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:
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:
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:
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.
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: