MONEY 176 - BANK/FED

THIS IS MY 176^TH BLOG ON UNDERSTANDING MONEY TOOLS

September, 2019

www.understandingmoneytools.blogspot.com

I wouldn’t normally write two blogs so closely together, however certain banking issues came to bear on September 16-19 that I thought meaningful for all.

As I have mentioned in past blogs our ludicrous liberal lending and borrowing both in the private sector and government will cause the s__t to hit the fan once again. 

In a quick summary before more detail, our commercial banks fell below capital requirements to Federal Reserve standards this week.  Commercial banks seek short term, over-night borrowing (known as Repo’s) from the Fed and other banks until they meet capital requirements. They put up collateral with assets like treasury notes.  This overnight interest rate peaked at over 10% this week, normal standard about 2%.  The Federal Reserve intervened with commercial banks.  I am afraid this is the beginning of a tipping point in the financial communities similar to what we had in 2007-2010.

Now, for a bit more detail on the subject.  Commercial banks have been lending to the private sector, now owing $14.6 trillion, companies both private and publicly traded and to government agencies.  You probably know that the US government was $1.3 trillion in deficit spending with our year-end coming up September 30^th.  We need to issue billions more in bills, notes, bonds (anything) to keep us afloat.

In conjunction with this debt, Mr. Trump had authorized our 6 largest banks to step into our stock markets and buy billions in stock to shore up falling markets beginning about December 22^nd last year.

When the banks can’t meet Federal Reserve requirements they need to borrow money from the Federal Reserve and pay it back quickly.  If they are not able to, they could be closed down.  In the past, as in 2007-2010, the banks called commercial loans and lines of credit due and payable immediately.  This time around Mr. Trump can’t afford that in an election year, so games will be played.  That includes pumping another $138 billion into the economy.

Mid-September this year is a bit unusual, demand on borrowing exceptionally high.  You have the government debt involved but also corporate quarterly taxes owed September 30^th, and banks supporting the stock markets with buying. You have private sector monthly payments due on credit cards, auto loans, etc.

Federal Reserve Chairman, Mr. Powell, has lowered the interest rate another 1/4% in the US while the target borrowing interest rate for the Federal Reserve itself increased 1/4%.  Time out for a quiz:  Who makes up the Federal Reserve money?  The world’s wealthiest.  Do those people expect a low risk return on investment?  Of course, they do.  Why would interest rates go up for the Federal Reserve?  Our horrendous overall debt, and continuous growing of debt, therefore increasing risk.  Why is this all so important?  These interest rates and debt obligations have worldwide implications.  How many Districts in the Federal Reserve? 12.  How many Federal Reserve Banks? 12  How many branches?  24.

What is scary about this in my mind?  For the most part Americans don’t know about any of this, and they don’t care!

The markets have calmed now the end of this week, but this is an illustration of what mostly is in store for us down the road.