There is a free lunch ... if you are a billionaire

 Just a short rant.  The stock market dropped about 15% over the last year.  The bond market dropped almost 40% in 2022.  Real estate has dropped about 10% since its high in mid-2022.

What if I told you that I had an investment that was guaranteed to earn you 5% per year, with absolutely no risk on your part.  Ok its not sexy, but a solid 5% year after year.  Would you be interested?  Do I have your attention?  Drum roll please ...

It's called a "reverse repo" which is short for "Reverse Repurchase Agreement".  If you are a mutual fund manager or hedge fund manager and you can't find good investments, or you own a bank and you are having trouble finding solid customers to lend to, all you have to do is call up the New York Fed and lend them the cash.  It's a little complicated to explain but not that complicated.  The Fed owns lots of government bonds.  You would buy a bond from them and they would agree to buy it back in the future, with interest, with no risk on your part.  It's essentially a secured loan - you lend them cash and they give you the bond to hold onto until they redeem it.  It's like you own a pawn shop and they are pawning you their junk (bonds) to get cash.  I probably didn't explain it properly, read this:  FAQs: Reverse Repurchase Agreement Operations .

Question:  why would the Fed do this?  They certainly don't need the cash.  The answer is because they feel sorry for you, you broke little rich kid and since you are part of the old boys club, they are helping you out.  Next question: how can they afford to do this?  Simple - they just print the cash out of thin air.  But doesn't this cause inflation?  Yes, but who cares, inflation is for the little people.  What does this have to do with capitalism?  Absolutely nothing.  It's crony capitalism, where the government absorbs all the risk.  It's perverted and corrupt and sick.  Bankers are scum.  

But .. you say I don't care if its sick and perverted, I want a piece of the action.  Tough luck, its a small club and you ain't in it.  The "minimum proposition size is $1 million,  and propositions must be submitted in increments of $1 million".  It's a rigged game.  The rich get richer and everyone else suffers the consequences.  

Deferred Assets and Hyperinflation

 The latest Federal Reserve Balance Sheet is very weird.  What is that negative amount for "Other Liabilities"?  Footnote 15 says: "Includes the liability for earnings remittances due to the U.S. Treasury".

This is a violation of accounting theory, where everything is either a debit or credit, with no negative balances.  So how should this be presented?  It is really an offset to amounts that are to be paid in the future to the US Treasury.  I think that it should show up on the asset side of the balance sheet as an intangible asset, similar to Goodwill.  But it really is a loss, because the Fed had to pay out so much interest because of rising rates.  All the Reverse Repurchase Agreements and Deposits show above, more than $5 trillion, are interest bearing.  If the rate is 5%, then that is $250 billion of interest a year paid.  Would any other bank present it this way?  No way, that would be fraud.  Anyways, legalities aside, the Fed effectively is covering its losses by printing more money.

Now, read this old article I wrote: "What causes hyperinflation? Quasi-fiscal deficits".  

"What is a quasi-fiscal deficit? A quasi-fiscal deficit is the deficit of a central bank. From Germany to Argentina to Zimbabwe, the hyper or high inflationary processes have always been fueled by such deficits. Monetized fiscal deficits produce inflation. Quasi-fiscal deficits (by definition, they are monetized) produce hyperinflation. The only losses that can meaningfully affect central banks stem from flows (i.e. deficits), like net interest losses. These losses result from paying a higher interest on their (i.e. central banks’) liabilities than what they receive from their assets. These losses leave central banks no alternative but to monetize them, in a deadly feedback loop. They are like black holes: Once trapped into them, there is no way out, because (fiscal) spending cuts are no longer relevant, unless they produce a surplus material enough to offset the quasi-fiscal deficits. And that, by definition, is impossible."

So, the thought for the day is that we are already in hyperinflation.  Maybe it is only 8% right now, but it is caused by a systemic breakdown in our financial system as opposed to an external shock like occurred in the 1970s.  We are already in a doom feedback loop.  Inflation will continue because it is CAUSED by the Fed.  That $250 billion a year is created out of nowhere.  Granted, it is mostly offset by interest received, but that doesn't change the fact that it is hyperinflationary.  The Fed is trying to fight inflation, but they are actually causing it.  Inflation will continue to rise and the Fed will continue to raise rates which will cause inflation to go even higher.  The solution is for the Fed to cut rates, but this will force losses on the big banks.  The big banks are really the owners of our economy.  The ship is taking on a slow leak, like the Titanic after it hit the iceberg.  And all the lifeboats are for the rich cats, with none for the women and children.

Deficit of $82 Billion in December 2022

The federal government incurred a deficit of $82 billion in December 2022, CBO estimates—$61 billion more than the shortfall in December 2021.  Revenues were lower in December 2022 than they were a year before, and outlays were higher.  Net outlays for interest on the public debt increased by $45 billion (or 44 percent), mainly because interest rates are significantly higher than they were in the first quarter of fiscal year 2022.  Fiscal YTD net interest is $149 billion. (Note that net interest accounted for more than half of the deficit).

Remittances from the Federal Reserve decreased from $26 billion to less than $1 billion. Higher short-term interest rates raised the central bank’s interest expenses above its income, eliminating the profits of most Federal Reserve banks.

The federal budget deficit was $418 billion in the first quarter of fiscal year 2023, the Congressional Budget Office estimates—$41 billion more than the shortfall recorded during the same period last year.

Armstrong predicts collapse in 2044

 Martin Armstrong is an interesting character with a blog that I follow here -  ArmstrongEconomics.com/blog .  He just wrote this: "We have reached such a moment in history and the election of Kevin McCarthy spells the doom that we face ahead for the nation is more than just the deep divide between left and right, we are looking at the absolute vile corruption of Republican forms of government. This is why Caesar crossed the Rubicon. Six Waves of 31.4 years from 1856 brings us squarely to our model’s forecast for the total collapse of republican governments – 2044."    From https://www.armstrongeconomics.com/international-news/politics/kevin-mccarthy-wins-but-at-the-cost-of-the-nation/

I don't understand his model.  The 31.4 comes from Pi.  I don't know the significance of 1856.  So I don't endorse his theory, but I would like to understand it better.  I just find it interesting that he pegs 2044 as a year of collapse and I predicted 2043.  What will happen in 2044?  I think Armstrong is predicting a civil war or a communist revolution but it isn't clear.