On a non-seasonally-adjusted basis (why adjust when we are looking at annual changes), US domestic banks saw a stunning $1.17TN in deposit outflows (ex-large time deposits) in 2023 – the largest annual decline ever (and only the 3rd annual decline on record going back to 1985 – 1994, 2022, and 2023)…

Source: Bloomberg

Interestingly, money-market funds saw inflows of around $1.15TN almost perfectly mirroring the deposit exodus from banks…

Source: Bloomberg

But, with recession odds declining rapidly, are we about to see MM outflows accelerate (and thus more deposit inflows – as we have seen in very recent weeks)?

Source: Goldman Sachs

Breaking down the outflows, it’s clear that large banks have suffered more pain in 2023:

• Large Banks saw around $800BN in deposit outflows (ex-large time deposits) in 2023 – the largest ever annual decline deposits and second year in a row (and only third year ever of annual deposit declines).

• Small Banks saw around $300BN in deposit outflows (ex-large time deposits) in 2023 – the largest ever annual decline in deposits (actually the only annual decline in deposits ever in data going back to 1985.

A quick glance at the chart shows that despite the March event (which saw small bank deposits tumble – as they should after the bank failures), small banks continue to attract a lot of deposits.

Source: Bloomberg

For some reason, Americans hate giving their money to large banks, but it is small banks that are becoming dangerously under-capitalized as a result of having so many (relatively speaking) deposits.

The small bank deposit growth is happening as QT accelerates (green line above, down around $900BN in 2023) and even as the small banks themselves have little cash (as per the constraint chart below).

Small banks reserve ratio (blue line) continues to trend in a troubling direction, but excluding the $136BN from The Fed’s BTFP (red line), Small Banks are in big trouble – the crisis back (and large bank cash needs a home – green line – like picking up a small bank from the FDIC30

Source: Bloomberg

On the other side of the ledger, both Large and Small banks saw loan volumes increase on the year (as deposits fell), up $57BN (only) and $198BN respectively…

Source: Bloomberg

However, as we warned previously, the fallout from all this is that there is another pent up insolvency brewing – especially if The Fed proceeds with terminating its BTFP bailout fund (which is now spewing free money to banks via arbitraging The Fed’s own various facilities) and reverse repo usage (a source of liquidity) falls to zero.

Don’t believe The Fed will kill the ‘temporary’ $136BN bailout facility, think again!

Dear @federalreserve now that everyone knows about your BTFP arb where you literally give free money to banks, you will of course be closing the loophole and ending the facility https://t.co/W3Q5X6AWuI

— zerohedge (@zerohedge) December 22, 2023

As a reminder, the growing gap between the rate on the Federal Reserve’s nascent funding facility and what the central bank pays institutions parking reserves suggests officials will let the program expire in March, according to Wrightson ICAP.

The rate on the Fed’s Bank Term Funding Program – which allows banks and credit unions to borrow funds for up to one year, pledging US Treasuries and agency debt as collateral valued at par – is the one-year overnight index swap rate plus 10 basis points.

That figure is currently 4.83%, down from 5.59% in September.

For institutions that have an account at the Fed, they can borrow from the BTFP at 4.83% and park that at the central bank to earn 5.40% – the interest on reserve balances.

Source: Bloomberg

The 57bp spread is the widest level since the Fed introduced the facility to support a struggling banking system after the collapse of California’s Silicon Valley Bank and Signature Bank in New York.

“In justifying the generous terms of the original program, the Fed cited the ‘unusual and exigent’ market conditions facing the banking industry following last spring’s deposit runs,” Wrightson ICAP economist Lou Crandall wrote in a note to clients.

“It would be difficult to defend a renewal in today’s more normal environment.”

Then WTF are banks going to do when The Fed shuts down this ‘temporary’ bailout program in March?

For now, investors are living on a prayer…

Happy New Year!

Multiple freak waves, or what many are calling a ‘mini tsunami’ event, hit several coastal towns in California Thursday and Friday, with one particular big wall of water having left eight people hospitalized.

