The Impulses of Lunar Fed Policy Under Repo Madness

This week, while you were busy working, Jamie Dimon, CEO of JP Morgan Chase, took time out from rubbing elbows with fellow movers and shakers at the World Economic Forum in Davos, Switzerland, to share his trepidations:

“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that….  I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap.  We’re a little bit in that trap today with rates so low around the world.”

Fair enough.  Though Dimon, in what we presume was an inadvertent omission, failed to share that his firm may have recently walked the Federal Reserve into an elaborate policy trap.  Now the Fed’s stuck.  JP Morgan’s thrown away the keys.  And Dimon’s reaped a significant windfall.

If you recall, between Monday night and Tuesday morning September 16/17 the overnight repurchase agreement (repo) rate hit 10 percent.  Short-term liquidity markets essentially broke.  The Fed had to intervene in the repo market, via overnight repo operations, to push the repo rate back below 2 percent. Continue reading

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Living On Borrowed Time

Practicality the entirety of Congress now believes that the ability to pay should not limit the ability to promise people whatever they want.  There’s no poll of members of Congress to support this assertion.  We base it on what they’ve communicated by real, material actions.

Remember, per the Constitution, Congress – and in particular, the House of Representatives – is vested with the “power of the purse.”  They retain the authority to tax and spend public money for the federal government.  Over the last 50 years Congress has demonstrated they give less than half a rip about the government’s ability to pay.

Congress may be good at taxing.  But they’re even better at spending.  According to the Treasury Department, the annual budget deficit, the shortfall between tax receipts and spending, for the 2019 calendar year topped $1.02 trillion.  But that’s nothing…

The budget deficit for the first three months of the 2020 fiscal year, which started in October, is up 12 percent over this time last year. Continue reading

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Geopolitical Shocks and Financial Markets

The procession of news through the week – namely that chronicling the aftermath of the targeted drone strike and killing of Iranian General Qasem Soleimani – advanced with an agreeable flow.  The reports at the start of the week were that Orange Man Bad had spun up a Middle East mob of whirling dervishes beyond recall.  World War III was imminent.

But after Iran’s token missile launch on Tuesday, with no American causalities, President Trump Tweeted: “All is well!”  Then, on Wednesday, major U.S. stock indices gave the “all clear” signal.  By Thursday, the Dow Jones Industrial Average (DJIA), the S&P 500, and the NASDAQ were all marching to record highs.  The DJIA even came within a horse’s hair from taking out 29,000.

What’s more, the price of crude oil fell below where it was before Soleimani was killed.  No harm, no foul.  What to make of it?

According to traders, everything is awesome.  Still, we have some reservations.  Our best guess is that this week’s agreeable flow of news will be followed by a disagreeable ebb. Continue reading

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How the Fed Robs You of Your Life

Today, as we step into the New Year, we reach down to turn over a new leaf.  We want to make a fresh start.  We want to leave 2019’s bugaboos behind.

But, alas, lying beneath the fallen leaf, like rotting food waste, is last year’s fake money.  We can’t escape it.  But we refuse to believe in its permanence.

Victorian economist William Stanley Jevons, in his 1875 work, Money and the Mechanism of Exchange, stated that money has four functions.  It’s a medium of exchange, a common measure of value, a standard of value, and a store of value.

No doubt, today’s fake money, including the U.S. dollar, falls well short of Jevons’ four functions of money.  Certainly, it comes up short in its function as a store of value.

Hence, today’s money is not real money.  Rather, it’s fake money.  And this fake money has heinous implications on how people earn, save, invest, and pay their way in the world we live in.  Practically all aspects of everything have been distorted and disfigured by it. Continue reading

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