Fed Pumps Billions into the System, First Time in a Decade

Sept. 18, 2019 (EIRNS)—For the first time in ten years the Federal Reserve injected billions in cash into the money markets to quell a surge in the interbank lending rates. The New York Fed used the repo market to pump $53 billion into the banks on Sept. 17 and another $75 billion today (by buying Treasury bills held by the banks), after the interbank rate—which is normally kept at the fed rate, 2.0-2.25% as of Tuesday—surged to 10% on Sept. 17 due to a lack of liquidity for banks to do the overnight lending required to keep balances in order. This is the first time in ten years that the Fed has resorted to these measures. While the Fed blamed a confluence of liquidity demand from various sources, it is the extremely low interest rates which discourage bond purchases which is causing the liquidity crisis—investors (speculators) are buying derivatives rather than bonds.

Also, today the Fed announced, as expected, a quarter-point cut in the Fed rate, to 1.75-2.0%. But Federal Reserve System Chairman Jerome Powell did not announce either a continuation of the repo market interventions (called QE Light), or any new QE, which means the panic may not be resolved. Trump, who has been driven to demand negative interest rates and more QE to paper over the crisis, issued a tweet: “Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision!  A terrible communicator!”

In fact, Powell did say that QE is coming soon: “It is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought”—i.e., pumping liquidity into the banking system by purchasing Treasury debt and derivatives from the banks.

These “plunge protection” operations may or may not paper over the crisis this week, but more paper is simply aggravating the problem. The system cannot be “fixed,” as LaRouche has warned for many years—it must be replaced according to LaRouche’s Four Laws, starting with Glass-Steagall reorganization of the entire system.