“Overall, this is expected to be an exceptional high-surf and coastal flooding event that has not occurred in many years,” the weather service in Los Angeles warned amid a number of local beach evacuation orders being issued to prevent onlookers and bystanders from getting swept away. But this is exactly what happened in Southern California’s Ventura County, when a wave inundated an entire street at Pierpont Beach where some twenty people had been lingering, stunning footage of which has since gone viral…

Wave hits Pierpont in Ventura, California injuring 8. Video: Colin Hoag pic.twitter.com/IT8yhaRqPA

— News Now 24🌐 (@GlobalNewsNow24) December 29, 2023

“We put evacuation warnings into place around 8 a.m. this morning for this area and, as you can see, these waves are incredibly powerful,” a statement by the Santa Cruz County Sheriff’s Office indicated.

“They’re washing logs up here. A lot of debris, a lot of driftwood. So we’ve been asking people to avoid the direct coastal area,” the statement added, after in some cases waves in the Santa Cruz area were recorded at up to 28 to 33 feet high.

Local authorities have continued urging that people avoid the Ventura Pier and beach areas, having imposed beach closures, while additionally emergency crews have worked around-the-clock to erect additional protective beach barriers to prevent more flooding.

Another angle to the Ventura Pier incident:

#HighSurf – Watch when a rogue wave hits the beach at the end of Seward Ave in the City of Ventura. This occurred during the high surf advisory at high tide. Because of this wave eight people were transported to local hospitals. Currently the beaches are closed in Ventura County… pic.twitter.com/VlRlgRLhpn

— VCFD PIO (@VCFD_PIO) December 29, 2023

Coastal flood and high surf warnings have been issued at various places along the coast from San Diego to Los Angeles and beyond San Francisco.

Another instance of massive waves caught on film saw a wall of water overtake the Capitola Pier and flooded local businesses at the base of the pier situated on the shoreline.

This aerial video captured yesterday of waves crashing against the pier, still in a state of repair from last winter, and the iconic Venetian Village condos in #Capitola Village is wild. Poor Capitola keeps getting hammered by nature.

📹source: TikTok/kingzony pic.twitter.com/0WyxDtE7rF

— joeflorez (@JAndrewFlorezII) December 29, 2023

The incredibly high surf is expected to continue though Saturday night. “Waves as high as telephone poles – about 40 feet – could slam into San Francisco through Friday morning,” CNN noted.

Coastal homes hit by large swells…

Aerial footage of massive swell hitting Stinson Beach in West Marin. pic.twitter.com/X54nqw1s5f

— The West Marin Feed (@WestMarinFeed) December 28, 2023

“Fifteen- to 20-foot waves are expected along the central and Southern California coasts through Saturday evening,” the report added.

Cities along the California coast are warning residents that the rough waters caused by a Pacific storm this week can quickly turn into dangerous waves. pic.twitter.com/RNJrlqUGSG

— ABC News (@ABC) December 29, 2023

The National Weather Service is warning people in coastal areas to be on the alert and avoid low-lying or danger-prone areas close to the sea. “Large breaking waves can cause injury, wash people off beaches and rocks, and capsize small boats near shore,” an alert message said.

Authored by Jonathan Turley,

For years, we have discussed the alarming shift in the Democratic party on free speech with candidates running on pledges to censor opposing views and politicians supporting blacklisting and censorship on social media.

Many citizens oppose such efforts to restrict their rights under the First Amendment, but are unaware of the work of their representatives to limit free speech. Now, a filing in the Supreme Court supporting censorship efforts by the Biden Administration has supplied a handy list of the anti-free speech states for citizens.

The 5th Circuit previously ruled in Missouri v. Biden that administration officials “likely violated” the First Amendment and issued a preliminary injunction banning the government from communicating with social media companies to limit speech.

Not surprisingly, the state of California is leading the effort to get the Supreme Court to reverse a decision enjoining the government from censorship efforts.

California has long sought to impose speech limits on doctors, businesses, and citizens to silence opposing viewpoints.

However,  23 Democrat-led states joined this ignoble effort in signing on to the brief of California Attorney General Rob Bonta. 

The brief lauds past efforts of these states to combat “harmful content” on the Internet and to protect the public from “misleading information” through partnerships with social media companies.

So here is the list to see if you are residing in an anti-free speech state:

• Arizona

• Colorado

• Connecticut

• Delaware

• Hawaii

• Illinois

• Maine

• Maryland

• Massachusetts

• Michigan

• Minnesota

• Nevada

• New Jersey

• New Mexico,

• New York

• Oregon

• Pennsylvania

• Rhode Island

• Vermont

• Washington

• Wisconsin

• District of Columbia

Here is the brief: Missouri v. Biden–New York et al. Amicus Br.

