Socio-Economics History Blog

Socio-Economics History Blog

‘What Is the Fed Not Telling Us?’: Fears of Economic Instability After Central Bank Intervention Spikes

by mosesman

  • ‘What Is the Fed Not Telling Us?’: Fears of Economic Instability After Central Bank Intervention Spikes
    by Eoin Higgins, staff writer, https://www.commondreams.org/
    “A financial system that requires over $100B of liquidity injections every day, temporary, permanent or otherwise, has major issues.”
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    A number of financial experts and investors are sounding the alarm over the Federal Reserve’s recent infusion of cash into the market and warning that the actions by the central bank could be the precursor to economic crisis.
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    On October 22, the Fed pumped $99.9 billion in temporary liquidity into the market to ease stresses brought on by a tightening credit market. Two days later, on October 24, the bank upped that to $134 billion.
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    “What is the Fed not telling us?” wondered Northman Trader’s Sven Heinreich. The Wall Street Journal explained the Fed’s actions:
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    Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by dealer-owned bonds. The Fed’s interventions are aimed at ensuring the financial system has enough liquidity and short-term borrowing rates remain well behaved. Permanent buying expands Fed holdings and further reduces the risk of money-market volatility.
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    Heinreich expanded on his concerns over the intervention in an opinion piece for MarketWatch on Saturday.
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    “These actions are surprising,” wrote Heinreich. “What stable financial system requires over $100 billion in overnight liquidity injections? The Fed did not see the need for these actions coming. It is reacting to a market that suddenly requires it.”
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    For markets expert Guy Adami, the Fed’s expansion of liquidity through the interventions is worrying. “Fed’s ‘temporary’ overnight repo operation is going from an insane $75B to $125B,” tweeted Adami. “I’m sure it’s nothing.” Financial observer Gregory Mannarino echoed those concerns on Twitter. “The system is running out of liquidity,” said Mannarino. “They are desperate to prevent a credit freeze/complete lock up of the financial system.. complete meltdown.”
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    read more.

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