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2022-10-03 07:00 by Karl Denninger
in Federal Reserve , 4225 references
[Comments enabled]  

Today The Fed is holding an emergency meeting under "expedited procedures."

The actions to be considered are the discount and advance rate -- in other words, interest rates.

The rumored reason is that Credit Suisse may be in trouble -- specifically due to writing interest rate swaps, along with a number of other institutions which happens to include pension funds both in the UK and US, none of whom should ever be playing with levered instruments for the simple reason that leverage is everywhere and always speculative.

But of course they are because nobody has ever gone to prison for using leverage as a means to evade requiring the underlying organization to fund pensions adequately with actual money.  Why that would cause both firms and governments to have to behave responsibly and we can't have that.

This sort of act is a ridiculous violation of anything approaching fiduciary responsibility -- which is a legal obligation for pension managers, not a suggestion.  After all its not their money -- its the pensioners' money and they are charged with prudent management of same, which the use of leverage, especially leverage on a trend 40 years old that cannot reasonably go below zero, is the exact opposite of "prudent."

Of course the same is true for banks; they have fiduciary responsibilities too, including to the nation as a whole since they have a backstop through the government for depositors.  Nobody went to prison last time in 2008 for this crap either, did they?

Never mind that exiting those positions (including at a loss) was clearly prudent in the two years after the US government along with everyone else threw trillions in printed credit into the economy as a result of the pandemic.  Anyone with two IQ points to rub together had to expect that to reflect back into inflation and thus higher rates, never mind that its insane to expect that time has no value which is what a "zero rate" policy claims.

Now add to it that the economic report from Friday showed higher core inflation than The Fed and everyone else expected -- not lower.  In other words the bad news continued, and therefore the only logical "emergency" act is to withdraw even more credit from the system.

And if you want a cherry on top of the stupid, look at market interest rates right now compared with Fed Funds.

But you know damn well that's not what they're considering today.  Or are they?

So here we are.

In a short while we will find out what The Fed decides to do.

I could go through much more, such as the report Massie Tweeted about yesterday that proves things I've stated were likely for the last year and change, but the facts of the matter are that nobody has given a damn about holding anyone accountable for anything for the last two decades plus -- so why should I expect that to change now?

Good luck folks.

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The Fed has claimed that this is a "liquidity crisis."

Really Ben? Then perhaps you can explain this?

Note that this is an intentional drain of "slosh", or liquidity, from the banking system. $125 billion in the last four days drained?

You wouldn't be trying to intentionally cause a bank failure or two to bolster your call for the $700 billion "bailout" plan, or perhaps intentionally lock the short-term credit markets, would you Ben?

If the market has a liquidity crisis, why would you be intentionally draining reserves from the banking system? Don't you think you ought to explain that to Congress?

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