Since the Fed’s QE program largely tapered at the end of 2014 (note: the Fed still used interest on its mortgage holdings to buy more mortgages), the size and volatility of the Federal Reserves reverse repo operations with banks – especially foreign banks – has been continuously increasing:
The most likely explanation for this is growing liquidity problems in the western banking system connected to increasing instability in OTC derivatives. While all fingers point to Deutsche Bank (NYSE:DB), DB is just one player in large game in which every player is inextricably connected. But the eventual derivatives financial nuclear melt-down will probably be triggered by DB, and the fact that the ECB enabled Deutsche Bank to cheat on the BIS-mandated bank stress tests reinforces this Zero Hedge view: ECB Allow DB To Cheat.
The scale and severity of this problem is going to explode now that the U.S./western housing and auto loan bubbles are beginning to pop.
In today’s Shadow of Truth episode, we discuss some possible meanings embedded in the two graphs above plus a couple other topics not covered by the mainstream financial media: