Repo Men

There used to be a time when the mass media covered the Federal Reserve as if it was Hollywood or a professional sports league. Whenever the Fed acted or the Fed chairman made a statement, it was big news. That has not been the case for a long time, mostly due to the mortgage meltdown. Worshiping the money men was no longer good copy after they came close to blowing up the world. Halfway through the Trump tenure, the media barely mentions the Fed or Fed policy.

Still, the central banks remain the most important government institutions on earth and this is particularly true of the Federal Reserve. They control the global economy, because they control the supply of money and credit. This is why the massive intervention into the credit markets by the Federal Reserve recently should be front page news. Something very big is happening and no one seems to know why, but the Fed is responding to it with $500 billion in new money.

Now, they are not just printing up cash and throwing it out the window. Instead, they are intervening in the repo market to head-off a market crash. For those who don’t know, the repo market is not where repossessed items are sold. The word “repo” is slang for repurchase agreement¹. A repurchase agreement is a short-term funding mechanism where one party needing cash, sells an asset to a party for cash, with an agreement to repurchase the asset at an agreed upon price.

A repurchase agreement functions in effect as a short-term, collateral-backed, interest-bearing loan. Much of what happens in the world of investment banks is reliant on the repo market. In order for these entitles to function, there has to be enough cash available in the system for these transactions to occur. Otherwise, borrowing rates go up, which means the cost of doing business goes up. Taken to the extreme, no cash available means the credit markets lock up.

Since the financial system is like a watch with gears interlocking with gears, one gear seizing up has the potential to seize up all the other gears. A frozen repo market could result in a cash crunch for banks, which locks up business and retail lending. That locks up the Main Street economy and we’re looking at bread lines. The economy, as we understand it, relies on a steady supply of money and credit freely flowing through the system according to the rules established by central banks.

As an aside, if the repo market probably sounds a lot like a pawnshop to you. A pawn shop offers short-term, collateral based loans. You take the family silver into the pawnshop and they give you cash. You agree to come back with the cash, plus interest, to get the family silver out of hock. If you blow the cash on a sure thing and are unable to pay the pawnshop, they take ownership of your item and sell it for cash. So yes, the financial system is built on the logic of the pawnshop.

Now, this move by the Fed is very curious. Clearly, something has caused this problem in the repo market, but no one seems to know the cause. It’s serious enough that the Fed’s balance sheet, currently at $4.1 trillion, will surpass its all-time high of $4.5 trillion. For several years now the Fed has made clear its intent to shrink its balance sheet. Therefore, this problem is serious enough to cause the Federal Reserve to change course and blow up its balance sheet.

The question is, what’s going on?

One possible answer is bad rule making over the last decade that has rewarded banks for hoarding cash. Instead of lending to one another, they are sitting on cash reserves. The risk-reward is better than short term lending. This could be due to a combination of market factors created by Fed policy and regulations on banks regarding their cash reserves. In other words, the government has created a distorted short-term lending market, through regulation and Fed policy that discourages short-term lending.

Another, more worrisome cause is that central banks have built a low-interest rate trap for themselves that they cannot escape. In lowering rates and intervening so aggressively in the market to stave off collapse a decade ago, they have created a system that cannot exist without low rates and aggressive intervention. Efforts to restore rates to historic norms or attempts to shrink the balance sheets of central banks threatens the very existence of the global financial system.

In such a scenario, the system controlled by the central banks becomes increasing complex with every intervention. Currently, the Fed does not know why the repo market is broken. They are simply reacting to the short-term effects. Their actions, however, will be part of the problem to be solved, a problem they don’t fully grasp. By the time they do understand the issue, they may have been forced to make additional interventions that further change the complexity of the problem.

Of course, a world of permanently low interest rates and unlimited intervention by the central bank is not a world controlled by the central bank. Rather, the central bank is now controlled by the system it created. The main weapons the central bank has used in the past to address systemic failure are no longer available. Taken to its logical conclusion, the financial system is a run-a-way train. The Feds do what they can to keep it on the tracks, but eventually, the inevitable happens.

In the long run, the story of credit money may be that it is simply a complex way to pull forward the benefits of economic activity, for the benefit of a few. Eventually, all of the pain avoidance with low interest rates and central bank intervention consume all of the economy to pull forward. Those accrued costs are reversed out all at once and system collapse in the result. The resulting political fallout then topples over the liberal democratic order and we enter an entirely new age.

That may sound overly apocalyptic, but consider how political institutions must weather a crisis. The people must not only want to preserve those institutions, they must trust the people running them. A great systemic collapse of the economic order would need a lot of trust in the political order to avoid revolts. At no time in the West has the current political order be less trusted. It needs the good economy to survive. That sound a lot like a house of cards waiting for the wrong decision.

¹Short primer on repurchase agreements.


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ronehjr
Guest
ronehjr

“….the repo market probably sounds a lot like a pawnshop to you.”
And here I was, trying my best to not be anti-Semitic today.

Member

“Forget it, ronehjr, its H—-town.”

Sean Detente
Member

A fun experiment is to take a dollar and put it in a jar whenever you say, think, or witness something antisemitic (for example, my Crappad autocorrected “antisemitic” to “antiseptic”). The Jewey Jar.

Member

I’d need to take out loans to keep this up though. That would lead to more antisemitism leading to more loans… A positive feedback loop would ensue until the jar collapsed into a black hole and destroyed the earth.

Member

ronehjr, I avoid that by thinking about the Bush family.

vxxc💂🏻‍♂️😉 Toxic masculinity vector
Guest

Yes, think of Bushes, Clintons, Podestas, Obamas.

