Not only is the Fed buying around 90% of new US Treasuries being issued (according to Daniel Amerman’s new article) but the Fed is also apparently bailing out the global dollar shortage and bad derivatives bets in the forward dollar swaps market?
The Fed’s official balance sheet is now up $41.561 billion dollars in just the last week, up over $100 billion dollars in the last month and up almost $400 billion dollars, $377.106 billion dollars since the end of August 2019.
Track the Fed’s official balance sheet here: https://fred.stlouisfed.org/series/WALCL
In the Bank of International Settlements’ (BIS) newest December 2019 quarterly update specifically about Repo Madness (pages 21-24 out of over 150 total pages) the BIS talks about problems with large US banks buying too many US Treasuries the last 12 months and hedge funds having problems in the massive forward dollar swaps market too.
What is a forward dollar swap? Olga Cotaga from Reuters thoughts that they were important enough to write 2 separate articles in 24 hours about them on November 14th warning about how much in size those markets have grown.
1) FACTBOX-FX swaps step from market obscurity to global stage https://www.cnbc.com/2019/11/14/reute…
2) In swaps we trust? Disappearing dollars drive currency trading dependence https://finance.yahoo.com/news/swaps-…
Articles Mentioning Defaults on Dollar Bonds in China or Amounts of Forward Dollar Swaps in Foreign Countries Exploding in Amount:
1) Brazil Central Banker Makes Striking Admission: FX Interventions Are “Unsustainable” https://www.zerohedge.com/news/2018-0…
2) Major China state-owned banks seen supporting yuan after fresh fall – traders https://www.reuters.com/article/china…
Ex-Fed economist Roberto Perli, now a partner at Cornerstone Macro, talks about what more the Fed can do to prevent Repo Madness from getting worse:
“First, it can do more of the same and inject more cash,” he said.
“Second, it can encourage the utilization of its currency swap agreement with foreign central banks. And third, it can start buying coupon securities and, de facto, engage in QE4,” Perli said, referring to a fourth round of quantitative easing or large scale asset purchases.
Full Forbes article quoting Perli here: https://www.forbes.com/sites/pedrodac…
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