NO STRINGS ATTACHED NEWS THAT MAINSTREAM JUST WON'T COVER.
A federal judge ruled Friday that the Democratic-led House Judiciary Committee can have access to redacted grand jury material from Special Counsel Robert Mueller’s probe.
https://www.foxnews.com/politics/federal-judge-rules-congressional-democrats-can-have-access-to-mueller-grand-jury-material
How’s That Alternative Reality Working Out For You?
Authored by Robert Gore at Straight Line Logic,
At the end of 1984, Slavery is Freedom, two plus two equals five, and Winston Smith loves Big Brother. The Party has destroyed Smith’s mind, he embraces whatever narratives it promulgates. The fictive Party has solved the conundrum that bedevils any individual or organization seeking to exercise power: coercion can exact physical compliance and the desired verbalizations, but how do you compel the subjugated to think and believe as you want them to think and believe?
Our Party, the confederation of powerful people who promulgate the narratives that always point the same direction—more government and power for the powerful, less freedom for the subjugated—has yet to reach the mind control of Orwell’s Party, but not for want of desire or effort. We know the Party’s narratives: globalism, climate change, surveillance, incarceration, political correctness, open borders, free migration, fiat debt, central economic planning, socialized education and medical care, and wars on terrorism, drugs, poverty, any regime that refuses to toe the Party line, hydrocarbons, private firearms, individual rights, privacy, precious metals and cash, and socialized education and medical care. We know the Party’s institutions: governments, central banks and their central banks, intelligence agencies, military forces, police, permanent bureaucracies, multinational corporations, multilateral economic, political, and financial institutions, foundations, universities, nonprofits, and NGOs. We know the Party’s overlapping mouthpieces: the mainstream media, think tanks, government and intelligence agency propaganda organs, crony executives and their companies, Hollywood, and academia. And we know the figureheads who stock governments and their allied institutions, and the Party puppeteers who pull their strings.
We also know the Party is not omnipotent. Just as Orwell’s Party went to all that trouble to ensure Winston Smith thought the right thoughts, our Party wants our belief, acceptance, and consent. Control is far easier to exercise on a population that accepts being controlled and gives carte blanche to its controllers. That Donald Trump, who occasionally tells inconvenient truths but has done precious little to actually change the way the government operates, elicits paroxysms of spastic rage shows just how important it is to the Party that we all think the right thoughts.
There are two problems with the Party’s narrative management: the people who don’t believe it, and the people who do. In the Party’s perfect world, it would have a monopoly on information and interpretation. However, it’s battling a trend that began with the invention of writing: the ever-increasing availability and dispersion of information. The latest untoward development is the Internet, which allows virtually anyone to disclose a secret, reveal a lie, express an opinion, satirize, post a photograph or video, or otherwise challenge Party narratives. The many that wither under Internet scrutiny reveal the Party for what it is: a serial, unrepentant liar.
Looking at threats to or from the Internet—intelligence agency surveillance, state censorship, and social media companies’ exclusion and elimination of disfavored political views—there is cause for concern. The threats are certainly threatening, but looking at what the Internet has already wrought argues against total despair.
Twenty years ago, the whole concept of a Deep State was fringe, a notion embraced only by kooks and so-called conspiracy theorists. There was an American Deep State with international connections and it had been running the country since at least WWII, but it really was deep, few people on the outside were aware of it. Now, the phrase is routinely cited by the president, deployed every day in the alternative media, and even the mainstream media occasionally use it.
In fact, the mainstream media has gone from denying the Deep State to telling us what a great thing it is, the last bulwark against a Trump dictatorship. So the witnesses against Trump in the House impeachment hearings aren’t State Department bureaucrats in love with their own deeply flawed Ukraine policies, protecting themselves and their Democratic cronies from revelations of involvement in Ukraine’s rampant corruption, and using second-, third-, and fourth-hand conversations in an attempt to depose the elected President. No, they’re heroes.
