Major banks and hedge funds around the world have for years remained high “mainlining” their drug of choice, a cheap dollar. Their drug “dealer”, the Federal Reserve, has been complicit in their addiction, and today made yet another delivery by increasing the daily dosage allowed to $175 billion from $150 billion!
It was just Monday, that the Fed increased the dosage to $150 billion from $100 billion. The drug addicts….errr, I mean the banks and hedge funds….are throwing extreme tantrums when they don’t get their drugs. They stamp their feet, threaten to default on the loans they borrowed from their dealer, and demand they get their way, or they will sell the markets down with a vengeance.
Today, the Dow Jones Industrial Average dropped by over 1400 points, putting the market solidly in a bear market stance being down a total of 20% from the most recent peak, while ending the 11-year bull-market run….the longest in US history. The cheap money delivered by the Fed has also created the largest financial bubble in US history!
The obvious signs of addiction began appearing on September 17, 2019 when the bank overnight lending market (aka “repo market”) blew up, sending repo market interest rates rising from 2% to 10% in seconds. The drug dealer (aka the Federal Reserve) came to the rescue with an injection of cash that soothed the addicts (aka the banks). What the Fed should have done is let them crash and stop enabling the problem children!
The chart below shows the amount of injections, by day, the Federal Reserve has been handing these banks and hedge funds since September 17. Recently, that amount has exploded as the stock and credit markets show even further signs of distress. In other words, providing the addict with even more drugs is NOT working!
With each injection, the amount of dollars in circulation increases, which in turn decreases the value of every other dollar in circulation. Put simply, the money in your wallet or purse is worth LESS, and will buy fewer things because of these monetary drug addicts! The Federal Reserve is robbing YOU to pay them!
This needs to stop now, and the banks need to get control of themselves and become disciplined. I am not under any illusion they will be able to do this on their own. What they need is Congressional Rehab!