The crunch in funding continues. As we wrote yesterday, there is $673 billion in Commercial Paper maturing over the next month and a half. The problem is that the rolling of all this paper will come at increasingly higher costs. Today the market for US 7 Day CP hit level of 0.61%. As the chart below indicates, the current CP rate is not only the highest in 2010, but higher than CP costs during the March 2009 market lows. More worrying is that despite the recent unprecedented volatility in daily rate swings, the trend is one of an accelerated increase. At this rate of increase, the Fed may soon need to put the CPFF program back in play.The most worrying is the implication 7 Day CP rates have for the FF rate: while 7 Day CP historically has tracked the Fed Funds tick for tick, over the past few months we have once again seen a major divergence between the two. In this closest proxy to short-term funding, the market is now notifying Bernanke that the Fed Funds rate is now about 36 bps off and increasing.
And the spread to the Fed Funds rate:
h/t Credit Trader
Spread isnt at oct '08 levels yet but... again shows risk-aversion with nothing but short-term paper and USTs doing well
Gee, I wonder if this is in the analysts' estimates for Q3 corporate EPS?
We all knew at some point, for those of us who have been following this, that the markets would call the Bernanke bluff and force him to raise rates, or they will force it. I now believe from Bernanke's comments yesterday,and now that we see others beginning to dissent from ZIRP along with Hoenig, Benny will have no choice but start raising rates, even with high unemployment. IMO, they need to inflate and inflate big and stop this deflation cycle that is worsening, and causing more problems than anything else. Unemployment or not, the system is suffering, the debt load is overwhelming, and we need to stop kicking the can down the road. I believe we will still see another QE attempt, but it will be fought and blocked. So the only other way out is rate increases, and we are at the point where hyper-inflation will probably take hold in the coming months. How many months we are away from it is hard to determine. Timing it will be even harder. Just stay glued to ZH and I am sure you will hear it here first. No one else out there is going to tell the truth about any of it.
The REAL option is default. That hammers the moron that got themselves too far into debt, and the moron that kept making them loans they couldn't repay.
Inflation just punishes those that were responsible in order to bail out the morons.
If we don't start making the discussion be about default, we're going to get stuck with the inflation, and the morons will learn one and one thing only -- it pays and pays handsomely to act irresponsibly.
Please refrain from using banned words such as default.
agreed, the current policies are rewarding people who took on too much debt......inflating assets above real income levels will end badly.....I agree we should let the hatchet drop and reward those who were sensible with leverage. Of course the banks thrive on leverage and inflated asset prices so I am not optimistic
You say they need to inflate and inflate big and then you say they need to stop kicking the can down the road. Aren't you taking both sides of the same argument? I mean, inflating IS kicking the can down the road, no? Also, if another round of QE fails, the liklihood of hyperinflation goes down, relative to what it would be if another round of QE succeeded, no? Seems to me, and I am simple, that the market is driving rates, not the Fed or the admin. Seems to me that the market has already decided where we're going, and that's to deflationary depression land. That's located right between Fantasyland and Tomorrowland in the Magic Kingdom.
On the contrary, inflating is not kicking the can down the road. The QE deflation scam is that program, and we have been in the deflationary depression cycle for some time now. Just because they refuse to label it properly, doesn't mean it is not happening. But as someone has mentioned in response to my comment, default IMO really is the only solution, is one that I have talked about many times as the solution. However, Bernancompoop and his sidekick Timmy "Tax Evader" Geithner are not going to entertain that idea ever. These two clowns will sell Americans to the Chinese for 10 cents on the dollar before they ever admit they are wrong and default must happen.
Therefore, the only other alternative solution is inflate and tax. They must increase their revenue stream or we implode. Hyperinflation can begin for a number of reasons whether we have a QE or not, it will strike when people(here and abroad) have lost faith in the currency, which hasn't happened yet due to dollar reserve status, but the dollar is destined to be replaced as the reserve currency of safety soon. The US debt is no better than any of the PIIGS and in some cases much worse, its just that no one is shining the light over here just yet looking for the shadows.
That's not a viable alternative solution though. Inflate and tax won't work. Taxes aren't magical sources of income. Taxes increase costs while lowering wages.
Wondering the same. Did he just say raise rates and hyperinflation? Isn't that like having your cake and eating it too? Raising rates, a lot and quickly, seems like the only thing that could slow the demise of the dollar. That's how poppa did it.
Unless it's too late for that, I suppose it's possible that a raising of rates could be like putting lipstick on a pig and the market would just respond, like, I didn't want the dollar when it was cheap so I certainly don't want it when it's expensive...
+1
"The problem is that the rolling of all this paper will come at increasingly higher costs."
What exactly are these people smoking?
Not the same good stuff that Faber smokes.
I got a small bombshell for ya: Physical gold is no longer available for purchase by credit card today at the same large dealer that accepted credit in April. This is the second dealer (Apmex and Kitco) that I'm aware of that will not accept credit card purchases.
I believe this must be due to credit card companies being "influenced" not t extend credit in exchange for gold. A very desperate attempt to suppress what is clearly a growing stampede toward gold (as we know from Treasury running out of Eagles and Germany's shortage o physical gold). I will investigate this theory. Any tidbits welcome
Could it be a reflection of people maxing out their cards to buy GOLD, then not paying the credit card. I'm sure there is alot of that happening. That is what I would do, if I had to do it. Hell, I might do it anyway. It is a great plan. Get physical and screw the crook bankers in one trade.
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