AuthorTopic: Da Fed: Central Banking According to RE  (Read 37981 times)

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RE

https://www.cnbc.com/2019/07/07/deutsche-bank-will-exit-its-global-equities-business-and-scale-back-investment-bank.html

Deutsche Bank will exit global equities business and slash 18,000 jobs in sweeping overhaul
Published an hour agoUpdated Moments Ago
Spencer Kimball @spencekimball   
   
Key Points

    Deutsche Bank announced Sunday that it will pull out of its global equities sales and trading business as part of a sweeping restructuring plan to improve its profitability.
    Deutsche will also slash 18,000 jobs for a global headcount of around 74,000 employees by 2022. The bank aims to reduce costs by 6 billion euros to 17 billion euros in coming years.
    All told, Deutsche expects its restructuring plan to cost 7.4 billion euros by the end of 2022.
    The German bank also expects to report a net loss of 2.8 billion euros in the second quarter of 2019. It will release its second quarter results on July 25, 2019.


Deutsche Bank headquarters
Photo by Hannelore Foerster

Deutsche Bank announced Sunday that it will pull out of its global equities sales and trading business as part of a sweeping restructuring plan to improve its profitability.

Deutsche will also slash 18,000 jobs for a global headcount of around 74,000 employees by 2022. The bank aims to reduce costs by 6 billion euros to 17 billion euros in coming years.

The German bank announced plans to scale back investment banking, just two days after investment banking chief Garth Ritchie stepped down by “mutual agreement.”

All told, Deutsche expects its restructuring plan to cost 7.4 billion euros by the end of 2022.

The German bank also expects to report a net loss of 2.8 billion euros in the second quarter of 2019. It will release its second quarter results on July 25, 2019.

Deutsche Bank’s supervisory board met on Sunday to hash out the restructuring plan. The bank’s CEO, Christian Sewing, had broadcast “tough cutbacks” during a shareholders’ meeting in May.

The German lender once sought to compete with America’s big banks on Wall Street, but has been pummeled by scandals, investigations and massive fines stemming from the financial crisis and other issues in recent years.
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Last week, a Washington-based think tank warned of "potentially devastating economic consequences" for the US and global economies if Congress didn't pass a debt limit extension in the weeks to come.


https://sputniknews.com/us/201907141076242600-treasury-secretary-confirms-us-government-risks-default-in-as-little-as-two-months/
I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world.
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💵 The World Is Dedollarizing
« Reply #242 on: July 28, 2019, 12:54:48 AM »
https://www.globalresearch.ca/world-dedollarizing/5684049

The World Is Dedollarizing
By Peter Koenig
Global Research, July 19, 2019
Region: USA
Theme: Global Economy

What if tomorrow nobody but the United States would use the US-dollar? Every country, or society would use their own currency for internal and international trade, their own economy-based, non-fiat currency. It could be traditional currencies or new government controlled crypto-currencies, but a country’s own sovereign money. No longer the US-dollar. No longer the dollar’s foster child, the Euro. No longer international monetary transactions controlled by US banks and – by the US-dollar controlled international transfer system, SWIFT, the system that allows and facilitates US financial and economic sanctions of all kinds – confiscation of foreign funds, stopping trades between countries, blackmailing ‘unwilling’ nations into submission. What would happen? – Well, the short answer is that we would certainly be a step close to world peace, away from US (financial) hegemony, towards nation states’ sovereignty, towards a world geopolitical structure of more equality.

We are not there yet. But graffities are all over the walls signaling that we are moving quite rapidly in that direction. And Trump knows it and his handlers know it – which is why the onslaught of financial crime – sanctions – trade wars – foreign assets and reserves confiscations, or outright theft – all in the name of “Make America Great Again”, is accelerating exponentially and with impunity. What is surprising is that the Anglo-Saxon hegemons do not seem to understand that all the threats, sanctions, trade barriers, are provoking the contrary to what should contribute to American Greatness. Economic sanctions, in whatever form, are effective only as long as the world uses the US dollar for trading and as reserve currency.

Once the world gets sick and tired of the grotesque dictate of Washington and the sanction schemes for those who do no longer want to go along with the oppressive rules of the US, they will be eager to jump on another boat, or boats – abandoning the dollar and valuing their own currencies. Meaning trading with each other in their own currencies – and that outside of the US banking system which so far even controls trading in local currencies, as long as funds have to be transferred from one nation to another via SWIFT.

Many countries have also realized that the dollar is increasingly serving to manipulate the value of their economy. The US-dollar, a fiat currency, by its sheer money mass, may bend national economies up or down, depending in which direction the country is favored by the hegemon. Let’s put the absurdity of this phenomenon in perspective.

Today, the dollar is based not even on hot air and is worth less than the paper it is printed on. The US GDP is US$ 21.1 trillion in 2019 (World Bank estimate), with current debt of 22.0 trillion, or about 105% of GDP. The world GDP is projected for 2019 at US$ 88.1 trillion (World Bank). According to Forbes, about US$ 210 trillion are “unfunded liabilities” (net present value of future projected but unfunded obligations (75 years), mainly social security, Medicaid and accumulated interest on debt), a figure about 10 times the US GDP, or two and a half times the world’s economic output.

This figure keeps growing, as interest on debt is compounded, forming part of what would be called in business terms ‘debt service’ (interest and debt amortization), but is never ‘paid back’. In addition, there are about one to two quadrillion dollars (nobody knows the exact amount) of so-called derivatives floating around the globe. Aderivative is a financial instrument which creates its value from the speculative difference of underlying assets, most commonly derived from such inter-banking and stock exchange oddities, like ‘futures’, ‘options’, ‘forwards’ and ‘swaps’.

This monstrous debt is partly owned in the form of treasury bonds as foreign exchange reserves by countries around the world. The bulk of it is owed by the US to itself – with no plans to ever “pay it back” – but rather create more money, more debt, with which to pay for the non-stop wars, weapon manufacturing and lie-propaganda to keep the populace quiet and in lockstep.

This amounts to a humongous worldwide dollar-based pyramid system. Imagine, this debt comes crashing down, for example because one or several big (Wall Street) banks are on the brink of bankruptcy, so, they claim their outstanding derivatives, paper gold (another banking absurdity) and other debt from smaller banks. It would generate a chain reaction that might bring down the whole dollar-dependent world economy. It would create an exponential “Lehman Brothers 2008” on global scale.

The world is increasingly aware of this real threat, an economy built on a house of cards – and countries want to get out of the trap, out of the fangs of the US-dollar. It’s not easy with all the dollar-denominated reserves and assets invested abroad, all over the globe. A solution may be gradually divesting them (US-dollar liquidity and investments) and moving into non-dollar dependent currencies, like the Chinese Yuan and the Russian Ruble, or a basket of eastern currencies that are delinked from the dollar and its international payment scheme, the SWIFT system. Beware of the Euro, it’s the foster child of the US-dollar!

There are increasingly blockchain technology alternatives available. China, Russia, Iran and Venezuela are already experimenting with government-controlled cryptocurrencies to build new payment and transfer systems outside the US-dollar domain to circumvent sanctions. India may or may not join this club – whenever the Modi Government decides which way to bend – east or west. The logic would suggest that India orients herself to the east, as India is a significant part of the huge Eurasian economic market and landmass.
Venezuela – A Risk to Dollar Hegemony – Key Purpose Behind “Regime Change”

India is already an active member of the Shanghai Cooperation Organization (SCO) – an association of countries that are developing peaceful strategies for trade, monetary security and defense, comprising China, Russia, India, Pakistan, most Central Asian countries and with Iran waiting in the wings to become a full-fledged member. As such, SCO accounts for about half of the world population and a third of the world’s economic output. The east has no need for the west to survive. No wonder that western media hardly mention the SCO which means that the western average public at large has no clue what the SCO stands for, and who are its members.

