by okie1
This is the treasury general account:
That’s the federal government’s checking account. Translation, Uncle Sam is running out of money and needs to reup soon to pay social security, medicare, government employee salaries…and oh yea, keep America’s growing list of enemies from trying to nuke us from orbit.
In other words, the federal government is going to have to issue a whole bunch of new debt pretty soon (the alternative is the literal apocalypse). That means increasing the supply of treasury bonds.
This is the M1 money supply:
As you can see, it’s shrinking.
And no, the fed isn’t going “brrr:”
That’s the fed’s balance sheet, and as you can see, QT is still in full swing.
So the money supply is shrinking, and showing no signs of slowing down. There’s a strong relationship between deposits and money supply, and deposits declined more sharply over the last several weeks, meaning this month’s M1 probably isn’t going to be showing any money growth, or even any signs of the deflation slowing down (probably the opposite).
And the availability of excess capital (i.e. the growth of the money supply) is what creates demand for bonds. In other words, if there’s less money, there are fewer people with money to lend, meaning there’s less demand for debt.
Conclusion: the federal government is probably about to increase the supply of bonds sharply, at a time when demand for said bonds is maybe set to decline sharply. Which would ordinarily mean lower bond prices, meaning higher yields, meaning higher interest rates across the board.
The markets are sitting there thinking this is the 1970s and inflation means when the fed pivots the markets will explode higher. When in fact this is the 1930s on steroids, and IF the fed is able to pivot at all (meaning if rates come down on their own) it’s not likely to mean what they think it does (look what happened to markets when the fed pivoted in 2007).
So the markets have entirely misunderstood the whole macroeconomic and monetary environment they’re in, and beyond that are now counting their chickens before they’ve hatched, thinking rates have peaked when in fact we could be getting set up for the biggest rug pull out from under bonds ever, meaning instead of the markets exploding higher it could be RATES that explode higher this summer, which will surprise the hell out of almost everyone if it happens.
…and oh yea, the entire problem with the systemic insolvency in banking revolves around the shrinking of the money supply (and therefore deposits), combined with the increase in interest rates.
In other words, with less money going around, people are having to dip into their buffer cash, drawing down their bank account balances in the process.
That means the banks have to come up with the cash to pay out the withdrawal requests, so people can, you know, like pay their rent and buy food (not stuff the mattress or buy BTC like the media is telling you).
Normally that’s not an issue because they can just sell some bonds. Except nobody wants their lousy 30 year bonds with a locked in rate of 2.5% that they all loaded up on over the last several years.
So if the bondpocalypse happens like I think, banks are gonna be in it deep (deeper than they already are).