Fed’s ‘Repo’ Struggles Continue—See LaRouche’s Triple Curve

Oct. 7, 2019 (EIRNS)—The Federal Reserve has had to continue its battle, now in its fourth week and second consecutive quarter, to keep short-term interest rates from rising and wrecking parts of the “everything bubble” centered on corporate debt and derivatives.

The New York Federal Reserve Bank’s trading desk not only has had to continue overnight repo lending operations into October, but their volume is increasing again, requiring $47 billion loaned of the $75 billion limit this morning. The Fed now says it will continue the overnight repo loans every morning at this limit at least until Nov. 4, and in addition will conduct eight 14-day repo loan operations between now and then, of $35-45 billion each, starting tomorrow, Oct. 8.

In their “Wall Street on Parade” column today, Pam and Russ Martens write:

“The Fed’s money sluicing operation that began abruptly on Sept. 17 is taking on the distinct appearance of its machinations during the early days of the 2008 crash—a time when it also refused to name thebanks that were receiving the money.”

They remind that many of the “primary dealer banks” getting these loans are actually “the securities units of foreign banks” like Deutsche Bank, HSBC Securities, etc., which are experiencing their worst year, financially, since—2008.

Fundamentally the Fed is fighting to prevent a rise in short-term interest rates which began to express itself, explosively, Sept. 16-18, as a result of the sheer mass of demand for more debt to cover existing masses of speculative debt as they come due or roll over, and as the underlying economic sectors involved stop growing and/or contract.

Lyndon LaRouche showed this in his 1995 “Triple Curve” heuristic diagram of a “Typical Collapse Function” (see EIR, January 1, 1996). There, he referred to the escalating growth of debt in such a crisis as “the financial aggregates,” and showed the explosive expansion of money-printing—“monetary aggregate”—to keep up with it. If money-printing—as in the “QE4” the Fed has effectively been propelled into—reaches even greater acceleration than the debt growth, a financial blowout threatens. It can be prevented, but only by strong intervention to break up “universal banks” on the Glass-Steagall principle and protect commercial banking. EIR showed that this point arrived early in the 2000s, leading to the 2007-08 global financial crash which LaRouche sought to prevent with appropriate legislation, blocked in Congress.

If short-term rates escape Fed control and rise even for months, they would blow out leveraged lending and parts of the securitized corporate and household debt in large waves of default. The fact that industry and manufacturing are again sinking, makes the problem worse.