No. of Recommendations: 13
Uh oh.

The cracks in the financial system are growing wider. These things have a way of showing up in the wider economy in a matter of days or weeks, not months or years.

Don’t wait for the news to tell you there’s a problem. Watch the stock price of the big financial/investment banks- JPM and GS for starters.


Please explain for those of us that do not understand what this means...

https://boards.fool.com/problems-in-the-repo-market-34296822...

Abbreviated simplified explanation.

Feel free to correct and add info. It's an interesting subject

overnight lending is SOP in the financial markets. Bank A needs cash so they offer treasuries to bank B at the fed interest rate between 2.1%-2.25% to borrow overnight. It's a way to get cash for low rates. It depends on large cash reserves in banks and sufficient treasuries held by the borrower to put up for collateral. These are repos. Bank A sells the treasuries overnight and agrees to repo them the next day. it's a critical market that provides cash to banks for immediate use.

A few things have happened now that upset the balance.

The Fed is selling off securities getting all this paper off the balance sheet. They bought a shiznit load over the last decade to get us out of the credit crunched recession. It was a massive infusion of cash to jump start the economy. They are now unwinding those. So the market has a few extra. In addition to more securities, there is a paucity of cash just now. There are two clear reasons. First there was the taxes due and that takes cash out of the system to pay to the treasury. Out of the banks and into the Fed. Second there is the brilliant tax cut creating the massive deficit requiring the outsized sale of debt to make sure we can pay off the 1% who received the over $1 trillion in payments. In a word--deficit. It drains cash out of the system and creates more paper.

Cash then is at a premium and banks saw rates go up as securities lost value. There is always an inverse relationship between bond prices and interest rates. Bonds drop and rates sky rocket. Which they did and it freaked the market. The fed stepped in with a cash infusion in exchange for paper--kind of like what they were doing to reverse the recession.

So here we are--is it a credit crunch or is it just a perfect storm of too much product, too little cash?

if the deficit keeps rising and revenue from taxes keeps falling this may become a chronic issue and begin to chip away at trump's magic economy. Economies aren't held up by belief in super powers and optimistic tweets. Economy is complicated and has infinite combinations of shiznit that happen and are far beyond president dumb***'s stable genius brain. he is just about the stupidest human to ever be in charge of something so complex and we are going to be picking over the trump's fields like the gleaners when all the crops have been long harvested and sold off to the 1% Nice work president trump;. I bet a trillion $$ Elizabeth Warren gets this.
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