You would have to be living under a rock if you haven’t been watching the impeachment show of President Donald Trump in the U.S. House of Representatives. Democrats are having a political orgasm. The Republicans are shaking their heads.
Everyone understands that the impeachment hearings are going nowhere – Trump most likely will not be convicted in the Republican-held Senate. It is political theater. Both sides have the strategies to make the other side look bad. News Forecasters asks, if impeachment doesn’t work, is there a plan B?
One can not say for sure, but for sure, one needs to be watchful. The signature accomplishment of Trump has been the stellar performance of the economy. Democrats know this. Would Democrats and their deepstate actors sabotage the global economy? The answer might be yes – some people are already talking about this – still others are asking this question as well. One of the key players in the economy is the Fed. If Democrats were to engineer harm to the economy, they would start at the Fed. So while we watch the impeachment show on stage, just what is the Fed doing behind the curtains – and should we worry? The answer to this is – maybe.
After the build-up of the Fed balance sheet, to stave off the 2018 Great Recession, under the Trump economy, it had been starting to work off the excess of this balance sheet steadily. The Fed suddenly has reversed the course – see insert chart. Why?
What’s the crisis, you ask? After all, we live in an age of trillion-dollar market-cap companies and unemployment at 50-year lows. Yet the Fed is acting as the doomsday clock has melted under a nuclear attack. What, indeed, is the Fed not telling us?
In September 2019, suddenly, the overnight target rate (repos) jumped sky high, and the Fed had to intervene to keep the wheels from coming off. The Fed was totally caught off guard when the overnight financing rate suddenly jumped to over 5%, and it’s been reacting ever since. The Fed initially injected $72 billion in temporary liquidity into the financial system. But market demand for overnight repo operations has far exceeded expectations and is continuing – it’s now a trend. This little blip in repo demand now is approaching $300 billion – will it stop? If the Fed does not act, it could explode – what if they don’t or worse yet they can’t? I don’t have to tell you what this would do to global stock prices – a significant downdraft in equity prices could exacerbate the situation with business margin calls.
If this is a little difficult to understand, here is a video that could help. Do note that this video was made a few weeks earlier and assumed the repos crisis would be short-lived and would subside – it has not.
No one can agree on what’s causing the demand for cash. Here are some reasons:
- The first argument is that businesses are struggling and are facing unanticipated costs – but we don’t see this in GDP nor other business climate indicators.
- The withdrawal of cash by US companies to make quarterly tax payments to the Treasury Department and the settlement of a large amount of Treasury purchases. Both those factors have since passed, and they should have been anticipated by investors.
- Lending market problems show that the system is having trouble swallowing the record amount of Treasuries being issued to finance America’s $1 trillion budget deficit. But many don’t buy this argument – this is not the first time this has happened and would not affect short term markets like this. Treasury rates remain low, and the massive budget deficit has been well anticipated.
- Overseas economic contagion – economies around the world are struggling. Large corporations need to deal with overseas expenditures.
- The more nefarious reason is that banks and businesses are moving to large cash positions because they are worried about the political environment. Or worse yet trying to engineer the economy to fit their trading position.
Interestingly enough, the Fed will not disclose which banks are receiving repo cash for at least two years – and are exempt under the Freedom of Information Act. What kind of system of government is it when every week an entity created by ordinary legislation can create enormous amounts of a nation’s currency and disburse it to unidentified parties without any oversight by the people’s elected representatives, news organizations, and ordinary citizens? Whether it is the Fed engineering this repo crisis or whether large business actors are doing this to push the Fed, the effects are the same.
News Forecasters finds it interesting that while the nation is watching the impeachment show, the real dirty work may be being done behind those Fed curtains. Trump is fully aware of what the Fed can do – he continually has his focus on it. Is the Fed Plan B coming after the impeachment show? Again, hard to say, but certainly there is a 10% chance that this may happen – whether it be natural or by nefarious means.
A video presentation of this subject: