Good article that explains the repurchasing (repo) crunch that happened last week, "Here are some of the potential explanations I’ve seen…
- Corporations were seeking dollars for quarterly tax payments.
- The attack on Saudi Aramco spurred demand as oil spiked and investors feared a Middle East conflict.
- Banks and investors who bought $78 billion of U.S. Treasury notes and bonds issued last week had to settle up.
It could be any or all of these things.
But it could also be something worse.
It could be that the U.S. government is soaking up liquidity to cover its enormous debt burden.
The U.S. government’s budget gap has widened 27% as compared with the first 10 months of fiscal 2018 and spending has risen 8% while receipts have grown by just 3%. The federal fiscal year runs October through September, with the Trump administration recently forecasting a $1 trillion full-year shortfall.
So, last month, the Treasury laid out plans to borrow $814 billion.
That money is needed first to cover the government’s trillion-dollar fiscal deficit, and second to rebuild the Treasury’s cash balance, which was used to pay the government’s bills when the debt ceiling was hit in May.
Basically, this means the U.S. Treasury is cannibalizing the dollar by borrowing all of the money it prints.
If that’s the problem, then this liquidity crunch isn’t going away any time soon.
We’re going to be carrying trillion-dollar deficits for years going forward. And it looks like the Fed is going to be the one picking up the slack.
For as long as it can anyway.
Edited by Russ, 22 September 2019 - 09:14 AM.