The Fed *JUST* Released a Sunday Panic Update - Fed Liquidity Swap Flip

hey everyone me Kevin here the Federal

Reserve just came out with a Sunday

update the last time the Federal Reserve

came out with a Sunday update was well

last week uh but this is actually very

rare that the Federal Reserve comes out

with Sunday updates uh the last time

before that was actually back during

covid March of uh the pandemic the

Federal Reserve on a Sunday cut interest

rates from like two percent to zero it

was so shocking it was like all right

that's a Fed user and that's by time

well the bottled Market was like two

weeks later so the Federal Reserve just

came out with a Sunday update

I'm not going to read you the update

because nobody didn't understand the

update it has to do with liquidity swaps

it's very complicated I'm just going to

explain it in the simplest manner

possible so we're gonna go over here

where there's less wind and of course

I'll start with what I usually start

with which is reminding you that I

really appreciate you being here

so here's what just happened

the Federal Reserve has agreed with the

Bank of Canada Bank of Japan the ECB the

Swiss National Bank

Etc uh and Bank of Canada and I think

Bank of England if I didn't mention that

already

they've agreed to provide a liquidity

swap Agreements daily rather than weekly

all right that's not English Kevin come

on help us out here

roll with me on this

Banks need Dallas

why

let's say you're a Community Bank in

Japan and all of a sudden everybody in

Japan is freaking out because there's a

banking crisis in America I mean even

China is saying Hey Y'all tightened way

too fast that's why y'all having

problems and uh don't worry our banks

are fine don't cause a bank run over

here the whole world is panicking over

the spanking crisis

so let's say you're a bank in Japan not

the bank of Japan a small Community Bank

is a fan like it has an ATM right you

walk in you get 20 Yen out or whatever

all right so you're banking

and everybody's showing up to take money

out

and now the money's like crap we need

money

well we have all these United States

Treasury Bonds on our balance sheet

because that's what international

communities do they hold U.S treasury

bonds as well as their own and a mixture

of other assets but some of it are also

U.S treasuries they're like well we

could dump those and then we'll have

more cash so we can give people the

money they want their deposits back

imagine that giving people their

deposits okay

well how are you gonna dump the treasury

book well somebody's gonna buy it from

you fantastic but what are they gonna

buy it with well dollars okay great but

what if the person who wants to buy it

some half dollars well they need to

exchange the money that they have for

dollars so if they have Japanese Yen and

let's say they're an institution they go

to their Central Bank and they say hey

I'm e dollars here are all my Yen uh can

you give me dollars they say sure but we

don't have any dollars either let's just

call up j-pal hey jpal we need some

dollars

and then Jay pal says all right here's

some dollars give us your Yen and we'll

swap that back

overnight in a week in a month

whenever so you have some kind of

predetermined swap that's why it's

called a liquidity swap it's just

swapping Dallas again back and forth

predetermined uh daily weekly whatever

terms by moving these operations to

daily the Federal Reserve is saying to

help alleviate banking stress and to

prevent any kind of contagion or Panic

where all of a sudden you have that

local Community Bank that's like okay we

got a bunch of people wanting to take

their deposits out but they can't

because we can't dump our bonds because

we have to wait for the weekly operation

of the FED uh you know the fed's not

operating daily we have to do this once

a week well then people start panicking

so to prevent that Panic what do we do

well now we do the operations daily

okay the purpose of that is to keep

Banks functioning so that way if a bank

continues to function they could

continue to leave your home equity line

of credit open or your credit card open

or let you borrow money as a business or

get a mortgage whatever keep the economy

going

draw down your credit line by the way

something I'm talking to course members

about as well uh which reminds me about

that coupon code linked down below and

I'm going to tell you some more about

these implications about the fed and

stuff but yes remember uh next uh week

on the 22nd coming up here for the fomc

meeting we will be having another price

increase for the programs of building

your wealth you get a uh a guarantee

going forward that you have the best

price possible so make sure to check out

those programs linked down below

okay now

what do we need to address well we need

to address is this QE oh yeah and if I

haven't made it clear draw down your

credit lines put the cash somewhere in

an account maybe even at a different

bank have it as cash

my take I I wouldn't be surprised they

start freezing credit lines they did

that in 08 too okay

now what does this actually mean

well what it means is

the FED is probably temporarily going to

expand the money supply now is this QE

technically no

QE is technically the purposeful

expansion of the money supply

this liquidity swap does not expand the

money supply as long as the Federal

Reserve has ample liquidity

as soon as the Federal Reserve does not

have ample liquidity in other words they

run out of dollars

then they turn the money printer on and

then they unintentionally increase the

money supply

technically temporarily

okay

if the bank of Japan or the Bank of

Canada are the bank of England if they

don't have enough of their own currency

guess what they do they print it

so yes the money supply expands is it

technically QE no

is the money supply going to expand in

the short term very likely this is why

JP Morgan projected that the money

supply could expand by two trillion

dollars thanks to these uh Bank bailout

programs that are going up and these

these liquidity issues so

that means the money supply will

probably expand and yes that is

inflationary

it is also a sign of at least some

franticness by the FED is it a sign that

more things are breaking

no not necessarily uh maybe it's

preventive but it is likely going to

expand the money supply that's not the

intention here the intention the goal is

to try to get inflation down without

destroying the economy right but an

implication of this will likely be the

expansion of the money supply even more

uh and that could be inflationary as

long as that is mostly

transitory right as long as that

inflation isn't too sticky

this is okay some banks are gonna fail a

lot of people are going to lose a lot of

money in the banking system

hopefully our deposits are safe

be at the big Bank stay away from the

smaller Community Banks if you're above

the FDIC limits if that's even a concern

if you're not above the limits don't

worry about it

how does this change anything for a 25

BP hike next week it changes nothing it

changes nothing

just because they're operating something

daily and just because they happen to be

panicking and announcing something on a

Sunday does that mean that they want to

freak the market out even more by going

for zero that would be a surprise to me

I'm really expecting 25 and then after

that 25 I am expecting zero and then

soon after that they will probably start

slashing and that will be the official

signal the bat signal of the FED U-turn

although I think we're getting enough

writing on the wall already of what's to

come so again

liquidity swap thing yes happening on a

Sunday a little panicky but they want

the operations to start tomorrow it's

because they're trying to contain this

banking disaster the banking crisis the

contagion right that's that's the point

of this

so again liquidity to Banks

trying to keep loans continuing going

Financial conditions and lending

standards or tightening which means if

you have outstanding lines of credit

that they might be going away soon

other implications hopefully this leads

to more stability

and no more crisis that's the goal we

don't want more crisis but it's probably

going to expand the money supply and

hopefully that does not push up

inflation even more because we already

have enough sticky inflation it's time

for that inflation to stop

I expect the Federal Reserve a lot of

people are calling for basically the FED

not only to cut rates but then basically

say let's jack up uh the inflation

Target the three percent they don't need

to do that they're gonna pull the Fate

hat out of them out of the bottle or the

the genie out of the bottle of Fate

flexible average inflation targeting and

then they will use the policy of the

1980s called

opportunistic disinflation which is just

a fancy way of saying they're going to

take 10 years to get inflation down

that's my take so they're gonna take

their time

to get inflation down in the meantime

probably gonna cut rates and today's

update really practically

doesn't mean much to us

but from a sort of a messaging point of

view

seems a little panicky

uh so if you're panicking make sure to

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next one good luck