Hey everybody. Jeff Nabers,
here it is Thursday,
September 19th when I’m recording this,
you’ll probably get this in the
afternoon, maybe early morning Friday,
and this is a kind of
potentially momentous time. Okay.
The Federal Reserve has just done three
bailouts this week for the first time in
over 10 years since the global financial
crisis in 2008 so what’s going on?
Who’s getting bailed out
and what does this lead to?
That’s what we’re going to
talk about in this video. Okay.
A couple of news stories. We’ll start
with here. I’ll share my screen.
You see from the Wall Street Journal,
fed injects more money into money markets
after banks bid heavily for funds.
Then you see fed add $75 billion to
the financial system and the third repo
transaction. This week here we’ve
got an explainer from Reuters.
The Fed has a repo problem. What’s that?
And then kind of a related story on CNBC
fed loses control of its own interest
rate as it cuts rates.
This just doesn’t look good.
Says the headline. Okay, well,
I’ll put links to those stories so you
can read them below the video here.
So what’s going on here? Well,
first off you’re going to see this is
all about repo markets and the Federal
Reserve is doing repo
operations or repo transactions.
Okay? What’s happening is the
mainstream media is treading lightly.
They don’t want to use the B word.
They don’t want to alarm anyone,
but the truth is we’re going to have
to use the B word if we want to talk
plainly in ways we can understand.
These are bailouts directly quoted from
a text message I received this morning
from the CEO of a nationally chartered
bank here in the United States,
$53 billion bail out
Monday, $75 billion bailout,
Tuesday $75 billion bailout Wednesday.
This seems to have no
stopping point and quote.
What are repo markets now
to understand repo markets,
what they are and why they exist.
We need to go back to look at banks in
a particular fractional reserve banking.
The way fractional reserve banking works
is if you have some money that you want
to deposit, and I’m a bank,
let’s say you deposit $100,000 at my bank,
I’m going to then lend 90,000 of your
dollars out to somebody else and earn
interest on that and then I’m going to
keep 10,000 of your 100,000 as reserves,
but when you log into the online
portal or get a statement from me,
it’s going to say,
I have your $100,000 or
your $100,000 is in my bank.
That’s not entirely true. I
don’t have most of your money.
I have a tiny sliver. I have
that $10,000 of your money.
The rest of money I’ve
loaned out to somebody else,
but can’t you withdraw that from your
checking account? Yes, of course.
If you come and say,
I would like to withdraw the $100,000
now I have to give it to you,
but guess what?
It’s not your hundred thousand dollars
because I’ve loaned most of that to
somebody else.
I’m going to have to give you somebody
else’s $100,000 then at night,
when I go to balance my books,
if I’ve had too many withdrawals and I
end up short on the amount that I need to
have as a bank,
then I’m going to go into these repo
markets and I’m going to borrow money from
other banks.
So tonight I’m going to go borrow
money from another bank. You know,
maybe tomorrow I’ll have a surplus and
they’ll be short and they’ll borrow money
from me.
Now the first thing most people think
when they hear about fractional reserve
banking is they’ll say,
isn’t that a Ponzi scheme?
The answer is technically
yes, it’s a Ponzi scheme.
But the reason it doesn’t
collapse, you know,
five minutes after a bank opens
is because of the repo market.
The repo market is a way to sort of
try to shore up the banking system.
And the banking system works by
essentially kind of socializing among the
banking industry, the shortages,
those are shored up by another bank.
And that’s uh, a bit about, uh,
how repo markets work and why they exist.
They exist so that banks don’t collapse
really frequently and during normal
operations. Next question you
might be wondering is, well,
why did the Federal Reserve have
to bail out the repo markets? Well,
the Federal Reserve injected now over
$200 billion this week into repo markets
because the banks didn’t
want to lend to each other.
That happened because of the
banks don’t trust each other.
And that means the banks think that
they might not be able to pay each other
back.
So this could mean that there’s one
bank that a lot of the other that needs
money that the other banks
don’t think will pay them back.
Or it could be multiple banks, it could
be small banks, it could be big banks,
it could be multiple banks. We
just don’t know. Maybe some books,
we’ll cover it in the future.
If this ends up having a domino
effect into a big crisis.
All we know right now is that
the repo market lint, uh,
froze up the Federal Reserve, bailed
them out. And all we can do is wonder,
why don’t these banks trust each
other? And or why can’t these banks,
why is there not enough money in these
banks to shore up their own shortages for
the last few evenings? So what’s
going to happen next? Well,
this doesn’t appear to be necessarily
contained just yet. You know,
we had no overt fed bailouts for over
a decade and now we had one Monday,
Tuesday, Wednesday. So there could
be one tomorrow or the next day.
There could be some things
happening over the, um,
and this could be the beginning stages
of a recession or potentially even a
financial crisis.
So I’ll continue to report on
this as new information comes out.
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tell me what you think
in the comments below.
What are your thoughts on this bailout?
Do you think they’re keeping
everything under control?
Do you think this is cause for alarm?
And what are you doing as an investor?
Uh, are you prepared for recession?
Do you think that we’re not
going to have a recession? Again?
Tell me what you think in the comments
below. I’d love to hear it in particular.
I’d love to hear what you are doing to
prepare for cycles and recessions and
potential crises. What
are you investing in?
How are you investing and
how does this play into that?
Look forward to reading
your comments below,
and also I’ll put some links below in
the description for some of the things
that we have going on and helping people
prepare for recession and or potential
crisis. That’s it for today.
Hope you have a great day.