The Fed has cut back its direct cash injections to Primary Dealers this week. So far it has bought approximately $92 billion per day in Treasuries and MBS from the dealers on both Monday and Tuesday. That’s down from more than $110 billion per day last week.
Of Monday and Tuesdays totals, $72 billion per day have been next day settlements of Treasuries. The rest are forward purchases of MBS that won’t settle until May.
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So the Fed will mainline about $360 billion in new money into the accounts of Primary Dealers this week. Net new Treasury supply will total $288 billion, so far at least. The Fed will absorb all of that and will leave $82 billion for the dealers to either play with or pay pay the margin man knock, knock, knockin at their doors.
Judging by the stock market action since last Wednesday, the dealers are opting to pay the margin man. The probably have no choice. They’re broke. The Fed is in the process of owning the market and becoming the market.
The Fed injected around $600 billion into the markets and the banking system last week. That’s about $2,000 for every American, and it was just one weekly installment. All in the valley of Death rode the 600. We are the 600 and the Fed is leading us into the valley of Death.
Meanwhile banking indicators suggest that the sickness is getting worse, not better.
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