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Fed’s Powell Says Forensic Work Ongoing on Liquidity Crisis; This Chart Shows Why He’s Worried

Courtesy of Pam Martens

Stock Price of Deutsche Bank, Lincoln Financial and Goldman Sachs Since September 17, 2019 When the Fed Began Pumping Money Into Wall Street

Stock Price of Deutsche Bank, Lincoln Financial and Goldman Sachs Since September 17, 2019 When the Fed Began Pumping Money Into Wall Street

By Pam Martens and Russ Martens

Yesterday, for the second day in a row, the Chairman of the Federal Reserve, Jerome Powell, gave testimony and took questions before a Congressional Committee. On Wednesday it was the Joint Economic Committee; yesterday it was the House Budget Committee. On both days, only one member of the Committee dared to ask a question about the hundreds of billions of dollars the Fed is hurling at Wall Street each week in repo loans.

The crisis in the repo loan market, where financial institutions make overnight loans to each other, began on September 17 when the interest rate spiked from the typical range of 2 percent to 10 percent. For the first time since the financial crisis, the Federal Reserve had to step in with lots of cash to ease the liquidity stresses. The Fed has continued to offer that cash every business day since that time and is now supplementing its overnight loans, which can run as high as $120 billion per day, with $35 billion in 14-day term loans twice a week. In total, the Fed is offering $670 billion each week in revolving loans to securities firms it will not name for a crisis it cannot define.

It’s seems to be only Republicans from Texas who have the guts to confront the issue when Powell appears before Congress. On Wednesday it was Congressman Kenny Marchant who questioned Powell on the issue; yesterday it was Congressman Bill Flores, another Republican from Texas, who raised the subject. Here’s how the exchange went yesterday:

Congressman Bill Flores of Texas Questions Fed Chair Jerome Powell on Repo Loans, November 14, 2019

Congressman Bill Flores of Texas Questions Fed Chair Jerome Powell on Repo Loans, November 14, 2019

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