Posted Nov 20, 2019 by Martin Armstrong
QUESTION: The distinction between the Repo Crisis and Quantitative Easing is the duration and purpose as distinguished from 2007-2009?
ANSWER: Yes. Under QE, the Fed was buying in 30-year bonds in hope of creating a shortage of long-term paper that would in theory lead to consideration of buying long-term mortgage paper. It was trying to reduce the competition of government long-term debt with the private sector. That is when I warned that such a policy would fail because it was INDIRECT and the assumption that the holder of the 30-year bond they were buying-in was American. I warned on Capital Hill that the Chinese were selling their 30-year debt holdings to the Fed and reducing their maturity to 5 years. Hence, the stimulus was being exported and today, the dollar hoarding is massive. Even 70% of physical dollars are outside the USA.
Here once again we have people who have no understanding of banking spouting out nonsense that this is QE because the Fed’s balance sheet must be expanding. Under QE, they permanently bought-in debt. Here in the Repo Crisis, they are acting as the middle-man providing liquidity on a 24 hours basis BECAUSE banks do not trust banks. These people who scream QE and other nonsense are oblivious to what this crisis is all about and why the Fed is in the Repo Market and cannot withdraw. This is a GLOBAL CRISIS that they have no understanding about because they are caught up in the banks own the Fed and trying to pretend this is QE as it was in 2008 so we will have hyperinflation which they forecast back in 2007-2009 that also never happened. This is different!
The Fed was originally created to be a bailout system for banks. The banks had to contribute the money as a fund and became the shareholders because the taxpayer was not supposed to bailout the banks. Simulation was buying private sector debt – not government. Congress usurped the Fed for World War I ordering it only buy US government debt to fund the war and never restored the Fed to its original design. The FDR usurped all the power into Washington ending the purpose of the Fed and the independent branches which use to maintain individual interest rates according to their local economies. FDR wanted to fund socialism and he usurped the Fed making a single interest rate.
Then for World War II, FDR demanded the Fed support the bonds at par, which was a form of QE. That led to a crisis in 1951 and the Fed revolted against the White House.
Those who keep claiming the banks control the Fed because they own shares is so off the mark. The banks have no say in the Fed because that ownership is nominal and the Fed has been usurped by Government and is nationalized. The Repo Crisis is by no means to aid the banks. The Fed jumped in because the banks do not trust banks for another reason which sent the Repo Rate to 10% and that demonstrated that the Fed has lost control of even short-term rates.
These people who have no clue of the banking structure make up these conspiracy theories that dominate people’s thinking so much so it blinds them to the real crisis that is unfolding which is the Mother of All Financial Crises. So while they are focused of QE and who owns the Fed, they are blind to the real crisis behind the curtain. The press will never report it because it will not impeach Trump, and they are clueless unless someone who is involved speaks and there is a veil of silence here for a very important reason. So they will spin all the conspiracy theories to keep people looking in the wrong direction and that helps to cover-up the real crisis.
Even if this were QE, all the screaming they did before produced deflation, not hyperinflation. So once again we have the same theory they are selling which was a total failure the last time. I suppose if you keep yelling “QE” long enough, then might be right one day.