However, unlike the not too distant past when both bureaucrats and mainstream media commanded a certain respect among most of the populace, the House impeachment hearings got shredded in real time by the alternative media. Somewhere between 45 to 50 percent of the population refuses to believe what they’re told to believe, and that percentage is always growing (once you understand the con you don’t go back to believing it). Even a few Democrats recognized that the hearings flopped and have suggested a face-saving motion to censure Trump rather than refer the case to the Republican-controlled Senate, where it would be a nonstop embarrassment.
To counter the “Epstein didn’t kill himself” meme that’s run riot on the Internet, Attorney General William Barr recently restated the official conclusion that Jeffrey Epstein’s death was suicide by hanging, resulting from “a perfect storm of screw-ups.”
This perfect storm of unlucky oopsies include Epstein being taken off suicide watchnot long after a previous suicide attempt and shortly before his successful suicide, suggestionsthat the first attempt may have actually been an assault via attempted strangulation inflicted by someone else, two security guards simultaneously falling asleep on the jobwhen they were supposed to be checking on Epstein, one of those guards not even being an actual security guard, security footage of two camerasoutside Epstein’s cell being unusable due to a mysterious technical glitch, at least eight Bureau of Prisons officials knowing Epstein wasn’t meant to be left alone in his celland leaving him alone in his cell anyway, Epstein’s cellmate being transferred out of their shared spacethe day before Epstein’s death, Epstein signing a willtwo days before his death, unexplained injurieson Epstein’s wrists and shoulder reported by his family after the autopsy, and a forensic expert who examined Epstein’s body claiming that his injuries were more consistent with homicide than suicide.
Caitlin Johnstone, “Barr Ends All Conspiracy Theories Forever By Saying Epstein Died Via A Series Of Coincidences,” medium.com, 11/22/19.
It was years before those who questioned the Warren Commission’s conclusions didn’t have their sanity questioned. Now within four months of Epstein’s death the Attorney General felt compelled to respond to the Internet and the alternative and social medias it has spawned. Barr didn’t change a single mind―the meme is still viral—but he has prompted a new SLL word coinage for any effort by the powerful to whitewash their own lies and corruption: Epstein-Barr Syndrome, or EBS.
Thanks to the Internet, those of us who are paying attention know our Party’s narratives, institutions, mouthpieces, and personnel are evil to their rotten core. We don’t know all the details, but we don’t have to, the incontrovertible truths we have are enough. Epstein could have disclosed devastating truths about Party pedophiles, perverts, and pimps, and we’ve been Epstein-Barred too often to believe he killed himself. Once your eyes are opened, they stay open and you become an expert at spotting EBS. You reflexively reject Party propaganda and by implication, the Party itself.
Popular discontent and protests, some violent, are breaking out all over the world. A number of causes have been cited: corrupt governments, wealth inequality, domestic interference by foreign governments and institutions, rising taxes, fees, and the overall cost of living, and disconnected politicians, bureaucrats, and institutions. While all of these undoubtedly play a role, there’s one constant that is rarely cited: people are fed up with the lies. They’re enraged by the hidden agendas, incompetence, and evil the lies are meant to hide.
The Chinese government is typical, it rests on lies. You don’t need to censor the internet or institute a social credit system if truth is your lodestar. It has told a whopper regarding Hong Kong: that a totalitarian system can accommodate a second system that confers substantially more freedom.
Undoubtedly the US and British governments are covertly encouraging Hong Kong’s protestors and are trying to capitalize on the Chinese government’s discomfiture. While the Chines government regards the outside influences as illegitimate, it cannot tolerate a free Hong Kong even were the protests to stop because a substantial portion of their own billion-plus repressed citizens would get wind of it and ask why they cannot enjoy the same freedom.
If China finds the protests of around two million Hong Kong residents troublesome, protests from even one percent of mainland Chinese—roughly ten million people—would be a nightmare. Freedom and totalitarianism are self-evidently incompatible, and sooner or later the Chinese government will try to impose its system on Hong Kong. That’s the truth it cannot tell. The protests may serve as the pretext, or there may be some sort of creeping consolidation before the “One Country, Two Systems” charade ends in 2047. Either way, Hong Kong’s days as a semi-free enclave are numbered. Its citizens know it, and that’s the main fuel for the current conflagration, regardless of what the American and British governments are doing to fan the flames.