Government-controlled and regulated blockchain technology may become key to counter US coercive financial power and to resist sanctions. Any country is welcome to join this new alliance of countries and new but fast-growing approach to alternative trading – and to finding back to national political and financial sovereignty.

In the same vein of dedollarization are Indian “barter banks”. They are, for example, trading Indian tea for Iranian oil. Such arrangements for goods to be exchanged against Iranian petrol are carried out through Indian “barter banks”, where currencies, i.e. Iranian rials and Indian rupees, are handled by the same bank. Exchange of goods is based on a list of highest monetary volume Indian trade items, against Iranian hydrocarbon products, for example, Iran’s large import of Indian tea. No monetary transaction takes place outside of India, therefore, US sanctions may be circumvented, since no US bank or US Treasury interference can stop the bilateral trade activities.

At this point, it might be appropriate to mention Facebook’s attempt to introduce a globe-spanning cryptocurrency, the Lira. Little is known on how exactly it will (or may) function, except that it would cater to billions of facebook members around the world. According to Facebook, there are 2.38 billion active members. Imagine, if only two thirds – about 1.6 billion – opened a Libra account with Facebook, the floodgate of libras around the world would be open. Libra is or would be a privately-owned cryptocurrency – and – coming from Facebook – could be destined to replace the dollar by the same people who are now abusing the world with the US-dollar. It may be projected as the antidote to government-controlled cryptocurrencies, thus, circumventing the impact of dedollarization. Beware of the Libra!

Despite US and EU sanctions, German investments in Russia are breaking a 10-year record in 2019, by German business pouring more than €1.7 billion into the Russian economy in the first three months of 2019. According to the Russian-German Chamber of Commerce, the volume of German companies’ investments in Russia is up by 33% – by € 400 million – since last year, when total investments reached € 3.2 billion, the largest since 2008. Despite sanctions which amounted to about € 1 billion combined for 140 German companies surveyed and registered with the Chamber of Commerce, and despite western anti-Russia pressure, Russia-German trade has increased by 8.4 percent and reached nearly € 62 billion in 2018.

In addition, notwithstanding US protests and threats with sanctions, Moscow and Berlin continue their Nord Stream 2 natural gas pipeline project which is expected to be finished before the end of 2019. Not only is the proximity of Russian gas a natural and logical supply source for Germany and Europe, it will also bring Europe independence form the bullying sales methods of the United States. And payments will not be made in US dollars. In the long-run, the benefits of German-Russian business and economic relations will far outweigh the illegal US sanctions. Once this awareness has sunk in, there is nothing to stop Russian-German business associations to flourish, and to attract other EU-Russian business relations – all outside of the dollar-dominated banking and transfer system.

President Trump’s trade war with China will eventually also have a dedollarization effect, as China will seek – and already has acquired – other trading partners, mostly Asian, Asian-Pacific and European – with whom China will deal in other than dollar-denominated contracts and outside the SWIFT transfer system, for example using the Chinese International Payment System (CIPS) which, by the way, is open for international trade by any country across the globe.

This will not only circumvent punishing tariffs on China’s exports (and make US customers of Chinese goods furious, as their Chinese merchandise is no longer available at affordable prices, or no longer available at all), but this strategy will also enhance the Chinese Yuan on international markets and boost the Yuan even further as a reliable reserve currency – ever outranking the US-dollar. In fact, in the last 20 years, dollar-denominated assets in international reserve coffers have declined from more than 90% to below 60% and will rapidly decline further as Washington’s coercive financial policies prevail. Dollar reserves are rapidly replaced by reserves in Yuan and gold, and that even in such staunch supporters of the west as is Australia.

Washington also has launched a counter-productive financial war against Turkey, because Turkey is associating and creating friendly relations with Russia, Iran and China – and, foremost, because Turkey, a NATO stronghold, is purchasing the Russian S-400 cutting-edge air defense system – a new military alliance which the US cannot accept. As a result, the US is sabotaging the Turkish currency, the Lira which has lost 40% since January 2018.

Turkey will certainly do whatever it can to get out from under the boot of the US-dollar stranglehold and currency sanctions – and further ally itself with the East. This amounts to a double loss for the US. Turkey will most likely abandon all trading in US dollars and align her currency with, for example, the Chinese Yuan and the Russian ruble, and, to the detriment of the Atlantic alliance, Turkey may very likely exit NATO. Abandoning NATO will be a major disaster for the US, as Turkey is both strategically, as well as in terms of NATO military power one of the strongest – if not the strongest – nation of the 29 NATO members, outside of the US.

If Turkey exits NATO, the entire European NATO alliance will be shaken and questioned. Other countries, long wary of NATO and of storing NATO’s nuclear weapons on their soils, especially Italy and Germany, may also consider exiting NATO. In both Germany and Italy, a majority of the people is against NATO and especially against the Pentagon waging wars form their NATO bases in their territories in Germany in Italy.

To stem against this trend, the former German Defense Minister, Ursula von der Leyen, from the conservative German CDU party, is being groomed to become Jean-Claude Juncker’s successor as President of the European Commission. Mr. Juncker served since 2014. Ms. Von der Leyen was voted in tonight, 17 July, with a narrow margin of 9 votes. She is a staunch supporter of NATO. Her role is to keep NATO as an integral part of the EU. In fact, as it stands today, NATO is running the EU. This may change, once people stand up against NATO, against the US vassal, the EU Administration in Brussels, and claim their democratic rights as citizens of their nation states.

Europeans sense that these Pentagon initiated and ongoing wars and conflicts, supported by Washington’s European puppet allies, may escalate into a nuclear war, their countries’ NATO bases will be the first ones to be targeted, sinking Europe for the 3rdtime in 100 year into a world war. However, this one may be all-destructive nuclear – and nobody knows or is able to predict the damage and destruction of such a catastrophe, nor the time of recovery of Mother Earth from an atomic calamity.

So, let’s hope Turkey exits NATO. It would be giant step towards peace and a healthy answer to Washington’s blackmail and sabotage against Turkey’s currency. The US currency sanctions are, in the long run, a blessing. It gives Turkey a good argument to abandon the US dollar and gradually shift towards association with eastern moneys, mainly the Chinese Yuan, thereby putting another nail in the US-dollar’s coffin.

However, the hardest blow for Washington will be when Turkey exits NATO. Such a move will come sooner or later, notwithstanding Ms. Von der Leyen’s battle cries for NATO. The breaking up of NATO will annihilate the western power structure in Europe and throughout the world, where the US still maintains more than 800 military bases. On the other hand, the disbanding of NATO will increase the world’s security, especially in Europe – for all the consequences such an exit will bear. Exiting NATO and economically exiting the US-dollar orbit is a further step towards dedollarization, and a blow to US financial and military hegemony.

Finally, investments of the Chinese Belt and Road Initiative (BRI), also called the New Silk Road, will be mostly made in Yuan and local currencies of the countries involved and incorporated in one or more of the several BRI land and maritime routes that eventually will span the globe. Some US-dollar investments may serve the People’s Bank of China, China’s Central Bank, as a dollar-divesting tool of China’s huge dollar reserves which currently stands at close to two trillion dollars.

The BRI promises to become the next economic revolution, a non-dollar economic development scheme, over the coming decades, maybe century, connecting peoples and countries – cultures, research and teaching without, however, forcing uniformity, but promoting cultural diversity and human equality – and all of it outside the dollar dynasty, breaking the nefarious dollar hegemony.

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This article was originally published on New Eastern Outlook.

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Saker Blog, the New Eastern Outlook (NEO); and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance. He is a Research Associate of the Centre for Research on Globalization.
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🏦 'Collared' By The Fed And Trump's Trade War
« Reply #243 on: August 05, 2019, 05:46:12 AM »
https://seekingalpha.com/article/4281393-collared-fed-trumps-trade-war

'Collared' By The Fed And Trump's Trade War
Aug. 4, 2019 11:42 AM ET|


The last three days were manic, to say the least, and by the time the dust settled, this was the worst week for US stocks of 2019.

