So thorough is the unwinding, they don’t know what to do about it. By “they” I mean policymakers, economists, the media, etc. For years, monetarism has been described as money printing, therefore all that was necessary was just the threat. Then the events of August 2007 intruded, and what was implicit became explicit. Central banks globally responded, since the wholesale/eurodollar [...]
If markets have rebounded today after the sustained selloff on fresh “stimulus” hopes, then one would have to wonder immediately what the background fundamentals might be. Setting aside all notions of past “stimulus”, the call for more would seem to suggest, quite strongly, something far, far less than desirable. Yet, in the same breath economists and brokerage firms would have [...]
Every once in a great while, you run into a mainstream article or news story that actually breaks through the thick cloud of conventional nonsense that passes for expert commentary. Despite clear signs about why people the world over should be worried about China, day after day we are told there is nothing to worry about. Their currency is in [...]
In September 1979, the Federal Reserve Bank of St. Louis published a paper that attempted to clarify the monetary and economic characteristics of repurchase agreements. The name itself offers little but further confusion as prior to the 1990’s repos could be classified as either collateralized loans or actual sales and purchases depending on individual circumstances. In some cases, the two [...]
Before World War II, in Japan there were four large conglomerates situated as vertically-integrated family-centered monopolies. Called zaibatsu, they were Mitsui, Mitsubishi, Sumitomo, and Yasuda, and many other smaller rivals. Each group would not just own companies in all industries, they would also organize and contain an assimilated banking concern (horizontal integration) to carry out capital and funding needs for within [...]
In addition to global “dollar” markets, the treasury curve and “inflation” trading both suggest more so disruptive potential than the optimistic path forward laid out by the FOMC’s policy decision. Upward monetary policy adjustments are in anticipation of “overheating” or an economy in the predicate position for its imminent take off. Since credit markets are discounting mechanisms in a manner [...]
Repo rates were once again today above the upper “ceiling” of the FOMC’s intended corridor, marking three consecutive trading days exploring territory not meant to be reserved for secured overnight lending. The MBS GC rate hit 60 bps, surging with agency GC likewise nearing 60 bps. The UST rate fell slightly but remained just above the 50 bps upper limit. [...]
The federal funds rate applies to a range of actual trades in unsecured overnight lending. What you see as the calculated “effective” rate is an average of those trades. Under the ZIRP/QE paradigm, there has been very little dispersion since there isn’t much volume in that corner of the money market. By theoretical definition, repo rates should come in under [...]
The Fed’s control over money markets has always been tenuous, a myth more than anything, it just wasn’t so obvious at one time. That observation extends to its grasp of even basic operations, a spectacular fail revealed by its 2000’s treatment of the Discount Window. On January 9, 2003, the FOMC altered decades of monetary history by switching the Discount [...]
The ongoing money market adjustment remains ongoing; perhaps that tautology is the most that can be interpreted from continuing mixed signals to this point though the longer nonconformities continue the more innocence is threatened. Recognizing again that this is still early in the process, there are some indications that resistance is real and even understandable. That begins first with the [...]
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