Since there has been ample discussion of the first-order implications of the spike in Fed RRP balances, in this report we will focus instead on the far more critical (in our view) second- and third-order implications.  The Fed’s RRP program is a “Band-Aid fix”; the more structural fixes are: Having the Fed Taper QE. Having the US Treasury increase T-Bill issuance to satisfy increased demand for collateral. Have the Fed shift purchases to the long

“I believe we must re-orient our framing of fiscal policy.” (page 2) “Monthly child tax credit payments to start hitting bank accounts on July 15” (page 7) “If the Fed balance sheet-to-US Federal debt ratio stays at the post-GFC average, then the Fed balance sheet…” (page 9) Fed needs to do more QE, but there’s already trouble at the short end of the UST…so Operation Twist it is! (page 11) “There’s a sense the Fed

By introducing the net stable funding ratio, Basel III effectively makes standard banking practice unworkable in the case of unallocated precious metals by not permitting a trading book to net off its long and short positions. The regulators at the Basel Committee will not have jumped down on unallocated gold trading unless, in their opinion, they viewed it as a risk to the global banking system which must be offset by proper funding. Plainly, they

“US consumer prices jump most since 2009, outpacing estimates.” (page 2) Former US Treasury official and current Biden economic advisor both say the Fed has already chosen “Inflation.”(page 3) “It’s been a long time since we’ve seen financial repression like this!” (page 5) “USD share of global FX reserves drops to 25-year low” (page 6) Stan Druckenmiller all but tells CNBC that US inflation will likely NOT be transitory (page 7) “NY Fed Markets desk

The Fed will have to monetize it. I believe it will have horrible implications for the dollar … it’s more likely than not within 15 years that we lose reserve currency status.-Stan Druckenmiller, on CNBC, 5/11/21 Last spring, in the midst of an equity market meltdown, and I’ve been trading for 40 years and I’ve never seen anything like this, right in the middle of an equity market meltdown, the bond market went down 18

“Yellen says rates may have to rise to stop economy from overheating” (page 2) “Yellen says she’s not predicting or recommending rates increase” (page 3) “Biden gets new opening to pitch economic agenda with weak US job growth” (page 5) “The job market isn’t weak; we have a wider bid-ask spread between labor and employers” (page 7) Who should Warren Buffett and Sam Zell believe on inflation – Janet Yellen and the Fed, or their