Fed Tapered QE Helicopter Money for Wall Street Further: MBS Fell. Treasuries Barely Rose. Liquidity Swaps & Repos Stalled.

But one of the Fed’s “13(3) Facilities,” managed by State Street, jumped.

By Wolf Richter for WOLF STREET.

Total assets on the Fed’s balance sheet rose by $60 billion during the week ended May 27 – the smallest weekly increase since the week of February 26, and roughly one-tenth the increase of $586 billion during peak-bailout in the week ended March 25. The chart shows the weekly changes of total assets on the Fed’s balance sheet:

This $60 billion increase during the week was the result of diverging account movements – some rising, others falling. It raised the Fed’s total assets to $7.1 trillion:

The Fed slashed its purchases of Treasury securities.

The Fed added just $11 billion of Treasury securities during the week, bringing the total to $4.11 trillion. The curve has been flattening as the Fed reduced its purchases over the past few weeks:

To put that $11 billion weekly increase in its Treasury holdings into perspective, it was the smallest increase since January 1, and just a small fraction of the $362 billion peak:

MBS balances fell, CMBS balances flat.

MBS: The Fed has been reducing its purchases of government-backed mortgage-backed securities (“Agency MBS”). At the peak in the week ended March 25, it purchased $157 billion in MBS. By the current week, this has plunged to just $18 billion.

CMBS: The Fed is also buying commercial mortgage-backed securities (on apartment buildings) backed by government agencies. In the first week of purchases (April 8), the Fed bought $3.5 billion, then cut the weekly purchases. In the current week, it practically stepped away from that market, and the balance has remained essentially unchanged at $8.9 billion.

There are two complicating factors with MBS:

MBS trades take a long time to settle, and the Fed books MBS only after they settled. The $18 billion in purchases in the current week will settle in June and July, which is when they will appear on the balance sheet. The current activity in the MBS balances stems from purchases that were made weeks ago.

Pass-through principal payments. Holders of MBS receive principal payments as the underlying mortgages are paid down or are paid off. The current boom in mortgage refinancing is creating a torrent of pass-through principal payments – which has the effect of reducing the Fed’s holdings of MBS.

So there are two opposite forces at work: The Fed’s purchases of MBS increase balances; and pass-through principal payments decrease balances.

The combination of much reduced purchases, the erratic settlement dates, and the torrent of pass-through principal payments caused the MBS balance to decline by $28 billion during the week, to $1.84 trillion:

The “13(3) Facilities,” as Powell calls them.

These are the bailout schemes, authorized, the Fed says, under Section 13 paragraph 3 of the Federal Reserve Act, as amended by the Dodd-Frank Act. Powell calls them “thirteen-three facilities.” The Fed creates a Special Purpose Vehicle (SPV) as a limited liability corporation. The US Treasury puts in some equity capital. The Fed lends to the SPV with a leverage ratio of 10 to 1. Then the SPV buys securities.

There are currently six SPVs that are active. So far, the amounts are relatively small, by Fed standards. There was an initial burst into early April. Then the total amount declined for weeks, while the composition changed. But this week, there has been a noticeable move in yellow. And over the past weeks, red has become the dominant color (details below):

The color-coded segments in the chart show the amounts that the Fed lent to each of these SPVs.

The SPVs with increasing balances:

Yellow: Corporate Credit Facility (CCF). This SPV, managed by State Street as the custodian, buys corporate bonds in the secondary market. It jumped from $1.8 billion to $35 billion.

Red: Paycheck Protection Program Liquidity Facility (PPPLF). This SPV, which buys the government-guaranteed loans banks issued to small businesses under the PPP, rose to $49 billion.

Green: Commercial Paper Funding Facility (CPFF) jumped from $4 billion to $13 billion. This SPV works with the Money Market Mutual Fund Liquidity Facility (below) on bailing out money-market mutual funds by buying “commercial paper” – short-term corporate debt that is the bread-and-butter of money-market mutual funds.

The SPVs with decreasing balances.

Blue: Money Market Mutual Fund Liquidity Facility (MMLF). The balance at this SPV, which buys short-term commercial paper and other assets to keep money market mutual funds liquid, fell to $33 billion, down from $53 billion in early April.

Gray: Primary Dealer Credit Facility (PDCF) dropped to just $6 billion, from the peak of $33 billion in early April: This SPV lends to the Fed’s primary dealers, and they use these funds to buy securities to “support the smooth functioning” of the market. They ramped up during the panic and are now winding down their positions.

Black: Primary Market Corporate Credit Facility (PMCCF) declined further, to $18 billion, from $51 billion on March 25. This SPV can buy bonds directly from companies when they issue them, including certain “fallen angel” junk bonds; it can also buy portions of syndicated loans at issuance. It appears that companies have little need to use this type of funding – now that the bond market has embarked on a wild yield chase.

Central Bank Liquidity Swaps — think Japan.

The Fed’s “dollar liquidity swap lines” with other central banks has been roughly flat for four weeks, up just a smidgen this week, at $449 billion (country data via the New York Fed):

The Bank of Japan continues to increase its use of these dollars and now accounts for 50.3% of the total, with $226 billion in swaps.

With these swaps, which mature in 7 days or 84 days, the Fed lends newly created dollars to other central banks and takes their domestic currency as collateral, at the market exchange rate. When the swap matures, the Fed gets its dollars back, and the other central bank gets its currency back.

Repos.

The Fed is still offering huge amounts of repos every day, but there has been little demand for them. Total repo balance ticked up by $23.8 billion to $181 billion, the result of an overnight repo of $24.6 billion, of the $500 billion offered. Most of the repos left on the balance sheet are term repos from March:

If…

Since March 11, the Fed has printed $2.78 trillion to inflate asset prices across the spectrum and bail out those that owned those assets. The Fed also wanted to restart the chase for yield that makes investors reckless and trains them to count on future bailouts when it hits the fan again.

If the Fed had spread that $2.78 trillion equally over the 130 million households in the US, each household would have received $21,426 – welcome help in this crisis for less-well-off households. But this was not for them. It was helicopter money for Wall Street and asset holders.

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  70 comments for “Fed Tapered QE Helicopter Money for Wall Street Further: MBS Fell. Treasuries Barely Rose. Liquidity Swaps & Repos Stalled.

  1. Cas127 says:

    Wolf,

    Since Treasuries are “money good” (no chance of default…the G would just print more…) is there any way to see the recent Treasuries buy by the Fed (the largest intervention so far) as anything out than monetarization of gvt debt?

    In other words, the G needed additional money, did not think it could get it from the markets without raising rates, and therefore “arranged” for the Fed to “buy” (with conjured funds) the new gvt debt.

    Operationally, the transaction is not handled directly between the G and the Fed (that would be too blatant) but the act of the Fed buying up (with conjured funds) existing Treasuries from banks, etc. (who have to replace those Treasuries with new issue G debt) amounts to the same thing…using two steps.

    The MBS and CMBS buys are different, not being money good (until the Fed buys them at par from the worried banks)…so that is more of an actual backstop (whereas the Treasuries buy is an expansion of the money supply)

    Just trying to get the various macro implications straight…

    • Fed bought a trillion more Treasuries than Treasury issued which is QE on a moonshot. When G hits the deficit wall Treasury will increase issue and Fed will have to withdraw that liquidity, or??

    • Bobber says:

      You sound surprised. Did you know the Fed has been monetizing for years? Don’t be lulled by the Fed’s words. Look at what it actually does.

      • Cas127 says:

        I guess the core of my question was really the operational rationale or macroeconomic goal of the Fed actually buying certain classes of assets and only really *talking about* buying others.

        My guess is that the actually bought Treasuries/MBS tend to be held by banks…which are central to the Fed’s interest rate control operations.

        Whereas the other essentially unbought asset classes (corp bonds, etc) tend to be much more widely held and less central to bank operations than Treasuries/MBS (take a look at FDIC aggregate stats for banking industry)

    • M says:

      I suspect that even more help has been going to the Fed banksters ‘ cronies than revealed here: after the 2008-9 collapses, the Fed bankster cartel kept many gigantic, ultra low interest loans to insolvent entities secret as well as to whom they went. See Bernie Sanders’ questioning of Bernanke in a Senate hearing as to this on youtube and Bernanke ‘s refusals. E.g., The Fed cartel gives dollars to foreign banks and entities and could easily require that they give funds to their financier cronies.

