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Strategies & Market Trends : The Aristocrats (tm) -- Ignore unavailable to you. Want to Upgrade?

To: Roads End who wrote (2775)	9/10/2021 8:19:17 PM
From: sense	1 Recommendation Recommended By Zilyunz Respond to of 5621

I addressed that Reverse Repo issue at the time, back in May and June... The mechanics of it are intended to be arcane... and the presentation is even more arcane... all as part of trying to make simple things seem very complex.... when they aren't... So, the language used is about swapping "collateral" and "reserves" in "reverse repo agreements"... which immediately leaves most people unable to understand it... but, replace those words with "Government issued debt" and "cash" in a "transaction"... and suddenly there's no mystery at all ? Simplifying it... makes it make sense, at least... but still misses the POINT of the transactions that are being done... where it is both the reason one is needed, and the nature of the terms that are the proper point of the focus that should be applied once you understand "what" it is ? The Treasury is putting out too much debt for the markets to handle... but, the banks HAVE TO buy it all... or the whole thing collapses. So, the banks buy up the debt issuance... and then they're out of cash and choking on holding all that debt... leaving not enough $$$ in the bank to conduct the business... and leaving them holding all that debt that they can't do anything with ? Meanwhile the terms on the debt bought at the low interest rates... has the rates paid on the debt low enough that it means they're not really making any money on interest from holding it... even before you quit ignoring that inflation means they're actually losing money on holding it ? So, to goose the banks functional liquidity with some usable cash, the Fed swaps banks collateral (debt) for reserves (cash) $$$ with the Fed... in a deal paired as a promise to repurchase it (when ?) It's an "over-night" lending facility ? But, why not just do a straight out sale... asset for cash... and be done with it ? Two reasons... One, if you did that, everyone would recognize it as "monetizing the debt"... so instead, they obfuscate the same thing with an complex "agreement" that makes people's eyes gloss over... so they can proceed to monetize the debt without anyone asking questions... Two, the $ involved in interest on the debt held, given rates forced so low, is so small as a % that the banks doing it would have them both "out of cash" AND "losing money on the trade"... So, as part of the agreement, the Fed pays them a higher than market interest rate... [ They don't want you to know that... because it means the published interest rates are a lie... one rate for you... another "special" rate for banks, only. ] So, the "agreement" has the Fed SUBSIDIZING the banks bond buying by paying above market rates on "over-night" deposits... to keep the banks buying debt... to keep the debt market from freezing up... and to keep the banks cash liquidity high enough that the banking business doesn't grind to a halt... [the way that it should when the inflation adjusted return on "deals" done is zero, or negative]. Basically, it has the Fed paying the banks (cash) in a higher than market interest rate on over-night deposits (of collateral.... ie, debt) in order to subsidize the banks debt hoarding... to keep the Treasury afloat while burying the market in more debt than it can possibly absorb. The "important" part of that... the detail in the "agreement"... is that the Repo rate is ABOVE MARKET... otherwise it wouldn't work, and wouldn't matter ? Some portion of "the problem" will have a functional dependence on the timing and pace of Treasury's check kiting ? But, other limits exist... as the banks can't lose money on the trade for too long without imploding... or, as they lose money... you have to fill the holes created with more QE... that allows them to pretend the $ wasn't lost into a black hole, but is still there... up until the Fed says "time to taper" which means... the QE "agreement" has to be reversed... ? But, the only way it can ever be reversed... is for the banks lending activities to prove profitable enough that they can treat the QE like "a loan of capital" and repay the loan from profits ? How does that ever happen... when the banks are stuck buying "good as gold" government debt at near zero or below zero interest rates that force them to lose money ? Can't get there from here... is the nature of the problem... QE is the (non-monetary or synthetic) unit of account in the accumulation of the banks lost capital... woven into a rug... on which the entire economy stands... while the Fed keeps threatening to repossess the rug. Low rates allow the government to borrow and spend more... but borrowing and spending more doesn't inherently produce more... ? So, there is real monetary "inflation" in the amount of money (ie., debt... since we use debt as money) in the system... but, that's the DESIGN of the system they've created... is that you can NEVER pay off the debt... because if you do... all your money evaporates ? But, producing new debt faster than the system can absorb it... same thing as flooding an engine... with the utility gained from running the engine... how you use it... not ever being the point of it running in balance ? Does that make sense ?

To: Roads End who wrote (2775)	9/10/2021 9:00:37 PM
From: sense	Respond to of 5621

The thing he's "missing" is likely that in the SDR story... with $650 billion in SDR's being issued... it is now SDR money that is chasing bonds and buying interest rates lower... We just converted the IMF into a "hyper-Fed"... that is issuing "hyper-fiat"... and everyone is ignoring it ? That SDR issuance won't show up on his presentation... because the IMF is not the Fed... It has the IMF acting as a "shadow Fed"... similarly able to print money out of thin air to purchase assets... but with none of the accountability as the Fed has ? And, worse, the IMF is just giving the money away to foreigners... putting U.S. taxpayers on the hook to repay money to foreigners... that the IMF just GAVE them ?? He noted the debt is owed to the Fed by the taxpayers... ? But, that assumes it is the Fed that is holding that debt issued ? The six trillion he shows as the Fed balance sheet... is in fact (or, in fiction ?) six trillion dollars that taxpayers have to repay the Fed... But, the SDR's just issued... as they are converted to dollars... becomes another $650 billion that taxpayers have to repay... that the Fed isn't counting because we don't owe that $ to the Fed ?