The market is now at risk of being "collared" by a circular dynamic between the Fed and President Trump's trade war.

If the Fed doesn't play ball, things could get materially worse for stocks.

During what was variously described as a disastrous press conference on Wednesday, Jerome Powell said trade tensions nearly "boiled over" in May and June but "returned to a simmer" in July.

The Fed Chair made a number of mistakes over the course of his press conference, and that was one of them.

Not only did it suggest, to markets, that the Fed assessed trade tensions as likely to ease further, thereby reducing uncertainty and mitigating the need to cut rates further, it also signaled, to President Trump, that convincing policymakers to ease aggressively would likely require the instigation of more trade drama.

On Wednesday evening, Trump said this on Twitter:

    What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world. As usual, Powell let us down.

Hold that thought.

Powell also let the market down. The Chair's description of the July rate cut as a "mid-cycle adjustment" and his subsequent contention that "this isn't the start of a long series of rate cuts" were the opposite of what markets wanted to hear. The curve flattened the most since March of 2018 (a reflection of disappointment and a lack of faith in the idea that a single 25bp cut would be sufficient to inoculate the US economy from the trade frictions and global manufacturing slump) and, worse, the dollar moved sharply higher, a development that was starkly at odds with what the White House wanted to see and also with what the market needed (USD funding markets are still tight and the forthcoming Treasury supply deluge isn't going to help).


(Heisenberg)

The "reviews" (if you will) of Powell's performance were bad, and analysts generally implored market participants to focus on the underlying message. Here, for example, is a quick bit from BofA's front-end rates team:

    FOMC communications this week, especially Chair Powell’s press conference, reflected a confused and muddled message. We encourage investors to look through the noise and focus on the underlying message from the Fed: they are uncertain, in risk management mode, and worried about low inflation. Elevated risks surrounding trade (i.e. potential 10% increase in China tariffs on Sept 1) and global developments leaves us still expecting lower US rates, a steeper curve, and favoring ways to position for an out of consensus uptick in inflation risk premium.

Here's an easy way to visualize the "worried about low inflation" bit:


(Heisenberg)

As far as the trade concerns go, less than 24 hours after Powell told reporters that trade tensions had "returned to a simmer", Trump huddled with Steve Mnuchin, Mick Mulvaney and Larry Kudlow in the Oval Office.

According to Bloomberg's Jennifer Jacobs, Mnuchin attempted to convince the president to give the Chinese a heads-up before threatening more tariffs. Mnuchin had, after all, just gotten back from talks in Shanghai the previous day.

According to Jacobs, Trump overruled Mnuchin and sent the tweets threatening to impose a 10% tariff on the remaining $300 billion in Chinese goods while everyone was still sitting in the Oval Office.

The rest is history. Stocks, which had bounced nicely on Thursday morning following the Powell-inspired selloff the previous afternoon, plunged. 10-year yields dove to their lowest since early November 2016. And most importantly, traders began to price back in more Fed cuts. In other words, if Powell was hoping to push back against expectations for the kind of "aggressive" (to quote the President) cutting cycle that Trump and the market wants, the trade broadside negated that effort.


(Heisenberg)

One of the most important takeaways from what Nomura's Charlie McElligott called "one of the most manic 36 hours of trading I've seen in my 18-year career," is that to the extent President Trump was attempting to engineer more Fed cuts (where the most immediate concern would be ensuring that September is a "go", so to speak), it puts us right back in a familiar loop. Here's a simple illustration:


(Heisenberg)

That's something BofA warned about in June. Other desks (including Deutsche and JPMorgan) have produced similar analysis. "If the ‘Powell Put’ and ‘Trump Call’ are strong enough, they could create an ever-escalating trade war matched by an ever lower funds rate," BofA cautioned less than two months prior to the latest trade broadside, adding that "the stock market would be left in a range-bound ‘collar’ trade, with its upside and downside capped by the trade war and the Fed, respectively."

This was always the risk for the Fed in getting roped into implicitly underwriting the trade war. If Powell continues to play the game, he risks perpetuating trade tensions until things get so bad that the inflationary effects become impossible to mitigate no matter how hard Bob Lighthizer tries by fiddling with the list of affected products.

Consider this. Nearly two thirds of goods that will be affected in the next prospective round of tariffs are consumer goods, with apparel, footwear, toys and cellphones all in play. Have a look:


(Heisenberg)

See the problem? According to Goldman's estimates, the proposed next round of tariffs (i.e., what Trump threatened on Thursday) would boost PCE inflation 20bps by year-end and exert another 0.1-0.2% drag on GDP, with that latter figure coming in addition to a 0.2% hit from tariffs already imposed.

Do note that the latest read on core CPI was the hottest since January of 2018 and the July jobs report showed wage growth coming in hot.

No, a sudden breakout of inflation to the upside isn't likely (a disinflationary quagmire is still the base case for most folks, including the Fed, even if they won't readily acknowledge it). But the point is simply that as the trade war worsens, it puts the Fed in an impossible position. If the tariffs continue (and Trump indicated he would be willing to go above 25% on all Chinese goods if that's what it takes to extract the concessions he wants), it will eventually threaten to exert material upward pressure on consumer prices, while serving as a drag on GDP. There is no adequate monetary policy response to that. If you cut rates to offset the GDP hit, you risk worsening the inflation issue. If you stand pat or hike to head off inflation, you chance making the hit to growth worse.

This is complicated immeasurably by the fact that we are headed into an election year, so any action the Fed does take (or doesn't take) will be viewed through the lens of politics. President Trump's public calls for rate cuts make that dynamic even more acute.

As far as the near-term outlook is concerned, there are two possibilities. Either the Fed bends the proverbial knee in the face of trade tensions and indicates that a September cut is all but a sure bet, thereby putting us squarely in the "collar" dynamic illustrated in the flow chart above, or else policymakers attempt to stick to their guns and remain reluctant to explicitly countenance markets' efforts to price in additional rate cuts.

In that latter scenario, the dollar will remain stubbornly resilient, potentially exacerbating any squeeze in USD funding markets, stocks will struggle mightily and volatility will probably spike into an already favorable seasonal (see below).


(Bloomberg, Nomura's annotation)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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🏦 'Crazy inverted yield curve' vexes Fed, with no clear resolution
« Reply #244 on: August 16, 2019, 04:23:03 AM »
https://www.reuters.com/article/us-usa-fed-yieldcurve-graphic/crazy-inverted-yield-curve-vexes-fed-with-no-clear-resolution-idUSKCN1V52LF

August 15, 2019 / 3:34 PM / Updated 6 hours ago
'Crazy inverted yield curve' vexes Fed, with no clear resolution


7 Min Read

WASHINGTON (Reuters) - Amid the recent financial market volatility, the interest rates on some long-dated government bonds have fallen below the level for short-term debt.
FILE PHOTO: A trader looks at screens as he works on the floor at the New York Stock Exchange, August 13, 2019. REUTERS/Eduardo Munoz

Called a “yield curve inversion,” this has been a traditional warning sign for the economy: If smart investors see more risk two years ahead than 10 years down the road, it can’t be good for near-term growth.

In response, President Donald Trump and others have upped demands for a U.S. Federal Reserve rate cut.

So do U.S. central bankers care about what Trump called the “crazy inverted yield curve” or not?

Policymakers have been trying to get a handle on the issue for a while, with no consensus on whether a curve inversion today means the same thing it did in the past.

Here are selected comments of Fed policy makers over the last two years on the issue:

Dec. 1, 2017: “There is a material risk...if the (Federal Open Market Committee) continues on its present course” - St. Louis Federal Reserve President James Bullard.

