Posted on 03/06/2021 1:02:55 PM PST by Vermont Lt
...."Credit Suisse analyst Zoltan Pozsar recently summed up the situation in a report, saying: “The banking system is running out of balance sheet. Soon there will be too much cash.”
(Excerpt) Read more at reuters.com ...
The Bond market is already starting to feel the impacts of this. It could get worse. And it would get worse right about the time the next "stimmi" checks hit the system.
The end of March is looking like a perfect storm of economic feces.
Seems like a fix to a problem that doesn't exist. If they hold Treasuries it should be "cash equivalent", no? Why do you need cash reserves for something that is 100% backed by cash and typically quite easily to liquidate on demand.
I’m not sure what to make of this.....smarter minds than I will have to weigh in.
They are limited as to how many treasuries they can carry. And since a treasury is still a liability—albeit the “best” one to own, it is still a liability.
The Fed is likely to extend the exceptions for another six months. But we if we don’t there will be a ton of bond liquidations.
Right now there is about $2 Trillion in “exception” bonds. Imagine banks having to liquidate them to meet the standards, as the same time the treasury is selling bonds to raise another $2 Trillion for stimulus. Plus, the first stimulus continuing to pump money into the system.
Obviously that is worst case—and that is not likely to happen. But the government and the Fed are playing some dangerous games.
A treasury bond on a bank’s balance sheet is an asset, not a liability.
Are you talking about a return to the Carter type double digit inflation?
B of A saying Fed will partially renew SLR
It wouldn’t take that much. 6% would bankrupt the US and ruin the dollar.
The supplementary leverage ratio is the US implementation of the Basel III Tier 1 leverage ratio, with which banks calculate the amount of common equity capital they must hold relative to their total leverage exposure. Large US banks must hold 3%. Top-tier bank holding companies must also hold an extra 2% buffer, for a total of 5%. The SLR, which does not distinguish between assets based on risk, is conceived as a backstop to risk-weighted capital requirements.
I know - and 6% isn't even historically that high... Comforting to know the Chinese own so much of our dept. I'm sure they'll work with us... /s
Since we can't renege on treasuries we've sold to other counters I'm betting there will be a move to freeze interest payments on treasuries owned by Americans - our banks, investment houses etc. I can't see what they can do to get out of this other than double digit inflation or worse... I do have one other fear - which you eluded to...
What's your best guess Vermont?
The Chinese have been dumping their Treasuries for a while. They don’t own half of what most people think they do.
The Fed has done just about all they can.
I have no idea what this current crew of trolls and morons are going to do.
I have no idea of all the ramifications but it is simply more market masturbation by Uncle Sam.
My bet......
The poor get hurt even more by this financial crap. Their money is worth less yet they don’t have any inflated assets to offset their position.
Inflated asset prices will drop dramatically, this crushes the middle class. House prices drop, but the financing against them goes higher.
The rich, the wall street banks etc skate. yeah, their balance sheets don’t look as rosie, but their lifestyles are not put in peril.
And I believe there is a limit of how many treasury instruments they can hold at once.
It’s as if the Fed is telling them, “you can’t keep your money here”, and no one else will pay you for it either. So, I guess they can start “loansharking” it. Keep it off the books.
....Credit Suisse analyst Zoltan Pozsar recently summed up the situation in a report, saying: "The banking system is running out of balance sheet. Soon there will be too much cash."
Heh... no one is borrowing, and the savings rate peaked last year when it was way, way up. It's still up, something to do with no one working, deferred spending, easy credit (I noticed that on my biggest stale credit card debts), people worried about what happens when they don't get called back to work.
This is an interesting problem to have. Biggest impact will be on the Chinese, I'm not going to go through the explanation, it's a thankless job.
You’ve got it backwards. Inflation reduces debt, you pay it back with cheaper dollars.
You keep saying that. That is true if you are the government.
If you have a mortgage at 15% and your wages are not soaring, your theory goes out the window.
We’re alive in the 1980’s? They were giving us 10% raises every six months in 1983. It still didn’t keep up.
Not the answer I was looking for - but certainly the truth.
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