THE WOLF STREET REPORT: Fear of “Reversal Rates” Sets in, Says the Fed

The fear that today’s negative or low interest rates render central banks helpless in face of the next economic crisis (11 minutes):

 

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  105 comments for “THE WOLF STREET REPORT: Fear of “Reversal Rates” Sets in, Says the Fed

  1. michael
    Nov 17, 2019 at 11:54 pm

    Fabulous post.

    Central banks should claim victory and defer to the politicians. The problem for central banks is at the next great deflation they will be seen as criminals. With any luck that will include the house and senate.

    That would be well deserved.

    • raxadian
      Nov 18, 2019 at 5:20 am

      Actually is the governments the one that causes currency deflation not Central Banks. Because is the governments who decides how much money gets to be printed. And is also the government that applies most if not all the economics policies that end with currency losing value.

      That’s true everywhere, even the USA.

      • curiouscat
        Nov 18, 2019 at 10:56 am

        How does the government decide how much money gets printed if not through the FR?

        • RMJA
          Nov 19, 2019 at 12:14 am

          If the govt overspends … the central bank has lityle choice but to print the difference.

      • Nov 18, 2019 at 11:36 am

        The thinking goes that eventually Treasury will have to raise rates to attract buyers, but they can also offer discounts. The issues are trade, how many T bonds China needs from BIS each month, and alternately how fungible are those bonds for traders? Can I collateralize this paper and use the proceeds to buy stocks? The answer on both counts is maybe. China promises to keep the engine going, while Repo proves the collateral is questionable. If you don’t have revenue your collateral is not much good. USG is just another cash burn machine.

        • joe
          Nov 18, 2019 at 3:33 pm

          ” If you don’t have revenue your collateral is not much good.”
          Exactly.
          Revenue is everything. Assets are probably pledged as debt.

          If you have ever actually run a real business, you know this.

      • Rob
        Nov 18, 2019 at 9:25 pm

        Is the government involved in the repo free for all? I see members of congress asking chair Powell what is going on with the repo bailouts. They don’t even know.
        Hell, the Fed won’t even tell us which banks are getting all the extra “support” until 2 years have elapsed. Why would they do that if they weren’t trying to hide something?

        • RMJA
          Nov 19, 2019 at 12:16 am

          FED is a private bank. It doesn’t need to explain what it does to govt.

      • George
        Nov 18, 2019 at 11:28 pm

        Wrong the fed decides QE and commercial banks can further fracturize via loans

  2. timbers
    Nov 17, 2019 at 11:56 pm

    Great conclusion. Quick and to the point.

    As a citizens of the United States, I hereby announce to the Federal Reserve Bank I stand here and now fully ready to take a loan for infinity from them, at 0% or less of which I will use to advance spending to stimulate the economy, not less than $1,000,000,000,000,000,000,000,000,000.00 but not more than $9,999,999,9999,999,999,999,999,999.999.00 as my solemn and patriotic duty to help them our Country to reverse their Reverse Rates conundrum.

    • JZ
      Nov 18, 2019 at 2:46 pm

      Gee. You front run me.

    • joe
      Nov 18, 2019 at 3:36 pm

      Just wait for the check box on your 1040.

  3. daniel weise
    Nov 18, 2019 at 12:17 am

    Something tells me there is more to this REPO “Operation” than meets the Eye. Who’s in Trouble? And would they tell us? We will find out after the fact “We did what was necessary to keep the System from….”

    • lt
      Nov 18, 2019 at 12:41 am

      Perhaps coincidence but weren’t the fires at the Saudi aramco oil fields the weekend right before repo’s began?

    • Petunia
      Nov 18, 2019 at 9:12 am

      Bonds price like real estate, where your neighbor’s house affects the price of your house. It is price discovery. Powell had to recapture the repo market before higher repo rates demonstrated that the entire bond market is miss priced. It is not about which bank is in trouble, although there are real candidates out there in the big city, but what is in trouble.

      • DawnsEarlyLight
        Nov 18, 2019 at 1:08 pm

        “Powell had to recapture the repo market before higher repo rates demonstrated that the entire bond market is miss priced.”

        Best statement yet describing what happened!

      • LB
        Nov 25, 2019 at 9:48 am

        Is the current price too high or too low? It is not enough to make a bald assertion of mispricing when dealing with the price of bonds of all kinds. The trouble is the financial system has been so messed up by those supposed to be in charge that rational calculation is virtually impossible to make; desperation or recklessness is behind the decisions people make nowadays.