      Unfortunately, even if they were shown with indisputable evidence to have violated laws, like insider trading (Rule 10b5), they will be given the same soft glove treatment that J Epstein was given in Florida.

  2. Tim says:

    Thank you, Wolf, for another succinct aticle.

    My quesion would be, though, to what degree are the liquidity swaps on the Fed’s balance sheet a reinforcement of relationships with preferred partners in preaparation for conflict with China.

    Off the wall question. Esoteric. But what do you think?

    • Kev says:

      Did u see the press conf today??? He is giving China full power over HK. Xii won.

      • Tim says:

        Well, ok, that is one way to view it.

        Another might be that Hong Kong, as a separate constitution, as a separate economic entity from the rest of China, was on borrowed ground from 1984 onwards.

        On theoretical grounds, under the Treaty of Najing (1842), the island of Hong Kong was ceded to the British ‘In perpetuity’ by the Daoguang Emperor. It was noly the new territories that were subject to the 1898 99-year lease.

        No matter.

        The British Prime Minister of the time, under pragmatic advisement, signed the Sino-British Joint Declaration on 19 December 1984.

        It was an agreement signed with all the hallmarks of an ‘Unequal Treaty’.

        I’m sure the irony is lost on no one.

        • Kev says:

          I know the history. Just saying trump only cares about the stock market and sold out on democracy again today. Smart move for america. Its all about america… Anyways. Dont want to go against the comment rules so i will leave it at that.

          I have to say though- all the commenters with the big words and fancy talk. So funny. Did you make 257k today? No fancy words required just common sense and hard work. Cheers.

        • Zantetsu says:

          Oh Kev clearly no one here is worthy to lick your boots.

          Is your ego sufficiently stroked now?

    • Wolf Richter says:

      Tim,

      Naw. Japan uses over half of those swaps. Japan has a HUGE trade relationship with China, exporting to China. Japan’s economy has become dependent on those exports to China. The swaps are all about Japan’s exposure to investments it (Japanese banks, companies, etc.) has made in USD to find some yield, including CLOs.

      • Cashboy says:

        Wolf,

        I cannot think of anything that China would need from Japan now.

        What does Japan export to China?

        • Wolf Richter says:

          Cashboy,

          Japan is one of the few countries that had a trade surplus with China/HK in 2019. It exported to China/HK more than to the US:

          Exports to China/HK: ¥18.1 trillion

          Exports to the US: ¥14.9 trillion

          Machinery, electrical machinery, transportation equipment, etc.

          Here is the data for the year 2019:
          https://www.customs.go.jp/toukei/shinbun/trade-st_e/2019/2019_216e.pdf

        • MC01 says:

          First thing: silicon wafer. Just two Japanese firms (Shin Etsu and SUMCO) produce about 85% of all the silicon wafer worldwide.
          Second thing: high quality carbon fiber. Just three Japanese firms (Toray Industries, Mitsubishi Chemical and Toho Tenax) control over 75% of worldwide production.
          I could go on for a hour listing Japanese companies that have a monopoly or nearly so on something, and that’s without counting the Japanese subsidiaries of foreign firms: an example are the local operations of the Merck Group which actually dwarf those in Germany by capacity.

          While Japanese companies have enthusiastically outsourced final assembly and low-tech production to Mainland Asia, the “good stuff” remains firmly in Japan. China has been desperately trying to get her hands on much of that tech through the “Made in China 2025” initiative (MIC25) but Japan’s doors remain closed: Chinese investments in Japan are 1/36 of Japan’s in China. In short when it comes to the good stuff it’s a one way trade.
          Please spare me the usual cries of “… but the US sold that out years ago!”: always remember that sensitive tech needs the Federal government’s approval to be exported. China has been trying, without success, to obtain tech transfer of many technologies from the US, starting from turbine blade manufacturing capabilities and high temperature coatings, without success.
          China has had far more success in Germany and Italy: the purchases of Kuka and Pirelli by Chinese groups have been two authentic national shames, especially the former. This is literally selling the family jewels to Johnny Foreigner.

      • jm says:

        I suspect a large fraction of China’s trade surplus with the US is actually a hidden Japanese trade surplus with the US — Japanese high tech components assembled into products labeled Made in China, with little value added in China.

        • Cas127 says:

          Possible.

          The US having been relatively isolated from international trade for so long (relative to, say, individual European states) is not really experienced in thinking in advanced international trade flow/FX terms.

          US leadership being dead-at-the-switch for about 20 yrs as China/et al racked up astronomical trade surpluses (through Yuan capital controls and WTO willful blindness) highlights this.

  3. akiddy111 says:

    The Fed’s role is to create prosperity for as many people as possible.

    If it is only possible these days for the Fed to push up asset prices for the 10% of people that own 84% of all bonds and equities, well so be it !

    As for $1200 stimulus checks for the working stiff ?This is where Congress steps in.

    THe Fed cannot stop the imminent arrival of negative interest rates . Look at how the 10 year yield has behaving lately. It yields 0.6% for Heaven’s sakes -and it has been going sideways for weeks at these levels- while the S&P 500 has been climbing like a Nepalese Gurkha.

    The buying opportunity for equities was right there during the 2nd and 3rd week of March if anybody who wanted it.

    Lastly, i know that Wolf leaves my comments in the penalty box all day because they are not gloomy enough. Fine.

    And remember 1 thing : The wealthiest 1% in the USA has as much wealth as the poorest 95%.

    The Fed supports the wealthiest 5%. Get used to it. It will not change. So invest accordingly.

    https://inequality.org/facts/wealth-inequality/

    • Mr. aKiddy111 wrote:
      > The Fed supports the wealthiest 5%.
      > Get used to it. It will not change.
      > Invest accordingly.

      Even hippie Jesus knew that money and wisdom
      should be given to those who best handle it;
      and so it goes, millennia after millennia.

      Take money from a thieving junkie, and
      you might save his life; hand it to Bezos,
      and some good might come of it.

      Hence the rich get richer,
      and the poor get poorer.

      Darwinism is the whole of the law;
      if you’re fit, you’ll do well under any regime.

      • Portia says:

        Notice which banks are getting burnt down in the current unrest. Wells Fargo and Chase.

        “Take money from a thieving junkie, and
        you might save his life; hand it to Bezos,
        and some good might come of it.”

        The arrogant rich justification for their social engineering just makes me laugh.

        • Ms Portia replied ( to me ):
          > Notice which banks are getting burnt down…
          > Wells Fargo and Chase.

          Rabid dogs are more intelligent
          than the arsonists.

          Get rid of the bank branches;
          go online — if you must build
          a bank branch, baby-proof it.

          > > Even hippie Jesus knew that money and wisdom
          > > should be given to those who best handle it;
          > > and so it goes, millennia after millennia.
          > >
          > > Take money from a thieving junkie, and
          > > you might save his life; hand it to Bezos,
          > > and some good might come of it.
          > >
          > > Hence the rich get richer,
          > > and the poor get poorer.
          >
          > The arrogant rich justification for their
          > social engineering just makes me laugh.

          And so it goes, millennia after millennia.

        • Portia says:

          Jeff Relf–is it really wisdom and acumen, or just the willingness to run everyone else off the road to get what you want that sets “those who best handle it” apart? Yes, I can see that expecting change from the establishment is futile. Unless you are willing to avidly participate in the pillage that is capitalism in this country, you are weak, stupider than a rabid dog, and deserve to be annihilated.

          I just saw on the news that protesters on Saturday were marching down Rodeo Drive in Beverly Hills chanting “eat the rich”. LOL. Yes, some things never change. Hope your bunker is nice.

    • Portia says:

      The Fed is a bastard creation designed to perpetuate bad behavior of greedy undisciplined schemers, (Or as Gore Vidal would say, “Men of opportunity.”), and that is its role now (and forever, as you say).

  4. 2banana says:

    Does all this sum up to “good news?”

    As in, the FED is tapering and not throwing money out of helicopters anymore?

    And if the current trends continue, will actually be offloading assets?

  5. Jack says:

    Is there any possible way for the American people to sue the FOMC for their flagrant violations of the Federal Reserve Act over the last 12 hours?
    – using special purpose vehicles to get around restrictions on bailing out private corporations
    – bailing out insolvent private corporations and foreign banks
    – deviating from the unemployment/inflation twin mandate to keeping stock & bond markets elevated no matter what cost
    – there’s probably an argument to be made that 2% PCE / 3% CPI doesn’t meet any reasonable definition of “stable prices”

    The Federal Reserve has been named as a counterparty in several lawsuits before. I’m just wondering if, short of Congress passing additional legislation to restrict what they’re allowed to do, they really have unlimited unchecked power to do whatever they want for the a Wall Street billionaire class.