The Biden administration is the king of spreading misinformation. These radicals in the White House have tried to convince taxpayers that millions of illegals flooding the southern border is “not unusual.” 

“And what we’re seeing here at the border, the migration flow, increased migration flows, certainly, it ebbs and flows. And were at a time of the year where we’re seeing more at the border, and it’s not unusual,” White House Press Secretary (The Queen of Gaslighting) Karine Jean-Pierre told reporters during a recent press conference. 

Karine Jean-Pierre claims the border crisis is “not unusual.”

FACT CHECK: This is the worst U.S. border crisis on record, by far. pic.twitter.com/LheysOgg1O

— GOP (@GOP) December 23, 2023

Let’s revisit the clearest misinformation campaign from the White House in May, when Homeland Security Secretary Alejandro Mayorka declared: “I want to be very clear, our borders are not open.” 

“I want to be very clear, our borders are not open” – @SecMayorkas, May 11th, 2023

This might be the biggest lie of the year from the Biden regime. pic.twitter.com/rVNf94Ck9n

— Libs of TikTok (@libsoftiktok) December 27, 2023

This time, a majority of Americans have come to believe that the Biden administration is not being truthful and consists of dishonest people. The latest poll from Gallup shows this, as the president’s approval rating is worse than any other modern-day president seeking reelection. 

Fox News reporter Bill Melugin revealed a stunning piece of data from a US Customs and Border Protection source of “over 276,00 migrant encounters at the southern border in December, the highest single month ever recorded, breaking the prior record set in September at 269,735, and there are still 3 days of December left. Record is being shattered.” 

Melugin continued: “This new record number includes over 230,000 Border Patrol apprehensions of illegal immigrants in December, also the highest single month of apprehensions ever recorded for Border Patrol.” 

“We are now at over 760,000 migrant encounters since October 1st, making the first quarter of fiscal year 2024 also the highest ever recorded. Thats a population size bigger than Seattle in just three months,” he added. 

The reporter concluded: “All records being blown out of the water under the Biden admin as the crisis gets worse – not better.” 

BREAKING: CBP sources tell FOX there have now been over 276,00 migrant encounters at the southern border in December, the highest single month ever recorded, breaking the prior record set in September at 269,735, and there are still 3 days of December left. Record is being…

— Bill Melugin (@BillMelugin_) December 29, 2023

Recall that we previously cited two White House officials who stated there is no crisis at the border. However, data from CBP suggests a starkly different reality.

What’s becoming increasingly evident is the Biden administration could quickly fix the border. Still, they have no interest and appear to have an agenda with the goal of flooding the nation with as many illegals as possible before the 2024 presidential election cycle. A new report this week revealed NGOs, or non-governmental organizations, were also aiding in the invasion of the southern border.

Illegal Alien Invasion Maps Exposed – CRITICAL THREAD EXPOSING NUMEROUS MASS MIGRATION BLUEPRINTS

Muckraker has obtained multiple maps, handed out by non-government organizations across South and Central America, that detail the routes to take to the U.S. and where to cross the… pic.twitter.com/wt0DDslM4w

— Muckraker.com (@realmuckraker) December 23, 2023

“A lot of NGOs are helping Biden open the border to unlimited illegal crossing. But none of this could happen without the president’s approval,” Byron York, the chief political correspondent at the Washington Examiner, recently said. 

Another report shows Biden has no interest in closing the border as the Department of Justice plans to sue Texas over a border security law designed to target illegal immigrants.  

“The Biden Admin. not only refuses to enforce current US immigration laws, they now want to stop Texas from enforcing laws against illegal immigration,” Texas Gov. Greg Abbott wrote on X. 

To give you a sense of the immense and growing size of illegal immigration! https://t.co/DcMQIUbCOM

— Elon Musk (@elonmusk) December 29, 2023

 Abbott said, “I’ve never seen such hostility to the rule of law in America. Biden is destroying America. Texas is trying to save it.”

Authored by Jack Phillips via The Epoch Times,

Hospitals in places across the United States have reimplemented mask mandates because of what officials say is an uptick in COVID-19 and other respiratory infections.

For example, the NYC Health + Hospitals—officially the New York City Health and Hospitals Corporation that operates public hospitals and clinics in New York City—announced that mask mandates will be reimplemented at its hospitals.

