Checkmate: The Coming Federal Reserve Bailout | Disaster.

is nuts but the United States might run

out of buyers for U.S treasuries which

might mean the Federal Reserve is going

to turn on the money printer again to

prevent the U.S government from going

bankrupt I kid you not this is what

Credit Suisse is predicting a very

particular analyst who has a really good

thesis for this listen to this because

it's nuts and in the video we'll even

talk about how to prepare yourself

quantitative tightening has just begun

in fact if you look at the St Louis

Federal Reserve you can see on their

website that the Federal Reserves

balance sheet has absolutely exploded

from under one trillion dollars leading

up to the 2008 recession exploding to

nearly twice that following the 2008

Great Recession we then saw their

balance sheet run up to nearly 5

trillion dollars by 2015 and then of

course when the money Printing and the

stimulus happened after covid we we ran

up to

8.9 trillion dollars in total assets on

hand at the Federal Reserve now we've

started the quantitative tightening

process as you can see here the line has

started to go down slightly the Federal

Reserve has gotten rid of a good old

about 400 million dollars worth of bonds

on their balance sheet this is an

example of tightening this is basically

the Federal Reserve saying hey you know

what we're just not going to renew the

treasuries on our on our balance sheet

as much we're just gonna start rolling

them off to the tune of maybe 90 million

dollars a month and this is roughly what

they've started doing now the question

is is it possible that the Federal

Reserve ends up having to actually go in

the opposite direction and start

printing money again as we walk into a

recession

this is exactly what Credit Suisse

believes the Federal Reserve will do not

because they need to stimulate the

market but to prevent the United States

government from going bankrupt

yup kid you not we've got a few problems

for the government see the federal

government projects to have about a one

trillion dollar deficit per year for the

next decade and the current debt ceiling

is about 31.4 trillion dollars and guess

what folks we are about

69 billion dollars away from hitting

exactly that debt ceiling you can see

that here the right line is the total of

debt a public debt that we have subject

to the Limit and the statutory level is

right there

and guess who might stand in the way of

raising this debt ceiling which we think

we might hit that debt ceiling limit

somewhere around the summer maybe July

of 2023 well if you thought it was easy

to get stuff done in Congress

your thoughts should have been

extinguished when you saw how hard it

was just to get house Speaker Kevin

McCarthy elected it took 15 rounds of

voting just to get the house Speaker

elected that shows you how thin the

Republican majority really is in the

House of Representatives this hasn't

really happened since once in the 1920s

but more commonly back in the 1800s this

is pretty remarkable but imagine trying

now to get a debt ceiling increase

through the House of Representatives

might not happen

and this is really interesting because

in order for the government to actually

fund it fund its expenses to keep the

government functioning the government

slowly reduces the debt ceiling but by

increasing the debt ceiling would they

actually end up having to do is agree to

create more treasury bonds that's

basically the way it works what they do

is they say hey uh we need another 100

million dollars today what are we going

to do oh uh how about we just issue a

bond and uh we'll just promise to repay

people 100 million dollars so we'll just

issue a promise a piece of paper we'll

call it risk free because historically

it has been we'll slice it up into

little thousand dollar sections and

individuals can go buy these treasury

bonds and we'll pay them interest on

that but basically we just kind of

created money out of nothing

so we do expect the debt ceiling to get

raised so the treasury Department can

generate more of these bonds and fund

the government how much it gets raised

will be up for a debate but what's crazy

is who's going to buy these bonds what

if people stop buying these bonds who

comes in to buy the bonds when the

government stops

uh having buyers for the treasury bonds

well that's where Credit Suisse believes

it's the Federal Reserve so as the

government knocks on the door of

bankruptcy it's possible the Federal

Reserve may have to come and start

turning the money printers on again and

end quantitative tightening early

solely to support the actual function of

the government

now that's fascinating because you might

think to yourself well who's buying

treasury bonds today and isn't it

possible that you know the people buying

treasury bonds today will just be here

to go buy those treasury bombs

maybe but according to Credit Suisse the

first issue that we Face there are three

issues we face in terms of actually Four

issues that we face in terms of ordinary

classic buyers of treasuries okay so the

classic buyers of treasuries the number

one classic buyer of treasuries are

people who need to or institutions who

need to Garner some kind of yield from

the cash that they have available well

problem with that is the Federal Reserve

has this thing called the reverse repo

uh depository account and basically

Banks and institutions have been

depositing more cash in the reverse repo

Market since about March of 2021 that's

why this line has been going up so much

and the rate on these reverse repos is

basically your fed funds rate divided by

360. that's how much you get paid per

night so think about that for a moment

that's your banking year is 360 days

so if you get paid five percent because

the Federal Reserve has raised rates to

five percent and you get paid this every

single day well that's better than a

10-year treasury yielding you 3.75 or

even a two-year treasury maybe yielding

you 4.25 on the day rate right you would

make more money obviously uh from the uh

from the reverse repo than you would

from investing in treasuries so in other

words because of the repo rates and the

Federal Reserve raising interest so much

you actually end up killing one of your

primary buyers of treasuries people who

just want to park money overnight

so that buyer goes away then Credit

Suisse suggests that banks are unlikely

to be buyers so they're going to go away

because they're already holding a bunch

of underwater bonds and they've kind of

gotten screwed and instead they're

taking their excess cash and what are

they doing it what are they doing with

that they're putting it into the reverse

repo Market

so number two goes away foreign exchange

buyers are starting to get priced out

because even though the dollars come

down a little bit recently it's very

very expensive compared to historical

Norms so there's this argument that less

foreign buyers might come and maybe

there's even less of an appetite to buy

treasury Bonds in the United States

maybe to diversify a little bit more

away from those

and finally

geopolitical events have also led to

large FX Reserve managers reducing their

appetite for treasury debt number three

and four being somewhat correlated

somewhat similar to each other right so

Credit Suisse is making this argument

that uh oh your classic buyers for

treasuries are potentially going away

because a you've got a bunch of people

or institutions able to just throw money

into the reverse repo Market in which

case why bother buying treasuries

so who's left then this is potentially

as Credit Suisse calls it a check mate

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potentially as Credit Suisse calls it a

