Illiquidity & Gold and Silver in the End Game
In August 2007, a credit crunch swept global markets forcing central banks to provide billions in emergency liquidity to ensure markets remained functioning. Despite the emergency infusion, financial markets and investment banks collapsed one year later in the greatest financial crisis since the 1929 stock market crash and the Great Depression of the 1930s.
The repo market is, in fact, the bankers’ pawnshop, where banks—and, now, money market and hedge funds—in need of quick cash can pawn their (or their clients’) securities when they need quick overnight loans to meet cash obligations the next day.
Illustration by Martha Schoon
SEPTEMBER 2019 - THE RETURN OF THE REPO CRISIS
The Fed has been forced to provide hundreds of billions of dollars in emergency liquidity to keep overnight repo rates from spiking since September 17th when they reached 8.5 %, i.e. the Fed’s target rate is 2 %.
Of the Fed’s serial repo interventions, George Selgin wrote, "perfect storm" is not the right metaphor, since such a storm is a freak event that's unlikely to be repeated. What happened in the repo market is, in contrast, quite likely to repeat itself, and might be repeating itself as I write this were the Fed not repeatedly offering fresh reserves to the money market. Perhaps "climate change" is more like it. - Reflections on the Repo-Market Imbroglio,October 3, 2019
On October 4th, Reuters noted: The New York Federal Reserve will continue to boost liquidity in money markets into November... The bank will offer daily repurchase agreement, or repo operations, offering at least $75 billion a day in daily cash injections through November 4,
On November 5th, the Wall Street Journal reported the New York Fed had added permanent liquidity to the repo markets by purchasing more than $42 billion in Treasuries in addition to open-ended interventions. - New York Fed Adds $102.14 billion to Markets, Buys More Treasury Bills
PROFESSOR ANTAL E. FEKTE, SANDEEP JAITLY AND THE ARMAGEDDON ALERT
I have had the pleasure and honor of knowing Professor Antal E. Fekete for twenty years. A monetary scientist by nature and a mathematician by training, Professor Fekete’s understanding of gold and money is perhaps more critically relevant today than at any other time in history.
It was Professor Fekete who introduced the idea of gold backwardation after having bought a seat on the Winnipeg Commodity Exchange (on a professor’s salary) in 1972 to observe how the world’s first futures market in gold would operate.
It was from this unique vantage that Professor Fekete saw the importance of the gold basis in signaling when fiat capital markets might implode—A POINT WHICH WE ARE NOW APPROACHING—should gold not be reintroduced into today’s increasingly unstable monetary system.
Sandeep Jaitly, like Professor Fekete, a mathematician, in addition to then being a London fund manager and expert in gold and silver derivatives, was introduced to the Mengerian school of Austrian economics by Professor Fekete.
In 2010, Jaitly made a seminal contribution to Professor Fekete’s study of the gold basis with his concept of the co-basis, a contribution so important Professor Fekete called it “the Armageddon Alert”.
I interviewed Professor Fekete and Sandeep Jaitly on the co-basis and Armageddon alert at Professor Fekete’s Gold Standard University in Hungary in March 2010. Click here.
On April 4 & 5, 2020, Sandeep Jaitly, I, and others will be speaking on the topic Money: Rock, Paper, Scissors to be held at the Royal School of Mines at Imperial College in London. Click here to register.
These are most interesting times. They are about to become even more interesting. Join us in London.
Buy gold, buy silver, have faith.
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