Truth is answer to JQ is HofJude; Court Jews. Oh yes more than happy to do the dirty work but along for the ride really. Our own fucked us.

Then again; me and mine will be fine… so the answer to cascade failure is; OK Boomers…

Guest
Guest
Guest

It would have been fascinating to have a candid, private conversation with Paul Volker before he passed away last week. The WASPy titans of finance in the world in which Volker came of age fought for decades to keep bankers of a certain tribe out of the halls of power, but ulitmately failed. (((Arthur Burns))) presided over the Fed when Nixon closed the gold window, spurring the mass inflation of the Nixon/Carter era. Volker stood in the gap and staked his reputation on stabilizing the Dollar to buttress the real economy, only to see his life’s work destroyed by (((Greenspan))),… Read more »

MemeWarVet
Guest
MemeWarVet

Only tangentially related, but there’s a movie coming out where Adam Sandler plays some sort of A. Wyatt Mann caricature of the slimiest, most degenerate chosenite imaginable.

If they hadn’t made it themselves you’d swear it was produced by Goebbels himself.

Walrus Aurelius
Guest

It’s called “Uncut Gems”, and it comes out on Christmas Day (to give the “Chosen People” something to do that day, I imagine). Everything about it seems meant to appeal to their Tribe, cause seeing it will remind them of their scummy, screwup cousin who they love to hang around, but always hits them up for cash.

Member

The trailer looks like a compendium of all the degenerate shit Hollywood ever created.

Member
Yves Vannes
Member

Counting and keeping track of “cash” is also becoming harder and harder because most “cash” now exists in digital formats. It’s easier to move around, it can be in both hardware and software, it can be held in unconventional ways, etc. You can literal put “cash” on a memory drive and bury it in a treasure chest along with the rest of your pirate booty.

https://www.quora.com/What-percentage-of-the-worlds-money-is-digital
https://imtconferences.com/digital-vs-cash-are-we-getting-it-wrong/

Guest
Guest
Guest

This an example of Gresham’s law at work. Bad money drives good money out of the market, mostly because hoarding. The most accessible, tangible example of Gresham’s law in modern experience of the everyday Joe Dirt is the gradual disappearance of real silver coinage after the Fed began minting coinage with low-value metals, circa 1965. Even Joe Dirt is smart enough to understand that the Fed is lying and the pre-1965 quarter made of silver is more valuable than the post-1965 quarter made of inexpensive metals. I had a small stash of silver coins, but I lost them in an… Read more »

Compsci
Guest
Compsci

I vote for cash hoarding. About 40 years or so ago, during the height of the drug war, a serous proposal was made in Congress to copy a process used in war time—withdraw/change the currency—such that all those hundreds you had in a box were worthless if not exchanged for new currency. Of course, the purpose was to identify folks in the illegal market (drug sales for example) or bankrupt them. At the time, I remember laughing as I said to myself, the biggest thieves with cash lying around were the politicians themselves. I was right, and the bill went… Read more »

Shrugger
Guest
Shrugger

The Great Depression happened in a well-ordered and basically peaceful, overwhelmingly white society. Hard to imagine what would happen if/ when GD2.

joey junger
Guest
joey junger

And people could play harmonicas and start bonfires back then. Let’s say Globo-Homo gets its candidate in in 2020 and there’s a Depression. Presumably there will be “Buttigiegvilles” under the bridges and people will do what? Warm themselves by the light of their 5G phones while listening to brain-damaged rapper ringtone tunes, I guess. And Lenny from “Mice and Men” probably has a couple standard deviations of IQ over most of our “recent arrivals.”

Member

In many ways we are already in a depression. Real UE is much higher than even the most pessimistic U number. But the worst effects of the depression is staved off with free gibs. What is really to be feared the way the great depression was, is the government being unable to keep the gibs going.

Member

Whatever comes, we simply must get ourselves a better ruling class. Smarter, more moral, more empathetic toward Legacy America. What we have now is stupid, venal, antipathetic, degenerate, and short-sighted.

Carl B.
Guest
Carl B.

As personified by a former affirmative-action Presidential candidate who destroyed two tech companies and said yesterday that “it is vital that President Trump is impeached.” See Carly Fiorina, a “conservative feminist” and the proposed running mate of “conservative firebrand,” Ted Cruz.

We are so screwed.

miforest
Guest
miforest

never forget that that a wipe cruz tried to give us Hillary for all he was worth. the first few times trump supporters were attacked by antifa and la raza , at Chicago and san deaigo , Ted said ” they should be more careful who thay support. ” I will spend my money and work as a volunteer to get buttegeig ofr whoever the democrat is into office it the maple rat is the GOP nominee .

Member

But they really, really love their horses and dogs.

Compsci
Guest
Compsci

Rooster, agreed. But the voting public that put them in office are stupid, venal, … So what came first—chicken or egg?

james wilson
Member

The democratic chicken came first and laid the egg of universal suffrage which begot all the other chickens that broke the country. I exaggerate, minutely.

Croyd Bowder
Guest
Croyd Bowder

(((What we have now is stupid, venal, antipathetic, degenerate, and short-sighted)))

FIFY

joey junger
Guest
joey junger

There’s some rose-colored retconning of the Great Depression, with a sort of sanitized Grapes of Wrath romanticism to it that’s been passed down through the ages, but the truth is, I think, that the people were sturdier and healthier back then (spiritually and physically, even when literally malnourished). Charles Bukowski used to talk about how gamblers and touts in the Great Depression seemed more optimistic than the desperate types he saw at the racetracks in the early 1990s. That’s ultimately why I’ve been holding off on thinking of what a Depression would do to us, or rather, what it would… Read more »

Shrugger
Guest
Shrugger

I think if we re-ran the GD with the people of today it would be a bloodbath.