check mate like situation where the

Federal Reserve has to end up coming in

and buying treasuries again and they

could do this under the guy eyes Credit

Suisse says of what's known as yield

curve control now that's really

interesting and a very fascinating uh

phrase because what just happened in

Japan well you don't know what just

happened to Japan

allow me to indulge you oh here's how

yield curve control works run with me on

this I'm going to keep it as simple as

possible okay

10-year treasury in the United States

right now is like 3.5 3.7 percent

somewhere on there let's say the

government comes in and says we don't

want it to go any higher than four

percent

so they actually set a cap they're like

we don't want that number to go over

four percent and the reason you might

not want it to go over four percent is

because even though you want to tighten

markets a little bit you still want to

be accommodative to the market right you

don't want to completely tighten

Financial conditions to where you have

rates so high and so expensive that you

walk into a recession this is what Japan

is doing they don't want another lost

decade they want to keep stimulating

their economy at least somewhat and so

what they do is they Institute a yield

cap and anytime interest rates start

approaching that yield cap they push

yields down they can push yields down by

buying bonds quantitative easing they

buy bonds making bonds more expensive

pushing yields down now everything's

been pretty ordinary in Japan in 2020 to

2021. things have moved or pretty much

been respecting of the yield cap and

things uh you know the yield cap has

been kept pretty low this is somewhere

around a quarter of a percent but it

started breaking the yield cap line on

the right side that's because people

started dumping Japanese bonds and maybe

they're buying U.S bonds or other bonds

so Japan said uh okay well let's just be

less stimulative to our economy let's

raise the cap nobody was expecting that

cap to be raced and that worked

temporarily as the bank of Japan started

buying bonds and pushing those yields

down that's kind of what we've seen over

here

but the Futures pricing is problematic

because the Futures pricing suggests the

uh basically the bank of Japan is going

to have to raise the cap again or

they're just going to have to keep

Printing and printing and printing more

money

over stimulating potentially the economy

again or trying to overstimulate the

economy and introducing all of this

flood of money into the economy just to

keep yields where they want them to be

this is roughly the same thing that you

could see happen in the United States

but with a slightly different story The

Fed basically comes in and let's say the

10-year treasury yield is trading for oh

I don't know let's just say it's at 3.5

percent and then all of a sudden the

treasury market starts becoming

disorderly and the FED needs to buy

bonds so the government can function and

not go bankrupt well the FED could just

go

um we don't want 10-year treasury yields

uh to ensure ordinary functioning of the

market to go any higher than 3.25 and so

therefore in limited amounts we are

going to buy 10-year treasury bonds and

we're going to push those yields down

meanwhile the treasury Department gets

the money they need because nobody else

is buying the treasury bonds remember

when the FED buys treasury bonds the US

government gets the money the US

government is like ah yeah it's here we

have money to buy to spend and now we

can send this money to Ukraine or

whatever they want to do with the money

right

so in other words the FED once again

could become the lender of Last Resort

for the U.S government

and they could do that by pretending to

actually want to Institute yield curve

control when really what they're

actually trying to accomplish is an

ordinary Bond or like an orderly bond

market now what other massive Market in

the world like the fifth sixth fifth or

sixth largest economy in the world just

had to Institute Bond buying which again

is stimulative during inflationary times

well remember the United Kingdom they

just went through exactly that Liz Trust

of the United Kingdom spent 44 days in

office and during her 44 days she kind

of screwed up the bond market because

her Chancellor of the exchequa which is

kind of like the treasury secretary

kwazi katang he came out and said we are

a nation of entrepreneurs okay I don't

know why I'm going angry German here but

he basically came out and said We're a

nation of entrepreneurs and we are going

to stimulate our businesses we are going

to lower the top tax rates to motivated

and incentivize people to work and we're

going to take in less money and we're

going to spend more and the bond

Market's like

y'all gonna take in less money

