Banks’ Liquidity Crunch Is Unabated, Industry Declines Further

Sept. 30, 2019 (EIRNS)—The final day of the third quarter and of the U.S. Fiscal Year 2019, with over $100 billion of new Treasury debt being issued, again saw short-term interest rates jump out of the range, and control, of the Federal Reserve. The New York Fed has pumped about $350 billion in urgent short-term liquidity into the banking system since Sept. 17, but still cannot keep its overnight lending rate within the 1.75-2% range it announced on Sept. 18; it will have to keep offering overnight loans of up to $100 billion every day until at least Oct. 10. Underneath this banking system stress, meanwhile, the industrial economy continued to decline.

While the banks’ demand for Monday morning’s “repo” lending stopped at $63.5 billion of the $100 billion the Fed was prepared to lend, the overnight funding interest rate again got out of control. It opened (7:45 a.m.) at 2.7-2.8% and ended (9:00 a.m.) at 2.3%, well above the target range. And the range for the two-week loans which the Fed last offered on Friday, Sept. 27, was reportedly 2.6%. If the upward pressure moves long-term rates up as well, bankruptcies will ensue in large numbers.

The Purchasing Managers’ Indices (surveys) on the U.S. economy have been published for September: The “services” index was at 50.9, indicating slow expansion; but the industrial/manufacturing index was at 47.1, in significant contraction for the fourth month of the past five. Some tell-tale signs were reported by MarketWatch: Wisconsin and Indiana both have lower factory employment than they did one year ago, in September 2018; they are the most manufacturing-intensive U.S. states. Michigan and Ohio both have lower factory employment than at the end of 2018. Only Illinois has factory employment growth in 2019—by just 400 jobs. Overall those five industrial states have employment about flat compared to one year ago.