Recommended reading: 8.28 Teaching Chain Internal Reference " It's cool before entering the market ." Liu Jiaolian Pro " Bitcoin's Currency Model ".
* * * Original by Liu Jiaolian * * *
As we all know, BitMEX founder Arthur Hayes has always criticized the Federal Reserve’s monetary policy, believing that the Treasury Department and the Federal Reserve are colluding to cover up the truth about the excessive currency issuance. Recently, he wrote an article detailing how the Federal Reserve deceived the public by playing the magic trick of raising interest rates and shrinking its balance sheet.
Liu Jiaolian’s popular article " Artificial Prosperity: The Great Transfer of Wealth " (2023.8.21), which he has read for 5w+, once introduced that after the stressful and unprecedented large-scale expansion of its balance sheet in 2020, the Federal Reserve will expand its balance sheet from mid-2022 to 2023. In the middle of the year, interest rates were raised at a lightning speed. Powell wanted to be a hero twice: once to release water, and again to collect water. He wants to be the Paul Walker of the new era (the former chairman of the Federal Reserve who was famous for his aggressive interest rate hikes in the 1980s). But Arthur Hayes said that times make heroes, and today's situation is absolutely different from that of the 1980s. Powell cannot become Paul Walker, and he will inevitably lead the Federal Reserve to failure.
The most important difference is that when Paul Walker tightened the money supply in the 1980s, the U.S. debt/GDP ratio was only 30%, while today the ratio is over 120%!
Another difference is that Paul Walker only aimed to purely control (reduce) the quantity of money and gave up control of the federal funds rate (FFR) and let it fly freely; while Powell wanted to control both at the same time.
How does Powell control interest rates? Through two financial instruments: one is called overnight reverse repurchase (RRP, Reserve Repurchase Agreement), and the other is called interest on reserve balance (IORB, Interest Of Reserve Balance). Setting the RRP interest rate can control the lower limit of the interest rate range. By setting the IORB interest rate, you can control the upper limit of the interest rate range.
No matter how sophisticated the terminology may seem, the essence is very simple: the Fed pays interest to "bribe" banks to hand over dollars to the Fed.
We know that banks’ money-making model is the interest rate difference between deposits and loans. If you deposit 100 yuan in the bank, it will give you 2 yuan in interest a year; the bank will take 100 yuan to lend money and charge you 10 yuan in interest a year. The bank earns 10 - 2 = 8 yuan in interest rate difference between deposits and loans. Has the bank invested the principal? No, it uses your money to make money. Using other people's money to make money for yourself is the most profitable model.
How does the Fed "bribe" banks? RRP is like telling a bank that you don’t have to pay for the interest on user deposits. Give me the deposit and I will advance it from the Federal Reserve. In this way, banks and money market funds (MMF, Money Market Fund) came one after another to hand over user deposits to the Federal Reserve. IORB is equivalent to telling the bank that you don’t have to search for business loans. If you accidentally get a bad debt, just give the money directly to me. The Federal Reserve guarantees to give you U.S. dollar interest on schedule (voice-over: U.S. dollars are all there anyway. I printed it, it’s absolutely risk-free). As a result, banks no longer take money to lend, but give the money to the Federal Reserve.
In the article " Artificial Prosperity: The Great Transfer of Wealth ", Jiaolian mentioned that the solution to the proliferation of currency is generally to issue more currency. Yes, that’s exactly what Powell did – by paying more interest, he “tempted” banks not to use their principal to create more money and put it into the economic cycle, but to play against the Fed. The game of the right hand, soft lock position in the financial idling situation.
How big is the plate of this financial idle bureau? About nearly 5 trillion US dollars! Moreover, every time the plate rotates, it will increase in size. The proportion of the global dollar total will also increase by one point. This is equivalent to invisibly taking away the wealth in the hands of other people who are not involved in this game!
According to Hayes' calculation, IORB pays US$14.53 billion in monthly interest, and RRP pays US$8 billion in monthly interest. But that's not all. Because this is just a Fed investment. The huge amount of U.S. Treasury bonds, under Powell's high interest rates, has also created huge interest payment pressure. We need to include this part of the investment.
It can be calculated that after deducting the balance sheet reduction and income tax, a net investment of US$23.37 billion will still be made every month. From the joint feeding of the U.S. Treasury Department and the Federal Reserve.
Who earned the interest? Banks, buyers of U.S. dollar monetary funds (such as users of the Apple version of Yu’E Bao), and U.S. debt investors (such as Buffett, Tether, MakerDAO). [Liu Jiaolian Pro 2023.4.20 article " Apple launches the US version of Yu'e Bao, will it siphon off the Federal Reserve?" ", Liu Jiaolian 2023.5.20 " Stablecoin is a good business ", Liu Jiaolian Pro 2023.8.8 article " 8% high interest rate to attract savings, a pie or a trap? 》】
If Trump and Biden’s indiscriminate spending of money in the past few years benefited ordinary Americans at the bottom (which is equivalent to sharing the wealth of the rich and people in non-American countries in disguise), then the tide has turned, and now the high-ranking Interest is to compensate the rich. Who are the rich people? Whoever has money is a rich person. The richer you are, the more interest compensation you receive. [Liu Jiaolian Pro 2023.8.9 article " Warren Buffett hoards hundreds of billions of U.S. debts "]
Now Powell is riding a tiger with difficulty. He was holding the iron chain around the tiger's mouth tightly in his hand, and he would kill one sheep at a time, then another sheep at another time, and keep feeding large chunks of meat into the tiger's mouth, in order to temporarily stabilize the tiger. Keep it from breaking free from its chains. If he stops feeding meat, the tiger will become more animalistic, break free from its chains, and quickly pounce on the sheep, causing numerous deaths and injuries. If he continues to feed meat, the tiger will become infested. The tiger's appetite will become bigger and bigger, and it will become more and more cunning, and it will become more and more uncontrollable.
Dear Sheep, what do you think when you see this situation?
* * * Original by Liu Jiaolian * * *
Recommended reading: 8.28 Teaching Chain Internal Reference " It's cool before entering the market ." Liu Jiaolian Pro " Bitcoin's Currency Model ".
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