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What's up with the Repo rate?

Discussions about the economic and financial ramifications of PEAK OIL

Re: What's up with the Repo rate?

Unread postby Revi » Fri 25 Oct 2019, 13:11:13

I started this thread to get some info on what's happening. I've been listening to a lot of sources and it's very interesting. Thanks! We'll see what's happening. At least we live in interesting times!
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Re: What's up with the Repo rate?

Unread postby Yoshua » Mon 28 Oct 2019, 12:00:49

Interest rates must fall...and the stock market must rise.

But it looks like LIBOR is breaking down. Banks simply won't lend their dollars at zero rates...not even below 1 percent (99 on the chart).

Only the Fed can lend at zero or negative rates.

The Repo spiked because the banks froze their lending? And that is why the Fed had to step in?

LIBOR is for the moment the center of the dollar universe. The Eurodollar (off shore dollar) market is a USD 30 Trillion market...without a central bank...

But in the end the Fed has to step in as the central bank of the world.

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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Mon 28 Oct 2019, 13:25:03

Yoshua wrote:
The Repo spiked because the banks froze their lending? And that is why the Fed had to step in?

Why not try READING some of the good articles various folks have posted here, where real economists discuss the situation? And maybe even learn something, instead of continuing to ask the same sort of questions, ad nauseam?
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby Revi » Tue 29 Oct 2019, 07:16:37

Outcast_Searcher wrote:
Yoshua wrote:
The Repo spiked because the banks froze their lending? And that is why the Fed had to step in?

Why not try READING some of the good articles various folks have posted here, where real economists discuss the situation? And maybe even learn something, instead of continuing to ask the same sort of questions, ad nauseam?

Great lecture Professor Outcast!
We're all trying to figure it out.

I noticed that the Fed is expected to lower interest rates again.

They are throwing all their firepower at the situation.

They must think something is going on.
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Re: What's up with the Repo rate?

Unread postby StarvingLion » Tue 29 Oct 2019, 11:27:15

They must think something is going on.


The Chinese Shadow "Banking" is all fake money.
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Re: What's up with the Repo rate?

Unread postby Revi » Tue 29 Oct 2019, 12:46:31

Well I guess the crisis is over. Here's an article that explains it all in language that I really don't understand.

I guess they decided to loosen capital requirements for the big bank, and that solved it... From the article below:

"Incidentally, the only hope that the Treasury will prevent this major regulatory overhaul, is Democratic presidential candidate Elizabeth Warren, who last week waded into the debate around last month’s repo turmoil, warning Mnuchin not to use the incident as a rationale for weakening post-crisis regulations. Ironically, just a few days later, that’s precisely what Mnuchin is doing."

https://www.silverdoctors.com/headlines ... gulations/
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Re: What's up with the Repo rate?

Unread postby Yoshua » Tue 29 Oct 2019, 13:20:52

So what basically caused the Repo to spike was that the banks had burned through half of their reserves that the Fed had created for the banks after the financial crisis.

The banks couldn't use the remaining reserves due to regulations imposed after the last crisis. The remaining reserves are ment to protect the banks in the event of financial crisis.
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Re: What's up with the Repo rate?

Unread postby Yoshua » Tue 29 Oct 2019, 13:32:11

But why have the banks burned through the reserves they had access to?

There's a black hole somewhere in the economy. That black hole is right in front of our eyes: the government debt is growing faster than the GDP.

The Fed will now build up those bank reserves again by buying all those treasuries that the banks hold on their balance sheets.

The Fed will monetize the government debt.
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Tue 29 Oct 2019, 14:02:07

Revi wrote:I noticed that the Fed is expected to lower interest rates again.

They are throwing all their firepower at the situation.

They must think something is going on.

Well, you repeatedly submitting "articles" from the same PM pusher (Silver Doctors) isn't likely to tell us much, IMO.

But hey, if you want to claim roughly $100 billion a month in balance sheet expansion is "all their firepower", have at it. Especially after the balance sheet was previously reduced by several times the recent increased amount, as I showed upthread.