and y'all gonna spend more money

effort I'm out I'm out that was the

that's what the bond market did in the

United Kingdom which when people are

like I'm out what do they do they sell

their bonds

the selling of the bonds all of a sudden

plummeted the value of bonds

yields

skyrocketed on the bonds making the

financial system really really tight and

because the values of these bonds fell

margin calls that institutions are going

off all over the place all over the

place to the point where Margin Call

based institutions like who actually

handle uh these transfers and the

settlement of these exchanges

didn't even have enough hours in the day

to process all of the margin calls that

were happening Pension funds were on the

doorstep of bankruptcy because their

bond values had plummeted so much

and all of a sudden who comes in to save

the day as the British pound loses a ton

of value and hits parity with the dollar

because people are like I'm out get me

out of the United Kingdom it's unstable

dump the bonds dump the British pounds

who comes in to save the day ah well

October 11th you get the bank of England

who makes a statement dysfunction in

this market and the prospect of

self-reinforcing fire sale Dynamics pose

a material risk to financial stability

therefore we are widening our purchases

of guilts basically treasuries in the

United Kingdom for three days and we

will buy an unlimited amount of bonds

I'm paraphrasing those sort of last

sentence there but anyway

that that the bank of England's bailout

and the ouster of Liz truss who's now

been replaced by Rishi sunak who's now

fighting with nursing unions on pay

increases uh and uh promising to cut

spending of the prior Administration and

reducing debt and reducing expenses

pounds back up over 22 things are stable

again right but it shows you that if the

United Kingdom can have a bond market

collapse like that could we potentially

see the Federal Reserve have to really

come bail out the United States to

actually provide liquidity to the

treasury market is it possible that

treasury yields could Spike as nobody

starts buying treasuries uh and and

people or institutions instead Park

their money in the reverse repo field as

all of a sudden those yields or rates

are even higher yes it's absolutely

possible so bottom line out of all of

this

is as inflation continues to Trend down

and rates go up you might have more

people with money move their money into

stocks and less money into bonds the

people who would ordinarily buy bonds

might put that money into the reverse

repo market now you don't have buyers

for treasuries or too few buyers for

treasuries now the FED has to step in or

they risk yield spiking on treasuries

and financial instability in markets so

what does the FED do well they don't

want instability they come in and they

start printing money again and all of a

sudden this whole monetary experiment of

uh print money print money print money

forever

continues and then we go into the next

iteration of QE forever where basically

we never get the federal reserve's

balances down because now just for the

treasury market to actually function the

FED has to bail everyone out

this is insane and it could come

well to uh to a TV screen or computer

screen near you within the next six to

12 months

how do you prepare yourself for that

well this depends how you want to

position yourself some say the

beneficiaries of this would actually be

the stock market

now where you want to position yourself

in there is up to you personally it

seems like some of the benefit would go

to bonds because you'd have a lender of

Last Resort coming to buy it's possible

to Value those could actually fall

before that ever happens so kind of

speculating there

maybe you just look for long purchases

like pricing power stocks that you could

kind of buy and and hold on to and build

your sort of exposure to in a

recessionary environment as hopefully we

rotate out of this madness and maybe

inflation goes away and what does the

FED end up doing after this financial

instability well fed starts cutting

rates because then you start seeing the

reverse repo rate segment go down below

where the treasury market is paying

people buy treasuries again rates

continue to get cut maybe treasuries

fall more and you kind of get the stair

stepping down and the FED is pretty

careful about ever launching QT again or

does so in even softer ways until we get

those yields slowly coming down again

all of that I expect would actually be

beneficial for the stock market but it

could honestly take another year for

that to happen but here's sort of a

manuscript of what could be coming down

the pike and what Credit Suisse is

expecting for the U.S bankruptcy if you

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