“Due to an uptick in respiratory illnesses like COVID-19, flu & RSV in our communities & our hospital, we must return to mandatory masking. Please wear a mask when you visit us!” the hospital operator wrote on X, formerly known as Twitter, earlier this week.

The post showed a photo of staff members wearing masks.

A separate NYC Health + Hospitals post states that “mandatory masking” was reinstated at its Jacobi facility in the Bronx because of “the prevalence of COVID-19 in our communities.”

While the hospital and other medical facilities have cited recent U.S. Centers for Disease Control and Prevention (CDC) data showing an increase in COVID-19 cases, historical data from the same agency show that the increase has been relatively small compared to previous years. As of Dec. 16, the agency data show that more than 25,000 people are currently hospitalized for COVID-19 across the United States, whereas on Dec. 16, 2022, more than 36,000 were hospitalized.

Other Mask Mandates

UMass Memorial Medical Center in Worcester, Massachusetts, confirmed to local media that it would issue a monthlong mask requirement for its staff, effective on Jan. 2. Patients and visitors won’t be mandated to wear face coverings, however.

“These changes are expected to remain in effect for approximately one month, at which time they will be reevaluated based on current trends,” a spokesperson for the hospital said in the statement.

“The health and wellbeing of our patients, visitors, and employees is our top priority.”

The Mass General Brigham health system in Massachusetts also announced that it’s reinstating masking requirements because of COVID-19.

“Our masking policies are based on the current respiratory illness rates in our communities,” Mass General Brigham confirmed in a statement to local media on Dec. 28.

In Delaware, TidalHealth announced on Dec. 28 that it’s mandating masks for all hospital visitors in patients’ rooms. That rule was initiated in “an effort to protect the most vulnerable of our population from close contact with persons that may be contagious but not yet have symptoms,” according to the hospital.

Thousands of miles across the country, in Washington state, Kaiser Permanente confirmed to local media that staffers who work in person with patients have to wear masks. Kaiser spokeswoman Linnae Riesen told The Spokesman-Review that masks are required for its workers but that patients and visitors aren’t required to wear them.

“Masks are not required but are strongly recommended for patients and visitors who do not have respiratory symptoms and are visiting low-risk areas of our medical facilities,” Kaiser Permanente’s guidance reads, according to the media outlet.

Officials at Beacon Health System said Memorial Hospital and Elkhart General, located in South Bend, Indiana, are reimplementing masking requirements for visitors, patients, and staff, according to local reports. Earlier this month, several hospitals in Pittsburgh, hospitals in Boston, and UW Health hospitals in Illinois and Wisconsin also implemented mask requirements to varying degrees.

Multiple California counties across the Bay Area region had already imposed a mask mandate for staff; it started in November and will run until the end of spring because of a predicted rise in respiratory illnesses.

CDC Update

The CDC last week posted an update stating that the new COVID-19 variant, JN.1, makes up nearly half of all U.S. cases. Two weeks ago, it amounted to about 15 percent to 29 percent of all cases.

JN.1 is continuing “to cause an increasing share of infections and is now the most widely circulating variant in the United States,” the agency stated, noting that the strain now accounts for about 39 percent to 50 percent of all COVID-19 cases.

It’s too early to tell whether JN.1 will cause an increase in infections or hospitalizations, according to the CDC. However, the World Health Organization (WHO) separately stated that JN.1 doesn’t appear to pose a high risk as compared with other variants, as it listed JN.1 as a “variant of interest.”

“The spread of this variant will unlikely increase the burden on national public health systems compared to other Omicron sublineages,” the WHO stated earlier in December. “However, countries approaching the winter season should be aware that, altogether, SARS-CoV-2 and co-circulating pathogens may exacerbate the respiratory disease burden.”

Symptoms of a JN.1 COVID-19 infection could include a cough, sore throat, fever, and headache, as well as muscle aches, loss of taste or smell, runny nose, brain fog, fatigue, muscle aches, and congestion, according to officials.

“As we observe the rise of the JN.1 variant, it’s important to note that while it may be spreading more widely, there is currently no significant evidence suggesting it is more severe or that it poses a substantial public health risk,” John Brownstein, chief innovation officer the Boston Children’s Hospital, told ABC News last week.

