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The Fed Just Published 36 Years of Its Money Data. It Shows a Spike in Repo Loans Is an Early Warning of an Impending Market Crash
By Pam Martens and Russ Martens: August 12, 2021 ~ On July 29 the Federal Reserve released its Annual Report for 2020. The Appendix contains 13
The Fed Just Published 36 Years of Its Money Data. It Shows a Spike in Repo Loans Is an Early Warning of an Impending Market CrashOn July 29 the Federal Reserve released its Annual Report for 2020. The Appendix contains 13 statistical tables that would make most folks’ eyes glaze over.
Table G.5A., however, is worthy of a glass of good wine, a comfy arm chair, and some serious musing. That table provides a 36-year history of, among other things, the Fed’s deployment of Repurchase Agreements (Repo Loans) at the outbreak of a crisis; its Loans and Other Credit Extensions; and its Securities Held Outright – which have exploded since the Fed adopted Quantitative Easing (QE) in 2008. QE is the Fed’s wonky expression for it buying up trillions of dollars in notes and bonds to push interest rates down to near zero, thus forcing money in search of a return into the stock market, which is majority-owned by the top 10 percent of the wealthiest Americans. In other words, QE is a wealth transfer system in drag as monetary policy.
To keep our analysis of Table G.5A. as clear as possible, we’ve extracted in the charts below the first three columns of the table. Notice that Repurchase Agreements (Repo Loans) exploded from $30.37 billion at the end of 1998 to $140.64 billion at the end of 1999 – an increase of 363 percent in one year.
Now, this is the epiphany moment: year end 1999 was just 70 days away from the start of the Dot.com bust. The Nasdaq stock market would set a closing high of 5,048.62 on March 10, 2000. The Nasdaq then proceeded to lose 78 percent of its value over the next 2-1/2 years. Nasdaq reached a closing low of 1,114.11 on October 9, 2002.
If you were wise to the siren sound of the spike in Repo Loans at the Fed, you could have escaped that 4,000 points of carnage.
But, of course, this single occurrence does not make a fool-proof case. So, next we looked at the explosion in Repurchase Agreements (Repo Loans) from the end of 2007 to the end of 2008. They went from $46.5 billion to $80 billion – an increase of 72 percent. But, remember, by year end 2008 the Fed had moved from bailing out Wall Street with Repo Loans to pumping out money through an alphabet soup of emergency lending operations. So, you have to also look at the third column, “Loans and other credit extensions.” That exploded from $72.6 billion at the end of 2007 to $1.6 trillion (yes, trillion) at the end of 2008. (You can see the actual breakdown of those emergency lending facilities on the Fed’s H.4.1 balance sheet for Wednesday, December 24, 2008 here.)
The Wall Street crash of 2008 was the worst financial calamity the U.S. had experienced since the Great Depression of the 1930s. It left millions of Americans jobless and unable to pay their mortgage, which resulted in millions of foreclosures. The crisis resulted from the Fed and other regulators’ failures to rein in unprecedented corruption at the banks. Unrepentant Wall Street bankers used billions of dollars of the bailout funds to pay themselves million dollar bonuses.
From year-end 2009 through year-end 2018 the Fed reported zero amounts of Repurchase Agreements (Repo Loans) because there was no cataclysmic stock market crash. But beginning on September 17, 2019, the Fed went into panic mode again and began shoveling out Repo Loans to its primary dealers (the trading houses owned by the mega banks on Wall Street) by hundreds of billions of dollars.
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