    • Gandalf
      Nov 19, 2019 at 8:17 am

      I watched an old Frontline documentary from 2009 on PBS (via Firestick) last night, titled “The Warning”, about Brooksley Born, a Clinton appointee who tried to get her agency to regulate the completely unregulated OTC credit default swap market in the 1990s. Her efforts were crushed by the triumvirate of Alan Greenspan, Robert Rubin, and Larry Summers.

      Then, in 1998, a hedge fund called Long Term Capital Management almost brought down the entire financial system when its CDS bets collapsed.

      Rubin forced a number of the banks at risk of falling into the abyss with LTCM to bail it out with hundreds of billions of dollars each.

      The seriousness of the collapse of LTCM hardly made a ripple in the news back in 1998, The current repo market collapse smells like a similar situation.

      Some of the big financial houses I am pretty sure, are under severe strain because of some large and very bad and risky debt.

  4. fred flintstone
    Nov 18, 2019 at 12:26 am

    What a mess…….brought to you by a pack of thieves.

  5. Sonya
    Nov 18, 2019 at 12:33 am

    The funny thing is that even though the current economy is moribund, it would have been worse with helicopter money and MMT. The problems are fundamental, and go beyond financial engineering solutions. The political system is dying, technology has peaked decades ago, and social demographics is inverting. Not problems that either decaying capitalism or socialism can solve. A new dogma will emerge.

    • California Bob
      Nov 18, 2019 at 1:47 am

      “A new dogma will emerge”

      Think chaos. The futuristic sci-movies have it right: a combination of ‘Minority Report,’ ‘The Terminator’ and ‘Idiocracy.’

      • George Kovachev
        Nov 18, 2019 at 3:26 am

        Given the current state of the technology, politics and the social order, a dystopia like those, described by William Gibson, Neal Stephenson, or Domingo Santos’ “Imperfect Future” are more likely…

        • Unamused
          Nov 18, 2019 at 8:21 am

          Dystopia is da worst topia in da woild.

      • economicminor
        Nov 18, 2019 at 12:02 pm

        Robocop, Blade Runner, Mad Max and the Matrix all come to mind but where we are moving to rather quickly is the Hunger Games.

        For those still inside the inner circle fences it is hard to imagine what those who live outside do to stay alive. Owning another person may be technically illegal unless you own their debt and/or their ability to live. Tent cities are real a problem in most major cities. While the elite move around in chauffeured private armored cars, helicopters and private jets and live lives totally separate from the majority of us.

        Things do look rather bleek outside the magical numbers Wall Street produces.

      • Lisa_Hooker
        Nov 18, 2019 at 12:15 pm

        Don’t forget Blade Runner predates them all.

        • Lisa_Hooker
          Nov 18, 2019 at 12:18 pm

          Mad Max predates Blade Runner by 3 years.

        • Cobalt Programmer
          Nov 19, 2019 at 9:21 pm

          In a classic science fiction “Time machine”, H G Wells predicted a white and black future with elites and underclass people living by day and night. Philip K Dick wrote the Blade runner (Do androids dream of electric sheep) several years before Mad Max (which was inspired on the oil crises of the 70s).

          Financial crises alone cannot cause such dystopia. Food, industry, society and military have to fail completely before dystopia. For example, countries like India always have financial problems but society thrives. Zimbabwae hyperinflation is not entirely a financial issue. They have all the resources but poor management and society. US has all the necessary resources. In the absence of a catastrophe, a collapse is far far away.

          -Cobalt Programmer (My first post here. sometimes ago somebody misspelled COBAL programmer. Hence my name)

    • Xabier
      Nov 18, 2019 at 5:18 am

      Don’t say that to the MMT crowd, they’ll tell you that you ‘don’t understand economics at all, sovereign economies’…….etc

      Zealous lunatics, but perhaps we will see more of that sort of thing.

      In the end, we will all be looking at the cabin boy in the life-boat thinking how nice he’s going to taste.

      • Cas127
        Nov 19, 2019 at 4:23 pm

        “Zealous lunatics, but perhaps we will see more of that sort of thing.”

        Useful lunatics/fools/whores for politicians who know their survival relies on endless printing – and who need “academic cover” on the MSM whorehouses.

    • Unamused
      Nov 18, 2019 at 8:20 am

      A new dogma will emerge.

      My karma ran over your dogma.