MemeWarVet
Guest
MemeWarVet

I prefer to think of it as a period of rapid evolution…

Member

The Nanny/Welfare State has caused rapid devolution since the ’60s. Only the trial lawyers have benefitted.

james wilson
Member

Hungry people are healthier than obese people.

rkb100100
Member

The world of the 1930’s Great Depression wasn’t that of tightly integrated, global “just-in-time” supply chains that production depends on today. Productivity fell 30% in the 1930’s, if that happened today people would starve to death en masse around the world.

Member

I agree. Most of today’s people, Boomers to Gen Z are incapable of dealing with hardship. Manual labor is unthinkable to most of them and going hungry even for eight hour is torture. If the government were to recreate the WPA today the only people joining up would be Mexicans. I write this as someone who as an adult has had to at times earn their living doing manual labor.

Member

All right, what’s the plan? Do we get our money out of the market especially 401k mutual funds?

Jim Smith
Guest
Jim Smith

…and put it into crypto?

Sean Detente
Member

I swear crypto did more proper work inflating the price of video cards and RAM than it ever did positioning itself as a workable currency.

Al from da Nort
Guest
Al from da Nort

Jim;
Don’t forget, if your electric power dies, so does your crypto.

Stan
Guest
Stan

As a holder of pms, cash, and crypto, IMO if the power dies we are going to have bigger problems than accessing our digital bank dollars and crypto.

Citizen of a Silly Country
Guest
Citizen of a Silly Country

Diversify. Own TIPs for bonds. Make sure that part of your stock portfolio is invested internationally in the local currency. Pay off your mortgage or make sure to have a 30-fixed mortgage. Own a bit of gold but don’t be weird about it. Farmland is always great. Use various strategies as well. Buy and hold is great and should be your main strategy but you might consider using a Dual Momentum (check out Gary Antonacci’s book) strategy for some of your stock allocation.

Above all, expect low returns all around.

Member

Healthy utility companies are some of the best investments around. If the electricity goes out, nothing else will help you.

Stan
Guest
Stan

Agreed. SO (southern co) is a good solid stock that pays dividends. always seems to slowly go up.

Compsci
Guest
Compsci

Basically, you suggest divesting from fiat currency to real commodities. No argument here.

Citizen of a Silly Country
Guest
Citizen of a Silly Country

Kind of. Mostly, I’m saying to own things or employ various strategies that do well in different environments.

Scroll down a bit and check out the chart in this article by ReSolve. It lays out what assets do well in what environments.

https://investresolve.com/blog/dynamic-asset-allocation-for-practitioners-part-1-universe-selection/

On top of assets, use different strategies. Buy and hold on stocks is great during bull markets but terrible in bear markets. The opposite is true for having a trend screen on stocks. Balance.

Member

Also the Blanche DuBois option:
” I have always depended on the kindness of strangers.”

Evil Sandmich
Guest
Evil Sandmich

There is no where to hide. About the best advice I’ve seen is to have a marketable skill, which I do not have myself.

Demeter Last
Guest
Demeter Last

Being healthy (i.e. not fat) and willing to work is a marketable skill these days.

Marko
Guest
Marko

At the very least, have a library on hand that tells you how to do stuff (Bushcraft, etc.). I have been hoarding camp tools for a while now.

Firewire7
Guest
Firewire7

David_Wright, “What’s the plan” is the correct question. If we have the right question, we are a long way to the answer. I recommend Chis Martenson’s THE CRASH COURSE which can be found (free!) at this URL: https://www.peakprosperity.com/crashcourse/ Four and a half hours for the whole thing. It is broken down into 26 bite-size pieces. He points out the differences between money vs. the goods and services it will buy. It is the goods and services that are the desired end and cash money including gold and silver is the 1st derivative we use to get those goods and services.… Read more »

TuNeCedeMalisPJS
Member

Yes. You will need a small supply of cash for,the shor period fiat is good, then months of silver and gold coins for after.
Hopefully we will have a system working in 6 months, if all hell hasn’t been loosed. For that we all know what we need….

Member

Basically a continual check kiting scheme. Most of our GDP and “wealth” is financial engineering virtual (un)reality where both the creditor and the debtor think they have the $10k because the creditor has it as an accounts receivable or something similar – an “asset”, and the debtor has (or had, think margin loans) the cash. So it looks like $20k. Stretch the chain where the debtor also “invests” so becomes something like a creditor – e.g. if they own stock – so that $10k is loaned over a very long chain, usually to someone who blows it and then tries… Read more »

Member

The dollar is worth 3-4 cents in 1913 terms. That should be all anyone needs to know. But our education system kept everyone in the dark about the Fed, and here we are. We owe Ron Paul a great debt for trying to relieve Americans of our ignorance about our financial masters. Trump needs to start easing into explaining all this, instead of solely trumpeting about how good the economy is. Earlier in this decade, he acknowledged that the stock market is not a barometer of how well the foundational economy is doing (he has a more sophisticated understanding of… Read more »

Educated.Redneck
Guest
Educated.Redneck

Vikings, here’s the thing. If you’re in Papua New Guinea and the locals think the rains keep coming because they don’t touch the village ancestral tree, you aren’t going to do well by cutting down the tree and calmly explaining weather systems to them: you’re going to end up in a boiling pot. “Just rationally explain it to them” for those confronted with angry, desperate mobs is great advice for those you would like to see dead.

Member

A good communicator can explain it in very simple terms before the people become angry, desperate mobs. It’s just a matter of someone wanting to do it.

Citizen of a Silly Country
Guest
Citizen of a Silly Country

The Fed is in a jam for the next recession. The Fed keeps trying to raise rates and lower its balance sheet to prepare for the next downturn and keeps getting thwarted. With rates so low, lowering them in a recession could be like pushing on a string, i.e. ineffective. The next step is fiscal policy, i.e. govt spending through massively increase deficits. That could work if the bond market is willing to buy those govt bonds are super low rates because you’re transferring money from one group – investors – to the govt which then gives it to the… Read more »

Educated.Redneck
Guest
Educated.Redneck

Yes, but MMT seems to be working fine in Japan. No blood on the streets of Tokyo, no business owners jumping from high rises in Kyoto. It’s almost as though the conductors of the train realize that if it comes off the tracks, they get it first and hardest, so those fires are going to keep getting stoked, no matter how absurd it gets. And unless you control the fed and the treasury, all you can do is watch the stoking.

Citizen of a Silly Country
Guest
Citizen of a Silly Country

True. MMT doesn’t have to spell disaster, but in the wrong hands, it can be a mess.

Also, remember, Japan’s gross debt-to-GDP is crazy high but their net debt to GDP is pretty average so they may not be the MMT poster child that people think. Besides, Japan is just weird in many ways, including economics. It’s hard to compare them to us.

Apex Predator
Guest
Apex Predator

Just two quick observations as I’m not an economist by any stretch but certainly have opinions. 1) Zerohedge is a questionable source at best. They’ve been predicting the ‘coming crash’ since at least the Obama Years. It is an overly anxious chicken little website. I go there because they cover a wide range of topics but there is a sort of Alex Jones style odd paranoia also that doesn’t reflect objective reality for the most part. 2) –However–, that being said. We are indeed sitting on a house of cards and have been for a long long time. The music… Read more »

Carl B.
Guest
Carl B.

The music WILL stop someday and most everyone won’t have a chair when it does. In fact, moreso than the ‘race war’ and other goofy scenarios I hear from some DisRight people, the most likely scenario for meltdown is this one because we have unsustainable debt and borrowing.

The “Race War” starts four days after the economic collapse.

james wilson
Member

A race war won’t last long. The givers won’t be in a mood to turn away from the usual unpleasantness to give away what they don’t have and the takers will experience a reaction that they have not seen in their lifetimes–an actual normal reaction.

Member

Sadly I think the fleece the taxpayer option might work out well for the elite due to the way the economy seems to have bifurcated into 2 levels. At the top level is the big ticket stuff like houses, business ownership, and real estate in general. At the bottom is the vast amount of ridiculously powerful and capable home and personal electronics. The top level stuff is so far beyond the average modern peon that he never thinks he can get it anyway. The bottom level stuff is so cheap that even if his taxes go way up it just… Read more »

Ant Man Bee
Guest

History of the world in several thefts… 1. The Hellenic Greeks stole the Eastern Mediterranean (Anatolia, Syria, Judaea, Aegyptia), but because they had superior Hellenic culture and vitality, the theft was okay and things worked out fine. 2. The Romans stole the East from the Hellenes, plus they also stole Gallia, Brittannia, Hispania/Lusitania/Galicia and Belgia from the Celts — but again, since the Romans had superior culture and vitality, the theft worked out okay. 3. Meanwhile in the far East, the Han people of the Wei River valley in Northern China were busy stealing pretty much all of Southern Asia,… Read more »

Citizen of a Silly Country
Guest
Citizen of a Silly Country

From an investor standpoint, the full impact of crazy low interest rates haven’t been felt yet but they threaten the entire pension system as well as putting retirees in serious trouble. Falling bond yields and the consequent rising stock valuations juiced bond and stock returns the past decade. The problem is that you’ve driven real, i.e. above inflation, yields on bonds to effectively zero. Stocks are priced to earn between 2% and 4% real annual over the next decade or so, assuming no reversal of valuations. Therefore a 50-50 portfolio is poised to earn ~1.5% annual real or 3.5% nominal.… Read more »

james wilson
Member

Yep. This is already happening. The ruling class stole the savings of 100 million ordinary savers to pay for their games and the workers still don’t know what’s up. My pension is going kaput in under two years. The Z primer is simple enough, and accurate, but people are designed to be herded.

Calsdad
Guest
Calsdad

Martin Armstrong has been covering the Repo crisis for a while: https://www.armstrongeconomics.com/markets-by-sector/interest-rates/fed-repo-funding-for-year-end/ ” The Fed did not lower rates BECAUSE they cannot. This Repo Crisis is all about them trying to PREVENT short-term rates from rising. They have stated that the economy is strong. This is not QE to stimulate the economy as it was 2007-2009. This is a liquidity crisis BECAUSE banks no longer trust banks and everyone is running scared to lend money for nobody knows who has exposure in Europe goes belly-up. This is NOT QE, and it does not have the same economic consequence. The Fed… Read more »

james wilson
Member

I copied your post and sent it to the people that matter to me. The brevity is very important, otherwise normies just won’t read.

Paintersforms
Guest
Paintersforms

Credit is a mortgage on future generations. That is why Western birth rates have collapsed. Literally investing human capital in material gains here and now. Terribly selfish.

Paintersforms
Guest
Paintersforms

SPENDING human capital. Much better.

