In the last FOMC policy announcement, the Fed announced that it is establishing a “standing” $500 billion repo facility open to domestic and foreign banks.
A repo facility provides overnight or short term liquidity to the banking system. It moves liquidity around from banks that have it to banks that need it and enables the Fed to manage the Fed Funds rate.
Yet for several months the Fed has been removing liquidity from the banking system on an overnight basis with reverse repo operations that are now averaging over $900 billion on a daily basis.
Why, on the one hand, is the Fed removing liquidity from the banking system on a temporary basis, yet on the other hand establishing a mechanism to inject liquidity into the banking system? Isn’t this akin to a Ponzi scheme in which the Fed can print the money it needs to operate the scam rather than face the problem of finding stool pigeons to provide the funding?
This puzzling behavior by the Fed would suggest that there’s a couple of big banks domestically and in the EU that are facing liquidity problems. Citigroup's (NYSE:C) Citibank and HSBC Holdings (NYSE:HSBC) come to mind as Citi was secretly the recipient of the biggest bailout by the Fed in 2008 and HSBC has massive exposure to commercial real estate, particularly in Hong Kong. But it could be any of the Too Big To Fail banks.
Wall Street Silver invited James Anderson (SD Bullion) and myself on to discuss why the Fed will eventually be forced to print a lot more money and why this will translate into much higher prices for gold and silver (note: the current action in the precious metals is being driven by blatant manipulation primarily using Comex futures—if anything, the aggressive effort to control the price of gold is an indicator that the Fed (and other Central Banks) will be printing a lot more money in the near future):