A Monetary System on the Brink of Collapse
Emergency Procedures are the New Normal...
Near-death experiences often change human behavior.
When they don’t, it’s the sign of an addiction and derangement.
Three weeks ago, banks began failing. We believe it’s systemic and a result of the mandate for banks to own the “risk-free” treasury. However, with another “emergency” procedure (aka bailout) from the Federal Reserve, it’s as if nothing happened.
Except something so much bigger has.
Our markets are addicted, and the Fed doctor is all too ready to provide more medicine.
All one needs to see are the heightened amount of emergency procedures that have been necessary to keep the patient alive in recent years.
Below is a list of major necessary Fed actions over the last 40 years.
Pay particular attention, forty years ago, we went to the doctor for check-ups every 3 years. Today our monetary system is in the emergency room an average of every 40 days.
1980 – 1999
(One Major Program every 3.33 years)
- Discount Window: This program provides short-term loans to depository institutions, including commercial banks and credit unions, to help them manage their liquidity needs.
- Monetary Targeting: A monetary policy strategy that focused on targeting a specific growth rate for the money supply in order to achieve price stability and promote economic growth.
- Open Market Operations: The Fed's purchase and sale of U.S. Treasury securities in the open market to influence the money supply and interest rates.
- Banking Supervision and Regulation: The Fed is responsible for supervising and regulating banks and other financial institutions to ensure their safety and soundness.
- Reserve Requirements: Banks are required to maintain a certain amount of reserves with the Fed to ensure they have sufficient liquidity to meet their obligations.
- Money Market Mutual Fund Liquidity Facility (MMLF): A program that provides loans to banks to purchase assets from money market mutual funds to stabilize the market during times of stress.
2000 – 2009
(One Major Program every 1.25 years)
- Interest Rate Cuts: The Fed lowered the federal funds rate in response to the 2001 recession, the September 11 attacks, and the financial crisis in 2008.
- Quantitative Easing (QE): The Fed purchased trillions of dollars in government bonds and mortgage-backed securities to stimulate economic growth and keep interest rates low.
- Term Auction Facility (TAF): A program that provided short-term loans to banks to help them meet their liquidity needs.
- Commercial Paper Funding Facility (CPFF): A program that provided loans to companies to issue short-term commercial paper, to increase liquidity in the commercial paper market.
- Primary Dealer Credit Facility (PDCF): A program that provided overnight loans to primary dealers to ensure the availability of credit to the financial system.
- Term Asset-Backed Securities Loan Facility (TALF): A program that provided loans to investors to purchase asset-backed securities, such as auto and credit card loans, to increase lending.
- Foreign Currency Liquidity Swap Lines: Programs that provided foreign central banks with U.S. dollars to stabilize financial markets during the global financial crisis.
- Money Market Mutual Fund Liquidity Facility (MMLF): A program that provided loans to banks to purchase assets from money market mutual funds to stabilize the market during times of stress.
2010 – 2019
(One Major Program every 8 months)
- Quantitative Easing 2 (QE2): A monetary policy in which the Federal Reserve purchases long-term Treasury bonds and other securities in order to increase the money supply and stimulate economic growth.
- Operation Twist: A monetary policy in which the Federal Reserve buys long-term Treasury bonds and sells short-term bonds to flatten the yield curve and lower long-term interest rates.
- Mortgage-Backed Securities Purchase Program (MBS): A program in which the Federal Reserve purchases mortgage-backed securities from banks and other financial institutions to increase liquidity in the market and support the housing market.
- Term Deposit Facility (TDF): A tool used by the Federal Reserve to offer interest-bearing deposits to banks and financial institutions in order to drain excess reserves from the banking system.
- Term Auction Facility (TAF): A program that allows banks to borrow funds from the Federal Reserve at auction in order to improve liquidity in the short-term lending market.
- Money Market Mutual Fund Liquidity Facility (MMLF): A program in which the Federal Reserve provides loans to financial institutions to purchase high-quality assets in the money market, in order to prevent a run on money market funds.
- Primary Dealer Credit Facility (PDCF): A program that allows primary dealers, which are banks and financial institutions that trade with the Federal Reserve, to borrow funds at a discount rate in order to improve liquidity in the market.
- Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF): A program in which the Federal Reserve provides loans to financial institutions to purchase asset-backed commercial paper in order to improve liquidity in the market.
- Commercial Paper Funding Facility (CPFF): A program in which the Federal Reserve purchases commercial paper from issuers in order to improve liquidity in the market.
- Term Asset-Backed Securities Loan Facility (TALF): A program in which the Federal Reserve lends money to investors who purchase asset-backed securities in order to support the market for these securities.
- Central Bank Liquidity Swaps: Agreements between the Federal Reserve and other central banks to exchange currencies in order to provide liquidity to financial institutions and improve the stability of global financial markets.
- Discount Window Lending: A tool used by the Federal Reserve to lend funds to banks and other financial institutions at a discount rate in order to improve liquidity in the market.
- Overnight Reverse Repurchase Agreement (ON RRP): A tool used by the Federal Reserve to temporarily absorb excess reserves from banks and other financial institutions by lending them Treasury securities overnight.
- Standing Repo Facility: A tool used by the Federal Reserve to offer overnight repurchase agreements to primary dealers on a standing basis, in order to improve liquidity in the market.
2020 – 2023
(One Major Program every 40 days)
- PPPF (Paycheck Protection Program Liquidity Facility): Provided loans to financial institutions to support small businesses under the Paycheck Protection Program.
- SMCCF (Secondary Market Corporate Credit Facility): Purchased corporate bonds and bond ETFs to support credit markets.
- MMLF (Money Market Mutual Fund Liquidity Facility): Provided liquidity to money market funds.
- TALF (Term Asset-Backed Securities Loan Facility): Provided loans to investors for purchasing asset-backed securities.
- PPPLF (Paycheck Protection Program Liquidity Facility): Provided loans to financial institutions to support small businesses under the Paycheck Protection Program.
- MSNLF (Main Street New Loan Facility): Provided loans to small and medium-sized businesses.
- MSELF (Main Street Expanded Loan Facility): Expanded the scope of MSNLF to include larger businesses.
- PMCCF (Primary Market Corporate Credit Facility): Purchased bonds directly from eligible issuers.
- FIMA (Foreign and International Monetary Authorities): Provided foreign central banks with access to US dollars in exchange for their own currency.
- CPFF (Commercial Paper Funding Facility): Provided loans to companies issuing commercial paper.
- SLF (Self-Liquidating Loans Facility): Provided loans to banks against collateral such as car loans and credit card receivables.
- PDCF (Primary Dealer Credit Facility): Provided loans to primary dealers (large financial institutions) in exchange for collateral.
- OIS (Overnight Indexed Swap) Facility: Provided loans to foreign central banks in exchange for US Treasury securities as collateral.
- FLP (Fed's Liquidity Provision to Support Lending to Consumers and Businesses): Provided liquidity support to financial institutions to support lending to consumers and businesses.
- BTFP - Bank Term Funding Program: an emergency lending program created by the Federal Reserve in March 2023 to provide emergency liquidity to U.S. depository institutions.
We believe the monetary system is on life support.
A massive slew of money printing is on the near-term horizon.
Are you prepared?
Written by Adam Baratta
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