More Signs of Debt Distress

Posted | 19/10/2015 / Views | 2491
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Financial analyst and commentator Mike Savage recently highlighted a little talked about occurrence in global debt markets.  But first he reminds us of the context…

“It appears to me that day-by-day more people are recognizing that the past 7 years has been an experiment where we had a debt problem, it imploded in 2008, and we attempted to fix it with more debt. Now, after it has been proven not to work- not just here [US] but also in Europe and in particular Japan the same actors that started all of this are calling for- MORE!”

And then…

“A chart put out recently shows that at the height of the crisis in 2008 the Fed had around a $100 billion in reverse repos. These are used to replace defaulting debt with supposedly good debt. In the last 2 months the Fed is now holding over $640 billion in reverse repos. By the way, that is up from about $225 billion just 2 months ago. $400 billion in a couple of months? What is REALLY happening under the hood?”

The RRP spike may be explained by the Fed experimenting with how to raise rates when they have flooded banks with so much free money.  But on any level it is another clear sign of a system swamped in debt figuring out how to deal with the consequences.  Too many people seem to somehow dismiss “Government” debt as not being real in the sense that your mortgage, personal loans or credit card debt is real.  Debt is debt.  The GFC gave us a little glimpse before it was temporarily fixed with more debt and likewise Greece.  It must come home to roost…