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Senior Advisor

I don't claim to understand

what any of it means, as overnight rates spike sharply and the Fed has to do a repo for the first time in ten years.

Meanwhile, seems no lack of money as far as buying long bonds goes, although the stunning rally has corrected a bit.

Something is going on and I'm having a hard time finding anybody who has much credible to offer.

As far a the stimulative effects of a cut in the FF rate, the market has already delivered a huge rate cut. Only effect that I see so far is an echo bounce in stocks as some of the bond windfall got rebalanced to stocks.

Not necessarily talking apples and apples here but nobody's really ever tried a preemptive and pro-cyclical loosening before- don't know why it would be particularly effective.

1 Reply
BA Deere
Honored Advisor

Re: I don't claim to understand

I remember a Phil Donahue show in the 80`s he had a money guru guest, the national debt passed the $1 Trillion mark and Paul Volker was raising interest rates like mad.  The money guru guest said that "the government is in competition for money to finance government so that puts pressure on interest rates." .   Well, I`ve watched the national debt rise over $22 trillion and rates have come down and were zero during Obama...I figured there must not really be a correlation between the government debt and interest rates?  Now, they`re dusting off that theory again, $21 Trillion in debt later???     That much money doesn`t even exist, Dr Evil!

But when you think about it, money is lent to the government, that money doesn`t just disappear.   Someone does end up with it and it gets put to "work" in the system.   It gets borrowed out by someone the point that we are approaching a point of what do you do with cheap money to make a profit.   I mean, borrow 3% money and raise $3.00 corn you`ll go broke.   SO IDK