If there was only one bank in the system and it must maintain a 10% reserve ratio, then it must keep 10% reserve of its' total loan value with the reserve bank. Of course there are more than 1 bank in the economy and during the course of a days trading some may lend out more than the 10% reserve ratio mandated and some will lend less. At the end of the day the banks that lend more will borrow from those that lend less in the Repo market at the market interest rate overnight so that the total reserve ratio of all banks together is 10% or less. This is how the Federal reserve controls the amount of money and therefore debt creation in the system. ( see hidden secrets of money )
If the Federal Reserve have to intervene, then the system is broken. On September 16 2019 the Federal Reserve had to intervene pumping 21 billion into the Repo Market. Had it stop there, that would have been OK, it would have just been a hiccup in the system. But the intervention continued and increased unabated. ( see George Gammon explanation )
The system is broken, something is definitely wrong, but what? There have been no official explanation and much speculation. One plausible reason is rehypothecation. ( what is happening in the repo markets ) It is most likely a combination of several factors including funding the budget deficit which is expected to exceed 1 Trillion dollars. Roughly 100 billion a month or 25 billion weekly. Interestingly the current funding into the repo market since September 16 is just over 400 billion or roughly 25 billion a week.
The amount of support by the federal reserve into the repo market can be tracked by looking at the Federal Reserve balance sheet. Since September 16 it has increased from 3.769 to 4.165 Trillion. How high can it go. More important is when and how the Fed exits the Repo market.
Implications of QE
QE is basically printing money and pumping liquidity into the system. In 2008 it was used to bail out the banks by buying their non performing mortgages and pumping fresh capital into the banks. There is no evidence of mortgage default this time so what is it that the Federal reserve is covering up?
Funding old debts is not inflationary as the money has already been spent. However, if the Fed is financing this new liquidity crisis with new money, the result could be inflationary which will mean higher interest rates.
It is hard to fathom higher interest rate being an allowable scenario as the government debt is already at 24 Trillion with much of that debt being rolled over every six months. Not to mention the adverse effect it will have on the economy pushing it into a recession and possibly depression. How then will this circular cause and effect situation ends is anybody's guess.
Fact is that we are already in a growth period for 12 continuous years without a recession which means an ever higher asset bubble that has never been allowed to correct. The situation must correct eventually as the effects of QE become less effective until it is gone.
The effects of the crash when it comes will be worst for the poor and those that can least weather the storm.
All the analysis above is depressing if we don't have a way to protect ourselves against this calamity. The stock market is not a refuge. It is already in a bubble as all the money printing is finding its' way there.
For the rich there is of course gold and other precious metals. If you are financially tight then a small investment in BSV ( Bitcoin SV ) would be the best bet. I have chosen BSV because I believe that it is the real bitcoin. It will eventually replace BTC and perhaps exceeds the current price of BTC. 1 BSV could be worth more than $10,000 within 2 years all because it can scale and be used in many applications that requires micro transactions.
This is of course just my opinion.
Hidden secrets of money episode 4
Repo market - George Gammon
What is happening in the repo markets
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