https://www.cnn.com/2019/09/17/busin...fed/index.html

I just listened to a Wall Street analyst downplaying this development insisting the New York Fed's action is nothing more than a "technical adjustment" and nothing to worry about. (I'm slightly paraphrasing.)

I have to wonder though if this "crack" in the financial markets is the first indication that a trillion dollar debt/deficit is the straw that will break the camel's back? Fiscal alarmists (including one Warren Buffett) have warned for years that excessive debt - and out-of-control Government spending - will eventually come a cropper. One of the commentators cited in the linked article implies that Government debt/deficit is the reason for the sudden spike in short term overnight lending rates.

Whatever the case, the Fed intervening in the repo market is not business as usual.

Should've titled thread "Financial System showing cracks?"

Yeah, it's weird. The surprising thing is that the main events offered as explanations, that quarterly tax payments were due and that a new treasury auction required $78B in cash, were entirely foreseeable. If you're a repo trader, that is your job, to know when the market is going to need additional cash and to plan around it.

This seems maybe more related to a number of parties having an immediate need for cash -- maybe hedge funds and others who lost big after the Saudi oil attacks?

ZH managed to get a handle on this 6 weeks ago

also,

traders: we have no idea why this is happening
financial journalists: we know exactly why this is happening

but my best guess is recent debt ceiling shenanigans left us short on cash, then all this random stuff popping it added to it, and now it'll have to be addressed with some synthetic kinda QE market operation thing (or just flat out another round of QE)

...

what's the vehicle to park money in if this becomes more rampant? feels weird having money in either stocks and bonds. or maybe i'm overthinking this.

bitcoin

We are getting close to the time where you short IWM

SPXS

1.08% expense ratio, no thank you.

The Philippine Peso

Bank Heads Warn of Looming Liquidity Crisis

Bump.

https://www.axios.com/bank-heads-war...96bde0ca8.html

Question: What is the worst case scenario if a "liquidity crisis" actually materializes? Does everything come to a screeching halt? Do we have a repeat of 2008-2009? Another massive bank bailout?

Another possibility ... I listened to Jamie Dimon and Mr. Gorman, (CEOs of JP-Morgan-Chase and Morgan Stanley respectively), speaking at the IIF meeting last week. Both men complained profusely about the extent to which their banks are being regulated by the Government. (Mr. Dimon even stated that he would be happy to take JPM private in order to escape all the reporting requirements of a public company.)

Could it be that this "liquidity crisis" is a not-so-subtle ploy by Mr. Dimon and the other big bank CEOs to get the Government off their backs?

grunching......... but just a glitch............. extreme short-term spikes in credit crisis were related to banks not wanting to fund other financial insitutions and then it snowballed

the next crisis probably won't be like the credit crisis. just like the credit crisis wasn't like the internet bubble bursting.

next downturn might just be like many recessions in the past. no real knock-on to financial institutions....... doubt there will be the huge snowballing "vicious cycle" effect of 2008 credit crisis

the unique thing about the next downturn though will be that we are already "full" with QE.......... so not sure what will happen......... also, trump and the R's cutting tax rates seems really badly timed to me. you can debate whether it's good in general, but this economy didn't need a boost.

"next down turn"... the next down turn could be the end of the dollar. you just never know unless you have inside information. the economy is built to fail, their isn't an economy in the world that can sustain a system that thrives on debt.

where should you put your money? land has historically given good profit and if the dollar does go belly up in our lifetime wine and food will have greater value than gold/silver.

I expect the narrative of the next recession to be "Trump bankrupts America." Not that any same person would believe that, but I think it's the narrative. It almost makes too much sense because of Trump's 90s narrative, bankrupting casino/airline/etc

good comments.

yes, that is a major risk with trump pissing off the entire world (ex. 35% of americans).......... USA has benefitted so much from being reserve currency....... not sure what would replace the US$ though as reserve currency

not sure any sane person supports trump unconditionally........ i have little problem if people say "yes, his personal conduct and twitter activity is unacceptable, but his policies are good". i'm talking about "i don't think he misleads/lies/lashes out inappropriately"

dude

The economy is not built to fail. It is built to optimize the short term.

Long term failure has a high probability given the approach to short term maximization.

Yes?

feels like this thread merits a bump going into EoY

the twitter accounts i follow that have been covering this issue closely spoke a lot today about a paper from a supposedly very highly regarded guy named zoltan poszar of credit suisse, formerly the fed and treasury.

zoltan thinks overnight rates are gonna become unhinged near end of year and basically fed is gonna have to do a formal QE4 to clear the overnight markets.

paper wont be available publicly for a week or two but it's being spoken about on the twitters a lot

twitter thread here

https://www.marketwatch.com/story/ge...yst-2019-12-10

https://www.cnbc.com/2019/12/10/fed-...isse-says.html

The "Not QE4" fed rebuys which have been going on for a month have been weird. Huge amounts of liquidity pumped in and there's still not enough there. Bonds a little jumpy yesterday.

Definitely worth watching for a sudden risk/algo driven meltdown (and then papa bear coming in with the narcotics to soothe the screaming babies).

Scary is when they will have no more money to provide liquidity...

So as best I can understand it - this is all over my head - the big banks are doing a kind of interest rate arbitrage on a grand global scale, basically using the government as a backstop to generate profits. When that arbitrage becomes less attractive/more risky, they stop putting liquidity into the system and it grinds down and the US government has to come in and take it on.

Is that accurate?

Yes and thats when gov't bailouts happen for those that reap the profits and wont be held responsible and major pillars will be kept aflot. Main street suffers while rich wait until its time its safe to reinvest and buy everything back up again when everything has bottomed out and people are out of jobs but they end up richer in the end. Nice little racket. Will be interesting to see this time around how they can cook book globally.

I don't buy Trump's confidence about waiting after the election for a deal, economy will progressively get worse until election time when these tariffs will start wiping out retailers beginning end of December. We have no choice as the Chinese hold all the cards and our situation deteriorates as we will not be receiving as cheap of goods from them.

How will tariffs wipe out retailers? The Chinese have been absorbing them to not wipe out their own economy. It's been a pure wealth transfer from the Chinese government to the Us government far:

Chinese government -> subsidizes tariffs -> wholesalers buy product and pay tariffs -> end user get the same price + US government gets Chinese money.
Also, after more looking at it seems simpler than the situation above - it seems that the US government needs to be selling about $700B more in debt in the coming months and there isn't the appetite among the private sector to take it on, hence pressure on bonds. Pretty simple.

Where can I read about China subsidizing their exports? Most academics I follow have reported that the tax incidence of tariffs on Chinese imports have fallen mostly on American businesses and/or American consumers as far as I know.