As I say on the Welcome page of Straight Line Logic: The truth always threatens those whose power and wealth rests on lies. Through history that has meant governments and those who align their fates with governments.However, the unbelievers may not be as big a problem for the Party as the believers.
[youtube https://www.youtube.com/watch?v=wt87mXL_ftg]
The Party has morons on its team: those who still believe its narratives. It doesn’t matter if true believers are PhDs, Mensa members, or billionaires, in real-world intelligence they’re not the sharpest tools in the shed. The problem with having morons on your team is that they’re, well, morons. They’re the Party’s allies, but that’s like a military alliance with Haiti. They’re too stupid or lazy to try to figure out the world they live in and aren’t going to get their first clue until the handouts stop. As collapse accelerates and reaches full fruition, the ranks of the disbelieving and cynical will only grow. You quit believing when you’re starving. The Party’s already faltering mind control effort will fail, even among the morons.
Most of the PhDs, Mensa members, and billionaires who profess belief know the con but go along with it for pelf and power. They have everything but principles and will spout Party proper-speak as long as it’s in their interest. So the Party can count on the support of the venal and the duplicitous, but how staunch and steadfast will that support be when collapse accelerates, chaos reigns, and it’s every man for himself? We’ll see.
The Party narrative is problematic not just because of the quality of people who believe or profess to believe it. The more significant deficiency is that it doesn’t correspond to reality. You can have millions, even billions, of believers who fervently believe that two plus two equals five, but that means you have millions, even billions, of intellectual cripples who can’t balance a checkbook or perform any other elementary arithmetic function. Or any of the higher operations arithmetic supports—like science and technology.
The climate change debate is instructive. For years people have tried to model financial markets. There’s a built in incentive: incalculable wealth awaits anyone who gets it right even 60 percent of the time. Yet nobody has done so, because financial markets are extremely complex, are influenced by myriad variables, the relationship among variables and between the variables and the markets change, and we don’t know all the relevant variables.
The same things can be said about climate modeling, except with more emphasis, because climate is more complex and has more potentially interacting variables—some of which we undoubtedly don’t know about—than financial markets. Climate models should be considered inherently unreliable, and models that purport to explain and predict climate based on one or two variables laughably so. If we can’t predict financial markets we certainly can’t predict climate. The state of human knowledge and predictive acumen just isn’t there.
Yet, on the basis of these inherently faulty climate models, many of which have already revealed their deficiencies, the world is supposed to reduce its standard of living, embrace radical, costly, and potentially deadly changes in power generation, food consumption, modes of travel, and economic activity, and hand power over to multilateral and global institutions, supposedly the only way with which the predicted consequences can be dealt.
The problem with morons and what they believe is that reality-based non-morons can’t wall them off to live with each other and the consequences of their collective irrationality and neuroticism. They insist we live according to their moronic dictates. Conflict is inevitable. However, the quality of the two sides will be far more important than their quantity.
The Party got what it wanted from Winston Smith—a dolt who believed its self-contradictory narratives, but wasn’t much good for anything else. It’s not clear if it was even economically worthwhile for the Party to keep Smith alive. As a dolt could he produce more than he consumed?
In the coming conflict, one motivated hacker rebel will be worth at least 10 million Winston Smiths. A military specialist rebel able to organize and lead guerrilla operations will be worth at least a million Winston Smiths. And any rebel who refuses to be Epstein-Barred, sees through the Party’s narratives, fights its dictates, and has a unwavering dedication to the truth will be worth at least 100,000 Winston Smiths.
Tyler Durden Sat, 12/07/2019 - 17:11 Tags PoliticsSocial Media Goes Wild After Ryan Reynolds Pounces On "Peloton Wife"
After the internet was triggered by a Peloton ad featuring a yuppie buying a $2,500 exercise bike for his already-thin girl, now known on Twitter as "Peloton wife," actor Ryan Reynolds came up with a brilliant idea: he hired Peloton Wife - since identified as actress Monica Ruiz - and made a commercial for his Aviation Gin brand (not to be confused with Avion tequila).
