The repo rate covers a day bet. Normally, if a bank runs short on covering its 24 hour bets, it makes a request to other large banks to cover it.
Here is what has happened. The backing of the debt is declared worthless by the other bank. It’s a fraud. Like those mortgage backed securities that had the same mortgage in ten of them. The thing is the other bank is committing the SAME FRAUD so it knows there is no real backing. So it refuses to cover the bet.
Now the call is placed to the FED, a private corporation cartel of the wealthy that gets to print money out of thin air. So of course, they can cover any bet. It’s just for 24 hours right.
Except when it isn’t.
One thing the repo quake did reveal is that liquidity is much tighter than was previously assumed. We believe this means that the Fed is shortly going to resume “QE” in some shape or form (whether it will be called “QE” or something else is irrelevant – it will definitely grow its balance sheet again). According to some estimates $400 to $520 billion in net purchases are expected to be seen before the end of the year (this is to say, in addition to reinvestment of the proceeds from maturing MBS).
Furthermore, this probably also means that despite its protestations to the contrary, the Fed will continue to cut rates, as removing the yield curve inversion will restore carry trade demand for US treasuries. Recent economic data show that the US manufacturing sector – which accounts for more than 40% of the economy’s gross output – is in recession by now. This should provide the Fed with the fig leaf needed to justify additional rate cuts and securities purchases. – Mish
The long and short of it is, if we need to do QE then we are money printing, no better than Zimbabwe, and it means our debt is out of control.
Not exactly the rosy soaring economy picture that Trump is boasting.
The solution to this, is to end wars, downsize the military, AND downsize welfare and medicaid. BOTH.
We need to encourage welfare single moms NOT to reproduce NOT reward them with piles of cash for more ‘chillin.
We need to do many things to bring our economy back into balance not running a 1/2 TRILLION dollar debt every year.
Sadly, Trump is talking just the opposite, proud of his spending. Maybe he’s not golden eagle after all?