{"id":1212642,"date":"2023-03-26T15:11:09","date_gmt":"2023-03-26T19:11:09","guid":{"rendered":"https:\/\/bugaluu.com\/news\/will-you-play-it-fast-and-loose\/1212642\/"},"modified":"2023-03-26T15:11:09","modified_gmt":"2023-03-26T19:11:09","slug":"will-you-play-it-fast-and-loose","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/will-you-play-it-fast-and-loose\/1212642\/","title":{"rendered":"Will You Play It Fast And Loose?"},"content":{"rendered":"
\"\"<\/a><\/div>\n

Will You Play It Fast And Loose?<\/span><\/p>\n

\n

Authored by MN Gordon via EconomicPrism.com,<\/em><\/a><\/p>\n

\n

\u201cHow should I play that one, Bert? \u00a0Play it safe? \u00a0That\u2019s the way you always told me to play it: safe\u2026 play the percentage. \u00a0Well, here we go: fast and loose. \u00a0One ball, corner pocket. \u00a0Yeah, percentage players die broke, too, don\u2019t they, Bert?\u201d<\/em><\/p>\n

\u2013 Fast Eddie Felson,\u00a0The Hustler<\/em><\/p>\n<\/blockquote>\n

<\/em><\/p>\n

QT2 Master Plan<\/strong><\/h3>\n

Stopping the excess is always much harder than starting it.\u00a0<\/strong> But sometimes it must be done.\u00a0 And done all the way.\u00a0 Half measures avail nothing.<\/p>\n

On June 1, 2022, Fed Chair Jay Powell commenced Quantitative Tightening (QT) Part 2.\u00a0\u00a0\u201cBrace yourself,\u201d<\/em>\u00a0was the\u00a0advice<\/a>\u00a0of JPMorgan Chase CEO, Jamie Dimon.\u00a0 Were his banker cohorts listening?<\/p>\n

The master plan for QT2 was for the Fed to reduce its holdings of Treasury notes and mortgage-backed securities by a combined $47.5 billion per month for the first three months (July thru August 2022). \u00a0Then, by September 2022, the Fed would start reducing its balance sheet by a total amount of $95 billion a month (i.e., $60 billion in Treasuries notes and $35 billion in mortgage-backed securities).<\/strong><\/p>\n

Wells Fargo Investment Institute took the Fed at its word and even\u00a0projected<\/a>\u00a0that its balance sheet could shrink by almost $1.5 trillion by the end of 2023.\u00a0 Taking it down to around $7.5 trillion.<\/p>\n

To anyone with a memory that extends back longer than two years, it was obvious that there wasn\u2019t a snowball\u2019s chance in hell the Fed would contract its balance sheet to $7.5 trillion by the end of 2023.\u00a0 At the time, we\u00a0remarked<\/a>,\u00a0\u201cWe\u2019ll bet dollars to doughnuts this never happens.\u201d<\/em><\/strong><\/p>\n

Our certainty was not based on any special insight about the future.\u00a0 It was merely the recognition that QT1 flamed out early.<\/p>\n

Specifically, it took 24 months for the Fed to reduce its balance sheet by $800 billion between October 2017 and September 2019 (in the wake of a $3.5 trillion expansion).\u00a0 That was before QT1 abruptly ended in repo-madness.<\/p>\n

QT2 Fail<\/strong><\/h3>\n

Like all plans of central planners, the QT2 plan laid out by the Fed to extinguish nearly double the \u2018assets\u2019 in 19 months that were terminated in 24 months during QT1 was nothing but a pipe dream.\u00a0 Clearly, something was bound to break well in advance of the Fed hitting a balance sheet of $7.5 trillion.<\/strong><\/p>\n

By now we all know what broke.\u00a0 Silicon Valley Bank broke.\u00a0 As did Signature Bank, First Republic Bank, and Credit Suisse.\u00a0 More banks could fail too, even in the face of mega bailouts being engineered by activist central banks.<\/p>\n

With respect to the Fed\u2019s balance sheet, after peaking at over $8.9 trillion in April 2022, it fell roughly $626 billion through the end of February 2023.\u00a0 As of March 15, 2023, the Fed\u2019s balance sheet had jumped $300 billion.\u00a0 And by the time you\u2019re reading this, or shortly after, we\u2019ll know how many more hundreds of billions in credit\u00a0the Fed has created<\/a>\u00a0out of thin air to liquify the financial system.<\/p>\n

In short, QT2 was a complete and utter failure.\u00a0 <\/strong>Of the $626 billion reduction that occurred, $300 billion was added back \u2013 in a matter of days.\u00a0 This massive increase marks the return of Quantitative Easing (QE).\u00a0 It also surfaces an important question.<\/p>\n

How much Fed credit creation \u2013 out of thin air \u2013 will be needed to stem the banking crisis?<\/p>\n

One trillion dollars, $5 trillion, $10 trillion?<\/p>\n

Your guess is as good as ours.\u00a0 In matters like this, however, it is always best to think in big, round numbers.\u00a0 So, don\u2019t be surprised when the Fed\u2019s balance sheet eclipses $20 trillion over the next several years.<\/p>\n

Inflation Deflation<\/strong><\/h3>\n

Inflation of the money supply is inflation in the truest sense.\u00a0 It\u2019s what comes first.\u00a0 Asset price inflation and consumer price inflation then follow in wild and unpredictable ways.<\/p>\n