    • Jack says:

      I meant last 12 years, not hours. I don’t know why autocorrect did that.

    • Portia says:

      Jack,
      There is no will for that in Democratic leadership, and never will be with Republicans. Unless there is more opportunity for the progressives to participate in what actually goes down in legislation, we are s.o.l.

  6. sunny129 says:

    But Fed bought the corporate debt both IG, high yield and junk bonds, as it had already broadcaster in advance in March! It followed it’s promise!

    ‘As of May 19th, the Fed’s purchases were left by the iShares investment grade ETF LQD (at $326MM), followed by two Vanguard corporate bond ETFs, the VCIT ($228MM) and VCSH ($226MM), with the junk bond ETFs, HYG and JNK in 4th and 5th place owning $89.5MM and $88.3MM, respectively
    The $49 billion LQD has rallied over 14% since March 23. LQD has taken in $964 million this week, and is leading 2020 fixed-income inflows with an $11.7 billion haul.
    zh

    Wow!. How many of you out there, missed this ‘buying’ opportunity announced by Fed on Corp debt? It will keep on buying them although slowly.

    No wonder almost 1 TRILLION in bonds being/ will be issued by the companies! Why NOT, right? Fed is determined to support the CREDIT mkt and indirectly the Equity Mkt! I am going with the ride, since it’s announcement! Even jaw boning made them zoom higher! ZH has the list of ETfs the Fed is buying!

    Just UNBELIEVABLE!

    • sunny 129 says:

      There are almost 12-15 different kinds of ETFs related to investment grade, high yield and junk kind. they ALL have gone up with blips in between! i even never knew that ETfs like SJNK and SLQD existed!

      Been in the mkt since ’82. Never witnessed any thing like this besides the investors front running every time Fed announced the QE!

      Fed is openly supporting the credit mkt and in turn the equity mkt! How long this CRONY Capitalism goes on without any challenge or accountability! Wow!

    • Tim says:

      Sure, ride and don’t fight the market…. hmm..

      But…. perhaps the emperor simply has new clothes. Perhaps more people, like you have done, should pay attention to that and put on their skeptical spectacles….

    • Saltcreep says:

      Hehe, sunny129, I, for example, was sitting pretty on a position in SJB, and then the Fed announced they were changing the rules of the game. I didn’t sit around waiting to see how much they bought, I just dropped my position immediately like a hot potato as soon as they announced that SPV.

      What’s aggravating isn’t having the value of the position drop like a stone, as frankly I’m well used to that just through my own stupid dispositions, but it’s having certain external actors just stepping in and announcing that things have changed, and that my outlook will no longer be supported by those who can redistribute means.

      • sunny129 says:

        I still keep some shares of SJB. they did lose some but not very much, so far.
        My question is how long they can postpone insolvency with liquidity?
        There are 15-20% of S&P are zombies!

    • Wolf Richter says:

      sunny129,

      The amounts of EFTs that the Fed actually bought are totally minuscule, by Fed standards. Not even a rounding error on its balance sheet (measured in Trillions). But all the jawboning and media fawning over it had a huge impact on asset prices, and it had that impact long before the Fed even started buying.

      • Robert says:

        The JNK etf keeps going up and up. I wonder if the Fed will only buy, and never sell the shares they accumulate.

        • Closely held shares, buy and never sell, is the equivalent of a share buyback. If Fed could buy GM stock, and take those shares off the market, doesn’t that make Fed and GM the same thing? If buybacks are illegal, or financially disreputable, why is government doing it? Why do BOJ and SNB do it? Why do we set up dollar swaps to facilitate the process?

      • Educated but poor Millennial says:

        Wolf,
        Now what will happen?
        After tapering helicopter money, will the stock price rolle down and will we see the dead cat bounce? or it will just go up and up because of 0% Fed rate?
        Thank you.

      • Cas127 says:

        I wonder if the jawboning will be enough when the Q2 disaster numbers come out.

