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When You Get An Email Like This From The Fed, It May Be Time To Panic

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(Zero Hedge) Yesterday, in a lengthy article referencing the ongoing dollar and funding liquidity collapse as a result of the aggressive rebuild of the Treasury’s cash balance from $133BN to $350BN in the aftermath of the debt ceiling deal, we said “Forget China, The Fed Has A Much Bigger Problem On Its Hands.”

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Source – Zero Hedge

by Staff Writer, August 7th, 2019

As we explained in detail, the main reason why the Fed should be concerned, is that according to a research report from BofA’s Marc Cabana which we used extensively in the report, the Fed may be forced to launch Quantitative Easing as soon as Q4 to provide the market with the much needed liquidity, or else suffer the consequences of a major liquidity shortage. To wit, in describing the various steps the Fed can engage in, this is what the BofA strategist said:

Outright QE: after OMO dealer capacity is exhausted the Fed may need to start permanently expanding its balance sheet. The Fed would likely describe this as offsetting “bank reserve demand and growth in other non-reserve liabilities”. Regardless, it would represent the Fed permanently buying USTs outright to maintain control of funding markets well above the ZLB.

Well, it appears that the Fed paid attention, because moments ago we received an email from a Federal Reserve researcher which should make everyone very, very nervous. Specifically, the “rather urgent request” from a Fed staffer (no, not Edward Quince) seeks the full Cabana report whose gist, as noted above, is that the Fed will have to launch QE4 in very short notice to offset the upcoming liquidity drain.

Buy Book The Death of Money: The Coming Collapse of the International Monetary System

Incidentally, this was our conclusion to our Tuesday article (which for those who missed it can be found here):

For what it’s worth, Bank of America believes “the Fed will need to step in to offset these funding market pressures through outright balance-sheet expansion or QE, potentially in 4Q.” And while the Fed could get ahead of these issues by laying out a framework around money market control before greater criticisms and questions emerge about the independence of monetary/fiscal policies or the path to MMT, it won’t do that, and instead it will wait for another, even greater “Lehman-like” crash to float the idea of imminent QE… which is precisely what Nomura warned about earlier in the day..

Based on the Fed’s email, we wonder if it means the Fed is now seriously contemplating following through on Cabana’s recommendation, and if so, does the market crash first, or is it about to price in QE4 and soar. We expect to find out very soon.

Stillness in the Storm Editor: Why did we post this?

The preceding information is a news update. In general, staying informed as to events taking place is essential as an individual because it helps you navigate the world, and socially because you can gain and maintain rapport with your fellows. This rapport can be used to share information that can help others and improve the conditions of humanity in general. However, one must learn how to exercise discernment and proper critical thinking so they can make effective use of information gained.

– Justin

Not sure how to make sense of this? Want to learn how to discern like a pro? Read this essential guide to discernment, analysis of claims, and understanding the truth in a world of deception: 4 Key Steps of Discernment – Advanced Truth-Seeking Tools.

Stillness in the Storm Editor’s note: Did you find a spelling error or grammar mistake? Send an email to [email protected], with the error and suggested correction, along with the headline and url. Do you think this article needs an update? Or do you just have some feedback? Send us an email at [email protected]. Thank you for reading.

Source:

https://www.zerohedge.com/news/2019-08-07/when-you-get-email-fed-it-may-be-time-panic

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