The TRUTH about the fed pivot. It's NOT what you're being told.

I just looked into that. Dodd-Frank prohibits commercial banks from using bail ins as a way to meet CDS obligations.

Although it wouldn't surprise me one little bit to learn that there's a loophole.

I just looked into that. Dodd-Frank prohibits commercial banks from using bail ins as a way to meet CDS obligations.

Although it wouldn't surprise me one little bit to learn that there's a loophole.

Thank you for the reply. If I was The Fed, I’d get BTC as a vital part of the basket backing the FedCoin or whatever they call it. If their blockchain was attractive enough, countries, businesses and individuals from around the world would use it. Apart from the fed chair introducing Satoshi himself, I see no winning way around it. With China/Russia (Yuan), BRICS and even Iran and Saudi Arabia getting friendly, the USD dominance days are numbered. Until, like you said, there is something better. But there is not. Bitcoin is a potential ace in The Feds pocket. Heck, it may be from DARPA anyway.

Are banks issuing CDS now? I thought it was mainly hedge funds / independent traders. John Paulson invented CDS and made a few billion from them in the 2008 crash.

Biden believes he has to destroy America as a matter of National Security. He's giving free Cocaine to the first 100 people who convert greenbacks to yuan.

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So inconclusion, this isn't QE

The shitstorm they will unleash may be beyond their control to steer. At least I hope so.

I think there's a very real chance the government could actually default.

The shitstorm they will unleash may be beyond their control to steer. At least I hope so.

couldnt the us military just kill all the people/institutions the country owes money to?

asking for a friend

Cut wages of all Federal workers 10% across the board.

I wanted to wait for some more data to come in before making this, but it suffices to say that rumors of the fed pivot on social media are greatly exaggerated.

Charts of the fed's balance sheet have been circulating that look something like this, and people have been proclaiming the return of QE and monetary inflation.

https://imgur.com/rJgQYvT

People are predicting that the fed has already pivoted and that the money supply is about to explode again like it did in 2020. Maaaaaybe, but maybe not! Or maybe even probably not.

There's a fundamental misunderstanding when it comes to the fed's balance sheet. The fed's balance sheet can grow in two different, and opposite, ways. One way is the fed conducting open market operations (e.g. QE), where it buys securities (e.g. mortgage back securities and treasury bonds) directly from the secondary market. The other way is the fed merely makes collateralized loans against securities held by banks. That's done with a "repurchase agreement" through the fed's "discount window."

The difference is this. If someone takes out a home equity line of credit, that's analogous to a repurchase agreement, aka "repo." But if the bank were to outright buy a house from someone, that's analogous to open market operations.

This is a chart of the fed's balance sheet, including only securities that they own outright:

https://imgur.com/m1BZ8gf

As you can see, the fed is STILL tightening its balance sheet. That is QT is still in full swing. And obviously this paints a very different picture than the assumption that we're living through a repeat of 2019.

These two types of fed intervention have vastly different implications. Open market operations where the fed buys treasuries outright creates increased demand for government bonds, which can hypothetically bring rates down and expand the money supply. For example, if the primary dealers are selling bonds for a profit on the secondary market, and the fed is paying market prices, then that will almost certainly increase demand. Not only are the banks incentivized to buy more treasuries, the resulting drop in rates will incentivize the government to spend more. This is due to the fact that falling rates increase the value of bonds, meaning the fed will turn a profit on those bonds, which must be remitted back to the treasury. Effectively meaning that the taxpayers are able to borrow money at negative interest rates. Not only is the treasury not paying interest, they're actually getting more money back from the fed than they paid out. That's been the bond market for last 15 years. As long as interest rates are moving down, the money supply can increase for as long as there's demand for credit.

Repo, on the other hand, means that the banks are losing money on the bonds. Repo is something banks only use when they're hard up for cash. And that cash comes at a cost. They call it the "discount" window because the interest rates are higher than market, resulting in a so-called discount for the fed. It's set up that way to provide liquidity to banks that desperately need it, but at the same time to incentivise them to use the overnight market whenever possible.

So this is a very different dynamic. Rates are increasing, making the bonds worth less, and also shrinking the money supply, and deposits. Money can shrink in the same way it's created, just in reverse. That is, loans expand the money supply, but the money supply contracts when those loans are paid off, unless new loans are created at the same rate the old loans are rolling off. That forces the banks to sell treasuries to cover the withdrawals, and if there are unrealized losses due to rate increases then it can destroy them, just as it did SVB.

Now the aforementioned data I said I wanted to wait for before commenting is reserve deposits:

https://imgur.com/3BDrGSd

That's the money held by banks at the federal reserve. It's analogous to your checking account, but for a bank. Banks have checking accounts at the fed, basically, where they store their reserves.

In the last week or so, the fed's balance sheet has increased about 350 billion due to their overnight lending. The bank reserves have only increased about 250 billion. So the money is going out of the reserve accounts almost as fast as it's going in. In other words, the banks aren't being bailed out. They're leveraging assets to meet depositor demands, and in the long run will be worse off for it. They're losing the interest payments on the bonds, plus having to pay 4.75% interest to the fed. So effectively they're having to pay 8-10% interest to the fed in order to borrow this money to cover customer deposits. And of course the fed is insolvent still, so that money simply vanishes into a black hole, further shrinking the money supply.

So inconclusion, this isn't QE, it's the opposite of QE, and QE is probably functionally impossible right now. While there's nothing legally preventing the fed from buying bonds on the open market if they wanted to, the implications would be deflationary in the short term. QE is always deflationary in the long term (we're dealing right now with the long term consequences of QE done 15 years ago), but QE in this environment would probably be almost immediately deflationary. Because while it would initially stimulate borrowing, it would immediately start pulling more money from the circulating money supply in the form of taxes, and throwing it into the fed's giant black hole of insolvency. That is, the treasury would borrow say 100 dollars for a 1 month bill, and then have to immediately give back the 100 plus five bucks interest, which would vanish from the money supply. So the faster new money is created the faster the circulating money supply shrinks under those circumstances.

I hope this also gives you some insight into the debt ceiling crisis. This is the part the media isn't telling you. The government has gotten used to borrowing money at effectively negative interest rates over the last 15 years, and now they're having to actually service their debt. That means not only are they having to use taxes to replace the remittances from the fed they're used to getting, they're having to use tax revenues to pay the interest. So the cost to borrow money for the taxpayer has gone up tremendously in the past few months. And that's a massive problem for the government seeing as how tax revenues are going down in real terms. I.e. everything the government spends money on in the course of its operations has increased in price, but tax revenues aren't keeping up with the increased cost. E.g. increased medical cost for Medicare, increased cost of living for those on social security, higher government worker salaries, etc.

Yes, the government could increase taxes, but not without dire consequences that would be effectively killing the golden goose as it were. They would merely be increasing the rate at which the money supply is shrinking, AND accelerating the damage to the economy, creating job loss and lost economic opportunity, which would just result in even less tax revenue than they would have had, had they not raised the taxes. Ergo, raising taxes to fund a higher deficit would have almost immediate devastating consequences.

So yes I know the debt ceiling is a political football that's gotten kicked around a lot lately, but things really are different now, and the situation really is dire. If rates don't come down the the money supply doesn't begin expanding soon, I think there's a very real chance the government could actually default.

Fed is punching the accelerator and slamming the brakes at the same time. Breakdown imminent.

Cut the pensions of all fed, state, and local government employees, and then people will take notice, until then it'll be crickets and lipservice.

No one else gets pensions after working years at their job time for a reality check.

You're very close. The CBDC won't be backed by debt, according to the fed, but rather by the value of the assets on their balance sheet. In other words, the fed will own everything, and everyone will be happy.

That's the part that people aren't understanding is that the CBDC isn't just a way to simplify digital transactions of the dollar, it's the actual replacement of the dollar with an entirely new currency.

The fed is selling this as merely a digital system for transacting dollars, when in fact it's an entirely new currency, and the way they're muddying the waters is by pegging the CBDC to the USD. But it will no more be the USD than Tether or USDC is. And eventually, all dollars will cease to exist.

ETA: Oh and yes, I strongly favor the view that Bitcoin will be the new reserve currency. I believe that governments and central banks will transact with one another in Bitcoin, vs. taking each other's CBDCs.

The people who refer to Bitcoin as digital gold truly understand its real value and purpose. The people who criticize Bitcoin for its inability to scale simply don't get it.

Now it's entirely possible that Bitcoin is just a frontrunner of something else to come, so I'm not saying go all in on Bitcoin. That said, there are zero functional problems with Bitcoin, and it wouldn't really make any sense to replace it at this point.

ETA2: And just imagine the following scenario:

As the dollar deflates, BTC's price drops ever lower, until it crashes. What happens to the BTC in that scenario?

Well, some of it gets lost. If the value drops too low, people will just inadvertently lose their keys, or even think it's not worth the time to maintain them. Like when they throw away an old computer, they might simply think it's not worth their time to export their wallet.