Seen by over 6 million people since its Friday release, the ultraviral ad features Ruiz sitting at a bar, flanked by two supportive friends. Clearly shaken from her Peloton experience, she looks at her drink and says "This gin is really smooth," before downing the entire drink.
"You look great, by the way" says one of the other actresses - playing off the recent outrage over the Peloton commercial in which "Grace from Boston" documents a year in her life since her male partner gave her the expensive exercise bike.
Exercise bike not included. #AviationGin pic.twitter.com/jYHW74h81l
— Ryan Reynolds (@VancityReynolds) December 7, 2019 https://platform.twitter.com/widgets.jsThe ad sparked a mass triggering - with some suggesting it was about a thin woman under pressure to lose even more weight for her man. On Monday, writer and comedian Eva Victor made a parody that went viral, in which she passive aggressively thanks her man for a "fucking workout bike for Christmas."
when my husband gets me a Peleton for Christmas ........ pic.twitter.com/Z2d3ewMhPu
— Eva Victor (@evaandheriud) December 2, 2019 https://platform.twitter.com/widgets.jsIn response, Peloton shares fell 7.4% last week, while "Peloton" was as more popular search term than "impeachment" according to Google Trends.
This week there have been more US Google searches for Peloton than impeachment. pic.twitter.com/Jo0YR4UsMs
— Elliott Schwartz (@elliosch) December 4, 2019 https://platform.twitter.com/widgets.jsNow watch the ads together:
This is what you get when you put together the Peloton ad and the Ryan Reynolds gin ad as one continuous story. Art. pic.twitter.com/WYlP6grZ2j
— JERRY DUNLEAVY (@JerryDunleavy) December 7, 2019Ruiz told Deadline that the Peloton team "was lovely to work with," adding "Although I’m an actress, I am not quite comfortable being in spotlight and I’m terrible on social media."
"So to say I was shocked and overwhelmed by the attention this week (especially the negative) is an understatement," she added.
"When Ryan and his production team called about Aviation Gin, they helped me find some humor in the situation."
https://platform.twitter.com/widgets.js Tyler Durden Sat, 12/07/2019 - 16:30 Tags Entertainment CultureKerry's Endorsement Of Biden Fits: Two Deceptive Supporters Of The Iraq War
Authored by Paul Norman Solomon via CommonDreams.org,
On Thursday afternoon, the Washington Post sent out a news alert headlined "John Kerry Endorses Biden in 2020 Race, Saying He Has the Character and Experience to Beat Trump, Confront the Nation’s Challenges." Meanwhile, in Iowa, Joe Biden was also touting his experience. "Look," Biden said as he angrily lectured an 83-year-old farmer at a campaign stop, "the reason I’m running is because I’ve been around a long time and I know more than most people know, and I can get things done."
But Kerry and Biden don’t want to acknowledge a historic tie that binds them: Both men were important supporters of the Iraq war, voting for the invasion on the Senate floor and continuing to back the war after it began. Over the years, political winds have shifted – and Biden, like Kerry, has methodically lied about his support for that horrendous war.
Then Senate Democrats John Kerry, Carl Levin, Majority Leader Harry Reid and Joseph Biden take part in a news conference on March 14, 2007 following a procedural vote on Iraq. (Photo: Karen Bleier/AFP via Getty Images)
The spectacle of Kerry praising Biden as a seasoned leader amounts to one supporter of the Iraq catastrophe attesting to the character and experience of another supporter of the same catastrophe.
The FactCheck.org project at the Annenberg Public Policy Center has pointed out: "Kerry agreed that Saddam Hussein had weapons of mass destruction and should be overthrown, and defended his war authorization vote more than once – including saying in a May 2003 debate that Bush made the ‘right decision to disarm Saddam Hussein.’ . . . Kerry also told reporters in August 2004 that he would have voted for the resolution even if he had known that the U.S. couldn’t find any weapons of mass destruction."
As for Biden, he can’t stop lying about his major role in pushing the war authorization through the Senate five months before the March 2003 invasion. During his current presidential campaign, more than 16 years after the invasion, Biden has continued efforts to conceal his pro-war role while refusing to admit that he was instrumental in making possible the massive carnage and devastation in Iraq.