Meanwhile, I notice your latest article from the PM pusher spends a lot of time claiming a handful of symmetrically important banks (SIB's) have something really new and meaningful going on in 2Q'19, and for their proof, they show a chart showing that the GSIB surcharges are essentially the same as they have been for the last six quarters. :roll:

Wow, now I KNOW I need to hide under the bed AND buy tons of gold and silver. 8)

Meanwhile, the cries of imminent doom re hyperinflation by early November re the "experts" in articles from such sources (and of course, Youtube videos favored by the likes of armageddon) turn out to be utter nonsense, and as usual, the consequences are -- more reset, claim new imminent doom, and hope everyone forgets yet another nonsensical call.

...

It would be a lot less drama just to look at meaningful sources like the Fed itself, but of course, that's no fun re spreading FUD.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby Outcast_Searcher » Tue 29 Oct 2019, 14:06:38

Yoshua wrote:But why have the banks burned through the reserves they had access to?

There's a black hole somewhere in the economy. That black hole is right in front of our eyes: the government debt is growing faster than the GDP.

The Fed will now build up those bank reserves again by buying all those treasuries that the banks hold on their balance sheets.

The Fed will monetize the government debt.

In how many decades? And it has been doing so for at least 100 years, so what, spend your life freaking out? With inflation hanging out around 2% over the past decade, the markets clearly don't agree with in-your-face timing of high inflation.

But of course, your ilk knows more than all the markets, as demonstrated by your brilliant posts re economics, your predictions, etc. :roll:

But you're in great company. Armageddon worries about both subzero interest rates AND hyperinflation in the short run. He must have a pile of doctorates in economics to come to that conclusion. 8) Shorty is somewhere beyond Mars re his assertions and his logic and his facts on the subject.

So party on dude. A broken clock is right twice a day.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: What's up with the Repo rate?

Unread postby shortonoil » Tue 29 Oct 2019, 14:28:54

So what basically caused the Repo to spike was that the banks had burned through half of their reserves that the Fed had created for the banks after the financial crisis.


According to the FED the banks had $1.4 trillion in excess reserves last year. This year half of it disappears? Who got the $700 billion in spare change? Maybe the Russians, or the Trade War got it? This sounds like Pentagon bookkeeping! Now what happens to the second, and last $700 billion? Has the monetary Black Hole that sucked up that first $700 billion, in one year, been located?

This will never, never come up again; OK, sure, what ever you say. The FED is terrified of sputtering the wrong couple of words, and starting a depression. "General World Wide Lack of Liquidity" could do it. As par the course, nothing has been fixed.
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Re: What's up with the Repo rate?

Unread postby Yoshua » Tue 29 Oct 2019, 16:38:57

The reserves that the banks held at the Fed were USD 2.8 Trillion when the Fed ended QE3.

Those reserves started to decline the moment the Fed ended its QE program and are now a USD 1.4 Trillion.

The reserves have been declining for some reason. And for some reason the banks stopped lending to each others which caused the Repo to spike.
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Re: What's up with the Repo rate?

Unread postby rockdoc123 » Tue 29 Oct 2019, 19:59:31

The reserves have been declining for some reason.


I believed the Fed announced way back when they were going through a phase of tightening the intent of which is to keep inflation in check. This is what Trump was complaining about (ie. rising interest rates not being kept lower) as he felt the Fed was overestimating how much inflationary pressure there was.

Apparently, they were too aggressive and needed to increase the money supply to some level where they are happy.
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Re: What's up with the Repo rate?

Unread postby Yoshua » Wed 30 Oct 2019, 05:06:10

The banks seems to have lost the power over the price of money (interest rates).

If I owe the bank USD 1000 then the bank owns me.
But if I own the bank USD 1 Trillion then I own the bank.

The global economy owns the banks USD 240 Trillion. If the banks don't keep lowering rates, then the global economy defaults and brings the banks down.

When the banks lose the ability to pump in more money at ever lower rates, then the central banks moves in and starts pumping in money.

The banks and central banks are now slaves to their master...the economy.
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Re: What's up with the Repo rate?

Unread postby rockdoc123 » Wed 30 Oct 2019, 10:29:28

The global economy owns the banks USD 240 Trillion. If the banks don't keep lowering rates, then the global economy defaults and brings the banks down.


please show us which large economies in the world are at risk of defaulting on interest payments and maturities at current rates. As I've mentioned a number of times the carrying costs on US debt make up less than 10% of it's annual budget, meaning they have zero problem at these rates meeting payments.
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Re: What's up with the Repo rate?

Unread postby GHung » Wed 30 Oct 2019, 11:19:11

rockdoc123 wrote:
The global economy owns the banks USD 240 Trillion. If the banks don't keep lowering rates, then the global economy defaults and brings the banks down.


please show us which large economies in the world are at risk of defaulting on interest payments and maturities at current rates. As I've mentioned a number of times the carrying costs on US debt make up less than 10% of it's annual budget, meaning they have zero problem at these rates meeting payments.


Yep. And let's conveniently skip the part where, at the currently low (negative?) interest rates, the average saver and things like pension funds have a big problem growing their wealth in order to meet their expected returns and obligations. OH,,,, maybe they can all invest in oil prospects, eh?
Funny how a bit of cherry picking various economic sectors can put a good spin on what is really a conundrum, especially by those who display the hubris of their own perceived wealth. No point in having any concern for those whose fortunes aren't as 'fortunate' as yours. Right doc? Or those who haven't even yet entered this economy that is basically fucked, long-term.
Trump is desperate to get interest rates down, down, down, so the debt he's creating to maintain his tax cuts can be, as you imply, "serviced".

The Coming Pension Crisis Is So Big That It's A Problem For Everyone
https://www.forbes.com/sites/johnmauldi ... e598f37fc5

" .......... We have multiple parties fighting over pieces of the same pie, all hoping that Uncle Sam will step in and save them. Uncle Sam may well do it, too, but it won’t remove the pain.

It will just redistribute the burden, perhaps more widely, but the aggregate amount won’t change.

I see this leading to some kind of Japan-like deflationary recession or debt monetization. If we’re lucky, it will be mild and long. It won’t be fun but the alternatives would be worse.


Maybe you're old enough that you can hope your wealth doesn't get redistributed (bailed in), and don't give a shit what kind of mess we leave behind. Me? I care.
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Re: What's up with the Repo rate?

Unread postby Armageddon » Wed 30 Oct 2019, 11:23:21

GHung wrote:
rockdoc123 wrote:
The global economy owns the banks USD 240 Trillion. If the banks don't keep lowering rates, then the global economy defaults and brings the banks down.


please show us which large economies in the world are at risk of defaulting on interest payments and maturities at current rates. As I've mentioned a number of times the carrying costs on US debt make up less than 10% of it's annual budget, meaning they have zero problem at these rates meeting payments.


Yep. And let's conveniently skip the part where, at the currently low (negative?) interest rates, the average saver and things like pension funds have a big problem growing their wealth in order to meet their expected returns and obligations. OH,,,, maybe they can all invest in oil prospects, eh?
Funny how a bit of cherry picking various economic sectors can put a good spin on what is really a conundrum, especially by those who display the hubris of their own perceived wealth. No point in having any concern for those whose fortunes aren't as 'fortunate' as yours. Right doc? Or those who haven't even yet entered this economy that is basically fucked, long-term.
Trump is desperate to get interest rates down, down, down, so the debt he's creating to maintain his tax cuts can be, as you imply, "serviced".

The Coming Pension Crisis Is So Big That It's A Problem For Everyone
https://www.forbes.com/sites/johnmauldi ... e598f37fc5

" .......... We have multiple parties fighting over pieces of the same pie, all hoping that Uncle Sam will step in and save them. Uncle Sam may well do it, too, but it won’t remove the pain.

