Royal Bank of Scotland to investors: 'Sell everything'

President Trump: The NEW one and only politics thread

I posted this on the politics thread on Thursday. ... it's long, sorry, and nobody on here really cares. It doesn't lend itself to quick message board posts. It's significant, and it may or may not be a huge deal. It probably is, but what specifically it is telling us may not be apparent for a while. There is a debt crisis on the horizon and where it first rears its head when the Fed no longer has control, is probably hidden within what is happening in the repo market right now.

Since I posted the link above, they announced that that they are going to continue repo operations (basically doing Soviet style intervention with money they create out of thin air in the overnight lending markets) until at least October 10th.

The last 11 years, central banks have destroyed all price discovery in our debt markets trying to prop up the mess they had created in the first place that came crashing down with the financial crisis. They put off having to deal with the reality, by answering a debt crisis with a magnitude more debt that required VERY radical things. Most people remained clueless, but what they have done is going to have ramifications for decades.

Everyone assumes the Fed (or the ECB or the BOJ, etc.) controls interest rates. They don't. They can influence them by doing radical things that subvert the debt markets (anwhichd take those markets from free markets to markets being administered by a sort of politburo). Since the advent of our central bank in the 1910s, their ability to influence at least the short end of the yield curve (to keep overnight rates exactly where they want) was pretty absolute, because they MOSTLY allowed the debt markets to operate freely, and they were using power nobody else has (the equivalent of a printing press) to nudge things.

Over the last several decades, and particularly since 2008, they have completely destroyed those markets, and as they have gotten more and more hamhanded about trying to administer those markets instead of influencing them, they have created a self-fulfilling prophecy. They have now lost control -- really over the last few years. There is no honest price discovery, and as a result, there is no real liquidity. The biggest buyer -- sort of the world's worst hedge fund, because by definition it overpays for assets -- is the trading desk at the New York Fed (which is doing the work in that story you linked to.

The debt markets are hostage now to permanent intervention, which is driving higher and higher debt levels. Lenders can't assess real risk, because the object is to create more and more debt. So you see it all over the place, for example, the IPO market right now with dogshit companies that are losing millions of dollars a day being valued at 10s of billions of dollars and being able to borrow cheaply.

The purpose for the central banks is to keep rates from going higher (where market participants assessing lending risk and economic conditions would take it) because higher rates mean that the fantasy we have been living ends, there is a credit crisis (with lots of defaults on all of the mispriced debt they have created), our government can't keep running higher and higher debt levels, etc.

The Fed is not going to step away willingly. It haltingly tried to last year with a small rate hiking cycle, the ending of reinvesting on expiring bonds they have bought during their rounds of quantitative easing. And what happened was the global economy buckled, the stock market (which is pinned in bubble territory) started to sell off violently. ... and they reversed course.

So it is going to end with chaos, unfortunately, sort of like 2007/08, except what they have created worldwide (the ECB and BOJ are in cahoots) has created a much weaker economy over the last decade that has grown anemically, and the debt levels their "policies" enabled to kick the can down the road this far are way greater than they were in 2007 /08.

But to answer your actual question, I posted about it in the link above. ... the short-term funding market has frozen up, and even though the Fed has decreed that rates are supposed to be 1.75 percent to 2 percent, in reality those trying to borrow overnight were finding rates upward of 10 percent at times. Now the Fed is doing what it does -- fucking things up even more -- to try to enforce its decree about where lending rates should be.