Three months ago, during a debate on ABC, Biden claimed that he voted for the war resolution so it would be possible to get U.N. weapons inspectors into Iraq – saying that he wanted "to allow inspectors to go in to determine whether or not anything was being done with chemical weapons or nuclear weapons." But that’s totally backwards.
An explosion rocks Baghdad during air strikes March 21, 2003, via Reuters.
It was big news when the Iraqi government announced on September 16, 2002 – with a letter hand-delivered to UN Secretary General Kofi Annan – that it would allow the UN weapons inspectors back in "without conditions." The announcement was a full 25 days before Biden joined with virtually every Republican and most Democratic senators voting to approve the Iraq war resolution.
That resolution on October 11 couldn’t rationally be viewed as a tool for leverage so that the Iraqi government would (in Biden’s words) “allow inspectors to go in." Several weeks earlier, the Iraqi government had already agreed to allow inspectors to go in.
Biden keeps trying to wriggle out of culpability for the Iraq war. But he won’t be able to elude scrutiny so easily. In a mid-October debate, when Biden boasted that he has a record of getting things done, Bernie Sanders (who I actively support) made this response:
"Joe, you talked about working with Republicans and getting things done. But you know what you also got done? And I say this as a good friend. You got the disastrous war in Iraq done."
Indeed, Biden – as chair of the Senate Foreign Relations Committee – presided over one-sided hearings that greased the war-machine wheels to carry the war resolution forward. He was the single most pivotal Senate Democrat for getting the Iraq invasion done. While sometimes grumbling about President George W. Bush’s diplomatic performance along the way, Biden backed the invasion with enthusiasm.
Now, dazzled by Kerry’s endorsement of Biden, mainstream news outlets are calling it a major boost. Media hype is predictable as Kerry teams up with Biden on the campaign trail.
"The Kerry endorsement is among Mr. Biden’s most significant to date," the New York Times reports. "His support provides Mr. Biden the backing of the Democratic Party’s 2004 presidential nominee and a past winner of the Iowa caucuses." Kerry praised Biden to the skies, declaring that "I believe Joe Biden is the president our country desperately needs right now, not because I’ve known Joe so long, but because I know Joe so well."
This year, many progressives have become accustomed to rolling their eyes at the mention of Biden’s name. A facile assumption is that his campaign will self-destruct. But that may be wishful thinking.
The former vice president has powerful backers in corporate media, wealthy circles and the Democratic Party establishment. Deceitful and hidebound as he is, Joe Biden stands a good chance of becoming the party’s nominee – unless his actual record, including support for the Iraq war, catches up with him.
Tyler Durden Sat, 12/07/2019 - 16:00 Tags Politics War ConflictIsrael Conducted Nuclear Missile Test "Aimed At Iran": FM Zarif
Iran is crying foul after Israeli's Defense Ministry confirmed a major test of a mystery new "rocket propulsion system" on Friday morning.
“The defense establishment conducted a launch test a few minutes ago of a rocket propulsion system from a base in the center of the country,” the ministry said. “The test was scheduled in advance and was carried out as planned.”
Giving no further details, international reports were rife with speculation over the nature of the rocket, with many saying it was a nuclear-capable ballistic missile. This was enough for Iran's Foreign Minister Mohammad Javad Zarif to go off, saying in a statement posted to Titter: “Israel today tested a nuke-missile, aimed at Iran.”
Israel today tested a nuke-missile, aimed at Iran. E3 & US never complain about the only nuclear arsenal in West Asia—armed with missiles actually DESIGNED to be capable of carrying nukes—but has fits of apoplexy over our conventional & defensive ones. https://t.co/r4EqXkhcCN
— Javad Zarif (@JZarif) December 6, 2019 https://platform.twitter.com/widgets.jsAnd he further complained that the West looks the other way when it comes to “about the only nuclear arsenal in West Asia,” but that it “has fits of apoplexy over our conventional defensive [rockets].”
