While American President Donald Trump wages war with Iran, the U.S. Federal Reserve has continued to inject fresh capital into the hands of private banks by giving them $100 billion in overnight and 14-day repos on Tuesday. The same day, Rabobank strategist Philip Marey predicted the central bank will reduce interest rates to zero in 2020. Additionally, former Fed researchers believe the central bank needs to create a “standing repo facility” so private financial institutions can convert securities into fresh fiat reserves whenever they please.
Federal Reserve Injects Another $100 Billion Into the Hands of Commercial Banks, While Analyst Believe Interest Rates Will Be Slashed to Zero
At the moment, most of the world is focused on the escalated tensions between America and Iran. Since the Iranian leader Qassem Soleimani was droned by American forces, safe-haven assets – precious metals like gold, oil, and cryptocurrencies have jumped in value significantly. Following Soleimani’s funeral, Iran launched a few missiles which further escalated tensions between the two countries. Meanwhile, as people pay attention to war games, the U.S. Federal Reserve has been stimulating a wide variety of private banks’ liquidity like there’s no tomorrow. Every time emergency repo operations take place, the New York Fed cites a significant demand for liquidity and a lack of cash reserves. Private banks and bond dealers have continued to pledge their treasuries as collateral for cash nearly every few days for the last four months.
On January 7, the Fed pumped close to $100 billion into the hands of smaller financial institutions by leveraging $63.9 billion in overnight repos and $35 billion for 14-day repos. So far, since September 2019, the Fed has managed to stimulate private banks with trillions by using repo processes and slashing interest rates with a number of monetary easing practices. The Fed is not the only central bank playing the fiat roulette game, as a majority of global central planners are following the Fed’s patterns. Since the first week of November 2019, more than 37 central banks worldwide participated in stimulus and easing schemes. The Fed has cut interest rates a few times since September, but now the entity acts as if it’s reluctant to cut rates again. However, Rabobank executive Philip Marey believes the Fed will drop the interest rate hammer to zero by the year’s end. Moreover, members of the Fed believe the monthly schedule of repos is not enough to appease the faltering U.S. economy.
Creating a Standing Repo Facility So Banks Can Convert Securities for Cash Any Time They Want
While other central banks discuss controversial easing topics like ‘helicopter money,’ former members of the Fed have different ideas. During the last quarter of 2019, it was quite noticeable that the Fed increased monetary interventions a great deal. During a meeting held on December 10 and 11, Fed officials discussed the implementation of a standing repo facility. The facility would be another arm of the U.S. monetary system by allowing banks and bond dealers to swap securities for cash whenever they are in need. “Among the topics mentioned was the potential role of a standing repo facility in an ample-reserves regime, the setting of administered rates, and the composition of the Federal Reserve’s holdings of Treasury securities over the longer run,” explains the Federal Open Market Committee’s transcript. Because a standing repo facility is non-existent, the Fed announces repo offerings every month so dealers can get advance notice.
Following the Fed discussion about a standing repo facility, former New York Fed chair William Dudley also wrote about the subject in an opinion column. Dudley’s editorial basically says the Fed needs to galvanize a monetary easing scheme in the form of a standing repo. The essay noted that the autumn rate spike “reflects the difficulty in forecasting the demand for reserves given the changes.” Dudley stressed:
[The Fed] should create a standing repo facility that is open to a broad set of counterparties confined to Treasury and agency mortgage-backed securities collateral. Such a facility would effectively cap repo rates. It would also address the potential problem of the Fed providing liquidity to primary dealers but primary dealers not lending the funds to other market participants that might need short-term repo financing.
The Everlasting Conundrum: Who Owns the Fed?
The standing repo facility would let borrowers convert securities quickly and whenever they want. Markets Insider columnist Ben Winck notes that JP Morgan analysts would love to see this type of facility implemented. For decades now, the Federal Reserve board members have always claimed that the Fed system is “not ‘owned’ by anyone.” However, the reason JP Morgan analysts like the Fed’s monetary easing policy is because they control the Fed to a degree. Stockholders have controlled the consortium of modern central banking since its inception during the 17th century. Despite what the NY Fed writes, the entity is owned and controlled by the 12 Federal Reserve Banks that serve specific regions within the country. The 12 banks based in San Francisco, Kansas City, Missouri, Richmond, Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and Dallas sell shares to thrifts and commercial banks residing in the district.
The same financial families involved with the ‘money trust’ (House of Morgan) still control today’s most powerful commercial banks. The same banking families leverage a portion of command of each Fed branch as well. For instance, in 1983 the NY Fed’s top stockholders included Citibank, Chase Manhattan, Morgan Guaranty Trust, and Bankers Trust Company. As of November 2019, the largest shareowners (same families) of the NY Fed include JP Morgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon. Throughout other regions of the country, commercial banks control other Fed branches like Bank of America is a giant stockholder in Richmond, State Street has mega shares in Boston, and Wells Fargo runs the biggest game with the Fed in San Francisco. It’s almost as if the 12 branches of the Fed are already acting as separate standing repo facilities and the Fed wants to divert attention elsewhere.
What are your thoughts in regards to the $100 billion injected into the hands of thrifts and commercial banks yesterday while Donald Trump wages war with Iran? What do you think about Rabobank Philip Marey’s prediction about interest rates being cut to zero? What do you think about the concept of a standing repo facility so banks can convert securities into cash whenever they please? Let us know what you think about the central bank’s monetary schemes in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons, Fair Use, and Twitter.
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