Earlier today, when discussing the sudden spike in the SOFR rate to an all time high 5.40% and which dragged the SOFR-Fed Funds spread to the highest since the March 2020 repo crisis…

… we said that “two factors are the likely culprits: the year-end liquidity crunch, and the recent sharp increase in the Fed’s reverse repo facility, which has increased from a multi-year low of $683 billion on Dec 15 to yesterday’s $830 billion, and which STIR strategists expect will shoot up above $1 trillion in today’s final for 2023 reverse repo operation as a whopping $300+ billion in short-term liquidity in pulled from markets in just days.”

Moments ago that’s precisely what happened when the NY Fed revealed that in the final reverse repo operation of 2023, 102 counterparties parked a whopping $1.018 trillion at the Fed in the now traditional year-end window dressing operation (yielding 5.30% or 10bps below the record high SOFR rate). This means that, as we speculated, over $300 billion in reserves had been drained by this operation in the past two weeks alone.

The flood of demand at the operation, which started at 12:45pm ET and whose results were announced at 1:15pm was likely leaked among the participants who were bracing for such an outcome, one which also explains the repricing of risk lower for much of this morning.

An additional factor for the sudden drop in bond prices may have been today’s month end index pricing which at 1pm, which as Bloomberg notes took place three hours earlier than normal because of the Sifma recommended 2pm close of trading for cash bonds. According to BBG calculations, the month-end change to the Treasury index was expected to extend duration by an estimated 0.06 year only, which is why it’s improbable that this was the driving factor, unless there had been a huge mismatch between what passive investors were expecting and the actual outcome, which is unlikely.

Still, between the index pricing and the liquidity drain, even a small sale order would have an outsized effect, and sure enough, one look at the 30Y future shows that that’s precisely what happened.

In yield terms the 30Y spiked 6bps from low of day to high of day, in seconds…

The flip side to all this, as noted earlier, is that on Jan 2 reverse repo is almost guaranteed to plunge back to $700BN or lower, substantially boosting system liquidity with a flood of reserves, a daily liquidity tango back and forth which will continue until some time in late March when the reverse repo facility is finally drained and the real funding squeeze can begin.

Authored by Tsvetana Paraskova via OilPrice.com,

Global gasoline consumption hit a record 26.9 million barrels per day (bpd) this year, exceeding the 2019 peak and defying estimates that the last pre-pandemic year was the time when gasoline demand worldwide would peak. 

The data, reported by Bloomberg Opinion columnist Javier Blas, shows the latest figures from the International Energy Agency (IEA). The same agency, which has been strongly advocating for a faster energy transition for years, had predicted just this year that 2019 was the peak demand for gasoline globally.  

Back in June, in its Oil 2023 annual report, the IEA said that “Growth is set to reverse after 2023 for gasoline and after 2026 for transport fuels overall.” 

“Gasoline demand will be disproportionately impacted as EVs progressively replace vehicles with internal combustion engines (ICE),” the IEA said, adding that:

“This means that the fuel is likely to exhibit the earliest and most pronounced peak in demand.”

And it also said that “Usage will never return to 2019 levels and the post- pandemic peak could come as early as 2023. Following a brief plateau, the decline is forecast to accelerate from 2026 onwards.” 

However, the IEA’s latest figures not only show that 2019 wasn’t the peak demand year for global gasoline consumption, but that demand in both 2023 and 2024 would surpass the pre-pandemic levels. 

Per the latest data reported by Bloomberg’s Blas, gasoline demand globally is set to further rise next year, to top 27 million bpd. 

In the June report, the IEA predicted that:

“Following a brief plateau, the decline is forecast to accelerate from 2026 onwards, with 2028 demand 900 kb/d below that of 2019.” 

The IEA also famously said earlier this year that global demand for all three fossil fuels – oil, natural gas, and coal – is set to peak before 2030, which undermines the case for increasing investment in fossil fuels.  

In the late night hours of Thursday, Israel launched a series of new airstrikes on the Syrian capital, especially with heavy strikes targeting Damascus International Airport, which had already been hit several times in the last few months.

“Around 11:05 p.m. Thursday, the Israeli enemy carried out an air attack from the direction of the occupied Syrian Golan, targeting some points in the southern region,” a source was cited in Syrian state media as saying. By Friday it emerged there had been a delegation of high-ranking Iranian officers set to arrive at the airport. Syria said it intercepted only some of the inbound projectiles.

Gulf news outlet Al-Arabiya is now reporting that the Thursday overnight attack “killed 11 members of Iran’s Islamic Revolutionary Guard Corps (IRGC)” according to its sources.