The mystery Israeli test was significant enough to require the temporary diversion of all inbound flights to Tel Aviv's Ben Gurion Airport.
Israeli media publications also considered the possibility that it was a ballistic missile test, likely nuclear warhead capable surface-to-surface Jericho system, an intercontinental ballistic missile which according to foreign reports can support a nuclear payload.
It comes at a tense time in the region following Israeli airstrikes on Syria and even Iraq, against what the IDF alleges were 'Iranian targets'. According to the Times of Israel:
Israel does not publicly acknowledge having ballistic missiles in its arsenals, though according to foreign reports, the Jewish state possesses a nuclear-capable variety known as the Jericho that has a multi-stage engine, a 5,000-kilometer range and is capable of carrying a 1,000-kilogram warhead.
And according to a Avi Scharf, the editor of the English version of Haaretz newspaper, the missile test may have had a flight trajectory deep into the Mediterranean, as far West as past the island of Crete.
To track and handle it all, IAI telemetry plane + at least two Israeli AF g550 aewc/shavit spyplanes + hercs flew all the way out past Crete pic.twitter.com/s9VyBQLVKJ
— avi scharf (@avischarf) December 6, 2019 https://platform.twitter.com/widgets.jsTehran officials, while complaining about the provocative rocket test which they claimed was an ICBM, vowed they are still “determined to resolutely continue its activities related to ballistic missiles and space launch vehicles.”
Israeli residents captured part of the rare launch on video:
#Israel #IDF a effectué un essai du système de propulsion de missiles depuis la base aérienne de Palmachim, au sud de #TelAviv, en ce matin du 6 décembre 2019. Le test a été pré-planifié et réalisé comme prévu.#Tsahal pic.twitter.com/TFOg8PPAIc
— Rebecca Rambar (@RebeccaRambar) December 6, 2019 https://platform.twitter.com/widgets.jsWashington has repeatedly condemned similar Iranian launches, even while the program is not formally banned under the 2015 JCPOA, and has leveled sanctions targeting the Islamic Republic's ability to produce advanced missiles.
Tyler Durden Sat, 12/07/2019 - 15:30 Tags Politics War ConflictMacro Hive: "When We Fall Back Into A Recession And Real QE Returns, Watch Out"
Submitted by George Goncalves of MacroHive; Goerge is a twenty years fixed income markets veteran. Over that time he has covered rates, structured products and credit. He worked both on the buy-side and sell-side.
Fed’s Challenge To Administer Liquidity Into Year-End And Beyond
Even with hundreds of billions of dollars in new liquidity created out of thin air, it’s too soon for the Fed to signal a clear coast for repo markets. On the one hand, through heavy liquidity dosages the Fed has doused the fire; but on the other hand, we do not know if that dosage was too much or too little. The true test still lies in the weeks around year-end.
Fed Fears the Worst
The Fed has not idled in wait of potential new flare-ups. Since our last update on Fed policy dynamics, it has rolled out more repo operations and added 42-day calendar repos to help provide funding over the year-end turn. These operations have seen nearly double the amount of submissions versus the offering size of $25bn each. This demonstrates that primary dealers aren’t taking any chances either.
In addition to daily and term repo operations, the Fed has purchased over $100bn T-bills for its SOMA portfolio since October. These so-called ‘not QE’ asset purchases, along with the repo operations, have led to the Fed’s balance-sheet growing at a faster clip than that experienced in the first twelve weeks of QE2 and QE3 (Chart 1). Luckily it’s not QE though, right?
If that’s true, we come to our primary question: what comes next in 2020? But before we brainstorm that and the implications thereof, we should take stock of what has changed in the key Fed balance sheet categories.
Source: St Louis FRED and Macro Hive
The Balance Sheet Changes Since September
As of November’s last week, the Fed’s balance sheet has grown in size by nearly $300bn since the repo flare-up. This speed goes to prove a concept well known in the marketplace: the Fed tightens slowly and eases quickly. In less than three months the Fed unwound basically half of QT.