Paintersforms
Guest
Paintersforms

To put too fine a point on it, and maybe stating the obvious, but we’re literally spending future generations to have more crap for ourselves today. All the abortions, all the couples putting off a family because they ‘aren’t ready.’ When you see sprawling suburbs, fancy cars, fancy clothing, craft beer, phones— you’re not looking at the miracle of markets. You’re looking at lives that could’ve been but were transmuted into lifeless objects by the alchemy of debt and obligation and selfishness. Of course it’s all going to collapse. Without life you get death, and the devil gets his due!… Read more »

Member

This is a very important point. Younger white people can’t afford children because of (1) the ruinous government spending policies and that mindset passed on to consumers, as well as (2) the devaluation of the dollar, so they’re not going to reproduce. The ongoing Fed and federal government practices, as well as encouragement of this Third World invasion, have doomed the West

Paintersforms
Guest
Paintersforms

Save your money, save your seed.

Dutch
Guest
Dutch

Here an idea that will get some downvotes, most likely. Go for a confiscatory estate tax. Make the kids wake up to getting a marketable skill now, rather than waiting until middle age to score the inheritance. If parents knew their kids were not going to get the big inheritance, they might be encouraged to take care of them in other ways, like encouraging them to gain their own real skills and savings as young adults. Just spitballing…

Paintersforms
Guest
Paintersforms

Or have lots of kids so none of them get a big inheritance 🙂

DLS
Guest
DLS

Not a down vote because it’s a creative idea. But what happens to the tax income? After the government grifters take their cut, they turn around and hand it back to the kids they took it from to buy their votes. A shell game with a big vig for the Bidens/Clintions/Boehners/Ryans of the world. No thanks.

Lineman
Guest
Lineman

Where the tax is going is the dealbreaker on that idea…Now if we had our own country then it could be discussed…

Dave
Guest
Dave

Few would pay the tax; they’d figure out ways to gift money to their children tax-free and die broke. Estate taxes are toxic to family businesses because every time someone dies, the business or large pieces of it must be sold, usually to a corporation that doesn’t suffer the handicap of unpredictable visits from the Grim Reaper.

Estate taxes are a great way to ruin families and create a wasteland of deracinated, atomized individuals. If families matter, they must be treated as immortal, atomic entities, as corporations are.

Member

Amen, Dave.

DLS
Guest
DLS

Here’s an idea, brought to you by the LGBT folks. Marry one of your children. Your estate then is jointly owned with no taxes. Not legal yet, but in our “no rules allowed” marriage future, this is worth a spin. Who are we to judge?

Member

I understand your reasoning, Dutch. But what about family farms and family businesses where the kids have worked as hard as the parents and grandparents to grow and maintain them? A large estate tax is criminally unfair to them and is just wrong on principle.

Paintersforms
Guest
Paintersforms

The Amish help their kids get started, and then they sell the farm to the youngest son for whatever amount they gave to the other kids. A lot of the farms have a cottage that mom & dad retire to. They get to garden and spend time with the grandkids. No inheritance (or inheritance tax) involved. It works because they spend their lives being productive and saving money. Pretty nifty.

Jack Boniface
Member

The chart at the Zero Hedge site you linked to showed the Fed Balance Sheet rising to the $4.5 trillion at which it stood from Q1 2015 to Q4 2017; three years, followed by two years at a lower level. If it doesn’t go higher, then it’s no big deal. Will it go higher? If I could predict that, I’d be a billionaire. In addition, both gold and interest rates remain fairly steady for the U.S. I don’t like the Fed, but for now they seem to be opting for steady policies that preclude a panic.

Member

The entire “recovery” from the 2008 banking crisis was nothing less than moral hazard writ large. We’ve been pushing that boulder up the hill ever since. When it comes crashing down on the other side of the hill, it will crush everything in its path. It could happen next week or next decade. But it will happen.

Member

All I know from over two decades in banking and financial services is that the whole thing is a giant house of cards that almost no one understands and it wouldn’t take much for the whole thing to collapse.

Paintersforms
Guest
Paintersforms

Iron-clad rule: if you can’t understand it, it’s probably a scam. The fallacy of expertise.

SamlAdams
Guest
SamlAdams

Or, in our business, there are simply inherent risks you don’t understand nor have adequately bounded in your analysis. Most of these things come apart from extrapolating past performance into the present and not accounting for what might have changed. This happens, over and over and over….

Paintersforms
Guest
Paintersforms

I think (correct me if I’m wrong) that’s because your business tries to analyze human behavior, which is often unpredictable because influenced by emotion. So long as people aren’t completely reduced to NPCs there’s no way to reason it out 100%. But people have tried, and they’ve given us this impossibly complex financial system that amounts to trusting the experts. And that opens the door to all sorts of scams, in spite of any good intentions.

Paintersforms
Guest
Paintersforms

Human behavior can’t be reasoned out 100% because it’s often driven by emotions. The attempt to do so, or to at least mitigate risk, has given us this impossibly complex financial system, which amounts to trusting the experts, which is itself partly emotional. That opens the door to scammers in spite of good intentions.

SamlAdams
Guest
SamlAdams

Ditto here. Back around 2000 old firm hired a bunch of CDS guys that wanted to “rent” the balance sheet for their business. “Risk free” they claimed. All us old school guys couldn’t figure out how they were being paid such significant sums for what was represented as a “risk free” insurance contract. Thankfully a new CEO came in and asked the same question–and found the explanations unfulfilling. Ordered the business shut down and the contracts unwound, regardless of cost. That was 2005. Smart guy.

Nunnya Bidnez, jr.
Guest
Nunnya Bidnez, jr.

Were you around when Steinberg (Reliance Insurance) went belly up?
An article in Forbes explained that there was some young guy who was buying up Worker’s Compensation policies, bundling them, re-insuring them through Reliance … skimming off most of the premiums while transfering most of the risk up the chain to Reliance. When claims had to be paid, there wasn’t enough cash in the till.
Saul blamed his brother who was running the company at the time (while he was trying to recover from a stroke.)

What’s your take on what happened?

SamlAdams
Guest
SamlAdams

Reliance had many more problems than that. Too many to discuss here. But fundamentally the Steinbergs ran it as a piggy bank and basically were reserving at the low end of the loss picks in the underwriting companies and dividending every last penny of retained earnings up to the holding company and then to themselves. The nifty scam was cranking out debt at the HolCo level, with the buyers ignoring the fact that regulators can step in and shut off the dividend flow from the sub companies that were paying the coupon. Complicated story–but Saul was a scammer.

Dutch
Guest
Dutch

It’s likely much more simple than most people think. Stocks are up, so banks and others don’t want to buy any more of them, and they are holding cash in the form of Treasuries, so they can benefit from falling rates. One big bank, last fall (JP Morgan), decided to go the other way and lighten up on Treasuries, there were few buyers, and the system hiccuped. Everyone else is sitting on cash in the form of Treasuries now, but there are no potential new buyers for those bonds, rates are not going down, and neither are stocks or the… Read more »

short VIX
Guest
short VIX

Official reason is that the Fed offloaded a lot of treasuries to Primary Dealer banks the past 2 years, in effort to decrease its balance sheet, and now the PDs are taking short-term loans for cash using the treasuries as collateral.

It’s a shell game, but with different flavor than “QE.”

Money printing proceeds apace. Go the FRED site and look at M2. They don’t show most recent weeks, but the chart only goes one way. Up.

Ant Man Bee
Guest

7. The Turks, operating out of Central Asia, not only managed to ruin T’ang China (see An Lu-Shan Rebellion) but also ruined Byzantine Greece/Roma, managing to overrun Anatolia and Constantinople, and ruining things for many centuries of Serbians, Hungarians and Viennese. 8. Timur the Lame managed to kill tens of millions of people in Central Asia and single-handedly destroyed the blooming civilizations along the Silk Road and Northern India. He’s a big reason that Central Asia (budding great places like Tashkent) are much less Indo-European than they used to be. Didn’t steal much, but set back human development by who… Read more »

Mike_C
Guest
Mike_C

“Meanwhile Chapter 11 is waiting to be written”
I see what you did there. Heh.

Vegetius
Guest
Vegetius

The Fed has to keep the sugar-high going until at least November 3rd.

Trump will fight back rather than let them do to him what they did to Bush the Elder, and usual suspect bankers know this.

Dutch
Guest
Dutch

Checks and balances, of a sort.

Horace
Guest
Horace

“It needs the good economy to survive.” Money is important and a necessary evil in this fallen world. However, it cannot be the highest value if civilization is to persist. The money-worshippers have turned my country into a giant multicultural marketplace from sea to shining sea. The sole slender thread of legitimacy to their continued rule is that they at least run the marketplace in a competent fashion, and they have failed at even that. We are morally, spiritually, and financially bankrupt and it is time for them to go somewhere else. This is one reason the cuckservative Republicans in… Read more »

Firewire7
Guest
Firewire7

Horace wrote, ” in our country, disagreements between left and right are over what to replace the system with, not whether the system needs to be replaced.”

Yes! This explains so much of crazy stuff we are seeing.

Dan
Guest
Dan

What cannot continue will not continue. And the debt driven insanity that as been at the heart of both the American and world economy for decades CANNOT CONTINUE. We have successfully ‘kicked the can’ of unsustainable debt down the road for far longer than was believed possible but eventually that ‘can’ of debt becomes so enormous that kicking iit doesn’t move it…..the result is a broken foot. We are pretty damn near broken foot time. And when the kick fails to nudge the can and instead breaks the foot all hell is going to break loose.

Dutch
Guest
Dutch

Perhaps the specter of excessive debt plays out differently this time. Instead of inflation, deflation, and debt repudiation, the Fed simply vacuums up an increasing percentage of the public weal in the name of maintaining the markets? That’s why you see ever-rising markets, even as the real world, outside of capitol city, gets ever more impoverished, and wages stagnate even as unemployment falls. We have learned how to engineer away market crashes, but the alternative trade-off is the economy-wide stripping of real assets and public wealth, in the name of supporting the markets. The denouement is not a market crash,… Read more »

Philippi
Guest
Philippi
Member

…police and local initiatives have taken strong safety measures to try and dispel fear surrounding this area…

Think for a minute about how that is worded. The police are trying to “dispel fear” not “make the park safer.”

I’m reminded of The Gift of Fear.

Mike_C
Guest
Mike_C

This is from an article linked to your link.
A second 911 caller told police one of the suspects ran off wearing a green jacket.
Earlier in the day, police had encountered a known robbery suspect who was also wearing a green jacket.

The above is the only physical description of the suspects that I can find anywhere. Of course.

Member

Later stories revealed it was a gang of Black teens. I’m in shock.

MemeWarVet
Guest
MemeWarVet

Daily Stormer has been covering this extensively. Anglin isn’t exactly grieving about it.

Yves Vannes
Member

This post is in reference to yesterday’s topic of “Right-Wing Cosmopolitanism”.

It’s a Heritage Foundation Presentation. The acceptable gospel from the horse’s ass.

http://www.occidentaldissent.com/2019/12/17/the-heritage-foundation-the-problem-of-nationalism/

KGB
Guest
KGB

Website blocked by the PTB here at work for “militancy/hate”.

Member

The federal reserve is not a government institution. It is a privately held bank with shareholders that include the Rothschild and Warburg banking dynasties.
It is not beholden to elected officials, and is not obligated to operate in the interest of the nation or its people.
Do not be fooled by the name. It isn’t a reserve, and there is nothing federal about it.

