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Jeff Snider, Head of Global Investment Research for Alhambra Investments with Emil Kalinowski, who turtle waxes. Artwork lined with graphite by David Parkins. Podcast intro/outro is “Steps” by Cushy at Epidemic Sound.
27.1 Repo Bust – a Cuban Missile Crisis Near Miss
What can 1950s preparations for nuclear war tell us about monetary policy in 2020?  Well, that some preparations – such as “Duck and Cover” – made sense, up to the point when circumstances evolved. Similarly, the Fed’s bank reserves made sense, up to a point…. long since passed.


[Emil’s Summary] US President Harry Truman prosecuted the war to its conclusion, finishing his predecessor’s near-impossible task. Then, with bitter irony, History reversed his role as “anchor” for the Second World War into “lead” for the third. As the trilogy approached its near-miraculous end decades later, one could hear an echo of a Truman slogan – “Education is our first line of defense” – in the 1980s cartoon GI*Joe that averred, “Knowing is half the battle.” Both aphorisms are twigs coming off the “Knowledge is Power” branch. And the trunk itself? A tree of the knowledge of good and evil with roots stretching to the genesis.

More recently our physicists have been informing us of hard limits to our knowledge – uncertainty principles, incompleteness theorems – buttressing Socrates’ statement that, “The only true wisdom consists in knowing that you know nothing.” Still, bounded knowledge is a poor excuse for apathy, and in 1951 Truman signed into existence an agency whose purpose was to prepare American citizens for nuclear war. “Knowledge is not only key to power. It is the citadel of human freedom,” he said.

In this 27th episode of Making Sense, Jeff Snider reveals that Truman’s agency’s most iconic result was that of a cartoon turtle named Bert. It may sound startlingly silly to the 21st-century ear, but educating citizens to turtle up, to duck and cover at the first instance of a flash made sense at that particular time. At least, up to the point when weapons, and thus circumstances, evolved. Similarly, the Federal Reserve’s monetary policies made sense, up to the point when money, and thus circumstances evolved, which, coincidentally enough, began in Truman’s time.


00:49 Thermonuclear war in the 1950s. Gah!! What can it tell us about monetary policy in 2020?
02:47 In 1951 the Federal Civil Defense Administration was created and Project East River began
05:23 In the early 1950s a “Duck and Cover” was pretty reasonable and useful
08:32 In 2019, September, the repurchase agreement market, experienced a ‘Cuban Missile Crisis’
10:11 Did the Fed really conduct repo operations in 2019? Or just mimic the real repo?
15:06 Were there too many US Treasury securities in the market causing the Sep. ’19 repo bust?
16:34 Why did the Fed buy US Treasury BILLS in response to the Sep. ’19 repo bust?
19:22 The Fed stripped collateral markets of its most liquidity security. Conspiracy? A cabal?
22:27 Has the Third World War already occurred?


If Jerome Powell Has a Middle Name, It Might Well Be Bert: https://bit.ly/3c9UA0d
Duck And Cover (1951) Bert The Turtle: https://youtu.be/IKqXu-5jw60
Alhambra Investments Blog: https://bit.ly/2VIC2wW
RealClear Markets Essays: https://bit.ly/38tL5a7