11 Comments
Dec 4, 2023Liked by FX Hedge

You've explained that better than anyone else. So do you believe this rebalancing will eventually put us in a recession in later 2024.

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I think that when the reverse repos are empty, then the Fed will be forced to let the Repo account amounts go higher (trillions of $$$ per year) to fund the US govt deficits. Otherwise interest rates go much higher to attract private capital. The Fed and Congress and Biden don't want that. The US govt can't really afford higher rates, 5% is bad enough with $34 trillion in debt.

If the Fed cuts rates in 2024 due to recession, then they need to also do QE infinity to buy bonds. So expect Fed balance sheet to soar over $10 trillion. Someone has to buy the bonds from the US govt. China and many other countries are divesting from US Treasury debt.

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Dec 4, 2023Liked by FX Hedge

Dumb question, but do you think we will ever return to sanity, or just keep kicking the can down the road?

Bernanke (& Yellen) should one day be held accountable instead of winning prizes and huge speaking fees.

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I don't think Republicans and Democrats can cut spending. Too many sacred programs are untouchable, such as Medicare and Social Security and Defense spending.

This doesn't get fixed until we have an economic collapse, US dollar collapse ... then maybe we have some smart people fix things on the other side of it all. We will probably live thru it in the next 5 to 30 years. No telling when it breaks exactly.

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Dec 3, 2023Liked by FX Hedge

Lovely

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Yes it is.

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Dec 3, 2023Liked by FX Hedge

Great analysis!

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Thank you

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Is this change related to Larry Fink’s “going direct”?

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The "going direct" is a way to get money into the real economy.

Reverse Repos were used by the Fed to soak up and sterilize $$$ out of the economy. Get banks to park the dollars at the Fed and collect interest payments. Now that US Treasuries (short term) are paying higher yields than the Fed, all of the reverse repo money (it peaked at $2.8 trillion) is flowing into funding the govt deficits.

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Great Analysis by explaining the concept in very simple and understandable manner.

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