        Of course, the bailout mechanisms are already in place (as you detail). It would be nice to think that they will continue to be little used.

        That is harder to judge – the Fed seems to be okay will letting individual corps go BK (JCP, Hertz, etc,) or even big chunks of entire industries (oil 2014+) so long as the BKs are spread out over time.

        Unfortunately, all the horrific Q2 numbers (and maybe Q3) numbers will hit in batches…just the sort of “panic” the Fed likes to throw (other people’s) money at.

        We’ll see…unfortunately, we may just be in the Phony War lull before the storm

      • sunny129 says:

        I agree. It’s minuscule. but every time there is trouble in the credit mkt they keep buying! It is similar to QE 1 thru 3 and 4+ responding to any dip in S&P! First they said they wont buy junk bonds but now virtually nothing is exempt incl ANGL and FALN Etfs!?

        I think instead of buying stocks, Fed is openly supporting the Corp credit mkt which in turn holds up the equity mkt up to a point!

        I started buying when the jaw boning began, but extended the buy beyond the usual ETfs. Most of them are up and climbing! Besides FED has announced 500 B for any of the NEWLY issued bonds besides the 300B in reserve.

  7. sunny129 says:

    Fed has bought nearly 3 Billions in ETfs (less than 2% of all US listed Corp Bond ETFs

    Fed says it ‘plans’ purchase up 250 Billions in out standing Corporate debt and up to 500 Billions in the newly issued debt!
    WSJ

    If the credit mkt ‘deteriorates’ further, Fed’s put is ALWAYS here to support!
    What could wrong, right?

    • Wolf Richter says:

      sunny129,

      “Fed says it ‘plans’ purchase up 250 Billions in out standing Corporate debt and up to 500 Billions in the newly issued debt!”

      That’s WSJ hype, which is part of the jawboning the Fed is doing. Powell has already said several times that the Fed has accomplished its goals. So it might not do a whole lot more as long as the market doesn’t re-collapse.

      • Phoenix_Ikki says:

        So another word, this hyped up rally is prop up by more hype by the FED, one hype begets another.

      • sunny129 says:

        ‘might not do a whole lot more as long as the market doesn’t re-collapse’

        I think as the Economy tanks and quite evident after the end of 2nd qtr, corp credit mkt won’t be stable! As long as Fed’s put is implicit or explicit, those ETfs will be bought. And so am I.

  8. WES says:

    The evil lurking behind zero interest rates, is only the existing rich can take advantage of it.

    If you are not rich, then you cannot take advantage of ZIRP, to become rich.

  9. hidflect says:

    All the mined gold in the world is worth only about $10Trillion.

    • Tim says:

      hidflect.

      I think you are out of kilter there.

      Not in absolute terms. I guess you have done your homework as regards the figure you’ve quoted.

      That said, in relative terms, how robust are the valuations of alternative assets?

      Can you be sure that the ‘only about $10 Trillion’ won’t hold enough pull, enough curiosity, to outlive more fashionable other investments?

      • Saltcreep says:

        Hey Tim, gold is money. It’s no ‘alternative asset’, it’s money.

        For kilteredeness, I’d advise a looking under the kilts of USD, EUR, GBP, CHF and the like to see what’s backing up their sporran. It’s hot air and little else that’s blowing their sails well of kilter (says me, even as I just doubled down on my purchases of US treasurys whilst playing the greater fool game…).

        Gold is a highly attractive alternative to the currencies that our authorities seem so damned keen to market to us in order to keep their hideous illusion of unearned stuff and our accelerating depletion of our natural environment going a bit longer.

        • Tim says:

          Haha, Saltcreep.

          Currencies that are all skirt and no knickers you mean.

          I agree entirely.

        • sunny129 says:

          The value of gold both in paper and physical is fixed at the gold future exchange, of course with some premium for the physical kind. You cannot purchase food with gold/gold coins. As long as there is ‘confidence’ in the US currency, it matters little.

          Gold is just a trade for me. I trade Gold/ mining ETFs and also their options. Same with OIL.
          If there is hyperinflation after deleveraging deflation, gold +miming stocks, oil and income producing REITS are in my insurance portfolio along with inverse etfs/Mfunds. And still 50% in cash ( I am already retired!)

