PAPER: Why 2019 feels like 1929… MORE PUMP: Fed Girding for Repo Trouble

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Why 2019 feels like 1929 — and what we can do to change course

“Downton Abbey” opened last week. Below all the aristocratic glamour and excess, remember that the story has a dark underbelly. Everyone watching knows what the 1920s characters did not: Within a few years, not only their genteel way of life but also literally the whole world around them, would be destroyed.

I am increasingly worried that 2019 feels ever more like 1929. Back then, inequality was at an all-time high. Authoritarian nationalism was on the rise. World War I had exploded the old global order without creating a new one. Then the stock market crash of October 1929 ignited the horrendous cascade of depression, fascism and World War II —arguably the worst 15 years in history.

Fast forward to today. Three intersecting geo-economic and geo-political trends feel a lot like an update of the 1920s:

  • China and the United States seem increasingly determined to decouple their economies from each other — making a second Cold War a reality and superpower war more likely.
  • Populism seems here to stay — eroding the foundations of democracy and increasing the chances of international conflict.



The Fed Is Girding for Repo Trouble Monday Even as Market Calms


(Bloomberg) — The repo market has calmed down, but the Federal Reserve is gearing up its safeguards in case turmoil resurfaces on Monday.

Last week’s craziness was not the first time in recent memory that U.S. money markets have shown signs of stress. It’s tended to happen around quarter-end, most notably in late December.

The third quarter ends Monday. So, for the past two days, the New York Fed has run $100 billion overnight repo operations — bigger than the $75 billion daily liquidity injections that began early last week — plus separate 14-day operations. Neither of Friday’s actions were fully subscribed and short-term lending rates are well below the peak seen last week, a sign order has been restored for now.

But on Monday, that larger $100 billion size will be repeated and the overnight operation will run from 7:45 a.m. to 8 a.m. New York time, earlier than prior morning actions. Both signal the Fed is girding for rates to spike again.

As of now, it appears that the New York Fed “was able to satiate primary dealer demand for term funding at these rate levels,” Jon Hill, a strategist at BMO Capital Markets, wrote in a note. “The question then becomes how much of the reserve infusion will be able to permeate through markets and reach other participants.”


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