      Not problems that either decaying capitalism or socialism can solve.

      I keep my dogmas leashed. A few are okay with my solution, but it’s not for everybody, for various reasons, mostly misguided.

      • c1ue
        Nov 18, 2019 at 12:14 pm

        orthodoxy is one’s own doxie.
        heterodoxy, or heresy, is someone else’s doxie.

    • Bobber
      Nov 18, 2019 at 9:25 am

      Shucks, can’t we just push “trickle down theory” for a few more years? Or, can’t we start a media blitz telling people if they work harder, they can succeed.

      • 2banana
        Nov 18, 2019 at 10:26 am

        Much easier to sell “the government will give you everything for free. You don’t need to work or do anything. Just put the right people in charge. We just need to tax the rich more.”

        Speaking of which, health care still is “free” is Venezuela…

        • Bobber
          Nov 18, 2019 at 10:40 am

          Deflect. Thataboy!

    • William Smith
      Nov 18, 2019 at 5:19 pm

      A new overarching philosophy (instead of “dogma”) is needed. All Western systems (captialism,democracy,communism,fascism etc) have failed. Religion had it partially right but also failed because of “dogma”. The next step will need to be way outside the box. It is possible, but I am pessimistic that anything will happen without a major catastrophe. And, “climate change” is small compared to the type of catastrophe that is needed. Just remember that money is completely illusionary, it does not exist! (as MMT theory also seems to suggest) As an efficient organizer of resources money’s utility has now become despoiled.

    • rhodium
      Nov 18, 2019 at 11:31 pm

      The average American doesn’t even know what socialism or capitalism even means, because no one uses common definitions and even when they do define them, they are frequently arbitrary and intertwined with all sorts of subjectivity rather using objective terminology. The “new dogma” will be people of all political persuasions standing and screaming at the sky until they learn how to have a rational conversation.

    • Old-school
      Nov 19, 2019 at 7:16 am

      I disagree. Technology is still on the move making better use of people’s time. For example I mentioned a few days ago the banking industry is digitizing the mortgage market where the process can go from 1.5 months to a couple of days.

      Even with the polarized political system, everyone is still obeying court decisions so the system is working as designed. A lot of free speech, but it all gets fought over in the courts instead of the battlefield.

      We are such a diverse country. I think we have the secret sauce of a market system and a representative democracy to make sure things are somewhat balanced. It’s a long way from perfect, but most people can do pretty well if they really try.

  6. lt
    Nov 18, 2019 at 12:36 am

    All over financial news websites this last week or so I’ve been seeing an increase in articles telling retirees they are too much into equities and don’t have enough in bonds. Has anyone else noticed this too?

    While I do believe in diversification, me being the sceptic that I am, it has me wondering if this is really intended to help or just looking for bagholders.

    • smithy
      Nov 18, 2019 at 12:54 am

      Bonds? That’s very very negligent of them, because the Bond Market is in the BIGGEST bubble of all! Worse, it is ready NOW to deflate!

    • Unamused
      Nov 18, 2019 at 8:28 am

      it has me wondering if this is really intended to help or just looking for bagholders.

      Bagholders. There’s always a shortage of Greater Fools, and every financier is terrified they might be one of them.

      • tracy gillum
        Nov 18, 2019 at 12:58 pm

        To unamused ; For no more than I know — that was a funny comment .Even if funny somehow turns out to be very true .

        • Unamused
          Nov 18, 2019 at 7:15 pm

          I like to keep it fun.

    • sunny129
      Nov 18, 2019 at 4:29 pm

      Just diversification won’t do, unless mixed with uncorrelated assets (+1 through-1) hard to do in this everything bubble mkt!

  7. EveryDayFedDayEveryDayMAYDAY
    Nov 18, 2019 at 12:41 am

    On November 14, 2019, Powell talks about the “Day of Reckoning”, which the media used as a “don’t worry, be happy” quote. Yet notice the use of grammer such as “think”, “possibly”, and “could be” in his statement below, as he might as well be saying I’m “guessing” and “praying” instead.

    I reality February 2022 can not come soon enough for Jeremy Powell, as it much really suck to have to lie constantly to keep everything from going to hell, yet knowing the “day of reckoning” is inevitable. Thus Powell prinkles bits of healthy truth such as “reversal rates” into Wall Streets happy meal free money fry boxes, as there seems to be no good choices left at this point other than to pretend and extend. Are the “sprinkles of truth” to ease his conscience, as he attempts to steer the Titanic around the global debt icebergs? I look forward to reading the Powell biography, as he really is the most powerful person on Earth as this moment, experimenting daily on the financial fate of billions across the entire globe.