He was off by a few months, expecting a yield curve inversion late in 2018, but Bullard as well as Dallas Fed President Robert Kaplan flagged early on what might happen if the Fed continued to hike, as it did throughout last year.
Reuters Graphic

 Aug. 20, 2018: “I pledge to you I will not vote for anything that will knowingly invert the curve and I am hopeful that as we move forward I won’t be faced with that.” - Atlanta Federal Reserve President Raphael Bostic.

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The comment captured the Fed’s dilemma at that point. The economy was growing faster than expected and seemed robust enough to warrant rate increases. Bostic voted for two more by the end of the year. Yet through the year, bond spreads narrowed.
Reuters Graphic

 Sept. 6, 2018: “I don’t see the flat yield curve or inverted yield curve as being the deciding factor in terms of where we should go with policy.” - New York Fed President John Williams

Williams was among the most vocal in saying that in the “new normal” economy, when all rates and the spreads between them were inherently lower, a yield curve inversion may be a product of structural changes in markets, and not the scary signal it used to be.
Reuters Graphic

 Sept. 12, 2018: Lower overall rates and changing investor behavior “may temper somewhat the conclusions that we can draw from historical yield curve relationships.” - Fed Governor Lael Brainard.

Some members of the Fed board agreed that the yield curve may not be as meaningful as in the past.
Reuters Graphic

 March 24, 2019: “Some of this is structural, having to do with lower trend growth, lower real interest rates...In that environment, it’s probably more natural that yield curves are somewhat flatter.” - Chicago Fed President Charles Evans.

March 25, 2019: “I don’t take nearly as much information from the shape of the yield curve as some people do.” - Boston Fed President Eric Rosengren.

March 26, 2019: “I’m not freaked out.” - San Francisco Fed President Mary Daly.

That month, the spread between the three-month Treasury note and the 10-year bond, closely watched by some at the Fed, did invert. There remained division about what it meant and reluctance to read it as a sign of economic weakness.
Reuters Graphic

June 4, 2019: “We are early into it. It’s certainly something we’ll keep looking at.” - Fed Vice Chair Richard Clarida.

The Fed by this point was preparing for rate cuts, but even its leadership was not fully ready to put the yield curve at the center of its thinking. In Clarida’s view, time matters: If the curve stayed upside down, he said he would take it “seriously.”
Reuters Graphic

June 25, 2019: “We do, of course, look at the yield curve ... it’s one financial condition among many ... There’s no one thing in the broad financial markets that we see as the dominant thing.” – Fed Chairman Jerome Powell.

The Fed did cut rates in July. The key, 10-year to two-year portion of the yield curve nevertheless inverted just two weeks later. It seemed a reaction to broader problems, including a sense that the U.S.-China trade war was becoming a bigger threat than thought, and the spread quickly moved back above zero.

But will that brief inversion be read as a warning?

The central bank next meets on Sept. 17-18.
Reuters Graphic

Reporting by Howard Schneider in Washington; Ann Saphir in San Francisco; Trevor Hunnicutt in New York; Editing by Dan Burns and Cynthia Osterman
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Re: 🏦 'Crazy inverted yield curve' vexes Fed, with no clear resolution
« Reply #245 on: August 16, 2019, 06:10:33 AM »
https://www.reuters.com/article/us-usa-fed-yieldcurve-graphic/crazy-inverted-yield-curve-vexes-fed-with-no-clear-resolution-idUSKCN1V52LF

August 15, 2019 / 3:34 PM / Updated 6 hours ago
'Crazy inverted yield curve' vexes Fed, with no clear resolution


7 Min Read

WASHINGTON (Reuters) - Amid the recent financial market volatility, the interest rates on some long-dated government bonds have fallen below the level for short-term debt.
FILE PHOTO: A trader looks at screens as he works on the floor at the New York Stock Exchange, August 13, 2019. REUTERS/Eduardo Munoz

Called a “yield curve inversion,” this has been a traditional warning sign for the economy: If smart investors see more risk two years ahead than 10 years down the road, it can’t be good for near-term growth.

In response, President Donald Trump and others have upped demands for a U.S. Federal Reserve rate cut.

So do U.S. central bankers care about what Trump called the “crazy inverted yield curve” or not?

Policymakers have been trying to get a handle on the issue for a while, with no consensus on whether a curve inversion today means the same thing it did in the past.

Here are selected comments of Fed policy makers over the last two years on the issue:

Dec. 1, 2017: “There is a material risk...if the (Federal Open Market Committee) continues on its present course” - St. Louis Federal Reserve President James Bullard.

He was off by a few months, expecting a yield curve inversion late in 2018, but Bullard as well as Dallas Fed President Robert Kaplan flagged early on what might happen if the Fed continued to hike, as it did throughout last year.
Reuters Graphic

 Aug. 20, 2018: “I pledge to you I will not vote for anything that will knowingly invert the curve and I am hopeful that as we move forward I won’t be faced with that.” - Atlanta Federal Reserve President Raphael Bostic.

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The comment captured the Fed’s dilemma at that point. The economy was growing faster than expected and seemed robust enough to warrant rate increases. Bostic voted for two more by the end of the year. Yet through the year, bond spreads narrowed.
Reuters Graphic

 Sept. 6, 2018: “I don’t see the flat yield curve or inverted yield curve as being the deciding factor in terms of where we should go with policy.” - New York Fed President John Williams

Williams was among the most vocal in saying that in the “new normal” economy, when all rates and the spreads between them were inherently lower, a yield curve inversion may be a product of structural changes in markets, and not the scary signal it used to be.
Reuters Graphic

 Sept. 12, 2018: Lower overall rates and changing investor behavior “may temper somewhat the conclusions that we can draw from historical yield curve relationships.” - Fed Governor Lael Brainard.

Some members of the Fed board agreed that the yield curve may not be as meaningful as in the past.
Reuters Graphic

 March 24, 2019: “Some of this is structural, having to do with lower trend growth, lower real interest rates...In that environment, it’s probably more natural that yield curves are somewhat flatter.” - Chicago Fed President Charles Evans.

March 25, 2019: “I don’t take nearly as much information from the shape of the yield curve as some people do.” - Boston Fed President Eric Rosengren.

March 26, 2019: “I’m not freaked out.” - San Francisco Fed President Mary Daly.

That month, the spread between the three-month Treasury note and the 10-year bond, closely watched by some at the Fed, did invert. There remained division about what it meant and reluctance to read it as a sign of economic weakness.
Reuters Graphic

June 4, 2019: “We are early into it. It’s certainly something we’ll keep looking at.” - Fed Vice Chair Richard Clarida.

The Fed by this point was preparing for rate cuts, but even its leadership was not fully ready to put the yield curve at the center of its thinking. In Clarida’s view, time matters: If the curve stayed upside down, he said he would take it “seriously.”
Reuters Graphic

June 25, 2019: “We do, of course, look at the yield curve ... it’s one financial condition among many ... There’s no one thing in the broad financial markets that we see as the dominant thing.” – Fed Chairman Jerome Powell.

The Fed did cut rates in July. The key, 10-year to two-year portion of the yield curve nevertheless inverted just two weeks later. It seemed a reaction to broader problems, including a sense that the U.S.-China trade war was becoming a bigger threat than thought, and the spread quickly moved back above zero.

But will that brief inversion be read as a warning?

The central bank next meets on Sept. 17-18.
Reuters Graphic

Reporting by Howard Schneider in Washington; Ann Saphir in San Francisco; Trevor Hunnicutt in New York; Editing by Dan Burns and Cynthia Osterman

I saw this yesterday. Glad you posted this....
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🏦 FDIC approves Volcker revamp, in latest move to roll back bank rules
« Reply #246 on: August 21, 2019, 01:31:03 AM »
https://www.politico.com/story/2019/08/20/volcker-rule-joseph-otting-banks-1672620

FDIC approves Volcker revamp, in latest move to roll back bank rules

By KATY O'DONNELL
08/20/2019 12:50 PM EDT
Updated 08/20/2019 04:09 PM EDT


Comptroller of the Currency Joseph Otting signed the revised Volcker rule Tuesday. Three other agencies — the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission — must still approve it. | Chip Somodevilla/Getty Images

The Federal Deposit Insurance Corp. board voted 3-1 Tuesday to give big banks more leeway to make risky short-term bets in financial markets by loosening a landmark but highly contentious regulation known as the Volcker rule.

