1/7 Few thoughts about the expansion of M0 that is not QE but seems like it could turn into it.
The #Fed has turned the spigots on BTFP. At first it looks like your traditional lender of last resort thing and backstop of credit.
2/7 However, the nature of the "credit" to be backstopped is very unusual. #TSY. If this facility does not revert quickly, continues to grow beyond the panic, the conclusion? The Treasury and the Fed have fully merged. The #Fed is just another (North) LATAM central bank.
3/7 What is also means is the bond stuffing is starting to make the banking system wobble and TSY are puked by the banking system. Kemmerer mentioned in 1920 that TSY are unsuited to be in the banking system for various reasons.
4/7 It means the market wants to be compensated for the vagaries of the currency with higher rates, but it creates tension and a mismatch between the USD (M0 base at the Fed) with what is backing it, the #TSY.
5/7 If you can NOT afford to take losses from the left side of the balance sheet -#TSY by the price, you will take losses from the right side of the balance sheet, the value of USD M0. Hopefully this facility reverts post crisis, if not, we are in the full monetization path.
6/7 If the BTFP is extended post crisis, it would mean that the #Fed`s blurb for more than a decade of of ~fighting deflation- was just a blurb, monied capital does not create inflation, only means of circulation do. Just the a bond stuffing prelude to full blown monetization.
7/7 We are at a point where the market stops playing ball with the #Fed on absorption of gov bonds and narrative. We are moving close to revulsion. Not much time left for the Treasury and Congress to put their act together.
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1/8 FDIC Take aways last quarter:
Solid profitability last quarter, higher net interest margin, offset by lower non interest income, and higher non-interest expenses. Higher than pre-pandemic
2/8 Net interest margins are now higher than pre-pandemic. Raising rates have been great for banks. However the deposits are starting to catch, maybe 1-2 quarters before we roll-over in NIMs.
3/8 Very large non-realized losses that could be realized if the Banks need to raise liquidities. @rcwhalen@SamanthaLaDuc . HOWEVER the reserve coverage has never been better so, so need for liquidity not in the next few quarters. Not in the next 2 quarters? 1 in a million
There were lots of screams about liquidity shortage for 6 months now. And now? More hikes needed.
Those screams are amusing considering that the central banks have been expanding the Monetary base the most in 3 centuries
2/15 I guess people confuse several things.
No Fuel in Capital Markets means Financial Assets down, But while there is a reason why Financial assets fall when there is a debt deflation crisis, it does not mean that financial assets falling equates debt deflation.
3/15 As mentioned by Henry Thornton Brilliantly in his 1802 book. Three are two reasons for FX moves. Flow of Funds (rates differentials) and trade.