    Powell statement (11-14-2019):

    “If you look at today’s economy, there’s nothing that’s really booming now that would want to bust,” Powell said in testimony before the House Budget Committee. “In other words, it’s a pretty sustainable picture.”

    “We are the strongest country, we have the best institutions, we have the best labor force,” he said. “We have such strengths, and I think possibly the day of reckoning could be quite far off.”

    • flying kiwi
      Nov 18, 2019 at 2:35 am

      I saw a quote from Powell a couple of days ago where he said he sees no evidence of bubbles!!!!! Where is his head at.

      • Saltcreep
        Nov 18, 2019 at 7:58 am

        Powell’s lying, I would assume, fk.

        My understanding is that there is frequently inconsistency both between the statements of central bankers and their actions, and also between what some say during their term in office relative to what they say before and/or after. At times they also appear to change their joint public tune when they gather in Basel, away from their respective home territories.

        • Xabier
          Nov 18, 2019 at 10:58 am

          Please, we might use the more civilised – and more elegant term:

          ‘Economical with the truth’.

          It has a certain beauty, in a way. ….

        • Rob
          Nov 18, 2019 at 9:33 pm

          “When it becomes serious, you have to lie”

          J. Juncker.

    • AlbieOK
      Nov 18, 2019 at 6:42 am

      Akin to “the subprime mortgage issue is well contained?”

    • Lisa_Hooker
      Nov 18, 2019 at 12:22 pm

      “Everything is just fine, until it isn’t.”

    • Cas127
      Nov 19, 2019 at 4:27 pm

      “Permanent High Plateau” Powell.

  8. Bobber
    Nov 18, 2019 at 12:59 am

    I read a half page of the Fed’s financial stability report, then asked myself – why would I want to read a report written by the Fed, when it won’t even admit there is severe stock market overvaluation? Everything in there must be pure hogwash.

  9. Claude
    Nov 18, 2019 at 1:23 am

    Central banks cannot go back and hike rates stop all kind of QE ..because this system on perpetual credit/debt expansion, needs not less liquidity, monetary and now fiscal stimuli to be sustained .
    I do not know exactly but around 5$ of debt ,more or less, is needed to produce only 1$ GDP
    the finance/ financial assets are 155% of the economy if you cumulate equities &bonds
    it used to be 60 % for very long time before 1990
    above 100% it is suposed to be counterproductive and bad!

    All this means that they cannot stop without provoking a depression and if they continue it will provoke an hyperinflation and then after a post bubble depression.
    It seems difficult to deflate slowly all these bubbles
    this is the major risk
    it cannot goes on forever and it cannot be stopped in an orderly manner

    • Bobber
      Nov 18, 2019 at 9:34 am

      Yes, but if you delay the onset of the reckoning, it gets more severe. Central bankers are impacted by this. Instead of simply losing their jobs as the result of an unwise experiment, pushing this story to its disastrous end means they go down in infamy as liars, fools, and feckless worms who caused the worst global crisis in history.

  10. Bobber
    Nov 18, 2019 at 1:30 am

    The Federal Reserve has proven to be a very weak indecisive organization, that is deceptive at the same time.

    The Fed continues emergency measures for 10 years, without any real explanation.

    Early on, the Fed said it would be reversing its balance sheet after the first few rounds of QE. Yeah, right.

    The Fed warns about financial instabilities that it creates via interest rate reductions.

    The Fed warns legislators about federal deficit spending, while facilitating it via interest reductions and QE.

    The Fed creates a huge wealth gap via asset inflation. Sometimes it refuses to acknowledge it. Other times, the Fed says wealth concentration is not its responsibility (i.e., even though the Fed created it).

    The Fed continues extreme financial repression policy and related arbitrary wealth transfers even though unemployment and inflation are well within the normal range and stock valuations are at all-time highs.

    Recently, Goldman Sachs says the Fed should issue emergency QE, then a day or two later it does.

    Trump says the Fed should reduce rates, it does.

    In short, the evidence suggest the Fed’s actions are not very consistent or logical.

  11. 2banana
    Nov 18, 2019 at 1:35 am

    Wolf,

    You are trying to apply logic and fundamentals to an organization that has recently self admitted to have become highly political monster.

