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<p>[QUOTE="yakpoo, post: 7661504, member: 18157"]There are basically two (2) ways to artificially stimulate an economy; Monetary stimulus and/or Fiscal stimulus. I'm afraid that the increased Fiscal stimulus is painting the Fed into a corner and they're afraid of losing control of short term interest rates...<a href="https://www.marketwatch.com/story/surge-in-short-term-borrowing-costs-casts-spotlight-on-wall-street-funding-squeeze-2019-09-17?mod=article_inline" target="_blank" class="externalLink ProxyLink" data-proxy-href="https://www.marketwatch.com/story/surge-in-short-term-borrowing-costs-casts-spotlight-on-wall-street-funding-squeeze-2019-09-17?mod=article_inline" rel="nofollow">as happened briefly in September of 2019</a>.</p><p><br /></p><p><a href="https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements" target="_blank" class="externalLink ProxyLink" data-proxy-href="https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements" rel="nofollow">The Fed controls short term rates with Repurchase Agreements (Repos) and, since 2013, with Reverse Repurchase Agreements (Reverse Repos)</a>. Repos are short term loans against U.S. Treasuries and Mortgage Backed Securities (MBSs) which adds liquidity to the banking system. Reverse Repos are the opposite. Banks lend money to the Fed in exchange for U.S. Treasuries and MBSs which withdraws liquidity from the banking system. Reverse Repos by banks is what's known as a bank "parking their excess reserves at the Fed".</p><p><br /></p><p>It seems to me that the large influx of Fiscal stimulus (Helicopter Money) is causing <a href="https://www.marketwatch.com/story/why-demand-for-feds-reverse-repo-facility-is-surging-again-11621904689" target="_blank" class="externalLink ProxyLink" data-proxy-href="https://www.marketwatch.com/story/why-demand-for-feds-reverse-repo-facility-is-surging-again-11621904689" rel="nofollow">a rise in demand for Reverse Repos</a>. Reverse Repos is the only place banks can get any return at all on their excess reserves. This increases demand (by the Fed) for U.S. Treasuries...pushing interest rates (and the Dollar) lower.</p><p><br /></p><p>This leads to two (2) likely scenarios...</p><p><br /></p><p>1. The Fed stays in the Treasury market as long as it takes to absorb the Fiscal stimulus...pushing interest rates and the Dollar lower.</p><p><br /></p><p>2. The Fed begins tapering its bond purchases, pushing up interest rates and pushing the economy into recession.</p><p><br /></p><p>I suspect the Fed will try to walk that tightrope as best they can, but the Fed is being pressured keep their foot on the gas and continuing their bond purchase program. There seems to be a belief that "Inflation is the path to Prosperity". Having lived through inflation in the 70s, I can say with certainty that no one was feeling "prosperous" then.</p><p><br /></p><p>Anyway, this is my "forecast" for what it's worth...that the trend is for a weaker Dollar, higher inflation, and a rise in bullion prices...at least until the next inevitable recession. If China invades Taiwan with no U.S. response, the Dollar will weaken further.[/QUOTE]</p><p><br /></p>
[QUOTE="yakpoo, post: 7661504, member: 18157"]There are basically two (2) ways to artificially stimulate an economy; Monetary stimulus and/or Fiscal stimulus. I'm afraid that the increased Fiscal stimulus is painting the Fed into a corner and they're afraid of losing control of short term interest rates...[URL='https://www.marketwatch.com/story/surge-in-short-term-borrowing-costs-casts-spotlight-on-wall-street-funding-squeeze-2019-09-17?mod=article_inline']as happened briefly in September of 2019[/URL]. [URL='https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements']The Fed controls short term rates with Repurchase Agreements (Repos) and, since 2013, with Reverse Repurchase Agreements (Reverse Repos)[/URL]. Repos are short term loans against U.S. Treasuries and Mortgage Backed Securities (MBSs) which adds liquidity to the banking system. Reverse Repos are the opposite. Banks lend money to the Fed in exchange for U.S. Treasuries and MBSs which withdraws liquidity from the banking system. Reverse Repos by banks is what's known as a bank "parking their excess reserves at the Fed". It seems to me that the large influx of Fiscal stimulus (Helicopter Money) is causing [URL='https://www.marketwatch.com/story/why-demand-for-feds-reverse-repo-facility-is-surging-again-11621904689']a rise in demand for Reverse Repos[/URL]. Reverse Repos is the only place banks can get any return at all on their excess reserves. This increases demand (by the Fed) for U.S. Treasuries...pushing interest rates (and the Dollar) lower. This leads to two (2) likely scenarios... 1. The Fed stays in the Treasury market as long as it takes to absorb the Fiscal stimulus...pushing interest rates and the Dollar lower. 2. The Fed begins tapering its bond purchases, pushing up interest rates and pushing the economy into recession. I suspect the Fed will try to walk that tightrope as best they can, but the Fed is being pressured keep their foot on the gas and continuing their bond purchase program. There seems to be a belief that "Inflation is the path to Prosperity". Having lived through inflation in the 70s, I can say with certainty that no one was feeling "prosperous" then. Anyway, this is my "forecast" for what it's worth...that the trend is for a weaker Dollar, higher inflation, and a rise in bullion prices...at least until the next inevitable recession. If China invades Taiwan with no U.S. response, the Dollar will weaken further.[/QUOTE]
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