“The targeted IRGC members, responsible for overseeing Iran-backed forces in eastern Syria, were present at the airport to welcome a senior delegation, the sources said,” the report added.

And Fox News, citing Israeli media, said that among the dead is Nur Rashid, who is eastern Syria’s commander of the Revolutionary Guards. Syria has increasingly become ground zero for Israeli waging war against Iranian military and intelligence commanders, and it looks like this fast escalating.

Crucially, less than a week ago Israel took out a general described as Iran’s top commander in Syria. Gen. Razi Mousavi was also a close associate of slain IRGC Quds Force chief Qasem Soleimani. On Friday, Gen. Mousavi was laid to rest in the Iranian capital, as the Associated Press describes:

Iran held a funeral Thursday for a high-ranking general of the paramilitary Revolutionary Guard who was killed by an alleged Israeli airstrike in Syria.

Hundreds of mourners accompanied the flag-draped casket of Gen. Razi Mousavi from a central square of Tehran to a shrine in the north of the city where he was buried.

The airport attack constitutes one of the single deadliest days for the IRGC in Syria over the past decade of war there…

According to several Arab newspapers, 11 members of #Iran‘s Islamic Revolutionary Guard Corps (IRGC) were killed during the most recent suspected Israeli strike in Damascus, making it one of the deadliest such events for the revolutionary guards in Syria

— Michael A. Horowitz (@michaelh992) December 29, 2023

Iran has issued rare confirmation that Mousavi was killed when the Israeli military fired a missile on Sayyida Zeinab suburb. The IRGC described “a criminal missile attack by the fake and child-killing Zionist regime,” and warned that Tel Aviv will “undoubtedly pay the price for this crime.”

Israel and its close ally the United States have blamed Tehran for funding and fueling not only Hamas and Hezbollah terror, but also the increased Houthi attacks out of Yemen which have effectively closed the Red Sea to commercial shipping.  Also on Thursday night, a US warship again intercepted drones and a ballistic missile launched from Yemeni territory.

Second time in history a U.S. warship has shot down a ballistic missile in combat.
(The first time was two days ago.) https://t.co/DLGg5Em17T

— Lucas Tomlinson (@LucasFoxNews) December 29, 2023

At this rate, Iran is headed toward a major clash with the US and Israel. Fox News Pentagon correspondent Lucas Tomlinson is reporting Friday that the US Navy says it’s “ready to strike Iranian-backed forces in Yemen if ordered.” So far US warships have only intercepted projectiles either headed into the Red Sea or toward Israel, but have yet to mount offensive strikes against Houthi launch positions. Biden’s critics have lashed out, saying inaction is only emboldening Iran and its proxies.

Authored by Matt Taibbi via Racket News,

Maine Secretary of State Shenna Bellows decided Thursday to remove Donald Trump from the state’s presidential ballot.

Jared Golden, a Democratic congressman from Lewiston who voted to impeach Trump over the January 6th riots, quickly issued a statement:

We are a nation of laws, therefore until he is actually found guilty of the crime of insurrection, he should be allowed on the ballot.

Eight years ago this month, the big story in the presidential race was whether or not Trump was out of line in saying Hillary Clinton got “schlonged” in the 2008 primary.

A Washington Post “linguistic investigation” quoted Steven Pinker in saying that “given Trump’s history of vulgarity… it’s entirely possible that he had created a sexist term for ‘defeat,’” but the paper concluded that Trump’s problem was that “he’s a gentile who, linguistically, may have wandered too far from home.”

Normally campaign season is a period of heightened engagement, as people scour the Internet to research even the most inane questions, knowing that at the end of the process, they get to cast votes on them. It’s why news companies tend to fatten up in election years, like Grizzlies during salmon runs.

People are absorbed by dramas in which they feel themselves to be participants.

This year the public is being forced to research questions in which they have no say. We all understand now that there’s a disqualification clause in the 14th Amendment. We also understand that this clause seems to have been written with deliberate vagueness. I’m no lawyer, but I doubt the 14th Amendment was designed to empower unelected state officials to unilaterally strike major party frontrunners from the presidential ballot.

If it was, that’s a shock. I must have missed that in AP Insane Legal Loopholes class.

Is there any way this ends well? It feels harder and harder to imagine.