  10. Yancey Ward says:

    I think, ultimately, the foray into buying corporate debt won’t work- the underlyng companies still have to service the debt. They aren’t in the position of the US government with regards to the FED- they don’t get to collect most of the interest payments back from the FED.

    • Corporates have revenue. Profits don’t matter if a company can service their debt and grow their business (Then you can have more debt!) The illusion remains that someday the government will be able to tax those revenues but not until the global tax shelter scam is broken up. Or we go to a VAT tax. Do you realize when you buy on a CC, you are borrowing to pay the tax on the item? Imagine you could hand the IRS your CC? Probably cheaper to service the debt rather than paying their penalties. You reduce interest rates to zero negating any debt servicing charges. Or why do you think stocks are going up?

      • sunny129 says:

        ‘Corporates have revenue’

        Will they, going forward after the 2nd qtr?
        15-20% of S&P are zombie Cos! How will they service the debt, even if it ia ZRP!?

        • They’ll always have some revenue, just not nearly enough to match expenditures, but always always more than USG revenue to expenditure ratio. How much revenue do you need to service zero interest debt?

    • sunny129 says:

      They will roll over the current debt and or issue NEW bonds. Fed’s put is always there, right. The Fed balance sheet can grow to 10 Trillions and beyond and no one in Congress will object. That’s MMTers want too!

      It will only when the servicing the debt (interest) will compete with social and defense spending down the road. Until then they will keep on kicking the can, just like before!

      Without functioning Corp CREDIT mkt there will be no functioning Equity mkt! Fed is bound to support the credit mkt.

  11. Fat Chewer. says:

    That’s no way to run an economy.
    -Graham Turner, 2009.

  12. Michael Engel says:

    1) After being separated from each other, since Oct 2018, all US rates are trending down, forming a cone. But from Feb 2020 US rates collapsed in a vortex, glued to each other, escaping the deadly virus.
    2) They are hugging each other, tangled together, slightly above zero.
    3) US rates became a burnt scrambled eggs. 4) The Fed will have great difficulties to separate them, to start inflation. They became melted plastic the Fed cannot shape, toxic material to the economy.
    5) If US 3M will still be anchored to zero, while the 10Y is diving in a panic, the chain attached to the anchor will be ripped. The sinking 10Y will reach the bottom of the sea, unless JP will go to ==> NR, reversing plans, despite the Fed bruised ego….

  13. MonkeyBusiness says:

    Protesters storming CNN headquarters in Atlanta. NYPD precinct attacked, with officers supposedly down.

    Come Monday morning, stocks will open up big. Thank God there’s some certainty in this world. I mean what are we going to do if there’s no stock market? Face reality?

  14. dave ward says:

    liquidity swaps.. like with Japan, is their intention to provide dollars to Japan so that dollar denominated assets can be purchased?

  15. Augusto says:

    The real problem is that all Wall Street & the Billionaires have to do is cry “save us” and trillions more will be provided in the name of saving the economy (which is dead). Meanwhile, the poor are being thrown more money than they normally make when working. So, who pays for all this? Well, the middle class-the savers, the tradesmen, professionals, small business owners, the self supporters. As their savings are pilfered, their incomes taxed, their freedom taken, their business’s drained of cash (liquidity), to keep this giant ponzi scheme going, we are a little closer to total disaster. Plagues, riots, unemployment, hunger, its all here with more to come. But hey, lets give the Banks a few billion more on the road to ruin.

  16. VeryAmused says:

    The older people have most of the wealth. Older people, right or wrong true or false, have been scared stiff by the virus. America is a service economy that needs older people , for the most part, to spend on a massive scale for flights, hotels, cruises, healthcare, restaurants, etc., to employ the masses.

    Credit cycles exist. We are at the point of complete credit saturation. People who can afford to borrow have all the stuff already and the ones who can’t are drowning more by the day given inflation/shrinkflation in everything that matters (rent, childcare, food, automobiles, healthcare, education).

    UBI does not work well from an economic or optics standpoint. So let’s assume this will not be allowed for any meaning amount of time.

    Given all this, how do we restart the economy?

    This whole thing seems incredibly primed for complete collapse. I really really really hope I am wrong.

    • Xabier says:

      You are both right, and -the good news – wrong.

