The Big Squeeze on Banks is Back and Badder than Ever!

The Big Squeeze on Banks is Back and Badder than Ever! by David Haggith for The Great Recession

It’s no longer just me using terms like “Armageddon, crisis, devastating, chaos, Great Depression;” it’s leaders of the world’s most august and conservative central banks!

The big banking squeeze that began in September never went away. In fact, repo auctions last week looked worse than ever, in spite of the Fed’s launching of QE4ever. With a new $60 billion a month in permanent re-inflation of money supply pouring back into the economy now, the Fed still has found itself back to where it began in September with its repo operations becoming hugely oversubscribed, meaning it has more takers than what it is offering to give. Dealers submitted $52 billion in securities for two-week “loans” of new temporary money this past week against the Fed’s offer to do $35B worth.

The story of the Fed’s two-week term repos now looks like this:

Zero Hedge

They’re going back up to where they were. Meanwhile, overnight repos, set by the Fed with a cap of $75 billion per day, also went up in takers from $58 billion on Tuesday morning to $64 billion on Wednesday. That story, also not making any progress, looks like this:

Zero Hedge

Going back up to where it was. Meanwhile, the Fed’s third round of its $60-billion per month (in issuances of $7 billion every few days) in permanent money creation, looked like this:

Zero Hedge

Oh, but that’s still not the end of it. In case anyone thinks I’m exaggerating how badly the Fed is failing, it just got even worse — much worse! The Fed announced this week it is increasing its overnight repos from $75 billion a shot to massive $120 billion!

Consistent with the most recent FOMC directive, to ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation, the amount offered in overnight repo operations will increase to at least $120 billion starting Thursday, October 24, 2019.

Federal Reserve Bank of New York

Oh, but that is still not all!

The amount offered for the term repo operations scheduled for Thursday, October 24 and Tuesday, October 29, 2019 … will increase to at least $45 billion.

So much for progress!

Not to worry, though. All this demand for new money by banks is probably just due to a one-off surge this month in candy sales for Halloween, this being the spooky month for October surprises in financial markets.

If “the economy is still basically strong” as we continue to hear from the Trump administration and the Fed, why the increasingly desperate scramble for new money by banks everywhere? The Fed leaped back from tightening the financial system to full-on easing, and the ECB never even attempted tightening and has jumped back do doing €20 billion a month in QE. If you think we’re getting off this QE merry go round before it flies off its axis, dream on.

We now know for certain the repo crisis had nothing to do with end-of-quarter tax transactions, in that we are far past those, yet the crisis keeps growing worse. It grows worse no matter how much money the Fed pours into it. It doesn’t appear it had anything to do with massive government bond issuances either, as those have found plenty of bids the entire time.

As you can see from the latest auction results, treasury yields continue to enjoy a easy ride with yields drifting nicely downhill:

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David Haggith

Knave Dave — vigilante against the false profits of The Great Recession Too many criminal CEOs still fill their porky bellies with the biggest taxpayer bailouts in the history of the world. These bailouts protect their reputations, saving them from the fall they should have taken. They continue to receive bonuses for having done an unparalleled job of destroying their companies! Many of their companies wouldn’t be making any profit at all if not for the interest they’re making off of nearly free government bailouts. Just this week Hewlett-Packard fired its CEO, but is still paying him a bonus of millions of dollars in exchange for a year of corporate wandering in the wilderness. Netflix’s CEO cost his company hundreds of thousands of subscribers and had to reverse his decision. Bank of America’s CEO launched a debit-card fee plan that was immediately stupid in the eyes of many, but greed an arrogance led him to think he could pass it by his customers, and he lost customers in droves and had to reverse his decision, as did the many major banks that followed him. Since these corporate leaders do things most of us can immediately see as being dumb, why are they rewarded with salaries a thousand times greater than many of us make?