The FDIC and four other independent agencies have dropped their proposal to tie the rule to a strict accounting standard — a move that banks argued would have made it more burdensome by subjecting additional trades to heightened supervision. Instead, regulators will give banks the benefit of the doubt on a much wider range of trades, according to the text of the final rule.

Democrats immediately slammed the Trump administration for loosening the rule, which was mandated by the 2010 Dodd-Frank Act in an effort to protect depositors' money from being used by banks to turn a quick profit on short-term price changes in stocks, bonds and other financial assets.

The rewrite “will not only put the U.S. economy at risk of another devastating financial crisis, but it could potentially leave taxpayers at risk of having to once again foot the bill for unnecessary and burdensome bank bailouts,” House Financial Services Chairwoman Maxine Waters (D-Calif.) said in an email.

“The final rule published today would curtail prohibitions in a manner that Congress never intended and allow Wall Street megabanks to gamble with the same types of risky loan securitizations that turned toxic in 2008, at a time when these risky products are once again on the rise,” Waters added.

The Volcker rule — a 2013 regulation named after former Federal Reserve Board Chairman Paul Volcker, who came up with the concept — bars banks from making risky trades on their own behalf and restricts them from owning hedge funds or private equity funds. It has long come under fire for its complexity and has been a source of dissatisfaction for the regulators themselves.
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The rewrite is an attempt to clarify what kinds of activity would be exempt from the proprietary trading ban for market-making, hedging or underwriting purposes. Regulators aim to introduce a separate revamp of the covered-funds provision of the rule this fall.

Comptroller of the Currency Joseph Otting on Tuesday signed the revised rule. Three other agencies — the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission — must still approve it.

The new rule — the latest step by President Donald Trump's regulators to roll back post-financial crisis rules — would go into effect Jan. 1. Banks will have until Jan. 1, 2021, to become compliant but may opt in earlier.

Among other provisions, the revamp would create a presumption of compliance for trades held for longer than 60 days, the inverse of the current version of the rule, which presumes that any investment held for less than 60 days is banned, with the onus on banks to argue that a given trade is exempt.

The accounting standard that regulators proposed last year was meant to clear up ambiguity surrounding the intent standard under the 60-day provision, which ties the legitimacy of a bank’s position to its intent in making the short-term trade.

Under the final rule, the short-term intent prong will only apply to banks that are not subject to the market risk capital rule or that do not elect to apply the market risk capital standard.

The inclusion of the accounting provision in the original Volcker 2.0 proposal had been key in securing the support of Martin Gruenberg, then FDIC chairman and now a regular board member at the agency.

Gruenberg, an Obama appointee, voted against the revised rule Tuesday morning, saying it would “effectively undo” the Volcker rule’s ban on proprietary trading.

As amended, “the Volcker rule will no longer impose a meaningful constraint on speculative and proprietary trading by banks and bank-holding companies benefiting from the public safety net” of insured deposits, Gruenberg said.

Banks, meanwhile, applauded the new rule.

“The changes in the new rule will help reduce the incidental damage the original rule has done to responsible banking activity and legitimate market making activity, and the massive and needless compliance costs it imposed,” said Greg Baer, president and CEO of the Bank Policy Institute.

The Office of Financial Research issued a report this month that appeared to support industry complaints about the current rule with its finding that the rule led to “significant adverse liquidity effects on covered firms’ corporate bond trading.”

Victoria Guida contributed to this report.
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🏦 Opinion: The Federal Reserve’s math problem with interest-rate cuts
« Reply #247 on: August 21, 2019, 01:44:40 AM »
https://www.marketwatch.com/story/the-federal-reserves-math-problem-with-interest-rate-cuts-2019-08-20

Opinion: The Federal Reserve’s math problem with interest-rate cuts

Published: Aug 20, 2019 2:11 p.m.


The central bank may not have enough ammunition at its disposal if the economy sinks into a recession
Bloomberg
Federal Reserve Chairman Jerome Powell

By Sven Henrich

The Federal Reserve has a math problem, and so do investing markets.

Everyone from the president on down is demanding interest-rate cuts, lots of them. Fed Chairman Jerome Powell called the July rate cut a “mid-cycle” adjustment, and it has bought the Fed precious little as markets sold off in the wake off more trade tensions and yields continued to plummet. And now the markets are demanding more — a lot more. A 50-basis-point cut to the federal funds rate appears to be the bare minimum investors are demanding for September. Call it pricing it in, and the implication is clear: The Fed can ill afford to disappoint.

And what markets are currently pricing in is anything but a “mid-cycle” adjustment:


Bloomberg

That is nearly a 100-basis-point rate cut over the next year. President Trump, of course, wants that large a cut now and some quantitative easing sprinkled on top of that:

Leaving aside a discussion about the economic wisdom of such demands, let’s look at the implications of Trump’s wishes, and on a longer time frame, the market’s demand for 100 basis points of rate cuts.

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The problem is the Fed has very limited ammunition compared with previous cycles, and that fact seems to escape everyone.

Between December 2015 and December 2018, the Fed raised rates nine times after keeping the federal fund’s target range between zero and 25 basis points since Dec. 16, 2008 — the weakest rate-hiking cycle ever. In 2018 expectations were still high for further rate increases in 2019. In fact, Goldman Sachs had projected five rate increases for 2019 as late as November 2018.

Those days are long gone as global yields have collapsed and economic data has continued to show significant slowing. Hence the rate cut in July:


Federal Reserve Bank of St. Louis

And therein lies the math problem. With one rate cut already under its belt, the Fed now only has eight rate cuts to work with before being right back to zero-bound.

Cutting by 50 basis points in September would leave the Fed with only six 25-basis-point rate cuts to play with. Cutting another 50 basis points over the next year would leave the Fed with only four 25-basis-point rate cuts, implying the Fed would have given back nearly half of its entire rate-raising cycle, which took three years to accomplish, in only 12 months. That wouldn’t be a “mid-cycle” adjustment.

For reference: In 2001, the Fed had to embark on a rate-cutting cycle of 550 basis points to stop the unfolding recession. In 2007 it took 500 basis points. This time the Fed has started its rate-cutting cycle from a 225-250 basis-point basis. When cycles turn in earnest, they get angry and demand a lot of Fed hand holding.

So I must ask: With such limited ammunition to work with and so much ammunition required to actually stop a cycle turn, why would the Fed waste more rate cuts with markets still near all-time highs and unemployment still at 50-year lows? Why risk a 50-basis-point cut and be left with only six 25-point cuts in the coffer? Recession risk, after all, is rising and even Pimco is acknowledging this. Unless the ultimate future is rates into the negative 200-250 basis-point territory, which would imply a full-out disastrous crisis, then perhaps markets are expecting way too much from Momma Fed at this stage.

And if this is the case, then markets may be setting themselves up for disappointment. The first test of this thesis will come on Friday during Powell’s Jackson Hole speech. Markets are eagerly awaiting a signal to confirm more aggressive rate cuts. The Fed has a math problem and a market beast that wants to be fed. By the Fed.

Powell can ill afford to disappoint. But there may be another problem lurking. If the Fed is too aggressive, feeling beholden to markets, it may inadvertently send a signal that the recession risk is real and markets may ultimately not like the sound of that.

