asking the right question here. We need to know who wants the money and why? Something very important is happening, but sadly everyone is focusing on how the Fed is reacting. I will include Mish in that criticism.
The real story is who needs this money and why?
I think private banking has successfully waltzed themselves out of the short term LOC trade because there’s no longer any money in it, but a lot of risk. They’ve de facto invited the Fed to take it over and they have. It looks to me like an extended Lehman moment in disguise.
It’s not that the Fed is losing control over the markets. It’s that the markets have gained control of the Fed.
link to northmantrader.com
I think the timing and this uptick in repo just gave us a nice clue as to who is in trouble and it reinforces what we already thought we knew.
Euro banks are starving for dollar funding (Captain Obvious) and if there is a hard Brexit both UK and German banks are in big trouble – that probably explains the timing.
I wonder if this implies that the EU will crack in negotiations knowing that a DB fail is too-big-to-bail?
Every kid knows the Monopoly game is almost over when someone starts making “deals” with the bank.
The FED is paying a bribe to financial institutions to prevent them from selling stocks. If interbank lending is illiquid, then shouldn’t everything that is farther out on the risk spectrum?
The New York Fed announced it is increasing its temporary overnight repo operations to $120 billion a day from the current $75 billion.
In addition to the repo increase, term repo operations are rising to $45 billion, from $35 billion
Not QE 4…. QE 4 AND 5 combined and that is not all….
Federal Reserve economist says growth would have been better with negative interest rates
What do you think they are grooming the economy for?
How do you do repos with a negative interest rate? What bank will lend to another and lose money over night? And, if you have to pay the fed back less the next day, why wouldn’t everyone try to get as much as they can from the fed??
Repos are basically just the Fed giving money to banksters, here is a decent youtube about it, 7 minutes.
Aside from all the posturing “about this fake collateral” the big and unanswered question is really: What is going on in the market since liquidity is so lacking — I have yet to hear any useful ideal as to why the repo market is so large and not shrinking. Really, why are banks using the Repo market is it because they hold so much US government debt that its cheap and easy to go to the Repo funding window?
It would be nice to hear from some of the boys on the big banks’ funding desk why or why are they so in love with the repo market!
This is bound for NIRP – No other alternative.
That is the moment any sane person realizes The FED has DEFAULTED.
Defaulting is just what is happening now.
No?
The default occurred on August 15, 1971. They’ve been running a massive confidence scheme ever since then. Now it’s getting harder and harder to keep the marks fooled.
“Taking bad collateral to keep banks solvent.”
This is not TARP 2009
link to en.wikipedia.org
“No collateral” is a better description. Someone or someones is caught in some sort of borrow-short lend-long scheme and the Fed is giving them reserves with nothing in return.
The Fed holds treasuries created out of thin air and gives financial institutions cash? Where’s the collateral?
‘Where’s the collateral?’
It’s you, Mish. You silly, gullible, taxpaying, blogging and dancing man!
Good point! Didn’t think it all the way thru…damn!
I am guessing, the lend-long part is the Argentine 100-year bond. This thing can last longer than you can imagine. /s
Brexit deadline 10/31 One week and counting. Maybe the Fed is prepping for ……a possible global financial challenge (problem)?
Mish,
are you saying that the Fed is lending money unsecured?
If that is true then it is completely out of control.
Could be, but with a trillion dollar deficit, and the Fed only recently restarting treasury purchases, their should be plenty available. Mortgage backed securities count too, as well as agency debt and maybe a couple of other things. Maybe it’s still not enough or it could just not be in the hands of those who need it. It could be a lot of things to be honest.
I think you are right. They were losing control of the short term rates. “Quality” and qualified collateral may be in short supply as well as Mr Market having a say on the value of the qualified collateral.
Collateral that has not been pledged multiple times to multiple lenders in multiple transactions may be in short supply.
Taking bad collateral to keep banks solvent. It’s not QE. It’s ST OMO or TALF or one of the many other acronyms the Fed uses to pretend it’s normal.
“Nothing to see here folks. Please move along.”
— Lt. Frank Drebin
Please disperse!
I’m not sure which man-on-the-street scene fits better, either that one or Kevin Bacon’s “ALL IS WELL!” from Animal House.
A financial system that requires over $100B of liquidity injections every day, temporary, permanent or otherwise, has major issues.
Sven H.
The “Northman Trader” is usually right.
Herkie posted this timeline in his comment on Mish’s ‘in search of the effective lower bound’ topic recently.
Excerpts from Herkie:
The Fed started injecting liquidity January 22 of 2008, on July 23, Secretary Paulson made the Sunday talk show rounds. He explained the need for a bailout of Fannie Mae and Freddie Mac.
On July 30, Congress passed the Housing and Economic Recovery Act.
September 7: Treasury Nationalizes Fannie and Freddie
September 15, 2008: Lehman Brothers Bankruptcy Triggered Global Panic
September 16, 2008: Fed Buys AIG for $85 Billion
On September 17, the attack spread. Investors withdrew a record $144.5 billion from their money market accounts. During a typical week, only about $7 billion is withdrawn.
On September 20, Paulson submitted a three-page document that asked Congress to approve a $700 billion bailout.
October 3, 2008: Congress Passes $700 Billion Bailout Bill
October 7, 2008 – $1.7 Trillion Commercial Loan Program and the world stock market crashes.
I don’t know about you, but I’m concerned…
Don’t worry. They will tell us exactly what is going on next Wednesday in their policy statement. And then Powell will explain it all further in his presser.
But of course. It’s not QE. How can it be, it’s the greatest economy ever and there’s absolutely nobody overleveraged and the system is as healthy as can be!
Quantitative Easing is a made up word that no longer has the firepower it did in the last depression, now to be called something more modern and up to date, QUANTUM FLOW. Mind you it will still be sterilized from Main Street, god forbid any of this largess actually benefits a poor.
Finance, or the supercharged finance is a fluid multitude of contracts. Everything can be resolved someway if you’re willing to break those contracts and face the consequences. The central bankers decided to screw the ordinary peeps and the retirees, betting on the least risky outcome. Not an unreasonable bet – until it isn’t.
Millionaires and billionaires as of yesterday I read hold more than half of all wealth on the planet. That is 46,000,000 people have half of everything and more than 7.7 billion of us have to divide the rest. This is thanks to central banking and central governments that are corrupt no matter the jargon and lies they tell.
This is NOT going to end well but it will end, and surprisingly sooner than everyone seems to think. Don’t shoot the messenger.
Sorry, edit function not working again, supposed to be 46,000,000 not 46,000