    And monsters don’t care about logic and fundamentals.

    • Unamused
      Nov 18, 2019 at 7:27 am

      You are trying to apply logic and fundamentals to an organization that has recently self admitted to have become highly political monster. And monsters don’t care about logic and fundamentals.

      Pot, meet kettle.

  12. Nov 18, 2019 at 4:57 am

    SubPrime borrowers/renters work irregular hours, for irregular pay.

    Normally, SubPrime lending/renting is super-profitable but
    the shit hits the fan when the Fed raises rates,
    like 2004-2006, and 2016-2018 — it’s quite predictable.

    To avoid this, central banks hand out trillion $,
    negative interest rate “loans”,
    and kept rolling it over, indefinitely.

    You know it’ll be blown on hookers, right ?!

    Meanwhile, undesirables remain un-housed.

    • David Hall
      Nov 18, 2019 at 9:24 am

      During the Gerald Ford administration there was decades high inflation. He started a “Whip Inflation Now” campaign. They called it W.I.N. Inflation came down.

      Venezuela eased monetary policy and did not tighten. Inflation rose to over 4000% and beyond. Bread disappeared from store shelves. Starving peasants wandered across borders into other nations. South Americans attempted to cross the desolate Darien Gap in search of opportunity to the north.

      • curiouscat
        Nov 18, 2019 at 11:04 am

        I was under the impression Paul Volker tamed inflation, not the WIN program.

        • Kent
          Nov 18, 2019 at 12:24 pm

          Neither tamed inflation. Throwing tens of millions of Americans out of work and their livelihood tamed inflation. Those fellow Americans were eagerly sacrificed though they had no fault in causing the inflation.

      • Anon1970
        Nov 18, 2019 at 11:05 am

        Inflation came down after the Fed funds rate reached double digits in 1975 to slow down the economy. Small savers were screwed as US insured savings accounts and CDs were subject to interest rate limitations in those days. One of the best things I did for a co-worker was telling him that 10%+ Cds were available in Windsor, Ontario, a short drive from Dearborn, MI where we both worked. The Cds were issued by large Canadian banks, insured by a Canadian government agency and could be purchased in US$.

        US$ bonds have been overpriced for years as the Fed has suppressed interest rates. Small savers have been the most hurt as they tend not to be very knowledgeable about the markets. I have not bought any bonds (munis in my case) since the end of the Meredith Whitney California bond scare of 2010-11. None of my bonds have defaulted, in spite of her predictions, and I was able to lock in some very attractive returns during the worst of the panic.

  13. Iamafan
    Nov 18, 2019 at 5:49 am

    Does anyone still believe the Fed? It’s like fool me x times.

    • Gold is just..gold
      Nov 18, 2019 at 6:07 am

      “…Does anyone still believe the Fed? ..”

      But if we don’t believe in our institutions – we basically always have – what’s left?

      (Anarchy/Disaster/War/Starvation/Truth/Freedom?)

      I mean, look at Hong Kong. Did you know there are more black umbrellas in HK than there are people?

      Oh, too scary! Let me run to Mommy

      • Iamafan
        Nov 18, 2019 at 6:22 am

        You mean people believe an UN-ELECTED group of people who wield so much power? How democratic is that? Someone in Bolivia just declared herself president. Is that what we want?

        • Gold is just..gold
          Nov 18, 2019 at 6:44 am

          “Democratic”….Bwahahaha!

          (my last comment, respecting the WolfMan’s desire not to let this fine blog subside into ZH-ness)

        • Shizz
          Nov 18, 2019 at 7:21 am

          @ Gold: I chuckle at your comment. …. [intended-to-be-humorous but in a literal sense brutal references to Trump removed by Wolf]

          Seriously though, the guy did a complete 180 on many of the things he ran on namely interest rates, and government spending and yet the people that rang true with can’t find the intellectual honesty to call him out on it?

          I guess there is a portion that hopes he screws things up so badly it takes down the government all together and therefore any damage he does is good. What fills the void after that? Who knows.

          But I whole heatedly agree with your statement on Wolfs blog. I enjoy reading his articles because he has been consistently honest through both political parties and has assigned blame where it was due. Something gravely lacking these days.

          The lack of politicizing issues is the very thing that keeps me reading here. Wish there were more journalists like Wolf.

  14. John
    Nov 18, 2019 at 7:45 am

    Supply and demand. The simplistic question. Thanks again Wolf. Awesome!