The Fed has imperfect control over its liabilities, so investors should never assume a one-for-one relationship exists between asset purchases and the expansion of excess reserves. For starters, currency in circulation has been on cruise control since the financial crisis (rising at ~6% a year). But it’s the non-reserve items, foreign central bank (FCB) reverse repos, and Treasury general account (TGA) that make it challenging to predict reserve trends.
Source: St Louis FRED and Macro Hive
As seen above (Chart 2), total reserves have increased. But the TGA grew much more in total (in fact, the first week post 9/11 was the week that led to the reserve shortfall/repo spike as TGA expanded). It’s as if most of the Fed repos since that period indirectly provided short-term cash to the Treasury as dealers are able to purchase more USTs and ‘temporarily’ fund them with the Fed.
Now, it’s not that simple and there is overlap with the T-bill purchases which are producing more permanent excess reserves. Nonetheless, the amount of Fed repos nearly matches the growth in TGA. If the Fed had not expanded, its balance sheet there would have been more reserve draining because UST issuance would have mopped up cash needed to restock the TGA. Meanwhile, FCBs have pulled some money from the Fed and are providing relief by reducing their F-RRP allocation.
Source: St Louis FRED and Macro Hive
The Hand-off From Repo to ‘Not QE’ Reserve Growth
The effective Fed funds rate is back under control as are repo rates for the most part. That said, there is the occasional drift up in rates and the year-end turn is trading hundreds of basis points above the Fed target. The rest of this month could still see further pressures build as dealers pull back balance sheet usage and shy away from Fed term repos. Dealers will also aim to run a tight ship and will likely operate one day at a time in December.
But here is the tricky part (and another example of falling into a false sense of security). Clearly with the Fed on notice and providing a laddered safety net of repo liquidity, this year-end should theoretically be better than last year. And once we turn the calendar into 2020, commercial banks should start to open up their balance sheets and so Fed’s repo should decline as well.
The 2020 Path
So back to our main concern: 2020. Assuming there isn’t something more nefarious going on in the banking system by some point in early next year, Fed repo assets should decline in size. That said, the handoff from temporary liquidity to ‘not QE’ T-bill purchases may end up being more abrupt than risk markets are comfortable with.
Case in point: as seen in Chart 3, in the months after the initial spike due to Lehman, some of the Fed’s temporary liquidity programs started to see less usage as the panic subsided. This led to actual reserve declines as QE1 took some time to replace them. On a smaller scale, there is risk of a similar sort of repeat in 1H20. For example, if repo usage dropped to normal levels (i.e. as they were used pre-crisis), repo assets at the Fed could drop by over $200 bn (it would take over 3 months to replace those reserves via T-bill purchases).
Curve Could Steepen
Further complicating matters, if the Fed only buys T-bills they may end up enriching enough to encourage money market funds to start using the RRP again (which would drain reserves from banks). If that were to occur, the Fed would likely need to start buying out the curve and buy less T-bills (maybe via a curve control process through 5s). At that point they would need to stop their line that their purchases are “not-QE” (it would clearly be QE). This would favour staying with steepeners outright and/or on a forward basis as the front part of the curve (eg 2ys) would start to get depressed by this QE.
One way the Fed could avoid having to morph the T-bill purchases into outright QE would be to figure out how to launch a standing repo facility soon. This would be akin to ‘QE on demand’ but more so for reserve expansion for banks whenever they actually need it. All of these moving parts highlight how difficult it becomes for a central bank that is increasingly active on providing cash and collateral to the marketplace.
Bottom Line: This all feels very technical but, unfortunately, it’s the world we live in since the Fed needs to provide reserves in ample supply to keep using the floor system to set rate policy. If and when we fall back into a recession and real QE returns, watch out. In many ways that is what risk markets are yearning for: forward expectations of QE. Meanwhile, as we wait the risk is that the Fed’s balance sheet can actually temporarily shrink before growing (slowly via the T-bill purchases). Such a scenario is not priced into most asset classes.
Tyler Durden Sat, 12/07/2019 - 15:05 Tags Business Finance
![Manufactures Are Coming Back To The US, [CB] Tries To Push Against The Plan - Episode 2039a](https://i1.ytimg.com/vi/TVpuwhIyfGI/hqdefault.jpg)
