In this article, I will discuss one of the most important topics almost completely ignored by the US mass financial media – why you must exit the decaying US banking system while you can. In the past three years, I have published dozens of articles on my news site about numerous red flags that have appeared regarding reasons why everyone must exist the decaying US banking system, yet if I had to venture a guess, I would even guess that the majority of people that read those articles still have yet to do so. For example, last year I wrote an article about the exploding MZM money stock and overnight repo markets. In that 2020 article, I declared, “I [ ] discussed [in 2019] the reasons why there was an explosion in liquidity provided by the US Central Bankers to major US banks through the overnight repurchase agreement (repo) markets that amounted to hundreds of billions of dollars weekly, and trillions of dollars monthly, that began at the end of 2019, and which the mass financial media never discussed fully, as if such highly abnormal operations were completely ‘normal’.” For this reason, I was surprised when a slew of articles about the exploding overnight reverse repo market hit the financial rags this month as a “new” unprecedented development with serious future implications. There is nothing unprecedented about it as I reported right here on my news site, this ongoing risk to the global banking markets in 2020 and in 2019.
All that has happened in July 2021 is that the volume of the weekly and monthly overnight reverse repo market that occurred last year is now manifesting in daily volume, none too surprising a development in my opinion, due to the zero interest rate environment that has deliberately created an environment in which bankers refuse to take any risk on the retail side (a development that will be devastating to retail bank consumers) while chasing the smallest of yields in the overnight markets. So what spurred further growth of the o/n reverse repo markets from bloated levels last year to insanity levels this year? Repos and reverse repos are just two sides of the same transaction with repos sold by the holder of securities and reverse repos bought and resold to the seller within 24 hours in o/n markets.
Usually commercial bankers are buyers of repos with bankers depositing MMF (money market funds) into a reverse repo and receiving US Treasuries as collateral until the transaction is reversed within 24 hours in o/n markets. The reverse repo facility offered by the Feds offered zero percent for a long time, but in mid-June 2021, the Feds boosted yields up to a whopping 0.05% </sarc> and simultaneously lifted interest rate on excess reserves (IOER) from 0.10% to 0.15%. These tiny changes comically caused nearly a trillion dollars in July 2021 to flow into reverse repos in a single day, even though these tiny yields were still going to cause massive net negative returns if real inflation rates that were multiple times higher than the “official” inflation rates were factored in. However, as more commercial bank reserves flow into the o/n reverse repo market, demand for short-term T-bills for inclusion into MMFs is also likely to fall as interest on 3-month T-bills is about equivalent, and as comically low, as the Fed offered 0.05% yield on reverse repo purchases.
So what does this mean in laymen terms?
All we’ve heard is crickets from the mainstream financial media about anyone needing to exit the decaying US banking system, and they continue to focus their obsessions on spreading undue fear about the virus to ensure politicians will have the political capital they require to unduly keep enforcing lockdowns. Consequently, I have broken down, in simple terms, what the insane volumes of the reverse repo markets likely foretell for our future.
MMFs Will Break the Buck in the Near Future as They Did During the 2008 Global Financial Crisis
Obviously, the global banking system is completely broken when commercial bankers are chasing yields of 0.05% to 0.15% like these yields are the holy grail. As demand falls for short-term T-bills, a constant staple of MMF assets, MMF managers are likely to purchase riskier short-term paper, meaning that the breaking of the buck of an American MMF in the near future is near inevitable. Consequently, for all people out there that view MMFs as safe as cash, well this perspective is wrong, so don’t say I didn’t warn you if your savings is in an MMF in America and you end up losing money in a short-term investment vehicle that typically never suffers losses in its NAV (Net Asset Value). Why anyone would subject their savings to the continually often significant degradation of fiat currency purchasing power is a decision that never made any sense to me.
More Banks Will Follow Wells Fargo Bank’s Lead and Cut off Credit From Their Retail Clients
Furthermore, if this massive spike in daily volume of the o/n reverse repo market continues, it will suck money out of the commercial banking system. In fact, this spike in reverse repo market transactions is directly related to Wells Fargo Bank’s decision to screw their retail customers yet again by forcing the closure of all retail personal LOCs (lines of credit), on which many have been relying to pay essential living costs from month to month as politicians have destroyed their monthly income with their unnecessarily severe lockdowns for the past year and a half. Though people desperately want to return to work as these government handouts for many only equate to a tiny fraction of the income they would be earning if politicians had not destroyed their ability to work, now Wells Fargo bankers are piling on top of people’s miseries by cutting off their financial lifelines of LOCs. Yeah, Wells. To add insult to injury, besides taking away financial life lines at people’s most desperate time of need, Wells Fargo bankers may actually be negatively impacting their customer’s ability to secure credit in the future as well, as any LOC closure, even an involuntary one forced by a bank, lowers a consumer’s credit score. In any event, think of Wells Fargo bankers as being the trailblazers in this stepping on the bones of people at their highest levels of suffering, because I expect more US banks to follow their example in the future.
Thirdly, this withdrawal of massive amounts of cash from the commercial banking system in the o/n reverse repo markets/repo markets will likely cause….
To finish reading the article about the need to exit the decaying US banking system, and the third most likely consequence of this ongoing decay, please visit my Rokfin channel.
