Plumbing Problems?

The disruption in the repo market in the U.S. has generally been dismissed as simply a mechanical problem driven by a regulatory environment which ring fences reserves rather than letting them flow to market driven liquidity events such as what we are seeing currently. What has not been discussed is that the start of such issues began to surface as Treasury borrowing needs started to amplify given that we will have close to a $1Trillion deficit to fund, without the Fed as a partner we might add. Such issues did not surface over the last 10 years as the Fed was a willing participant in the public debt -for  private growth tradeoff that we have so mindlessly embraced. Rest assured that there will be more plumbing problems to come, particularly as capital controls and currency wars virtually ensure more unintended consequences.

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