  15. Iamafan
    Nov 18, 2019 at 7:54 am

    This looks like the Lael Brainard groupies had a sudden interest on following Princeton’s
    Markus K. Brunnermeier’s work. Warning too wonky for the morning.

    https://scholar.princeton.edu/sites/default/files/markus/files/20p_reversalrate.pdf

    This is the same people who have pushed the CCyB idea which Powell had said no to.

    I wonder what’s her Fed voting record.

    • Nov 18, 2019 at 2:07 pm

      So QE raises the reversal rate (which can be any number) and should only be done after rates are lowered. If Repo is QE and that occurs alongside rate cuts, the Fed is off the charts here. This market rally is beginning to look like a currency devaluation. I wonder where it ends.

      • Iamafan
        Nov 18, 2019 at 3:32 pm

        I also don’t know where this ends. But with the current extremely high debt levels of the government, companies, and individuals, my guess is more money printing, monetization, lower interest rate and the whole nine yards. Maybe when pension funds start exploding, they will QE those too plus ETFs. Bank bail-ins probably won’t be unheard of. Who knows?

  16. medial axis
    Nov 18, 2019 at 8:06 am

    In a healthy economy, one in which we get more efficient at producing what’s needed, i.e. more productive with time, you’d expect to see deflation (because it costs less to produce same amount of stuff) along with working fewer hours. But this only happens in backward economies not in advanced economies, like ours, where it’s deemed necessary to keep working the same number of hours (along with getting the wife to work too, while farming child care out to some firm. It all helps the GDP, you know) and so ever increasing consumption. In backward economies they’d idle away the free hours they’d gained, due to increased productivity, lying on beaches, dancing with the virgins in the woods etc. What fools! Too dumb to see the advantages of an ever increasing GDP. They’ll never be able to afford the debt that modern advanced economies like ours can afford.

    • Anon1970
      Nov 18, 2019 at 11:20 am

      When I was forced into early retirement almost 15 years ago, I decided not to look for another job. No more job related stress for me. Fortunately, I had enough saved up to carry out such a plan successfully, as I didn’t have to worry about alimony, child support, college tuition bills etc. Thanks to California’s Proposition 13 which slashed property taxes in the state and kept them relatively low for people who don’t move around, a major expense for many American households became very manageable for me. I estimate that my state and local taxes did not exceed the tax burden I would have faced in Texas (with no state income tax) for a house of similar market value until I had to start making Required Minimum Distributions from my IRA.

      • Tyler
        Nov 18, 2019 at 1:03 pm

        Thanks for updating us on your personal finances. Very helpful.

    • Zantetsu
      Nov 18, 2019 at 7:05 pm

      I know many people who have taken early retirement — and not because they’ve been laid off or whatever and given up on finding a new job — these are people who had high paying jobs (in tech) and eventually decided they had enough money, somewhere between 50 and 55 years old, to retire comfortably, so they did.

      This is just anecdotal data but people have an “unhealthy” tendency to continue to work the same amount even though they are more productive so that they can retire earlier. This is a form of your “lying on beaches/dancing with virgins in the woods” except you save it all up to the retirement (which comes earlier) instead of having a bit of it now but retiring later.

      I don’t really know, but it does strike me that without really examining how people who are more productive in this unhealthy economy are living across the entire span of their lives with how those who live in the healthy economies, you can’t really say whether or not people are actually getting something extra for all of this hard work.

      I am 47 and if I didn’t have kids to raise and put through college (or at least — get to college, hopefully they’ll be putting themselves through, hah yeah right), I’d already have a plan to be retired within a few years and I think I’d be able to execute on it (would have to move out of California though, but I want to do that anyway).

  17. Iamafan
    Nov 18, 2019 at 8:20 am

    Against Economics.
    (Pardon the NYT link).
    https://www.nybooks.com/articles/2019/12/05/against-economics/
    Now reading an Amazon preview of Skidelsky’s book shipping December.
    Excellent for those so disgusted with what’s happening.

  18. breamrod
    Nov 18, 2019 at 9:19 am

    I nominate Wolf for Fed chairman!

    • Anon1970
      Nov 18, 2019 at 11:22 am

      He would never be confirmed by the Senate.

