Thursday, March 31, 2011

The Fed Is In Panic Mode

article by: Graham Summers

This is the most important chart related to the financial system today, it is a chart of the US monetary base. In simple terms, it charts how much money the Fed has pumped into the system (at least that it admits). So it’s a kind of visual of the Fed hitting the PANIC button: when the monetary base explodes higher, the Fed is FREAKING out.

gpc 3-28-1

You'll note that during the Financial Crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system. Think about that, the Fed didn’t go nuts pumping money until the stuff REALLY hit the fan.

You'll also note that there's only one other time when the monetary base went absolutely vertical: TODAY.

Indeed, the Fed has pumped nearly $500 billion into the system since the start of 2011. Don't even try to tell me this is QE 2. If it was then the monetary base should have spiked in late 2010,
NOT in 2011.

No, this is the Fed FREAKING OUT about the financial system again. And it's a freak out on par with 2008.

So if you think that all is well "behind the scenes" you're in for a rude surprise. Something BIG is going down and I think it’s this:

gpc 3-28-2

This is the 31-year weekly chart of the 30-Year Treasury. As you can see, since 1988, the 30-Year has respected the above trendline. Every time we touched up against it, the 30-Year bounced hard and continued its long-term bull market.

The last time we nearly took out this line? The very beginning of 2011:

gpc 3-28-3

Remember, the interest-rate based derivatives market in the US is $196 TRILLION. If the Fed lets interest rates get out of hand, then the entire system breaks down even worse than it did in 2008: 2008’s crisis was triggered by the credit defaults swap market which was just $50-60 trillion in size (less than 1/3 of the interest rate based derivatives market).

Small wonder the Fed is going nuts pumping $500 billion into the system in the last three months alone. After all, once the Fed loses control of interest rates (and it will) we’re going to see a market 4-5X bigger than the credit default swap market implode.

1 comment:


The great panic heads at the fed.