Sunday, June 11, 2017

Extraordinary Measures


Mike's got Fed Funds and Reverse Repos way up since March 15th due to this as govt can continue spending while not able to offset that spending with net additional UST issuance; crowding out other output financing forms of Bank Credit.

The Reverse Repos probably preventing a complete rate collapse at the short end ("natural rate zero" yada yada) meanwhile further out the 10-yr yield is making 6 month lows and mortgages are at 7 month lows rates are collapsing...

Gotta get that debt ceiling raised pronto...  If they have to do "the coin" and provision the TGA with $1T; as that TGA balance is drawn down it will have the same bearish effect as these "extraordinary measures" if Trump does not significantly increase the leading fiscal flows at the same time which does not look likely...




17 comments:

William Wallace said...

https://www.youtube.com/watch?v=Zj4XsJNdxhQ Matt, I work with Microsoft and we have a local guru named Jaron Lanier. He sold some companies to Enron, and talks about LTCM. He mentions that we are descending into a perilous time in our financial system and elaborates on his books on the topic in this video. I remember back at warren's board someone was talking a coin (scott f?) Can't recall. Rickards in an interview said he had a talk with timmy g and that tim told him they could backstop it all with guarantees that no one could refuse. I keep emailing warren about currency revulsion and bringing up the race into cryptocurrencies as exchanging gold coins is not practical. A colleague has told me a new cryptocoin based on POT (yes marijuana) is on his radar. Thanks for the article.

MRW said...

Matt, I wish I could understand what you're saying. All the run-on sentences are mush to me. You think you could try the time-honored "one idea per sentence" rule? It's the basis of clear writing, which after all is simply clear thinking.

Matt Franko said...

MRW at the ceiling they cannot issue any addtional amounts of Treasury securities, Treasury issuance is a reserve drain, not borrowing, in order to keep rates from going down below the policy rate (MMT 101) ... so if govt, via 'extraordinary measures' continues to withdraw at a rate greater than deposits, and they are at ceiling, then reserve balances cannot be drained as usual so these forms of assets start to accumulate on banks left hand side.... imo short term these assets can "crowd out" other output financing forms of bank assets like auto loans, inventory loans, construction loans, etc...

This debt ceiling thing is not helpful and mildly bearish from both a direct fiscal (govt slows down spending a bit) and bank credit (banks have to accommodate a short term increase in "monetary" type assets) perspective...

this may go on into August...

Congress is probably just looking at the stock indexes at all time highs and could care less what the rest of us have to deal with....

MRW said...

Thanks. Much clearer.

I hadn't realized that "at the ceiling they cannot issue any addtional amounts of Treasury securities."

I thought the reserve add, which of course occurs before (MMT 101), sparked or generated the US Treasury issuance of treasury securities to mop them up.

MRW said...

I thought the debt ceiling was to control (as it was once) the total allowed amount of “national debt.” And it stops Congress from issuing any spending (reserve add). And I thought it was about treasury securities issued to fulfill contracts and other obligations already incurred by the government, like the annual interest on treasury securities outstanding for one thing.

Of course, it obviously doesn’t affect the Government Securities (the motherlode) in Table III-A of the Daily Treasury Statement. Or does it?

Matt Franko said...

Yes I think it freezes that number at the ceiling

MRW said...

William Wallace,

I remember back at warren's board someone was talking a coin (scott f?)

I think it was a guy with the handle JHK.

And whoever it was was referring to a 1996 law that gave the Secretary of the Treasury the right to coin a platinum coin with the declared value of $1 trillion (or higher) without requiring Congress’s approval.

MRW said...

Matt,

Yes I think it freezes that number at the ceiling

Well, as of last Thursday, the total Government Account Series treasuries issued so far in fiscal 2017 was $57.8 trillion, way in excess of any debt ceiling. Of course, they are “Nonmarketable.” Table III-A (pg 2 of 2)
https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=17060800.pdf

Matt Franko said...

Oh OK yes they can redeem and re-issue but the total amount issued cannot exceed the ceiling

Neil Wilson said...

"imo short term these assets can "crowd out" other output financing forms of bank assets like auto loans, inventory loans, construction loans"

It can't. But it can change the prices on the loans. To see any effect you'd have to see loan rates going up to choke off demand.

Always remember that loans take a while to complete. That sales pipeline (and the percentage completion rates) informs the bank Treasury department who starts getting all the liability side ducks in a row for when completion (and the actual money transfer) takes place.



Matt Franko said...

"It can't. But it can change the prices on the loans. "

That might be a better way to describe it....

Matt Franko said...

"To see any effect you'd have to see loan rates going up to choke off demand."

We're seeing the opposite rates seem to be falling so like you say the value of those loan assets at lower rates is less than otherwise ...

If we consider system capital effectively fixed short term, the prices of the loan assets have to come down...

Tom Hickey said...

I remember back at warren's board someone was talking a coin (scott f?)

I think it was a guy with the handle JHK.

And whoever it was was referring to a 1996 law that gave the Secretary of the Treasury the right to coin a platinum coin with the declared value of $1 trillion (or higher) without requiring Congress’s approval.


Credit where credit is due. It was beowulf.

I believe that Ellen Brown was the first to surface the idea.

MRW said...

Ah! beowolf. Yes.

Here's another FYI. Co-author of platinum coin law weighs in on trillion dollar coin
http://www.dailykos.com/story/2013/01/08/1177211/-Co-author-of-…_medium=feed&utm_campaign=Feed%3A+dailykos%2Findex+

MRW said...

What the co-author of the platinum coin law writes flies in the face of a lot of claims by pundits at the time.

Matt Franko said...

If they have to do the coin it might lead to some chaos as it might lead to a unplanned and substantial increase in reserve assets as the USDs are withdrawn from the Treasury account with no increase in debt ceiling...

If the additional $1t ended up saved in bank accounts system would probably need 100b in addl capital to accommodate it...

The Rombach Report said...

The debt ceiling is a fake issue and does not necessarily have to be raised. $2.4 trillion of treasury securities held by the Fed from QE1,2,&3 asset purchase is debt that the government owes itself. The Treasury and Fed could agree to declare that debt null and void, which would bring outstanding debt down to around $17.6 trillion, well below the $19.9 trillion ceiling level. Crisis solved! Moreover, it would be a learning experience for law makers, economists, financial markets, and as much the general public that pays attention to these things.