Weekly Update --- Is The ‘Mother of all Bubbles’ About to Pop?

[Brian4Liberty]

Weekly Update --- Is The ‘Mother of all Bubbles’ About to Pop?

Is The ‘Mother of all Bubbles’ About to Pop?
By Ron Paul - 11/12/2019

​When the New York Federal Reserve began pumping billions of dollars a day into the repurchasing (repo) markets (the market banks use to make short-term loans to each other) in September, they said this would only be necessary for a few weeks. Yet, last Wednesday, almost two months after the Fed’s initial intervention, the New York Federal Reserve pumped 62.5 billion dollars into the repo market.

The New York Fed continues these emergency interventions to ensure “cash shortages” among banks don’t ever again cause interest rates for overnight loans to rise to over 10 percent, well above the Fed’s target rate.

The Federal Reserve’s bailout operations have increased its balance sheet by over 200 billion dollars since September. Investment advisor Michael Pento describes the Fed’s recent actions as Quantitative Easing (QE) “on steroids.”

One cause of the repo market’s sudden cash shortage was the large amount of debt instruments issued by the Treasury Department in late summer and early fall. Banks used resources they would normally devote to private sector lending and overnight loans to purchase these Treasury securities. This scenario will likely keep recurring as the Treasury Department will have to continue issuing new debt instruments to finance continuing increases in in government spending.

Even though the federal deficit is already over one trillion dollars (and growing), President Trump and Congress have no interest in cutting spending, especially in an election year. Should he win reelection, President Trump is unlikely to reverse course and champion fiscal restraint. Instead, he will likely take his victory as a sign that the people support big federal budgets and huge deficits. None of the leading Democratic candidates are even pretending to care about the deficit. Instead they are proposing increasing spending by trillions on new government programs.

Joseph Zidle, a strategist with the Blackstone investment firm, has called the government — or “sovereign” — debt bubble the “mother of all bubbles.” When the sovereign debt bubble inevitably busts, it will cause a meltdown bigger than the 2008 crash.

US consumer debt — which includes credit cards, student loans, auto loans, and mortgages — now totals over 14 trillion dollars. This massive government and private debts put tremendous pressure on the Federal Reserve to keep interest rates low or even to “experiment” with negative rates. But, the Fed can only keep interest rates, which are the price of money, artificially low for so long without serious economic consequences.

According to Michael Pento, the Fed is panicking in an effort to prevent economic trouble much worse than occurred in 2008. “It’s not just QE,” says Pento, “it’s QE on steroids because everybody knows that this QE is permanent just like any banana republic would do, or has done in the past.”

Congress will not cut spending until either a critical mass of Americans demand they do so, or there is a major economic crisis. In the event of a crisis, Congress will try to avoid directly cutting spending, instead letting the Federal Reserve do its dirty work via currency depreciation. This will deepen the crisis and increase support for authoritarian demagogues. The only way to avoid this is for those of us who know the truth to spread the message of, and grow the movement for, peace, free markets, limited government, and sound money.
...
http://www.ronpaullibertyreport.com/...s-about-to-pop

[Bern]

Two days after Ron's commentary above was posted...

November 14, 2019

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released the schedule of repurchase agreement (repo) operations for the monthly period from November 15, 2019 through December 12, 2019. In accordance with the most recent FOMC directive, the Desk will continue to offer at least $35 billion in two-week term repo operations twice per week and at least $120 billion in daily overnight repo operations.

The Desk will also offer three additional term repo operations during this calendar period with longer maturities that extend past the end of 2019. These additional operations are intended to help offset the reserve effects of sharp increases in non-reserve liabilities later this year and ensure that the supply of reserves remains ample during the period through year end. They are also intended to mitigate the risk of money market pressures that could adversely affect policy implementation. The Desk will adjust the timing and amounts of repo operations as necessary to maintain an ample supply of reserve balances over time and based on money market conditions, consistent with the directive from the FOMC.
...

https://www.newyorkfed.org/markets/o..._policy_191114

That ain't workin' that's the way you do it
Money for nothin' and your chicks for free

[Madison320]

Congress will not cut spending until either a critical mass of Americans demand they do so, or there is a major economic crisis.

I'm betting on the latter, major economic crisis.

Government and the Fed are going to take the path of least resistance, which is printing money, until the currency collapses. It's amazing that they've manged to borrow and print for this long without massive inflation. But at some point the dollar has to cave. It's mathematically impossible to keep printing forever without price inflation.

[Zippyjuan]

I'm betting on the latter, major economic crisis.

Government and the Fed are going to take the path of least resistance, which is printing money, until the currency collapses. It's amazing that they've manged to borrow and print for this long without massive inflation. But at some point the dollar has to cave. It's mathematically impossible to keep printing forever without price inflation.

Depends on how much more the money supply growth exceeds the growth of the economy. A growing economy can absorb more money without adding inflation.

If say the number of apples doubles at the same time the amount of money to purchase apples with also doubles, the price of an apple should stay the same (all other things being constant).

[oyarde]

Has the Mother of Bubbles popped ? Not yet.

[Danke]

Depends on how much more the money supply growth exceeds the growth of the economy. A growing economy can absorb more money without adding inflation.

If say the number of apples doubles at the same time the amount of money to purchase apples with also doubles, the price of an apple should stay the same (all other things being constant).

Without all all the printing we would have deflation, your dollar and wages would buy more. You could save for the future.

[acptulsa]

If say the number of apples doubles at the same time the amount of money to purchase apples with also doubles, the price of an apple should stay the same (all other things being constant).

Including the number of people and the number of apples they eat?

The glut in the apple market won't prevent the prices of everything else under the sun from doubling.

But no doubt the government will provide the Fed cover by basing the CPI solely on apple prices.

Fact of the matter is, the FRN is repackaged debt. "Dollars" are junk bonds. And if the government wants to borrow more, the banks aren't going to sit on those bonds when their Fed can use it as an excuse to create money.

[r3volution 3.0]

As for that "short term" lending, that's what the ECB does, has been doing for almost a decade.

It avoids buying bonds outright; it instead lends money against (increasingly worthless) bonds.

The trick is that, if the loans are never repaid, because they're rolled over forever, it's effectively the same as outright purchase.

It appears that this is what the Fed's now doing, because it doesn't want to admit failure by resuming QE.

So, yes, Ron is quite right; the mother of all bubbles, has burst.

It actually burst some time ago, and CBs went to the rescue; this is why circa $17 trillion in "investment grade" bonds have negative yields.

That's not a market phenomenon; that's a front-running-of-CBs-bailing-out-spendthrift-states phenomenon.

And that's going to blow up either in the form of a currency collapse or catastrophic losses in the bond market ($17 trillion), sooner or later.

The whole world is heading into recession, and the CBs know nothing except ctrl+p.

The politicians will, obviously, promise people free money to "fight recession," and try to get reelected.

[Madison320]

Depends on how much more the money supply growth exceeds the growth of the economy. A growing economy can absorb more money without adding inflation.

If say the number of apples doubles at the same time the amount of money to purchase apples with also doubles, the price of an apple should stay the same (all other things being constant).

That's true except that the monetary inflation rate has been orders of magnitude higher than the growth in productivity has ever been in history. Maybe if someone invents a cheap in home fusion reactor in the next decade we'll have at least a slim chance of keeping pace.