Fed Pumps-In Over 12.7 Million Bitcoin Equivalent of Funds to Keep the Financial Market Liquid
- Fed repo interventions to keep the financial market liquid continues
- “Give me some of that,” Trump renews his call for negative interest rates
- St. Louis Fed President urges for negative rates too as “sharper-than-expected slowdown” could materialize
- Got Bitcoin, it could be the perfect storm to push the digital asset to a new high
The New York Fed added $104.293 billion in a single day to financial markets on Thursday.
The Federal Reserve had to loan banks the equivalent of 12,700,000 bitcoin last night to stabilize the financial system.
— Rhythm (@Rhythmtrader) November 13, 2019
This addition came in two parts, one via overnight repurchase agreement and the other from a 13-day repo operation.
This all started when in September an unexpected rate hike choked the short-term lending, prompting the Federal Reserve to intervene. The Fed’s market operations are aimed at ensuring the financial markets have enough liquidity.
Though these operations go back decades, analysts and market commentators are raising concerns that these additions are large and may not be enough to solve lending problems.
Fed Chair: Nothing really Booming that would Bust
On Thursday Fed Chairman Jerome Powell said the risk of the US economy, which is in its 11th year of expansion, facing a dramatic bust is remote because it is sustainable. Powell told the House of Representatives Budget Committee,
“The US economy is the star economy these days. We're growing at 2%, right in that range, more than any of the other advanced economies are growing. There's no reason that can't continue.”
As for is there any threat to this expansion, Powell said, “There's nothing that's really booming that would want to bust, in other words.”
“It's a pretty sustainable picture.”
On Wednesday, Powell also urged Congress to take action on US debt and the “unsustainable” budget deficit.
“The debt is growing faster than the economy. It's as simple as that,” said Powell in response to a question.
You can watch it here:
Trump Renewed Calls for Negative Interest Rates
Meanwhile, President Donald Trump on Tuesday renewed his criticism of the Fed for raising and then cutting interest rates saying this has put the US at a competitive disadvantage over other countries and called for negative interest rates. Trump said,
“Remember we are actively competing with nations that openly cut interest rates so that many are now actually getting paid when they pay off their loan, known as negative interest. Who ever heard of such a thing?”
“Give me some of that. Give me some of that money. I want some of that money. Our Federal Reserve doesn’t let us do it.”
Powell however, pushed back at negative rates saying, “It has been a long slow recovery but it has come a long way.” the economic outlook he said “remains favorable” and current stance of policy is “appropriate” with the outlook of moderate economic growth.
“The current level of unemployment is consistent with a strong labor market but it is not one in anyway that is presenting difficulties,” he told Congress.
But St. Louis Fed President James Bullard, one of the most dovish regional fed presidents is urging the Fed to start easing progressively.
“It remains possible that a sharper-than-expected slowdown could materialize in the quarters ahead,” said Bullard Thursday.
Already, the Danske Bank of Denmark is planning to introduce the first negative 10-year fixed-rate mortgage while the US and Sweden are contemplating using half and half-century bonds in anticipation of a recession.
Recently, Deutsche Bank President Karl von Rohr during the “Future of Finance” conference said “in some major economies, the warning bells of a recession are ringing,” further adding, “At least I can hardly remember, in my 25 years in banking, a more challenging time for the financial services industry.”
In such a world, Bitcoin and cryptocurrencies play an important role. For starters, it would be technically impossible to implement something like a negative interest rate policy, also Bitcoin has an uncontrolled monetary policy.
In recent times, the world’s leading cryptocurrency is seen as a hedge. Moreover, being the best performing asset, it’s hard to ignore BTC.
With negative interest rates, an investor has less incentive to save but more incentive to spend. In that case, Bitcoin with its finite supply makes for an attractive option, as Nic Carter, a former crypto-asset analyst said,
“deep negative rates are a redpill that awaken people to the confiscatory nature of fiat currency, and will make crypto look like a very attractive alternative.”
As the amount of negative-yielding debt continues its upward trajectory, it could be the “perfect storm” for a longer Bitcoin rally that could see us going to $100k by the end of 2021.