  19. Augusto
    Nov 18, 2019 at 10:36 am

    I think Repo is brilliant. Make up word, create some fantasy process narrative, and… nobody really knows what it is, who gets “it” or why. We all have to accept whatever story the Fed tells us, because that’s all there really is. Will it save the world, destroy mankind (Peoplekind as Trudeau says), make bankers richer, kill the banks, etc….no one has s. So hats off to the Fed, just throw us monkeys some verbal bananas so we will all have something to chew on, and they can get back to the business of Repo, whatever that is.

    • Petunia
      Nov 18, 2019 at 11:01 am

      Repo is not a made up word or process, it is a very old and well known banking process. The actual term is repurchase agreement, or swap, which are research-able topics.

      After the 2008 meltdown, the repo business was taken over by the fed because the crash was caused by a collapse in prices in the repo market. When the fed decided to step back and let the repo market price bonds again, it didn’t turn out too well. So the fed had to step back in and take over the repo market.

      This is as simple as I can make a complex topic. I hope it helps.

      • a reader
        Nov 18, 2019 at 12:42 pm

        If this term is for “repurchase”, shouldn’t the word be Repu then? And so, in a way, Repo *is* a made-up word.

        In my mind, calling it “Repo” brings up a poster-style image of Dog The Bounty Hunter and Chairman Powell, posed back-to-back, with their arms crossed on their chests (Jay Powell in a wife-beater, displaying a “Love Mom” tattoo on his left forearm).

        • Petunia
          Nov 18, 2019 at 3:01 pm

          In a repo the bonds you put up for collateral WILL be repossessed and sold if you don’t pay them back their cash. So it has a dual meaning.

    • Xabier
      Nov 18, 2019 at 11:02 am

      Alas, we don’t get the bananas, just the empty skins……

      • Lisa_Hooker
        Nov 18, 2019 at 1:00 pm

        Seems to me they are scattering the banana skins all over our path.

        • a reader
          Nov 18, 2019 at 1:04 pm

          Where’s 2banana just when you need him?

    • Nov 18, 2019 at 1:13 pm

      [sorry for offtopic] “repo” means “fox” in Finnish :)

      • Auld Kodjer
        Nov 18, 2019 at 4:22 pm

        Moi Andrei. I now have a mental image of Chairman Powell half way down one of your K120 ski jumps, thinking to himself “Now how is this going to end?”

  20. Just Some Random Guy
    Nov 18, 2019 at 10:56 am

    Wolf,

    The Fed has raised rates 6 or 7 times since Trump was elected. It raised rates once or twice during Obama’s entire 8 years.

    Where was all this “fear” 2009-2016? I find it very interesting how low rates only became a worry once Trump got into office. Much like how Democrats suddenly (wink wink) are worried about deficits, after Obama more than doubled the debt under his watch and they said nothing.

    • Nov 18, 2019 at 4:20 pm

      Which Democrat in Congress is worried about the deficit and debt? The last guy in Congress worrying out loud about the deficit and debt was a Republican, and he shut up. I have been running the series about US government debt since I first started the predecessor website in 2011. Back then, there were lots of Republicans that worried about the debt and deficit. Now they’re none. Now, no one in Congress is worrying about them anymore. They’re all just laughing about me now :-]

      • HowNow
        Nov 19, 2019 at 8:00 am

        The Republicans only “worry” about the debt when a Dem is in office. Were they worried when Cheney was VP? They weren’t worried out loud. The problem with the Democrats is that if they say “tax”, they get hounded about balancing a budget via taxes until the cows come home (incidentally, milk isn’t selling well).

  21. Firas
    Nov 18, 2019 at 11:51 am

    If the USA went into negative territory during the great recession It would have recovered quickly.

  22. Nov 18, 2019 at 12:12 pm

    From Hussman’s perspective low interest rates forecast slow growth, period. Conversely rising rates signal an improving economy, and perhaps that was the case, we might be in a recession right now, and the rate hikes helped Fed dodge the bullet (not the other way around). They are saying the same thing they said then, we need to raise rates to have room to lower them? It’s just that from this level it’s hard to extrapolate economic strength. The playing field is sinking faster than downtown Venice, but what’s an inch of water here or there?

    • Bobber
      Nov 18, 2019 at 12:41 pm

      Creating a level playing field is key to a republic. So why does the Fed create the unnecessary goal of 2% inflation then insist the only way to get there is to transfer more wealth to the top 1%?

      • JZ
        Nov 18, 2019 at 2:58 pm

        Definition of country -> Counyry is a machine used by one class to rule the other class. Mao Zedong.

