Dangerous Debt Hidden Reason for Monetary Madness – By Hunt Lawrence and Daniel J. Flynn (American Spectator) / Dec 17 2019
Huge deficits and debt have consequences, as the Fed puts best face on actions not seen since the Great Recession.
The Federal Reserve Bank of New York injected $86.4 billion into the repo market on Monday. This follows three months of the Fed intervening in a repo market it normally leaves to its own devices.
When repurchase agreement (repo) rates exploded in September and the Fed intervened in that market for the first time in more than a decade, interested parties cited corporate tax deadlines, regulations, and other minor reasons as the major factor. BIS Quarterly Review shines the light on the $23 trillion elephant in the room.
“US repo markets currently rely heavily on four banks as marginal lenders,” the BIS Quarterly Review article by three economists explains. “As the composition of their liquid assets became more skewed towards US Treasuries, their ability to supply funding at short notice in repo markets was diminished.”
Put another way, banks depended upon by other financial institutions for short-term lending could not meet the demand of borrowers because they tied up their supply to finance the massive United States deficit. Bizarre fiscal policy leads to strange monetary policy.
“In just the last quarter, the Treasury issued nearly $1 trillion … of debt,” Michael Lebowitz writes at SeeItMarket.com. “At the same time, foreign sponsorship of U.S. Treasuries has been declining. While predictable, the large amount of cash required to buy Treasury notes and bonds may have created a cash shortfall.”
Continue to article: https://spectator.org/dangerous-debt-hidden-reason-for-monetary-madness/
