At the current pace, it is likely the Fed could nationalize the entire money market system through its Overnight Reverse Repurchase Program (ONRP). The Fed’s hostile takeover of money markets is not a reason to panic if you have money market accounts. The implications of the Fed’s actions are not due to a structural problem … Read more
With the collateral shortage expected to balloon into the trillions over the next couple of months, the Fed appears unconcerned. Every night, approximately $700-800 billion in cash is loaned to the Fed in exchange for Treasury securities to pull all of this excess cash out of the financial system to provide the necessary collateral. Upon … Read more
Recently, Credit Suisse’s banking expert Zoltan Pozsar suggested the Federal Reserve’s Overnight Reverse Repurchase Program (RRP) will see over a trillion dollars flooding in over the next couple of months as the collateral shortage worsens. In what appears to be a collateral game of “hot potato, the Fed is trying to encourage those with pristine … Read more
There is a huge collateral shortage in the banking system, which has many worried it is a leading indicator of a potential banking crisis. Yet, of all the problems the Fed is faced with, this is one problem the Fed is extremely well equipped to handle. Oddly, the Fed may be largely responsible for the … Read more
There is a big problem brewing in the financial system as cash builds up in the large commercial banks. Every night the large commercial banks are borrowing over $500 billion of pristine collateral, or Treasury securities, from the Fed at zero percent to get this overabundance of cash off their balance sheets for the night. … Read more
Since the Great Financial Crisis, when regulators were forced to consolidate the banking industry to save the financial system, four large commercial banks emerged as key to holding the financial system together. Two of those large commercial banks, Bank of America and JPMorgan Chase, are drowning in cash from repeated government stimulus programs. The commercial … Read more
Most people think of a bond as a loan where the bondholder receives a regular coupon until the maturity date when their money is returned. While a bond is a debt instrument, it is much more than that. A bond is also a form of deferred dollars where the value of the bond fluctuates until … Read more
One of the biggest misconceptions purported by the financial community is how rising consumer prices lead to higher interest rates. Yet, there is no historical relationship validating interest rates rise or fall with consumer prices. Facts have not stopped the financial media from scaring investors that higher yields are coming since consumer prices have risen … Read more
Bond prices bottomed in March, one month after the ISM Manufacturing PMI Prices Paid subcomponent peaked in February, consistent with the historical trend of bond prices bottoming within three months of the Price Paid subcomponent peaking. Yet, in April, the Prices Paid subcomponent skyrocketed higher to 89.6, the third-highest point since the mid-1970s. The bond … Read more
While Wall Street continues to sing the siren song of inflation to convince investors Treasury yields can only go higher, the recent contraction in credit suggests Treasury yields are more likely to make new all-time lows. Credit is important in a debt-based economy as the economy expands as the amount of debt expands and the … Read more