Are these massive new additions to the Fed\u2019s balance sheet inflationary?<\/strong><\/p>\n

By definition, yes.\u00a0<\/strong> As the inflation of the Fed\u2019s balance sheet supplies additional credit to the financial system.\u00a0 But how will this inflation impact asset and consumer prices?<\/p>\n

This is to be determined.<\/p>\n

The immediate concern is credit contraction and debt deflation.\u00a0<\/strong> The forces causing banks to go belly up are relentless.\u00a0 As\u00a0TradeSmith<\/a>\u00a0recently noted, the money supply (M2) is contracting for the first time in the modern era.\u00a0 Liquidity has disappeared from the marketplace.<\/p>\n

For example, for investors holding the $17 billion of Credit Suisse\u2019s additional tier 1 (AT1) bonds, the banking crisis is deflationary. \u00a0This\u00a0includes<\/a>\u00a0retail investors in Asia, PIMCO, Invesco, and Legg Mason, among others.\u00a0 Their investment \u2013 principal, interest, the whole nine yards \u2013 has been written down to diddly-squat.<\/p>\n

But what about for SVB depositors, including those with accounts above and beyond FDIC insurance limits?\u00a0 Is the BTFP bailout inflationary when depositors are merely being made whole?<\/p>\n

Make of it what you will.\u00a0 The moral hazard of it all, which rewards bankers for going hog-wild speculating with customer deposits, is a disaster.<\/strong><\/p>\n

What is clearly inflationary, and what is explicitly driving consumer prices higher, is the massive amount of deficit spending being racked up by Washington.\u00a0 The federal government has already spent\u00a0$723 billion<\/a>\u00a0more than it collected in revenue in fiscal year 2023.\u00a0 Yet the fiscal year hasn\u2019t even reached the mid-point.<\/p>\n

According to the Congressional Budget Office, the FY 2023 deficit is projected to hit\u00a0$1.4 trillion<\/a>.\u00a0 This is on top of the $1.38 trillion deficit accumulated in FY 2022.\u00a0 Thus, as the credit market contracts, and banks fail, consumer prices will remain elevated.<\/p>\n

Will You Play It Fast And Loose?<\/strong><\/h3>\n

With consumer price inflation just off its highest levels in over 40 years, we suppose the massive deficit spending combined with the broadening scope of the bank bailouts will be a tailwind for rising consumer prices.\u00a0 This is especially true as shameful opportunists like Senator Elizabeth Warren use the politics of the bank crisis to justify creative ways to inject printing press money into the economy.<\/p>\n

But at the moment, we expect the real action will be in asset prices.\u00a0 And there\u2019s great uncertainty in how it will all play out.<\/strong><\/p>\n

Those expecting Fed liquidity to pump up the stock market should moderate their enthusiasm.\u00a0 That time will come.\u00a0 But first, there\u2019s plenty of wreckage in the debt market that needs to reconciled, written off, or bailed out.<\/p>\n

This week Fed Chair Powell, following the federal open market committee meeting, hiked the federal funds rate 25 basis points to a range of 4.75 to 5 percent.\u00a0 This, no doubt, is deflationary for the debt market.\u00a0 It furthers the negative carry problem that banks foolishly got themselves in.<\/p>\n

Still, what could Powell do?\u00a0 Inflation is out of control.\u00a0 It must be restrained.\u00a0 Shortsighted decisions made during the COVID Panic must be corrected.\u00a0 Moreover, with Washington spending like drunken sailors, Powell must hold the line as long as politically feasible.<\/strong><\/p>\n

Ultimately, it\u2019s a losing cause.\u00a0 Interest payments on the national debt during the current fiscal year are up\u00a029 percent<\/a>\u00a0year over year.\u00a0 Soon enough, the Fed will have to cut rates to bail out Washington \u2013 inflation be damned.<\/p>\n

In the interim, a hardcore stock market panic is in store.\u00a0 We expect this will be one for the history books.\u00a0 We also expect it will provide buying opportunities of a lifetime, which most people will miss out on.\u00a0 Are you psychologically prepared to buy when the time is right?<\/p>\n

At the point of maximum fear, when the sky is falling, the world is ending, and shares of Bank of America trade below $8, what will you do?<\/strong><\/p>\n

Will you play it safe?\u00a0 Or will you play it fast and loose?<\/p>\n

*\u00a0 *\u00a0 *<\/p>\n

As the financial system falls apart and the economy slips into a recession, a great distraction will be needed to control the masses.\u00a0 In this regard, is Washington secretly provoking China to attack Taiwan?\u00a0 Are your finances prepared for such madness?\u00a0 Answers to these important questions can be found in a unique Special Report.\u00a0 It\u2019s called,\u00a0\u201cWar in the Strait of Taiwan?\u00a0 How to Exploit the Trend of Escalating Conflict.\u201d<\/a>\u00a0 You can\u00a0access a copy<\/a>\u00a0for less than a penny.<\/em><\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nSun, 03\/26\/2023 – 18:30<\/span><\/p>\n

From:Zerohedge<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Will You Play It Fast And Loose? Authored by MN Gordon via EconomicPrism.com, \u201cHow should I play that one, Bert? \u00a0Play it safe? \u00a0That\u2019s the…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1212642","post","type-post","status-publish","format-standard","hentry","category-news","wpcat-1-id"],"_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1212642","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1212642"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1212642\/revisions"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1212642"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1212642"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1212642"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}