Sven Henrich is founder and the lead market strategist of NorthmanTrader.com. He’s well-known for his technical, directional and macro analysis of global equity markets. Follow him on Twitter at @NorthmanTrader.
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🏦 Trump Wants Negative Interest Rates. That’s a Bad Idea.
« Reply #248 on: September 13, 2019, 08:03:40 AM »
Not a bad idea for DT.  Then he can get paid to borrow money.

RE

Trump Wants Negative Interest Rates. That’s a Bad Idea.

By Randall W. Forsyth
Updated Sept. 12, 2019 9:55 am ET / Original Sept. 12, 2019 5:30 am ET


President Donald Trump now wants the Federal Reserve to lower interest rates to zero or below. But he should consider the minuses of negative rates, which have failed to spur strong growth in Europe and Japan and would likely cause a firestorm among U.S. savers.

Stock-market investors, meanwhile, should note that this month’s rally has come while bond yields have reversed part of their recent sharp declines.
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🏦 Trade tensions, oil shock cloud Fed efforts to steer clear of recession
« Reply #249 on: September 17, 2019, 08:22:18 AM »
https://finance.yahoo.com/news/september-fomc-preview-federal-reserve-130741095.html

Trade tensions, oil shock cloud Fed efforts to steer clear of recession
Brian Cheung

Yahoo Finance September 17, 2019


Trade tensions, oil shock cloud Fed efforts to steer clear of recession

It’s been an eventful six weeks for the global economy, complicating the Federal Reserve’s efforts to steer the U.S. economy through a dark global outlook facing increasing uncertainty.

Since the Fed’s July 31 decision to cut rates for the first time in over a decade, the U.S. designated China a currency manipulator, the yield curve inverted for the first time in over 10 years, China and the U.S. ratcheted up their tariffs, and oil prices spiked as geopolitical tensions on the Arabian peninsula flared up.

All eyes are on the Fed’s announcement Wednesday, where Fed Chairman Jay Powell will not only announce its move on rates but release a new round of “dot plots” projecting policymakers’ expectations for where rates could be in the future.

As of Tuesday morning, Fed funds futures contracts were pricing in a 65.8% chance of a 25 basis point cut in its Wednesday announcement, with the other 34.2% of bets on no rate change.

On Wall Street, the expectation for a cut appears stronger, with JPMorgan, Goldman Sachs, Bank of America Merrill Lynch, TD Securities, Rabobank, UBS, Wells Fargo, and Morgan Stanley all predicting a 25 basis point decrease.

“The case for a cut has increased since the July meeting as the data flow in the U.S. has softened and uncertainty remains in the outlook,” Bank of America Merrill Lynch wrote September 13.

Clouding things further: continued criticism from President Donald Trump, who recently pushed Jay Powell to lower rates to “the lowest.”
Global concerns

The prevailing question for Wednesday is whether the Fed sees increased risks to the U.S. economy from the wave of headlines over the last six weeks.

The biggest headline: an announcement from China on Aug. 23 that it would slap tariffs on another $75 billion of U.S. goods, pushing Trump to increase tariff rates on Chinese imports as high as 30%.

Shortly before announcing his retaliatory tariffs, Trump expressed frustration that the Fed was not acting more aggressively on rate cuts and described Powell, who was his own pick for Fed chair, as a threat on equal footing with Chinese President Xi Jinping.

    ....My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
    — Donald J. Trump (@realDonaldTrump) August 23, 2019

The higher tariffs appear to present only increased trade risk to the U.S. economy, a risk that Powell acknowledged in July as a key reason for needing an “insurance” cut of 25 basis points.

New York Fed President John Williams acknowledged in early September that Chinese trade concerns have led to “angst” among U.S. businesses pulling back on investment. Weaker manufacturing numbers have also shown tangible impacts on the U.S. economy as a result of the trade war.

“On our own shores, concerns around trade policy with China are adding to an uncertain picture,” Williams said September 4.

The geopolitical picture globally has darkened, as well. The European Central Bank moved last week to counter continued weakness in the Eurozone with more stimulus. In China, weaker industrial production has extended worries of a slowdown.

Complicating things further were developments on the Arabian peninsula this weekend, where a drone attack on a Saudi Arabian crude-processing center triggered a sharp spike in oil prices.

Deutsche Bank’s Matthew Luzzetti said a spike in oil prices should “reinforce the Fed’s already dovish bias.” Luzzetti wrote Sept. 16 that higher energy prices should not dramatically change the Fed’s concerns over the persistent undershooting of its 2% inflation target, since its preferred measure of prices (core personal consumption expenditures) is an inflation reading that strips out oil prices.

“Barring a more substantial geopolitical flare-up that leads to a sharp tightening of financial conditions, this move in oil should have only modest effects on the US economy,” Luzzetti wrote.
How robust is the US?

As a result of increased global weakness and trade tensions, many expect Powell to repeat his talking points on July’s “insurance” cut in justifing another 25 basis point cut Wednesday.

But why not 50 basis points?

The Federal Open Market Committee already has a rift between policymakers favoring accommodation and the two voters that do not (Boston Fed President Eric Rosengren and Kansas City Fed President Esther George).

At the core of this ideological divide is the robustness of the U.S. economy in dealing with the risks associated with global growth and trade.

Domestically, data since the last meeting have reflected only modest changes in the health of the U.S. economy. The most recent employment report showed tepid growth of an estimate-missing 130,000 jobs in August. But personal consumption, which Powell has described as the main driver of the U.S. economy, appears to be chugging along with figures in the second quarter increasing at an annualized rate of 4.7%, the best reading since 2014.

In remarks in Switzerland on Sept. 6, Powell painted a more optimistic outlook on the U.S. economy, repeating his commitment to “act as appropriate to sustain the expansion” and saying that he “does not see a recession as the most likely outcome for the United States or the global economy.”

Capital Economics wrote Sept. 11 that despite the heavy news flow, the underlying fundamentals do not point to an aggressive rate cut coming on Wednesday.

“The data haven’t yet deteriorated nearly enough to justify a larger 50bp move, although we do expect a further gradual slowdown in economic growth over the coming months to prompt one final 25bp cut in December,” Capital Economics’s Andrew Hunter wrote.

But never rule anything out.

Reflecting the breadth of differing opinions on the FOMC, St. Louis Fed President and voting member James Bullard has publicly stated his support for a 50 basis point cut to address the “global shock” of tariffs.

The Fed’s policy decision will be announced at 2 p.m. ET on Wednesday and will come with a new round of economic projections. Powell’s press conference will begin at 2:30 p.m. ET.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.
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Da' Repo Man hits Wall St.
« Reply #250 on: September 17, 2019, 11:55:34 AM »

Update 4: It’s over: after a torrid 30 minutes in which the NY Fed first announced a repo operation, then announced the repo was canceled due to technical difficulties, then mysterious the difficulties went away just minutes later, at precisely 10:10am, the Fed concluded its first repo operation in a decade, which while not topping out at the $75 billion max, was nonetheless a significant $53.15 billion, split as follows:


https://www.zerohedge.com/markets/fed-has-lost-control-rates-again
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This is a BIG ONE Doomfans!

RE

https://www.cnn.com/2019/09/17/business/overnight-lending-rate-spike-ny-fed/index.html

A crack just emerged in the financial markets: The NY Fed spends $53 billion to rescue the overnight lending market
Matt Egan

By Matt Egan, CNN Business

Updated 5:07 PM ET, Tue September 17, 2019


New York (CNN Business)Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.
The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets.

    The funding markets are clearly stressed."

    Guy LeBas of Janney Capital Markets

It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008.
"It's unprecedented, at least in the post-crisis era," said Mark Cabana, rates strategist at Bank of America Merrill Lynch.

