- Zoltan Stares Into The Abyss: Here Is What The Fed Must Do Right Now To Avoid Global Devastation
by Tyler Durden, https://www.zerohedge.com/
Two weeks ago, on March 3, before a liquidity panic had gripped capital markets, corporations and global banks, Credit Suisse repo icon and former NY Fed staffer, Zoltan Pozsar issued a recommendation to halt the funding crisis early in its tracks, writing that the Fed should “combine rate cuts with open liquidity lines that include a pledge to use the swap lines, an uncapped repo facility and QE if necessary.” Unfortunately, since then the coronavirus supply chain (and payments) crisis has been joined by the oil price war, which has crippled the petrodollar exchange system by sending the price of oil sharply lower and exacerbating the global dollar funding shock.
And even though the Fed belatedly followed through with all of Pozsar’s March 3 policy recommendations, going so far as throwing a commercial paper bailout facility which was also recommended by BofA’s Marc Cabana (another former NY Fed staffer), the market remains unconvinced that any of this is enough, especially with JPMorgan warning that the world is facing an unprecedented dollar margin call, as a result of the $12 trillion synthetic dollar short, some 60% of US GDP.
Concluding the surprisingly short – for his standards note – Pozsar says that the message for central banks that emerges from this brief note is this: backstop not only the banks at the core of the financial system, but also markets and non-banks. In short: backstop/bailout everyone.