      We are already on the arc of collapse: it isn’t going to arrive announced by trumpets and drums one day – it is here.

      This is what a civilizational collapse is like.

      A mixed experience, and quite alright for some… for the time being.

      Like the contemplation of geological time scales, knowing just where one is in history and that it is, essentially, fated – can be quite calming.

      And when calm, we can think and plan much more effectively, seeing everything that happens in due proportion.

    • sunny129 says:

      US is going in the direction of JAPANIFICATION.
      And Debt/GDP wise USA is still in better position than Japan!
      Japan will be ‘canary’ in the mine of NRP!

  17. Flownover says:

    Complexity of daily life exceeds the capacity of the typical human being to cope. Covid-19 is the added stressing force that is tipping the social and financial structure . We can hope that the Fed’s Rube Goldberg machine can keep it all from crashing down. But I sadly come down on the side of Romans 1:22—“Professing themselves to be wise, they became fools.”

  18. Phil says:

    I’m constantly impressed with the depth of your research. Thanks, again, Wolf.

  19. My concern is who is backing the 10X leveraged buying of ETFs? At what point does the collapse of the industry threaten the entity backing them? And at the point of insolvency does the government step in and bail out the underlying business?

    • sunny129 says:

      X leveraged ETFs are for short term trade and not buy n hold.

      I buy 3x leveraged ETFs 9 as hedge against 1x leveraged INVERSE ETf
      Not the most ideal but working out most of time for me. most of my wealth in IRAs.

      With FAANGS at 30+ and S&P at 21+ PE ration, with volatility, the mkt is flying/fluttering between greed vs Fear +FOMO.

      I employ tactical trading along with strategic and structural approach using Stocks+ ETfs with div, Mfunds (short/long) and options . And still 50% in cash in this surreal bull mkt of my life time! Been in the mkt since ’82 and now retired. Flexibility is the key for the definite uncertainty!

      • The SPVs are leveraging up their buying of ETFs, Fed seed money, 10X. I think its 400B for 4T? What happens when the ETFs the SPV is buying blow up. Does the Fed just walk away? Do they bail out the SPV, or the ETF, or the companies in the ETF? Or all of them at the same time. Or take them off balance sheet?

        • sunny129 says:

          Are they any different than trillions in derivatives and swaps of kind, out there as a collateral for assets in the mkt? how are the clearing houses are capitalized?

  20. Michael Engel says:

    1) If u burn your hair in flames, it will not be able possible to comb it again.
    2) All Fed rates from 3M to 10Y are fused together like burnt hair.
    3) The Fed is ugly.
    4) The Fed will have to shave its white thinning hair and grow it again,
    like in 1921 and 1932.

  21. DR DOOM says:

    In the economy I live in I see people saving not spending. I have about 1,000 quart canning jars stored in my barn from my grand parents and aunts and uncles estates. I am the Keeper and Watchdog of the family. My Depression era up-bringing would not allow their disposal. The demand in my circle of family and friends for these jars have exploded. Saving and canning demonstrates a mind shift that has deflationary outcomes and this type of activity will grow.The Fed can do what it wants but it can’t create a functioning economy. It can and has de-based our currency and is now busy consuming the future out side its charter from Congress. In fact,Congress is not only moot but abetting and applauding. Never forget the FED’s only product is debt and it can create infinite amounts . Only Gold and Silver is money. Everything else is Fiat with its hand maiden called currency. The perceived independence of the FED which protects me and you from the Executive does not protect us when the FED,Congress and the Executive are in bed together. Congress knew when it created this “Beast from Jekyll Island ” that the beast could easily capture the Executive.Our Two Party System has polarized the electorate to such a degree that redress is impossible and will not even be allowed to be discussed . The FED is Americas National Religeon and we beg for it blessings. The last gasp of FED independence died with Mr. Volker. The total value of the the Fed and its balance sheet and SUV lines of coke on the mirror are not relevant to the growing numbers of displaced citizens that now span decades. Every time I look at FRED I think of a line from the movie As Good As It Gets.” I’m drowning here, and you’re describing the water”!

  22. ispanyol says:

    I have a question.

    How can we determine total loans amount for each facility?

    For example
    https://fred.stlouisfed.org/series/H41RESPPALDHNWW
    Could you tell me what is the total loans amount for PDCF ?

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