The Fed Just Published 36 Years of Its Money Data. It Shows a Spike in Repo Loans Is an Early Warning of an Impending Market Crash
On July 29 the Federal Reserve released its Annual Report for 2020. The Appendix contains 13 statistical tables that would make most folks’ eyes glaze over.
Table G.5A., however, is worthy of a glass of good wine, a comfy arm chair, and some serious musing. That table provides a 36-year history of, among other things, the Fed’s deployment of Repurchase Agreements (Repo Loans) at the outbreak of a crisis; its Loans and Other Credit Extensions; and its Securities Held Outright – which have exploded since the Fed adopted Quantitative Easing (QE) in 2008. QE is the Fed’s wonky expression for it buying up trillions of dollars in notes and bonds to push interest rates down to near zero, thus forcing money in search of a return into the stock market, which is majority-owned by the top 10 percent of the wealthiest Americans. In other words, QE is a wealth transfer system in drag as monetary policy.
To keep our analysis of Table G.5A. as clear as possible, we’ve extracted in the charts below the first three columns of the table. Notice that Repurchase Agreements (Repo Loans) exploded from $30.37 billion at the end of 1998 to $140.64 billion at the end of 1999 – an increase of 363 percent in one year. Now, this is the epiphany moment: year end 1999 was just 70 days away from the start of the Dot.com bust. The Nasdaq stock market would set a closing high of 5,048.62 on March 10, 2000. The Nasdaq then proceeded to lose 78 percent of its value over the next 2-1/2 years. Nasdaq reached a closing low of 1,114.11 on October 9, 2002. If you were wise to the siren sound of the spike in Repo Loans at the Fed, you could have escaped that 4,000 points of carnage.
But, of course, this single occurrence does not make a fool-proof case. So, next we looked at the explosion in Repurchase Agreements (Repo Loans) from the end of 2007 to the end of 2008. They went from $46.5 billion to $80 billion – an increase of 72 percent. But, remember, by year end 2008 the Fed had moved from bailing out Wall Street with Repo Loans to pumping out money through an alphabet soup of emergency lending operations. So, you have to also look at the third column, “Loans and other credit extensions.” That exploded from $72.6 billion at the end of 2007 to $1.6 trillion (yes, trillion) at the end of 2008. (You can see the actual breakdown of those emergency lending facilities on the Fed’s H.4.1 balance sheet for Wednesday, December 24, 2008 here.)
From year-end 2009 through year-end 2018 the Fed reported zero amounts of Repurchase Agreements (Repo Loans) because there was no cataclysmic stock market crash. But beginning on September 17, 2019, the Fed went into panic mode again and began shoveling out Repo Loans to its primary dealers (the trading houses owned by the mega banks on Wall Street) by hundreds of billions of dollars. As regular readers of Wall Street On Parade know well, we have pounded the drum for two years now regarding the fact that the Fed’s massive deployment of Repo Loans beginning on September 17, 2019 was the actual start date of both the latest Wall Street crisis and the ensuing bailout of Wall Street, rather than the Wall Street crisis starting with the pandemic. According to Johns Hopkins’ timeline of the pandemic, the first case of the coronavirus was confirmed in the United States on January 21, 2020 – four months after the Fed initiated its monster amounts of Repo Loans. The Repo Loans grew exponentially in September, October, November and December of 2019. But both the Fed and mainstream media have decided to characterize the mega Wall Street banks as providing strength in the pandemic, rather than the uncomfortable fact that their bailout began four months prior to the coronavirus outbreak. Acknowledging that reality is essential to acknowledgment that the Fed is a failed federal regulator of the Wall Street mega banks and Congress must radically restructure the regulatory regime and strip the Fed of its supervisory powers over the banks.
The Fed’s Repo Loans in the fall of 2019 were followed by a market crash in the first quarter of 2020. From January 1, 2020 through March 23, 2020, the Dow Jones Industrial Average lost 35 percent of its value but the mega banks on Wall Street lost 40 to 50 percent of their market value. Those banks included Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of America. As it currently stands, the Fed’s supervisory plan is nothing more than to create money electronically out of thin air and throw it by the trillions of dollars at Wall Street every time something blows up at these heavily interconnected mega banks.
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https://wallstreetonparade.com/2021/08/the-fed-just-published-36-years-of-its-money-data-it-shows-a-spike-in-repo-loans-is-an-early-warning-of-an-impending-market-crash/