The Economy

You may remember the Fed's discount window from 2008, even 2020, right before they went berzerk creating money and pumping it into markets. It's a source of short-term loans, where banks pledge collateral, usually tapped when there are liquidity problems.

Everyone has been in such a fantasy world for so long, and it's continuing with this hopium idea that they can normalize interest rates to any degree without all of the malinvestment on the mispriced debt they are responsible for over the last several decades creating financial instability. They have done very little in their inflation fight. Yes, they have raised their overnight rate a lot, fairly quickly. ... but off the back of such mispriced debt markets that rates are still very negative in real terms. If they are to really deal with inflation, rates have to go a ton higher. ... beyond the inflation rate. And they still haven't done anything to reduce their massive balance sheet from all of the asset purchases that they were using to keep yields down.

Financial conditions are still ridiculously loose. ... and we are seeing signs of stress everywhere, including apparently more deposit-taking banks being forced to avail themselves of the discount window.

We shouldn't be in this position, but we are a nation of idiots.

 

It's a prediction, not that it's actually going to happen.