Money, Money, Money
Talk about cash money, dollar bills y’all
Ok, another apology. I try very hard not to be clever. Funny yes, clever no, though I do worry with the seriousness of my humor people miss the punchlines. I don’t wish to spend a lot of time, none at all really, chasing and mocking the news, that is 90% of what goes for analysis on the internet. I guess people find it entertaining, but it’s not healthy for you, much, much less so for me.
Over recent years, I try to become a better American — the bliss of comfortable ignorance — but in this my patriotism’s continually tested. My news intake compared to what it once was is infinitesimal, though still far too great. Certainly at times, events become heavy, heavy things, impossible for even the most determinedly distracted to ignore. Take the current atrocity that is Israel-Palestine, it’s depressing. But good news, it’s taken the atrocity of Ukraine off screen, even better, there’s growing talk in the echelons of the need for Ukraine to accept peace. Phew! When that happens just remember the terms Ukraine will be able to gain are far less appealing than those available before Putin launched his criminal idiocy, not to mention the resulting rivers of blood and massive destruction incurred. That my fellow Americans is the leadership of your National Security State.
However, today, I write not about America’s endless wars, but money, something dearer to all our hearts. The financial press is increasingly filled with talk of financial disruption. The world’s all about disruption of any kind these days. The FT has a “big read” about the bond market, US Treasuries specifically, the foundation of the American money system.
The FT writes,
Over the past month, the Bank for International Settlements, a convening body for the world’s central banks, and US Federal Reserve researchers have pointed to a rapid build-up in hedge fund bets in the Treasury market.
Then adding for this our information age, with zero hint of irony,
“The scale of the basis trade is hard to pin down. Even the Fed lacks precise data. …the Fed researchers said the strategy poses a “financial stability vulnerability” while the BIS said it had the potential to “dislocate” trading.”
I’m not sure which disruption would be worse, financial stability vulnerability or dislocated trading. The article goes on,
“Analysts, experts and investors argue that the Fed’s interventions in the Treasury market in September 2019 and March 2020, among others, have led to a belief that the Fed will intervene in any instance of extreme market instability, implicitly backstopping speculative trading.”
“Led to a belief”!? Lord, it’s an indisputable fact like gravity.
The punchline of the whole piece,
“I do think moral hazard is very real here,” says Morgan Ricks, a professor at Vanderbilt Law School, where he specialises in financial regulation. “So I don’t think it’s unreasonable to think that the Fed’s implicit backstop of this trade is encouraging more of the trade to happen.”
I do think and moral hazard, Lord, that’s funny, funny stuff. That’s why Morgan is a professor, best a law professor. The whole frickin financial system is moral hazard at this point. The only real question is if it starts to plunge, the Fed intervenes, but then still keeps plunging, a la the Bank of Japan in the early 90s.
The Bears start soon, talk about something best ignored. If you think things are bad, be glad you're not a Bear fan.