  23. NotMe
    Nov 18, 2019 at 12:38 pm

    Wolf, you missed the other edge of the sword: Banks and institutions that hold debt instruments will see their asset base disappear if rates go up. They are standing on the path between Quarter Dome and Half Dome if you want a picture. They cannot do anything but continue on this path.

  24. Nov 18, 2019 at 12:45 pm

    This is an immensely important post! All the intellectuals-yet-idiots at the Fed and government DON’T KNOW WHAT THEY ARE DOING!

  25. WSKJ
    Nov 18, 2019 at 12:46 pm

    I believe that the term “repo” has only recently been used to refer to what Petunia states are, by “actual term”, repurchase agreements, or swaps.

    Thx, Augusto and Petunia: this brings it all into focus for me. “Swaps” was a word that came up often before the crash of c. 2008…..as describing a possibly risky financial instrument. Or perhaps I should rather say, “swaps” described a financial instrument for which a very few realized the big risk. (The Big Short)

    The re-purposing of words (for many of us, I suspect, “repo” was, until recently, understood to refer to the seizure of property for which the monthly payments were in default: non-performing loans. Typically cars.), and coming up with new terminologies, is key to financial and political propaganda.

    Thx, Wolf, for this informative recording. Thanks to you, I will understand that when the money-people talk about “reversal rates”, they are in fact talking about ZIRPs, NIRPs, and VLIRPs.

    • WSKJ
      Nov 18, 2019 at 1:04 pm

      I do see where Wall Street Words, copyrights 1997 and 1988, includes “repo”, as “See REPURCHASE AGREEMENT”.

      As a middle class American, without financial certifications, I believe that when an aging boomer hears “repo”, he sees Emilio Estevez in his/her mind’s eye.

      I do not find “reversal rates” defined in Wall Street Words. I believe that Augusto’s comment applies to the Fed’s use of this term, as well as to the term “repo”.

      • Petunia
        Nov 18, 2019 at 4:27 pm

        The term reversal rates is a new one for me, and I’ve been around finance a long time. I consider that one a weasel term.

      • Iamafan
        Nov 18, 2019 at 6:16 pm

        Actually they only mentioned Reversal Rate once in the November report.

        The second most widely cited risk centered on the efficacy of U.S. and other advanced-economy
        monetary policies. Many respondents wondered whether central banks would be able to counter an economic slowdown due to already low levels of interest rates and compressed risk premiums.
        Relatedly, some contacts argued that select foreign central banks with negative policy rates were
        either close to or beyond reversal rates, which are the rates at which the negative effects of incremen-
        tal easing—for example, weaker profitability of financial institutions or higher precautionary savings
        from retirees—might offset positive growth impulses. Amid very low global interest rates, contacts
        also noted a heightened willingness to assume leverage as well as credit, duration, and currency risks,
        rendering risk premiums and exposures vulnerable to a potential sharp upward repricing of interest
        rates. With regard to the Federal Reserve specifically, a few contacts highlighted the possibility that
        U.S. interest rates could turn negative, with potentially severe repercussions for money market funds and the municipal bond market. Moreover, several respondents cited the short-lived episode of funding
        market volatility in September while noting that an additional episode of upward pressure on secured
        and unsecured rates could weigh on risk sentiment or damage central bank credibility.

    • Lisa_Hooker
      Nov 18, 2019 at 1:06 pm

      Repo as it is used here has been around for a long time. I took advantage of a 90 day repo with a local bank at 10% in the very late ’70s.

      • Petunia
        Nov 18, 2019 at 3:09 pm

        I know repo’s were used by banks before the 1929 crash. The only way to borrow large sums back then was with collateral, which was returned or released on payment of the loan.

  26. Iamafan
    Nov 18, 2019 at 2:01 pm

    $27.055 Billion of REVERSE Repo was done today at 1.45%
    Sounds counterfactual to the so-called Liquidity problem

  27. James Naylor
    Nov 18, 2019 at 3:52 pm

    let’s forget about bananas/banana skins & repo/repu or swaps….the most information I gleaned from everyone’s comments today (which I always find interesting) was from IAMAFAN, and his link in today’s blog to Robert Svidelsky’s book to be published in Dec. “MONEY AND GOVERNMENT, THE PAST & FUTURE OF ECONOMICS.”
    Well worth reading as it puts “Economics-Politics-Social Scientists,” into historical context!

  28. Willy2
    Nov 19, 2019 at 1:48 pm

    – The FED follows markets rates and NOT the other way around.

Comments are closed.