Dutch
Guest
Dutch

The purpose of the Fed is to prop up the big banks, not the country. Given the powers simply given to the Fed, and obviously willing to be exercised by the Fed, the banks are safe. The rest of us, not so much.

Dave
Guest
Dave

Don’t be fooled by the label “Non-Governmental Organization”. Any person or organization that receives money from the government (e.g. the local Lutheran church and Section 8 landlords flooding your town with African refugees) or is granted any sort of monopoly by the government (e.g. a “private” bank licensed to create money out of nothing) is de facto part of the government.

Member
God_Is_In_The_Details

80 F.2d 68 (1982) John E. LEWIS and Roseanne M. Lewis, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. United States Court of Appeals, Ninth Circuit. Submitted February 26, 1982. Decided June 22, 1982. Plaintiff, who was injured by vehicle owned and operated by a federal reserve bank, brought action alleging jurisdiction under the Federal Tort Claims Act. The United States District Court for the Central District of California, David W. Williams, J., dismissed holding that federal reserve bank was not a federal agency within meaning of Act and that the court therefore lacked subject-matter jurisdiction. Appeal was taken. {{{The Court… Read more »

S18-1000
Guest
S18-1000

The financial/economic problems we’re going through reminds me of an older post here, the one about people not understanding how older technology or systems were discovered or built; and can’t recreate them or explain how or why they work. This feels similar to me, in that the financial wizards have forgotten how an economy actually works, the fundamental rules lost to time and incompetence, and that’s why they can never seem to figure out how to fix things or extract themselves out of the corners they’ve put themselves in. Maybe economic problems have gotten so intertwined and complex that no… Read more »

Member

I don’t think the problems are complex at all at the high level. It all gets boiled down to “Sooner or later, you run out of other peoples’ money.”

JR Wirth
Guest
JR Wirth

This is what I pay attention to all day. One of the big problems going on right now is that government deficits are expanding so rapidly they’re crowding out the liquidity in the market. Another problem is that negative interest rates overseas are distorting the whole market. The Fed is now buying around 70% of new debt issuance (monetization). This would have been highly taboo even 20 years ago. Today all taboos are broken. Part of it is a generational change. All those old guys who lived, even as children, through the war and depression are gone. No one in… Read more »

Sleepy
Member
Sleepy

Macro economics makes my head hurt, especially from the world of finance…sigh… I wish it weren’t so…

Exile
Member
Exile

The financial markets are a preview of how complex systems will break down in an era of catabolic collapse. Modern finance-grifting is a system so complex that even its architects no longer understand it, like some open-source project run mad. Couple that with our ascendant idiocracy and you have a feedback loop of growing problems and shrinking problem-solvers. The Fed mavens are basically cargo-cultists now, going through the motions their fathers and grandfathers did and mouthing the same ritual words in the hope that the Big Machine responds the same way it did in th e past. They no longer… Read more »

Dutch
Guest
Dutch

The algorithmic trading programs optimize results based on past experience. When the real world exceeds the operating parameters of the algos (triggering the “sell everything” response) and “breaks” the market, that’s when things get spicy.

Johnny55
Guest
Johnny55

Zman and all, Way to go pointing this out!! I went to 2/3 cash in retirement account until I see how this shakes out. Literally last week had lunch with a high-up banker and he said they are definitely monitoring the situation. No one knows for sure what’s going on. Rumor is there is a major contagion risk in a TBTF Euro bank (signs point to Deutsche). It’s all so interconnected. NY Fed apparently knows, but how this shakes out is anyone’s guess. I wouldn’t go short, but I’d be liquid for a bit and not heavy into markets.

Marko
Guest
Marko

If only we had a special race of people who had unusual insight into matters financial, who could find a way out of this mess………

MemeWarVet
Guest
MemeWarVet

Fortunately the Assyrians are here to save us all!

Exile
Member
Exile

If you can afford to stay liquid without losing too much value or return, it’s obviously a great position to be in when the bottom falls out of asset prices. That said, I’ve lost a chunk of money betting against the market since about 2014 or so. If I had listened less to the perma-bears at Zero Hedge and more to the shills, I’d be ahead right now. Hindsight’s always a bitch in money matters.

Member

Deutsche is a zombie bank. Just a matter of time.

TomA
Guest
TomA

Perhaps this explains why so many Republican Congressmen have decided to leave politics and not seek reelection. The Deep State would like nothing better than to Deep Six a Trump reelection by crashing the economy next October. Either way, we desperately need to restore some real hardship to our environment, force people off the couch in front of the TV, and fight to stay alive again. Just don’t be in a city when the chaos starts.

HamburgerToday
Guest
HamburgerToday

I don’t thin the Zman sounds ‘overly apocalyptic’, just appropriately apocalyptic. I hadn’t thought about the way that a good economy can compensate for poor governance and vice versa before. That was a helpful insight.

DaveA
Guest
DaveA

The economy is a giant rat-maze but the rats aren’t running through it any more because there’s free cheese in their cages and no cheese in the maze.

The big cheese used to be the chance to marry a young woman, father children, and be a respected member of the community. Women have their own money now, so they’re free to choose sex partners on looks and charisma alone. With only old, fat, bitter, tatted-up hoes with screaming feral bastards in tow willing to date them, why shouldn’t working-class men fake a disability and check out of the economy?

Johnny55
Guest
Johnny55

I will say this, the goldbugs are always wrong. Not that I don’t respect their point of view, it’s simply outdated. There has NEVER, EVER been ONE INSTANCE whereby a reserve currency, which the dollar is, has entered a hyperinflationary period. So I cannot say what will happen, but if history is any guide, we’re not going to see weimar/zimbabwe inflation in the USA. Frankly, USA is the best game in town. All these emerging markets issued debt in dollars (to save on interest) and now are desperate for dollars. Just an FYI. Two years ago a Brazilian company’s CEO… Read more »

Dave
Guest
Dave

If you and my Dad are right, and the dollar is destined to always hold its value or decline gradually, we have reached the glorious end of history. All our problems now and forever more will be solved by printing dollars to pay for them. Oh Glory Be!

