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Dollar Liquidity Turmoil Returns With First Oversubscribed Term Repo In A Month, $99.9 Billion Liquidity Injection

Dollar Liquidity Turmoil Returns With First Oversubscribed Term Repo In A Month, $99.9 Billion Liquidity Injection

This was not supposed to happen.

After the Fed rolled out the big artillery in response to the sharp, sudden mid-September funding squeeze (which we now know had virtually nothing to do with last month’s tax payments or other one-time events such as the Treasury’s cash rebuild), including the return of both overnight and term repo operations, and culminated with the Fed’s relaunching of QE which would be used to permanently increase the balance sheet with $60BN in T-Bills every month in order to replenish reserves (because we live in a bizarro world where $1.4 trillion in bank cash is not enough for the smooth functioning of bank plumbing), moments ago we got the latest indication that the dollar funding shortage is again getting worse – despite the market having priced in the Fed’s rollout of the “kitchen sink” to ease funding conditions – when the Fed announced that it had its first oversubscribed Term Repo operation since the funding crisis erupted in September.

Specifically, while the Fed’s 2-week term repo operation was capped at $35 billion as has been the case for the past week, dealers submitted $52.2BN worth of securities ($39.9BN in TSYs, $12.3BN in MBS)…

… making today’s term operation 1.5x oversubscribed, which was the first overallotted operation since the second term repo at the start of the funding crisis on Sept 26.

Needless to say, if the funding shortage was getting better, this operation would not be oversubscribed. The only possible explanation, is someone really needed to lock in cash for Halloween (the maturity of the op is on Nov 5) which is when a “No Deal” Brexit may go live, and as a result one or more banks are bracing for the worst.

 …click on the above link to read the rest of the article…

The Fed Created The Everything Bubble And A Liquidity Crisis – What Happens Next?

The Fed Created The Everything Bubble And A Liquidity Crisis – What Happens Next?

It’s an interesting dynamic that the Federal Reserve has conjured in the decade after the 2008 credit crash. They spent several years using artificial stimulus measures to inflate perhaps the largest financial bubble in the history of the US, and then a couple years ago something changed. They addicted markets and investors to easy cash only to then cut off the flow of monetary heroin. The system was so dependent on the Fed’s “China White” that all it took to give everyone the shakes was interest rate hikes to the neutral rate of inflation and a moderate balance sheet selloff. Now, the system is dying from shock and it’s too late for intravenous stimulus to save it.

For many this might seem unprecedented, but it’s really rather common. The Fed has a long history of inflating bubbles using easy liquidity and then imploding those bubbles with the tightening of credit. It also has a long history of pretending like it is trying to save the economy from crisis when it is actually the source of the crisis. As Congressman Charles Lindbergh Sr. warned after the panic of 1920:

“Under the Federal Reserve Act, panics are scientifically created; the present panic is the first scientifically created one, worked out as we figure a mathematical problem…” 

In the latest theatrics of the Fed, a new trend has emerged – The “disappointing Fed”. In order to understand this disappointment, we have to define exactly what markets want from the central bank. Obviously, they want QE4; a massive liquidity program. For the past year at least they have been clamoring for it, and they still have yet to get it. But what does QE4 entail? In order to institute a new QE marathon the Fed would have to:

 …click on the above link to read the rest of the article…

Economic Contagion? Central Banks Are The Real Culprit

Economic Contagion? Central Banks Are The Real Culprit

The mainstream news has been awash lately in talk over the danger of economic “contagion,” primarily due to lack of dollar liquidity in emerging markets. This lack of liquidity is being pegged as a trigger for instability in stocks, bonds and forex markets around the world, and this time around it is the nation of Turkey that is being called a potential trigger for a fiscal domino effect spreading through multiple countries.

We have heard talk of “contagion” before. Not long ago, Italy’s political shift toward a supposedly populist government led to fears of debt contagion within the European Union; this is still a valid concern, just not for the reasons the mainstream financial media usually presents.

The issue of contagion must be examined through a different set of parameters besides those shoved in our faces by the financial media. In their world, everything is a matter of unpredictable cause and effect; everything is random and coincidental. Everything is chaos waiting to happen, and when crisis does strike, all can be blamed on a set of unrelated but interconnected scapegoats.

They will claim it was the “populists,” conservatives, conservative philosophy or the notion of national sovereignty. Or they will blame it on even more abstract concepts of “human greed” and “individual selfishness.”

These excuses for unstable systems and disasters stem from a propaganda ploy developed by DARPA called “Linchpin Theory.” It is the widely promoted idea that human systems collapse “naturally” when they become “too complex,” and all it takes to start this collapse in motion is a single well placed “linchpin” pulled at the right moment. In other words, DARPA wants you to believe that there is no such thing as organized conspiracy and that all disasters are caused by chance.

…click on the above link to read the rest of the article…

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