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World Awash in Clueless Analcystical Garbage 8/25/21

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12 hours ago, MisFit Kid said:

"Submitted for your approval" / I dont want to hear about it later...........(van halen song)

ie.......Reverse Repo

https://mishtalk.com/economics/there-is-a-negative-demand-for-deposits-to-the-tune-of-1-1-trillion-dollars

Thanks for posting that. I know that you were goading me.😄 I appreciate the opportunity to re butt. 

The linked post is just more clueless drivel. Ignorant garbage. 

The excess cash, is, as I've pointed out many times, a direct result of the Treasury paydowns that began on February 23. It's temporary, and will disappear as soon as the Treasury starts reissuing T-bills in amounts greater than expirations. That's coming, and we know when, but I keep the timing for Liquidity Trader subscribers.  

The rest of it is just insane gobbledy gook. Of course banks don't lend deposits. Deposits are the flip side of loans. Banks create deposits when they lend money. Both a bank asset- the loan, and a bank liability- the deposit, are created the instant a loan is made. There are always two ledger entries. This is something that virtually all economists and other observers either don't understand, or willfully ignore. 

Is lending constrained by regulatory capital rules. Theoretically yes. Can the banks raise capital if they need to in this environment? Duh. So why are they reducing their capital by buying back stock?

Furthermore, bank loans ex repo loans, have risen by $300 billion, or just over 3% since January. That's not too shabby. The idea that banks aren't lending is crap. 

QE is not a "swap," except to the extent that any transaction you can imagine is a swap. QE creates new money, and it gets spent. It's not just "lying there on the Fed's balance sheet." The purchased security is a Fed asset, and it pays for the asset by depositing money that gets into the banking system through the Primary Dealer conduit, and the US Treasury conduit. The money created by the QE transaction is always reflected in three places. One is the Fed's balance sheet as an asset. The other is as a deposit liability of the Fed. The third is as a cash asset either at the Primary Dealer account at the Fed,  in the US Treasury's cash account (also a Fed liability line item), or in what's called "Other deposits of depositary institutions" which are bank reserves.  

When the Fed buys a security from a Primary Dealer, it creates a deposit in the dealer's account at the Fed in payment for the purchase. The dealer then uses that cash to buy assets from others. The payment for the asset goes into the sellers bank account. This involves a simultaneous transfer of the cash from the dealer's Fed account, to the reserve account of the recipient bank at the Fed. The Dealer deposit and the reserve account are Fed liabilities backed by the asset the Fed purchased.

The dealer also purchases newly issued debt from the US Treasury. That cash goes into the US Treasury account at the Fed. The Treasury soon spends that cash to pay its normal outlays. That's another conduit for the QE cash to reach the banking system. 

Lending is an entirely separate activity that is not constrained by a bank's deposits. The reserve requirement is zero. There are constraints imposed based on capital ratios, but not directly by deposits. For example, when you buy a stock on margin, you get a loan to make that purchase. At the same time, a deposit is created in the account of the seller who sold you the stock. When you use your credit card you get an instant loan.  The vendor who sold you the good or service gets a payment from the lender which is deposited into his bank account.  

It's completely independent of QE. 

I have no idea what the point is that these clowns are trying to make. They don't understand how money is created. They don't understand double entry accounting. They are clueless. If their point is that QE is harmful, a point on which I heartily agree, they are going about it in completely the wrong way.

If they are arguing that QE is deflationary, or something else other than that it works to inflate asset prices, they are wrong.  QE will stop working when it becomes insufficient to support Treasury prices and yields at current levels. This can be projected by connecting the dots and doing the arithmetic. It's not even math. It's basic accounting, with a little addition and subtraction. 

Yes, the Fed stopped publishing money supply data weekly. But it still POSTS FED BALANCE SHEET DATA, and COMMERCIAL BANKING SYSTEM AGGREGATE DATA WEEKLY. I track it, publish it, explain it, and develop a specific outlook based on it at Liquidity Trader

There's an orderly process to these things. People could understand it if they wanted to. But they don't. They'd rather jerk off. 

Meanwhile, life goes on in the orderly, rigged market. 

The trend is intact, but it has run into a bit of resistance near the round number and the top of the megaphone pattern that is shown nicely on the 2 hour bars. 

tvc_e3458cc7aa0394785982b421223462e9.png

The sideways trading of the last 2 days appears to be a 3 and 5 day cycle down phase. Then the down phase just plays as a range, it's usually bullish, leading to a breakout on the next up phase, which is due to start later today or tomorrow. 

Key support is 4478-80. If that breaks, the deal is off for now. But if they clear 4503, then 4520-30 beckons. 

Hourly bars
tvc_d7cadfd4d3271f9facb2fe496b208d4f.png

And now for your longer term listening and dining pleasure:

This Could Be the Start of Something Big for Gold

Here are the Keys as the Trend is Intact, But on Edge

Despite the Rally Primary Dealers Are Still At Risk

Chart Picks – 4 New Picks From Friday’s Swing Trade Screen

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