Repo Madness

[flow5]

Economists don’t know a credit from a debit. As Luca Pacioli, a Renaissance man, "The Father of Accounting and Bookkeeping” famously quipped: “debits on the left and credits on the right, don’t go to sleep with an imbalance”.



(+) or (-) reserve balances (outside money) as well as (+) or (-) of money products (inside money) have nothing to do with the repo spike (the supply of loanable funds).



It is simply a (-) destruction or (+) activation in the utilization of savings -> the (+) or (-) of savings’ products.



The specious: “Inside and Outside Theory of Money”


www.minneapolisfed.org/research/SR/SR374.pdf



John G. Gurley’s and Edward S. Shaw’s thesis: that there is no difference between money and liquid assets. Keynesian economists have finally achieved their objective



Alan Greenspan’s “irrational exuberance” speech:


www.federalreserve.gov/boarddocs/speeches/1996/19961205.htm



"Because monetary policy works with a lag, we need to be forward looking, taking actions to forestall imbalances that may not be visible for many months. There is no alternative to basing actions on forecasts, at least implicitly. It means that often we need to tighten or ease before the need for action is evident to the public at large, and that policy may have to reverse course from time to time as the underlying forces acting on the economy shift. This process is not easy to get right at all times, and it is often difficult to convey to the American people, whose support is essential to our mission."



The Money Supply – New York Fed


www.newyorkfed.org/aboutthefed/fedpoint/fed49.html



“The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money have.”

“Following the introduction of NOW accounts nationally in 1981, however, the relationship between M1 growth and measures of economic activity, such as Gross Domestic Product, broke down.”

“Chairman Greenspan added, "The historical relationships between money and income, and between money and the price level have largely broken down, depriving the aggregates of much of their usefulness as guides to policy.”



Take the Take the “Marshmallow Test”: (1) banks create new money (macro-economics), and incongruously (2) banks loan out the savings that are placed with them (micro-economics).



You have to retain cognitive dissonance capacity, like Walter Isaacson described Albert Einstein’s ability: to hold two thoughts in your mind simultaneously – “to be puzzled when they conflicted, and to marvel when he could smell an underlying unity”.



Like Athenian philosopher Plato -- whose "first fruits of his youth infused with hard work and love of study" said: "We seem to find that the ideal of knowledge is irreconcilable with experience”.



See a man 30x’s smarter than Albert Einstein:



Leland J. Pritchard, 1954. "Toward A More Meaningful Statistical Concept of The Money Supply," Journal of Finance, American Finance Association, vol. 9(1), pages 41-48, March.



"If the “store of purchasing power” attribute of money, when applied to a given asset, is to have significant meaning, it ought to be defined in terms which are applicable to the whole economy. That is, no asset really has a “monetary store of purchasing power” quality unless there can be a net conversion of that asset into money, ceteris paribus. In other words, it must be possible to effect this conversion without necessitating that any present money holder reduce/liquidate his holdings/assets. Any other interpretation becomes mired in a futile discussion of relative degrees of confidence and liquidity. But much more than monetary liquidity for the individual holder is necessary if an asset can be said to have the “store of purchasing power” quality; it must be simultaneously monetarily liquid for society as a whole."



In "The General Theory of Employment, Interest and Money", pg. 81 (New York: Harcourt, Brace and Co.): John Maynard Keynes gives the impression that a commercial bank is an intermediary type of financial institution (non-bank), serving to join the saver with the borrower when he states that it is an:



“optical illusion” to assume that “a depositor and his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no savings corresponds.”



In almost every instance in which Keynes wrote the term "bank" in his General Theory, it is necessary to substitute the term non-bank in order to make Keynes’ statement correct.



This is the source of the pervasive error that characterizes the Keynesian economics, the Gurley-Shaw thesis, the elimination of Reg Q ceilings, the DIDMCA of March 31st, 1980, the Garn-St. Germain Depository Institutions Act of 1982, the Financial Services Regulatory Relief Act of 2006, the Emergency Economic Stabilization Act of 2008, sec. 128. “acceleration of the effective date for payment of interest on reserves”, etc.



This is both the source of stagflation and Secular Strangulation, not robotics, not demographics, not globalization.

[flow5]

Trump’s “trickle-down corporate tax cuts” don’t work. That’s déjà vu economics. As in George Santayana aphorism: “Those who cannot remember the past are condemned to repeat it"

A graduated income tax system is absurd when $11 trillion in savings (funds held beyond the income period in which received), are impounded and ensconced within the payment’s System.

As I said:

QE = "crowding in". QT = "crowding out" squared (raising to some power).

Apr 24, 2018. 09:35 PMLink

QE = “crowding in”. QT = “crowding out” ^ 2

It's quite apparent, especially today, July 27, 2018. Aren't you watching interest rates? You should be.

Jul 27, 2018. 12:08 PMLink

The 6th seasonal inflection point in October occurred on schedule. Equities have now bottomed (and the economy). They will rise until 1/29/2019 (the 1st seasonal inflection point in 2020).

Inflation bottoms in April 2020. Then there is an acceleration in domestic inflation (and maybe a reversal in the exchange value of the U.S. $).

But there is something disturbing in the bond proxy beginning in June 2020. The bond proxy peaked in July 2018. It bottoms in June 2020.

--Michel de Nostradame 

[flow5]

These are the 6 seasonal economic inflection points (they may vary a little from year to year):


Pivot ↓ #1 3rd week in Jan. (1/30/2019)

Pivot ↑ #2 mid Feb. (2/13/2019

Pivot ↓ #3 May 5, (5/3/2019)

Pivot ↑ #4 mid Jun. (6/19/2019)

Pivot ↓ #5 July 21, (7/24/2019)

Pivot ↑ #6 2-3 week in Oct. (10/23/2019)

[flow5]

See the best repo discussion on the web:


naybob.blogspot.com/2019/11/the-sad-hill-trio-ride-again.html

[flow5]

The 1st qtr. R-gDp in 2020 will be negative.

[Aman A.K.A. Ahamburger]

MADNESS indeed! Talk of $500Bn needed this next month through the window, just to stop a freeze.

Negative interest is now approaching the size of the entire US economy; black hole!!!!

The thing is, all the nefarious characters I have been talking about on different threads also probably grasp this money eating machine....one of the tenants The Muslim Brotherhood was literally founded on was financial weapons against the West.....

So how does?



Look as we go through the reset of the monetary system

I know what my plans are!!! From HEMPVLAR and carbon fiber planes(gotta love the PITCH).(oh and I might even through some carbon negative base load CCU to irrigation and soil re-pletion and re-mineralization with no waste water and food!!!!!! in there)

[flow5]

Equities top 1/29/20.   Short selling opportunity.

[Aman A.K.A. Ahamburger]

Negative interest is now approaching the size of the entire US economy; black hole!!!!

Here we go!

The Fed Is Entrenched in the Repo Market. How Does It Get Out?

However, if the repo market is erratic, it signals the Fed doesn’t have good control over the financial system’s plumbing. That’s something policy makers and the broader market can’t tolerate.

“It is all about credibility,” said Peter Yi, senior vice president of short duration fixed income at Northern Trust Asset Management in Chicago.....

....This year proved the repo market isn’t working without the Fed’s help, and the next issue is how to wean the market off of these liquidity injections without causing a disruption, according to Lale Topcuoglu, senior fund manager and head of credit at J O Hambro Capital Management Ltd.

"We may have December in control,” Topcuoglu said on Bloomberg Television. “The question is, there’s January. There’s February. There’s March quarter-end. There’s April.".....

......This lack of clarity on the Fed’s long-term objectives increases the likelihood the central bank becomes more entrenched in the daily fabric of the funding markets. That will make it harder for the space to function on its own and even more difficult for policy makers to untangle themselves.

“Every single day we’re getting our funding from the Fed, that starts to get ingrained in the business,” said NatWest Markets strategist Blake Gwinn. “The longer they go on as the major source of liquidity, the harder it’s going to be to extricate themselves.”

This ain't no Japanification..... THIS IS A BLACK HOLE.

[Aman A.K.A. Ahamburger]

Steven Mnuchin explains why nearly $1.5 trillion worth of $100 bills reportedly disappeared

Mnuchin pointed to the negative interest rates causing people to turn to American dollars as a solid investment.

"The dollar is the reserve currency of the world, and everybody wants to hold dollars,"

Yes, dollars, not the waaaan! Hahah

[djAdvocate]

metals are staging a nice year-end rally.

[countrygirl2]

I know this is dumb question but if they are taking $100 bills out, what are we getting in exchange, or are they taking their money that is here out of the banks in $100 bills?

[djAdvocate]

Dec 30, 2019 17:07:50 GMT -5 countrygirl2 said:

I know this is dumb question but if they are taking $100 bills out, what are we getting in exchange, or are they taking their money that is here out of the banks in $100 bills?

banking is way more complicated than that, unfortunately.

banks can actually contribute to the money supply, and then make interest on it.

it is kinda ridiculous.

rule of thumb though: with fiat currency, like the dollar, you can pretty much assume it is worthless. in other words, it started out as paper, and got fancy ink put on it. that is about the start and end of it.

[countrygirl2]

Well, that doesn't help much. I'm reading the money supply isn't there, that more is being taken out then is in the banks, so the banks are requesting more cash to give out.  So the fed controls how much the banks have on deposit at the federal reserve, are they loosening this up so they hold less and can have more in banks? Is the fed selling more bonds or treasuries to give out more money?  I'm guessing not enough deposits coming in to cover outgo.  So can you make it simple? It is making me wonder if there is not enough cash on hand, could we have runs on banks? Or am I completely in left field.  I didn't realize how little I know about this whole world of money until I started trying to understand this repo stuff. Or are there some good books on learning the world of money for dummies?

I know one time I requested something like $20k in cash and the bank didn't know if they could get that much together, holy smokes.  What if I wanted it all?

[Value Buy]

Dec 30, 2019 19:42:49 GMT -5 countrygirl2 said:

Well, that doesn't help much. I'm reading the money supply isn't there, that more is being taken out then is in the banks, so the banks are requesting more cash to give out.  So the fed controls how much the banks have on deposit at the federal reserve, are they loosening this up so they hold less and can have more in banks? Is the fed selling more bonds or treasuries to give out more money?  I'm guessing not enough deposits coming in to cover outgo.  So can you make it simple? It is making me wonder if there is not enough cash on hand, could we have runs on banks? Or am I completely in left field.  I didn't realize how little I know about this whole world of money until I started trying to understand this repo stuff. Or are there some good books on learning the world of money for dummies?

I know one time I requested something like $20k in cash and the bank didn't know if they could get that much together, holy smokes.  What if I wanted it all?

You are referencing several different situations.
Your bank not being able to give you the correct denomination ($20 bills) has nothing to do with the money supply for the big banks or your local bank. Your bank basically did not order enough currency from the Federal banking sytem in their district. Remember when you  see the armored trucks pulling up at the bank? They were delivering money (or picking up money from your local bank) from the home office bank. They do not usually keep that much loose money on hand anymore.
Flow5 is referencing the Federal banking system. When the economy collapsed back in  2007 the Fed literally printed money for the Federal banks to loan out to all the retail banks across the country to save the system. Lately the Fed tried to tighten interest rates as well as not re-issuing loans that came due. Simply speaking, If a 30 yr bond came due, they just paid off the bond and did not sell a new one to replace that money, tightening the money supply up. Now multiply that 30 yr bond by say 100,000 contracts you are tightening the money supply up. If you just issue new bonds for the one that were due, you continue to just have fiat money out there. This is a simple explanation and probably not totally correct......

[countrygirl2]

Well I need simple anymore, the old mind is going.  Makes sense. I figured our banks don't keep much on hand anymore, that's been a few years ago. But I was surprised that such a small amount would be a problem, they had it, but.


So say if I wanted a bunch of money out would have to give them a week or so to get it I'm guessing.  This is just theoretical. I know they try to keep it all invested much as possible.


So they are trying to tighten money to stop inflation? Or just not wanting to loan to slow down investment? Tightening the money would raise interest rates wouldn't it?

[Value Buy]

Dec 30, 2019 20:29:16 GMT -5 countrygirl2 said:

Well I need simple anymore, the old mind is going.  Makes sense. I figured our banks don't keep much on hand anymore, that's been a few years ago. But I was surprised that such a small amount would be a problem, they had it, but.


So say if I wanted a bunch of money out would have to give them a week or so to get it I'm guessing.  This is just theoretical. I know they try to keep it all invested much as possible.


So they are trying to tighten money to stop inflation? Or just not wanting to loan to slow down investment? Tightening the money would raise interest rates wouldn't it?

No, the current Fed President decided last fall to tighten the money supply up as well as raise Federal interest rates. Then the stock market panicked and fell quite a bit so in December 2018 the Fed announced they would not raise interst rates and possibly lower them going forward, which they did this year, three times. I am not sure if they are currently re-issuing all redeemed bonds at this time, or just the majority of them. The Fed actually wants some slight inflation. That is their stated goal.

Your bank should be able to electronically place your money needs in your account usually overnight. I am assuming your bank is in the Federal system and not the state banking system. There are banks in the Indiana state system that are not tied to the Federal system. Not sure of your local bank. If your bank has the word "state" in it's name, it is possible it is part of the state system.

[countrygirl2]

I'm pretty sure they are part of the federal system, will double check.


Think I need a whole course on how money works in the systems, would find it interesting.  Never had anything like that or a reason to study it before.  Now I find I am totally dumb about the way the whole thing works behind the scenes, I don't like that.