Right Wing Cosmopolitan
Guest
Right Wing Cosmopolitan

The repo market is having problems because of a set of very recent rules changes that have been made to spur bank lending. This includes the move to SOFR to settle short term interest rates instead of LIBOR and a few other changes including IOER rate decreases. Because of the changes to the rules to encourage lending, banks have incentives not to have cash reserves. However, big banks are moving out of loans and towards buying bonds which require funding through the repo market. Once forced to sit on liquidity, banks are now encouraged by rule changes to use that… Read more »

Auralay
Guest
Auralay

On this side of the pond, John Ward has the same worries in a near simultaneous post. Rather apocalyptic language but similar conclusions.
https://hat4uk.wordpress.com/2019/12/17/analysis-one-lesson-for-both-the-new-york-fed-and-boris-johnson-you-cant-buy-trust/#comment-858758

Linda Fox
Member

What’re the odds that the Soros Machine is manipulating this situation to:
(1) Make money for his evil projects.
(2) Blow up the system at a time when Trump can be blame for it.

I’m guessing 5:1 that he is.

Official Bologna Tester
Guest
Official Bologna Tester

Z Man said: “Their actions, however, will be part of the problem to be solved, a problem they don’t fully grasp. By the time they do understand the issue, they may have been forced to make additional interventions that further change the complexity of the problem.”

Collapse is inevitable and “optimism is cowardice.” 😀
Here’s a youtube vid about the technical reasons why civilisations fall apart.
https://www.youtube.com/watch?v=G0R09YzyuCI

Lorenzo
Guest
Lorenzo

Much of what we call wealth is only the promise that A will pay back B on time.

Dutch
Guest
Dutch

Most of the rest is “mark-to-market”, which means it is deemed only as valuable as the last transaction. No bids? Not always a problem, but generally a big problem if it collateralizes credit.

Alzaebo
Guest
Alzaebo

I pretty much gave up reading the financial sites. I could mouth the words, but never really understood the ‘headlines.

Several dives this week made me give up all over again. I Do. Not. Have. the time.

The Zman says, “respect your readers.”
Nothing illustrates that point better than today’s post. Talk about delivering real value.

Kudos to the Zman, kudos to the commenters.

bob sykes
Guest
bob sykes

Globalization drives all wages and prices to to the global mean. China ans Viet Nam see rising wages and prices and Economic boom times, but advanced economies see deflation and depression.

We are reaping the benefits of globalization, and the central banks have lost control. They will not get it back until/unless we adopt mercantilist policies that severally limit imports and force manufacturing back to the US.

Member

There’s a really simple answer to this, Tax all business income @ x%- choose your number start at say 30 and tweak. Only allow deductions for expenses incurred in the States, stringent proof needed, default is not made here (and your record of US expenses better match someone else’s record of US income)
Sure you can make everything in Vietnam, hire Indian call center.workers, etc, But it will cost you (and those fancy business trips won’t be deductible either,
Mandatory 30 years for evasion.

Member

Why such a complicated scheme when we already have a tool for this: tariffs?

Member

Tariffs are demonizable as a direct tax on consumers: which they are. This is sold as a tax on increasingly hated Corporations, It’s not at all complicated: the tracking of transactions by a tax id number is ubiquitous. The popular appeal of banging some bankster or big pharma guy up cannot be overstated.

Walrus Aurelius
Guest

Part of the concern I have regarding some of our folks’ fascination with MMT: if you ever managed to acquire power and engaged in the same behavior as the current Elite, the people had better see you as a God, or your neck better be impossible to get a noose around, cause the economics just won’t work out for you.

TuNeCedeMalisPJS
Member

The banks are indeed in a money trap. Interest rates basically tell you what it’s worth to pull a future purchase into the present. But if central banks are able to leverage interest rates unnaturally down, which I believe has happen dating back to certainly the Bush 2 years and arguably Clinton, then much future purchases has been pulled into the present. At some point there will be such a large void of future purchases that even negative interest rates won’t be able to encourage borrowing… IMO that’s what we will see as the last stand to save the markets,… Read more »

ProUSA
Guest
ProUSA

House of cards. I hope you get out of Lagos before it collapses, or at least that you have a bug out place. It’s going to be real ugly, I am afraid to say.

Ifrank
Guest

I just picked up a piece of fiction John Derb mentions In his podcast. Lionel Shriver lays out a scenario for economic disaster. “The Mandibles”. Entertaining.

ChrisZ
Guest
ChrisZ

Thanks for the recommendation.

Is it from a recent Derb program? I’d like to look up his thoughts in the transcript.

Member

When the checks quit coming this whole house of cards falls down. If it had been allowed to happen in 2008 then none of these moronic politicians we see on TV would be in office. Our elite class would have been purged of idiots and we would probably have recovered by now, instead of looking at an even bigger crisis. The world doesn’t realize it but it’s still 2008.

vxxc💂🏻‍♂️😉 Toxic masculinity vector
Guest

Correct REPO are payday loans for governments.

In other news; OK Boomers…

https://babylonbee.com/news/ok-boomer-911-operator-responds-as-man-calls-complaining-of-severe-chest-pains

Roland Horn
Guest
Roland Horn

Declining Marginal Returns – Eventually the cost of maintaining a complex system overcomes the benefit and poof.