On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range .
Oil prices drop after report that Saudi production could be restored in weeks
Oil prices drop after report that Saudi production could be restored in weeks
The first attempt by the NY Fed was canceled because of "technical difficulties." Minutes later, the NY Fed successfully injected $53 billion into the system.
The episode demonstrates evidence of emerging strains in financial markets and raises concern that the Federal Reserve could be losing its grip on short-term rates.
"The funding markets are clearly stressed," said Guy LeBas, managing director of fixed income strategy at Janney Capital Markets. "It's going to require Fed action."
The NY Fed announced plans late Tuesday to hold another repurchase agreement operation on Wednesday that would aim to repurchase up to an additional $75 billion.
Rates spike
The rate on overnight repurchase agreements hit 5% on Monday, according to Refinitiv data. That's up from 2.29% late last week and well above the target range set in July by the Federal Reserve, which is 2% to 2.25%. The surge continued Tuesday, with the overnight rate hitting a high of 10% before the NY Fed stepped in.
Although it doesn't get as much attention as the Dow or the 10-year Treasury rate, this overnight market plays a central role in modern finance. It allows banks to quickly and cheaply borrow money, for short periods of time, often to buy bonds like Treasuries. This market broke down during the 2008 financial crisis.
However, analysts drew a distinction between the current period of stress and what happened during the crisis. Back then, investors were deeply worried about the financial health of banks. Today, banks are hauling in record profits and balance sheets look sturdy.
It's unclear what exactly is causing the stress in the overnight market, or how long it will last.
"No one knows why this is happening," Jim Bianco CEO of Bianco Research, said on Twitter. "If it persists more than another day or two, it will be a problem."
$1 trillion deficits and paying Uncle Sam
There are some theories.
Cabana, the Bank of America analyst, blamed the spike in overnight lending rates on the Fed badly underestimating the amount of cash needed to keep the financial system operating smoothly.
"The Fed just made a policy mistake," Cabana said. "There is not enough cash in the banking system for the banks to meet all of their liquidity and regulatory needs. I'm not that worried, because the Fed will fix it."
The catalyst for the stress, according to Cabana, was the fact that US companies withdrew vast sums of money from banks to make quarterly tax payments to the US Treasury Department. That forced banks to draw down their reserves at the Fed.
Saudi shock presents a fresh unknown ahead of Fed rate meeting
Saudi shock presents a fresh unknown ahead of Fed rate meeting
The rate spike may also be a symptom of the sharp increase in Treasury bonds being issued to fund the federal government. The federal deficit has spiked to $1 trillion this fiscal year because of the tax cuts and surge in government spending.
Banks typically buy Treasuries by borrowing in the overnight market. The jump in Treasury issuance caused a large increase in demand for short-term financing.
"The fundamental issue is there are just too many darn Treasuries out there," Cabana said. "Both parties are to blame. The $1 trillion deficit will keep this an issue."
The return of QE?
No matter the cause, more Fed action may be needed, including additional temporary NY Fed operations.
"They may have to do the same thing tomorrow morning," said LeBas.
The Fed may also need to lower the interest it pays on excess bank reserves, or IOER. Bank of America Merrill Lynch predicted the Fed will cut this rate slightly on Wednesday.
"That's like a Band-Aid," Cabana said.
As a longer-term solution, Barclays and Bank of America expect the Fed to begin expanding its balance sheet again by purchasing Treasuries. The Fed's bond buying program, known as quantitative easing, or QE, was launched during the financial crisis to keep borrowing costs extremely low. As the economy healed, the Fed reversed course and started to shrink its balance sheet.

Cabana doesn't think the Fed will call this QE, though he said it will work the same way. The central bank will grow its balance sheet by purchasing Treasuries.
"The Fed won't admit this," Cabana said, "but it looks and smells an awful lot like the monetary authority is financing the fiscal authority."
« Last Edit: September 17, 2019, 02:38:43 PM by RE »
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Re: Da Fed: Central Banking According to RE
« Reply #252 on: September 17, 2019, 04:46:10 PM »
Their called Uncle Cracker for a reason  :icon_mrgreen:

Can't wait for the Twin 20's to shuffle the financial deck of taint'd playing cards.

The light  :icon_sunny: shine'ath upon ALL in the new paradigm ......
I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world.
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🏦 Central Bankers' Desperate Grab for Power
« Reply #253 on: September 18, 2019, 07:47:59 AM »
https://www.truthdig.com/articles/bankers-will-stop-at-nothing-to-keep-their-grip-on-the-global-economy/

Sep 17, 2019
Opinion
|
TD originals
Central Bankers' Desperate Grab for Power


Eli Christman / CC BY 2.0

Central bankers are out of ammunition. Mark Carney, the soon-to-be-retiring head of the Bank of England, admitted as much in a speech at the annual meeting of central bankers in Jackson Hole, Wyo., in August. “In the longer-term,” he said, “we need to change the game.” The same point was made by Philipp Hildebrand, former head of the Swiss National Bank, in a recent interview with Bloomberg. “Really, there is little if any ammunition left,” he said. “More of the same in terms of monetary policy is unlikely to be an appropriate response if we get into a recession or sharp downturn.”

“More of the same” means further lowering interest rates, the central bankers’ stock tool for maintaining their targeted inflation rate in a downturn. Bargain-basement interest rates are supposed to stimulate the economy by encouraging borrowers to borrow (since rates are so low) and savers to spend (since they aren’t making any interest on their deposits and may have to pay to store them). At the moment, over $15 trillion in bonds are trading globally at negative interest rates, yet this radical maneuver has not been shown to measurably improve economic performance. In fact, new research shows that negative interest rates from central banks, rather than increasing spending, stopping deflation and stimulating the economy as they were expected to do, may be having the opposite effects. They are being blamed for squeezing banks, punishing savers, keeping dying companies on life support and fueling a potentially unsustainable surge in asset prices.
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So what is a central banker to do? Hildebrand’s proposed solution was presented in a paper he wrote with three of his colleagues at BlackRock, the world’s largest asset manager, where he is now vice chairman. Released in August to coincide with the annual Jackson Hole meeting, the paper was co-authored by Stanley Fischer, former governor of the Bank of Israel and former vice chairman of the U.S. Federal Reserve; Jean Boivin, former deputy governor of the Bank of Canada; and BlackRock economist Elga Bartsch. Their proposal calls for “more explicit coordination between central banks and governments when economies are in a recession so that monetary and fiscal policy can better work in synergy.” The goal, according to Hildebrand, is to go “direct with money to consumers and companies in order to enliven consumption,” putting spending money directly into consumers’ pockets.

It sounds a lot like “helicopter money,” but he was not actually talking about raining money down on the people. The central bank would maintain a “standing emergency fiscal facility” that would be activated when interest rate manipulation was no longer working and deflation had set in. The central bank would determine the size of the facility based on its estimates of what was needed to get the price level back on target. It sounds good until you get to the part about who would disburse the funds: “Independent experts would decide how best to deploy the funds to both maximize impact and meet strategic investment objectives set by the government.”

“Independent experts” is another term for “technocrats”—bureaucrats chosen for their technical skill rather than by popular vote. They might be using sophisticated data, algorithms and economic formulae to determine “how best to deploy the funds,” but the question is, “best for whom?” It was central bank technocrats who plunged the economies of Greece and Italy into austerity after 2011, and unelected technocrats who put Detroit into bankruptcy in 2013.

Hildebrand and his co-authors are not talking about central banks giving up their ivory tower independence to work with legislators in coordinating fiscal and monetary policy. Rather, central bankers would be acquiring even more power, by giving themselves a new pot of free money that they could deploy as they saw fit in the service of “government objectives.”

Carney’s New Game

The tendency to overreach was also evident in Carney’s Jackson Hole speech when he said, “we need to change the game.” The game-changer he proposed was to break the power of the U.S. dollar as global reserve currency. This would be done through the issuance of an international digital currency backed by multiple national currencies, on the model of Facebook’s “Libra.”

Multiple reserve currencies are not a bad idea, but if we’re following the Libra model, we’re talking about a new, single reserve currency that is merely “backed” by a basket of other currencies. The questions then are who would issue this global currency, and who would set the rules for obtaining the reserves.

