New Year, New Doom-Porn, Same Hawkish Fed | QPOL Issue #30
A closer look at the Fed's resilience and the reality we live in of 2023 and beyond.
We once again have entered the realm of Doom Porn. The thinkers in the alternative finance space still fail to realize the fact the Fed won’t raise rates. Thus, they are coping by writing pieces into the zeitgeist in the hopes of creating a self-fulfilling prophecy.
The following piece from News Wars posits that the FDIC are plotting a national bail-in
Wall Street Silver always seems to be on top of the doom-porn stories.
The following quote tells all:
“We want them to have the full faith and confidence in the banking system. They know FDIC insurance is there. They know what works. They put their money in, they’re going to get their money out.”
Hyperbole aside, one thing is for sure. What the banks are concerned with is maintaining their credibility, which is one of the many reasons Powell is raising interest rates. A national bail-in would undo all the progress the Fed has accomplished with it’s monetary policy. Capital would flee the US into Europe, which as discussed in the previous issue of QPOL below…
Europe does not deserve its on-paper status as a safe destination for capital. That is what the Davos crowd wants though: destroy American capitalism and the creation of private capital via the Federal Reserve and commercial banking system in order to preserve what is left of the EU economy by forcing capital back to the EU.
Pieces like the one above are pure misinformation. Think of it as Davos insiders running the FDIC who are placed there to spread this doom-porn to undermine the Fed at critical moments like this (which by the way we’re looking at a terminal Fed Funds Rate of 7% for 2023...New year, new Fed). It’s also important to remember that not all the banks are on “team Fed”/back Powell’s monetary policy and are in the globalist/Davos camp. Consider this angle: the “Davos” banks are saying in this piece that they are willing and able to pull customer funds from their banks. This would just create a griefing/false-flag attack on the Fed and force Powell to put out a fire which would hit headlines and contagion rumors causing capital to flee the US.
The Fed’s Secret Weapon
The secret weapon of the Fed that many seem to overlook is the over $2 trillion in the RRP (Reverse Repo Facility). Back in June of 2021, Powell began raising RRP rate 5 basis points above the Fed Funds Rate in order to sterilize the Covid stimulus and prevent hyperinflation, similar to how Bernanke increased IOER (Interest On Excess Reserves) by 25 bips during the GFC. Needless to say, the Fed is loaded with plenty of ammo to recapitalize the banking system during a credit crisis.
One question I came across when considering this strategy was “how can the Fed recapitalize the banks if needed without losing credibility? Is that just them utilizing the $2T + in RRP? not only that, but would that cause inflation, even though thte Fed can control the flow of money by raising interst rates and slowing the pace of money moving into the economy?”
Remember, another reason the Fed is raising rates is to increase it’s credibility and make its debt more attractive. Fortunately, credibility is not lost with draining RRP or even using QE for that matter, to help recapitalize the banks during a credit freeze. In fact it might (might!) do the opposite beyond just preventing a credit crisis. It would prevent the major banks going to the Discount Window, which is the ultimate event they are trying to avoid (the biggest credibility killer).
Additionally (and this is another big “could but might not happen” scenario), when all the banks are recapitalized with RRP money, it officially changes the reserve requirements at a national level/standard...which wold be a drastic departure from the practically zero reserve requirement we've become used to over the years. Another primary reason the Fed is raising rates is to destroy the offshore dollar market as in order to assert its monetary independence from the former globalist LIBOR system that was conducted at the City of London and is now replaced with the US domestic rate, SOFR. Higher reserve requirements and creating real market driven prices would be a happy result of the former. I suspect that this could be a plan similar/in-line with the re-regionalizing of interest rates in a new free-ish market economy thanks to SOFR under Powell's Fed.
Again, these are big ifs, but it’s interesting to think about these possibilities considering the incentive of the Fed to maintain monetary independence and a healthy restructuring of the US economy that would reflect the reality of prices and market demand. Based on the actions the Fed has taken over the past year and a half, this seems to be where the Fed is going. Time will only tell, but the writing is on the wall.
Staying Humbly Realistic
This is from Nik Bhatia’s Substack, The Bitcoin Layer. I’m not a paid reader, but I though this was cute…
I really respect Nik and I’ve even had him on my podcast. However at the risk of coming off as frank and hyperbolic, it would seem from this issue of the newsletter that they really want sovereigns to default (which I’m sure many will as rates continue to increase), but they have a death wish for US treasuries. Maybe I’m reading this wrong, but that’s how it’s coming off. Sad.
Yes, I’m sure he doesn’t want to see citizens of world governments suffer under economic turmoil and yes, that’s why we have Bitcoin as the ultimate hedge and salvation for a new monetary system where every individual benefits. And yet, it almost feels like whatever excuse they can get for Bitcoin, they’ll take it. I know people talk their book, but it rubs me the wrong way when “professionals” dress it all up behind macro jargon. It comes off as disingenuous and disgusting.
When all is said and done, the Fed has every incentive to make the dollar be much more than the “cleanest shirt in the dirty laundry”, whether they remonetize gold like Judy Shelton proposed, or the US just stands out as the more credible place to park capital. Regardless, rags like Nik’s seem very desperate for Bitcoin to win. No shit Bitcoin wins, but stop trying to profit off of peoples hopium.
In summary, the rest of the world will continue to “play the US treasury game” because the Fed under Powell and the non-globalists that aren’t US sellouts have every incentive to make US debt as valuable as possible. Otherwise, capital flows into the BRICS Nations. I don’t think you’ll see Neocons parking their money in Russia, because Putin’s kicked those POS oligarchs out and won’t let them back in. As Tom Luongo and others have covered many times, the US markets (especially the DOW), is deep in liquidity and the US is structurally much more robust than any economy (i.e. large corporations selling debt to the market rather than being debt slaves to banks like Europe).
Call me an overly optimistic MAGA cuck, but I don’t see how the US loses this game. At least to me, it’s just the most plausible and logical outcome America comes out on top…
Remember, I don’t have a dog in this fight other than truth. I don’t talk my book. Bitcoin is great, but getting to the bottom of what’s really happening, who benefits, and why is even greater. That’s not a new year resolution, that’s just how I roll.
Now for some comic relief from our friend from earlier, Wall Street Silver. Happy New Year, everyone...
~ Phil Gibson