Most of it will get sold. If the price crashes, people will try to get out. So the distribution will get more and more centralized as the price goes down, as retail investors bail and institutions buy the dip.

And then the price gets so low that the institutions fail. The exchanges and funds fail and default on their loans, and the banks repossess their assets, which include the coins they hold.

And then the banks fail and need to be bailed out of their crypto, so the crypto ends up on the fed's balance sheet.

So then the central banks end up with a majority of the crypto.

You're very close. The CBDC won't be backed by debt, according to the fed, but rather by the value of the assets on their balance sheet. In other words, the fed will own everything, and everyone will be happy.

That's the part that people aren't understanding is that the CBDC isn't just a way to simplify digital transactions of the dollar, it's the actual replacement of the dollar with an entirely new currency.

The fed is selling this as merely a digital system for transacting dollars, when in fact it's an entirely new currency, and the way they're muddying the waters is by pegging the CBDC to the USD. But it will no more be the USD than Tether or USDC is. And eventually, all dollars will cease to exist.

ETA: Oh and yes, I strongly favor the view that Bitcoin will be the new reserve currency. I believe that governments and central banks will transact with one another in Bitcoin, vs. taking each other's CBDCs.

The people who refer to Bitcoin as digital gold truly understand its real value and purpose. The people who criticize Bitcoin for its inability to scale simply don't get it.

Now it's entirely possible that Bitcoin is just a frontrunner of something else to come, so I'm not saying go all in on Bitcoin. That said, there are zero functional problems with Bitcoin, and it wouldn't really make any sense to replace it at this point.

ETA2: And just imagine the following scenario:

As the dollar deflates, BTC's price drops ever lower, until it crashes. What happens to the BTC in that scenario?

Well, some of it gets lost. If the value drops too low, people will just inadvertently lose their keys, or even think it's not worth the time to maintain them. Like when they throw away an old computer, they might simply think it's not worth their time to export their wallet.

Most of it will get sold. If the price crashes, people will try to get out. So the distribution will get more and more centralized as the price goes down, as retail investors bail and institutions buy the dip.

And then the price gets so low that the institutions fail. The exchanges and funds fail and default on their loans, and the banks repossess their assets, which include the coins they hold.

And then the banks fail and need to be bailed out of their crypto, so the crypto ends up on the fed's balance sheet.

So then the central banks end up with a majority of the crypto.

Fantastic post OP, I know enough to know you know what you're talking about.

I find it odd that MSM has been trying to get us to sell stocks for a year now. So I'm doing the opposite.

Are you saying now is not a good time to buy a house OP?

My only real interest in the stock market is the potential risk it poses to the monetary system. As a monetary phenomenon, though, I can't see how stocks go anyplace good. If money keeps contracting and interest rates keep going up, I can't see how that's going to be good for earnings, or even speculative buying.

This is the best thread I’ve read in a very long time. Thank you. I’m not well versed in this stuff like you are, learned a lot here. Showed the process and interactions in a way that can be easily digested. Please keep this thread going and update us on what’s currently going on.

Question: Do you think we are going to have a broad expansive war? Imagine we have to..as in there isn’t an option. We’ve screwed over the entire world yet most govts play the exact same game with their currencies on a smaller scale. Shit feels intentional and our govt has known this time is coming no matter what. Like you stated, the deflationary component is baked into the system. Inevitable. Meant to happen/be used for control one day.

Equities go 1:1 gold.

Oh man that is a loaded question if there ever was one.

It really depends. There's certainly something to be said about owning a place to live in terms of its impact on financial security.

But that's only if you own it outright and have enough liquid assets to maintain it in any event. I.e. pay the taxes and insurance and make critical repairs.

I would personally not buy a house right now unless I could buy it outright with cash. If you have to live in something you don't own outright by necessity, rents never kept up with house prices and are continuing to prove to be the better play. They way overbuilt on rental and it's catching up. Reality hasn't set in yet for the landlords, but it's going to soon, and they're either going to manage their expectations or panic sell, or be forced to sell.

I think a potentially ideal situation is where you owned a multifamily dwelling outright, and the cashflow from the rental paid for everything else, like utilities, insurance, taxes, and repairs. That way no matter what happens to your own personal finances, you at least have a place to live and probably enough extra for food and other vital expenses. That is incredible insurance against layoffs, pension failures, the inevitable collapse of social security, etc.

I'm also pretty bullish on unincorporated land that borders a large metro area. A middle class landlord in the medieval period might have had 15 acres. It's pretty amazing the number of people the output from one little homestead can feed.