The Economy

Yellen Worries Over Loss of ‘Adequate Liquidity’ in Treasuries

Inspector Clouseau is on the case. ...

Think about it logically (like a 5 year old, to borrow from earlier).

We have had a central bank creating money out of thin air and using trillions upon trillions of dollars of it to buy up our government debt for a decade and ahalf. As a forced buyer, it has driven up the price and distorted the market for that debt, while destroying all price discovery that regulates a free market and prevents things like moral hazard. That has driven down yields (what they were trying to do), which has blown asset bubbles all around us and stoked consumer price inflation that is making people suffer. Perhaps the biggest of the bubbles it brought on has been in that government debt, because by keeping the cost of borrowing artificially low, it enabled our legislators, who could give two fucks, to keep running up more and more debt without interest on that debt swallowing us up (because it has been artificially suppressed).

But the fact that the inflation monster they unleashed with their stupidity is now forcing them to try to extricate themselves from the hole they dug, for the first time in a decade and a half, they have taken their foot a little off the scales of finance. And the result is now a mess. The market that they destroyed (U.S. Treasury debt) -- what has always been the safest, most liquid market in the world, with nothing coming close -- is showing increasing signs of illiquidity. The idea of this would have been unthinkable 20 years ago. Because prices were driven up so high by the forced buying by the central bank, now that the bubble is deflating nobody wants to serve as a market maker and take the opposite trade on the way down. So there are no buyers.

And of course the arsonist who was all behind it as Fed chair, and now treasury secretary, is acting like the fire warden who is on the case (and calling for more of the artificiality that caused it).

Something is going to break. Either they will try to deal with the monetary inflation problem they caused and accept the necessary credit crisis / nasty economic contraction, or they will completely reverse and do the same coward act we have seen over the last decade and a half. In which case, Americans get eaten up by runaway prices as they let inflation rage. ... or more likely, they will do more of the same Mr. Magoo act they have been doing for the last year and they will dither and watch as stagflation (the worst of both worlds) kills us.

This has been entirely predictable since Ben Bernanke started the madness after the financial crisis by addressing a credit crisis (that his central bank stoked in the first place) with reckless asset buying schemes to prop it up with escalating debt that is now hanging over the world like an albatross. The world is now overlevered beyond any bubble in history. We chose reckless stupidity instead and 99 percent of the population doesn't understand that these non-elected asswipes who are given the power to price fix the most important market there is (the cost of money) are the biggest threat to the country there is. It's not even close.

 

BTW, as recently as a two weeks ago, Yellen gave an interview in which she said, "We haven't seen liquidity problems develop in markets -- we're not seeing, to the best of my knowledge, the kind of delveraging that could signify some financial stability risks.

These questions were being asked because with funding costs rising in the wake of the Fed tightening, everyone was wondering what is going to break.

Of course anyone with eyes who is in those markets was already seeing liquidity drying up in the treasury market on the back of the Fed hikes and the first steps in it trying quantitative tightening.

Two days ago, in an interview with Sara Eisen on CNBC she said, "So while, you know, there is some concern about liquidity in markets, I don't think we've seen anything that rises to the level of a serious concern."

A slight change in her tune.

Yesterday? "We are worried about a loss of adequate liquidity in the market."

 

UK Officials Are Working on a U-Turn for Truss Tax-Cut Plan

Complete U-turn. There was a game of chicken going on between Andrew Bailey and Liz Truss, with the gilt and cable hanging the wind.

And it looks like she just blinked.

 

And. ... CPI print just now was hot yet again.

New Data Likely to Show Stubbornly Rising U.S. Prices



They don't get it. They need to attack the massive balance sheet they accumulated and remove the crack and heroin (and crash the economy) to deal with the addiction. Half-assed measures aren't going to deal with the problem they created.

 

The 30-year US Treasury Bond just briefly touched above 4 percent for the first time since. ... 2013, I believe.

The yield curve is still inverted (the 2-year note is above 4.5 percent), showing just how much of a mess the debt markets are.

 

Maybe this will help you.

https://www.cnbc.com/2022/10/13/soc...ent-in-2023-highest-increase-in-40-years.html

Of course those increased benefits rely on our government being able to keep borrowing and running up more and more debt in perpetuity to keep living the same old fantasy. And right now. ... Janet Yellen is worried about a loss of "adequate liquidity in the market" for that debt.

But I am sure a Fed repo facility can fix it all, the way she suggested. We can just print some more money to avoid dealing with the unfortunate reality we've saddled ourselves with. What's a little "inflation," even if it is making it so they have to do 8.7 percent COLA adjustments to Social Security?

We are witnessing the beginning of the end of what has been a multi-decade period of absolute fucking stupidity.