It will just redistribute the burden, perhaps more widely, but the aggregate amount won’t change.

I see this leading to some kind of Japan-like deflationary recession or debt monetization. If we’re lucky, it will be mild and long. It won’t be fun but the alternatives would be worse.


Maybe you're old enough that you can hope your wealth doesn't get redistributed (bailed in), and don't give a shit what kind of mess we leave behind. Me? I care.




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Re: What's up with the Repo rate?

Unread postby rockdoc123 » Wed 30 Oct 2019, 12:21:41

Yep. And let's conveniently skip the part where, at the currently low (negative?) interest rates, the average saver and things like pension funds have a big problem growing their wealth in order to meet their expected returns and obligations. OH,,,, maybe they can all invest in oil prospects, eh?
Funny how a bit of cherry picking various economic sectors can put a good spin on what is really a conundrum, especially by those who display the hubris of their own perceived wealth. No point in having any concern for those whose fortunes aren't as 'fortunate' as yours. Right doc? Or those who haven't even yet entered this economy that is basically fucked, long-term.
Trump is desperate to get interest rates down, down, down, so the debt he's creating to maintain his tax cuts can be, as you imply, "serviced".


the reference here wasn't to personal debt it was to global government debt which are two separate animals. The US government has no problem meeting its debt obligations currently nor do most countries which was why I asked the question which countries were at risk of default. But apparently since you didn't understand the conversation you wanted to change topics. :roll:
To that end personal debt is just that...debt taken on by individuals and it's is their choice. Unlike corporate debt or country debt it isn't taken on to service a large group of people, just an individual or his/her immediate family. If you buy more than you can afford then you will have a problem.
But generally in the US this in not a problem as these two charts which I've posted before demonstrate:

Image

Image

Not sure why you would want to bring up my own debt situation as I have none, haven't had any for a couple of decades. I buy what I need and what I can afford. If everyone did that they wouldn't have a problem either.

You also don't seem to understand what motivates billionaires like Trump to want lower tax rates. As an example it isn't unheard of for the very wealthy to get long term loans at rates well below prime. Let's say, for instance that a billionaire takes out a $10 MM loan over a 30 year period and gets a rate of 2.0% (probably could have done better with the right bank). The bank is happy as this amount is inconsequential to the individuals total net worth and obviously there is no worry of him paying it off...essentially zero risk. He takes that $10 MM and invests in the market to get an annual return of 4% (easily done today without taking on much in the way of risk especially when you wind in dividends and equity). The result is he makes 2% on that 10 million right out of the gate or ~$200,000 at zero cost to himself.
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Re: What's up with the Repo rate?

Unread postby mousepad » Wed 30 Oct 2019, 12:29:34

rockdoc123 wrote:You also don't seem to understand what motivates billionaires like Trump to want lower tax rates. As an example it isn't unheard of for the very wealthy to get long term loans at rates well below prime. Let's say, for instance that a billionaire takes out a $10 MM loan over a 30 year period and gets a rate of 2.0% (probably could have done better with the right bank). The bank is happy as this amount is inconsequential to the individuals total net worth and obviously there is no worry of him paying it off...essentially zero risk. He takes that $10 MM and invests in the market to get an annual return of 4% (easily done today without taking on much in the way of risk especially when you wind in dividends and equity). The result is he makes 2% on that 10 million right out of the gate or ~$200,000 at zero cost to himself.


Why does the billionaire not take $10M of his own money to invest, instead of getting a loan?
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Re: What's up with the Repo rate?

Unread postby rockdoc123 » Wed 30 Oct 2019, 12:47:10

Why does the billionaire not take $10M of his own money to invest, instead of getting a loan?


It is called "using other peoples money". If you use your own money then you have lost opportunity costs of $10MM (i.e. that $10 MM could have been used somewhere else). It is obviously the case that said billionaire is investing his money all over the place...taking a loan out at a rate lower than what he can get by investing it just increases his overall leverage.
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