Authored by John Hartnett via The Mises Institute,

I previously produced a chart like this one below. There I showed the US Federal Reserve Liabilities normalised to 1914 dollars. 

This has the effect of visually amplifying the massive currency creation around the World War I and World War II.

It does not change anything but puts them all into the same dollar value terms and so we are comparing ‘apples with apples’.

I also showed that as those wars ended the currency tightening brought the Fed’s balance sheet liabilities back to a background trend line (1) in Fig. 1.

After 2003 we saw a massive uptick in currency creation with QEs 1 through 3 and then again with the COVID pandemic QE in 2020.

Now 6 months has past and we need to look again at these liabilities.

In Fig. 1 I have added to the plot.

You’ll notice a short blue extension of the data from June 2023 to December 2023.

Figure 1: US Federal Reserve Liabilities on its balance sheet normalized to 1914 dollars (red curve). Blue data are for the last 6 months.

Source: Liabilities data for 1916–2023 from the Board of Governors of the Federal Reserve System, statistical release H.4.1, Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks, via FRED; and M2 money supply data for 1959–2023 from the Board of Governors of the Federal Reserve System, statistical release H.6, Money Stock Measures, via FRED. Note: The solid trend line (1) is a curve fit to the data between 1965 and 2003. The solid trend line (2) is a double exponential curve fit to the data after 2003. The two world wars are indicated by arrows pointing to the pink regions. Recessions are indicated by sepia-colored strips. QE is Quantitative Easing (credit creation). QT is Quantitative Tightening (credit contraction).

If we zoom into Fig. 1 and use only data above 2003 on a linear scale we get the following Fig. 2.

Figure 2: US Federal Reserve Liabilities on its balance sheet normalized to 1914 dollars (red curve) from 2003 to December 2023.

This is still normalised liabilities. Curve (2) is the same exponential curve fit above 2003. The QE 2 and 3 just touch the line. At the time of the QE bail out of the failing regional banks (SVB etc) in March 2023 the liabilities comes back to the trend line. Since the bank bail outs the Fed has been tightening (QT).

Repocalypse: The Second Coming

On this chart (Fig.2) I have shown when the 2019 repocalypse – the repo market crisis – occurred. The repo market is the overnight interbank lending known as repurchase agreements. The Fed had been tightening, which is easily seen in the Fig. 2 plot, just before the vertical dashed line in 2019.

The Fed, immediately after this long, dark day last December [2018], slammed the brakes on its interest-rate increases and promised it would stop tightening sooner than it had originally said it would. 

But by the end of 2019 the Fed liabilities had dropped 36 percent below the exponential trend line (2).

To study this more closely I have plotted the same data but this time unnormalized and show it from 2014 to the present time in Figure 3.

Figure 3: US Federal Reserve Liabilities on its balance sheet (red curve) from 2014 to December 2023. This is unnormalized data.

Currently the Fed is tightening at a linear QT rate of about $116 B/month as indicated.

At this rate, assuming it continues, the liabilities will reach the point 36 percent below the exponential trend line (2) on August 31, 2024, as indicated. Of course there is no guarantee that this trend will continue.

But if it does get there, it means that to increase the liabilities from $6.7 Trillion on August 31, 2024 up to the trend line (2) $3.8 Trillion of new credit must be injected. This would bring the total liabilities up to $10.5 Trillion.

During the 2020 COVID pandemic QE the Fed injected $3 Trillion and overshot the trend line (2) by $800 Billion. That is a 27 percent overshoot.

If they do the same in late 2024 and overshoot by 27 percent that means they will inject $5.2 Trillion, assuming they do it at the end of August 2024. If it is later they’ll need to inject even more as the exponential trend line (2) is exponentially rising. This means if they wait another 8 months they will need to inject more than $5 Trillion to re-inflate the economy in very short order.

On this plot I have also shown the intersection point were the Fed liabilities fall back to the background trend line (1) established from 1965-2003. To reach this the US would need to end all wars and close off all the easy credit issuance. But I suspect a financial catastrophe would occur long before they got to February 2027 which the current linear QT would bring the liabilities to, if continued somehow.

At best we have only 8 months before another financial crisis and massive QE when the Fed pivots and cranks up the printing presses again.

But it could come much sooner than that and they may choose to pivot early in 2024 long before we get to the 36 percent reduction figure.

That would mean less ‘money printing’.

And another war would be a good excuse to ‘start the presses’.