Carney suggested that the new currency might be “best provided by the public sector, perhaps through a network of central bank digital currencies.” This raises further questions. Are central banks really “public”? And who would be the issuer—the banker-controlled Bank for International Settlements, the bank of central banks in Switzerland? Or perhaps the International Monetary Fund, which Carney happens to be in line to head?

The IMF already issues Special Drawing Rights to supplement global currency reserves, but they are merely “units of account” which must be exchanged for national currencies. Allowing the IMF to issue the global reserve currency outright would give unelected technocrats unprecedented power over nations and their money. The effect would be similar to the surrender by European Union governments of control over their own currencies, making their central banks dependent on the European Central Bank for liquidity, with its disastrous consequences.

Time to End the “Independent” Fed?

A media event that provoked even more outrage against central bankers in August was an op-ed in Bloomberg by William Dudley, former president of the New York Federal Reserve and a former partner at Goldman Sachs. Titled “The Fed Shouldn’t Enable Donald Trump,” it concluded:

    There’s even an argument that the [presidential] election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.

The Fed is so independent that, according to former Fed chair Alan Greenspan, it is answerable to no one. A chief argument for retaining the Fed’s independence is that it needs to remain a neutral arbiter, beyond politics and political influence; and Dudley’s op-ed clearly breached that rule. Critics called it an attempt to overthrow a sitting president, a treasonous would-be coup that justified ending the Fed altogether.

Perhaps, but central banks actually serve some useful functions. Better would be to nationalize the Fed, turning it into a true public utility, mandated to serve the interests of the economy and the voting public. Having the central bank and the federal government work together to coordinate fiscal and monetary policy is actually a good idea, so long as the process is transparent and public representatives have control over where the money is deployed. It’s our money, and we should be able to decide where it goes.
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https://www.cnbc.com/2019/09/18/fed-loses-control-of-its-own-interest-rate-on-day-of-big-decision-this-just-doesnt-look-good.html

Fed loses control of its own interest rate on day of big decision — ‘This just doesn’t look good’
Published an hour ago  Updated 19 min ago
Patti Domm  @pattidomm
   
Key Points

    It’s been a turbulent week in the overnight funding markets, where short-term rates spiked to levels as high as 10% Monday and Tuesday before the Fed calmed it down.
    The Fed was forced to do two open market operations to tame the rate move, but its own fed funds target rate, in an unusual move, rose to 2.3% — above the fed funds target rate range it set on July 31.
    Market pros said the problem came from a cash crunch, not a credit crisis, but the Fed will have to find a permanent fix for it before it impacts the financial system.
    Fed Chairman Jerome Powell will have to speak on it later Wednesday, when he briefs the press after the Fed’s meeting.

Jerome Powell, chairman of the U.S. Federal Reserve, waits for the start of a House Financial Services Committee hearing in Washington, D.C., on Wednesday, July 10, 2019.
Andrew Harrer | Bloomberg | Getty Images

As the Fed was meeting to consider cutting interest rates, it lost control of the very benchmark rate that it manages.

It’s been a rough week in the overnight funding market, where interest rates temporarily spiked to as high as 10% for some transactions Monday and Tuesday. The market is considered the basic plumbing for financial markets, where banks who have a short-term need for cash come to fund themselves.

The odd spike in rates forced the Fed to jump in with money market operations aimed at reining them in, and after the second operation Wednesday morning, it seemed to have calmed the market.

In a rare move, the Fed’s own benchmark fed funds target rate rose to 2.3% on Tuesday, above the target range set when it cut rates at its last meeting in July. The target range is 2% to 2.25%, and the funds rate was at 2.25% on Monday.

A second rate the Fed watches, the secured overnight financing rate, or SOFR, shot up to 5.25% on Tuesday from 2.43%. That is the median rate for $1.2 trillion in short-term funding transactions that occurred Tuesday. SOFR affects floating rates on about $285 billion outstanding in corporate and other loans.

Fed Chairman Jerome Powell is expected to face questions on the issue when he briefs the press, after the central bank’s 2 p.m. rate decision Wednesday afternoon. The Fed is expected to cut the fed funds target rate by a quarter point to 1.75% to 2%.

“This just doesn’t look good. You set your target. You’re the all-powerful Fed. You’re supposed to control it and you can’t on Fed day. It looks bad. This has been a tough run for Powell,” said Michael Schumacher, director rates at Wells Fargo.

Schumacher and other strategists said the Fed’s two operations Tuesday and Wednesday seem to have calmed the market for now, but the question is why did the wild swing in rates happen in the first place. Strategists say it seems to be the result of a cash crunch, not for now, the makings of a credit crisis.
What is repo?

But the concern is if it persists, it could give the appearance of an underlying problem in the financial system. Strategists pin the problem on a number of factors, including the Fed’s reduction in its own balance sheet which removed some liquidity from the market, as well as changes in rules after the financial crisis which required banks to hold more capital, reducing their ability to offer repo. Repo is an exchange of collateral, such as Treasury securities, for cash.

On Monday, there seems to have been a perfect storm in the market, causing a cash shortage. Corporations were seeking dollars for quarterly tax payments, and the Treasury had also issued a large amount of bills, which reduces liquidity. There was also speculation that the attack on Saudi Aramco, which took half its production off line, may have spurred demand as oil spiked and investors feared a Middle East conflict.

The Fed Tuesday accepted $75 billion of $80.5 billion in bids submitted in its overnight repo operation, after accepting $53 billion on Monday. The repo rate was quoted at 2.25 to 2.60% after Tuesday’s operation from a range that was up to above it at 3%, just before it. That rate on Tuesday temporarily hit a high of 9%.

“They’re working on this repo problem. It’s a work in progress. They’re doing very well. They pretty much got it under control,” said Ralph Axel, rates strategist at Bank of America Merrill Lynch.

Strategists said the Fed is likely to trim the interest on excess reserves at its meeting Wednesday. That rate is currently at 2.10%, and Schumacher said it could be cut by the Fed to 1.80% when it cuts rates Wednesday.That could help the Fed keep better control of fed funds.

“Generally this whole repo spike is declining too. So you would expect fed funds to probably print a little bit lower tomorrow, but it may not be enough to be within the band,” said Axel.

Drew Matus, chief market strategist at MetLife Investment Management, said Powell’s briefing could be especially difficult.

“He’s going to have to respond to questions coherently, and repo is not the most easy topic for most people to understand, even for the Fed chair. It’s really a specialist area on Wall Street,” Matus said. “He’s going to have to respond in a way that’s reassuring to people. It could be a challenging press conference.”
Fed must address Wednesday

Axel said the market will be looking for answers from the Fed on how it will solve the problem permanently, particularly with the approach of the end of the quarter on Sept. 30, when there is more funding pressure as alternate financing is typically reduced at quarter end and repo is in high demand. There have been other incidents where rates in the repo market shot up including in December when markets were selling off.

“Does the Fed continue to roll over the $75 billion facility for the rest of the month? Or does it shift over to permanent operations?” said Axel. “September 30 is another potential hot spot for funding rates. It’s a big issue to make sure they control rates on September 30 to make sure they stay within their band,”

Axel said he believes the quick crunch came, just as the Treasury Department moved to shore up its own cash reserves, which went from $183 billion a week ago Wednesday to $298 billion on Monday.

“Since the 2011 debt ceiling crisis, Treasury has has decided to maintain a very large cash balance,” said Axel, adding the Treasury previously did not find it necessary. He said Treasury decided that it is in the public interest to have a large cash balance to absorb any problems in the Treasury funding market.

Axel said the funds are drawn from excess reserves which the Fed controls, and that lowers the money supply. “That’s why to offset this, and to solve the problems that were in the financing markets, the Fed added money to the money supply through open market operations which is the traditional role of the New York fed,” he said.
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