The US Treasury 10Y-2Y yield curve descended further into inversion, signaling impending recession.
The US unemployment rate (U-3) tends to be the lowest when the 10Y-2Y yield curve inverts, then explodes when recession strikes.
The spread between the Bankrate 30-year mortgage rate and the Bankrate 5/1 ARM rate widened to 139 basis points.
This is happening as The Fed is expected to keep raising their target rate (yellow line) and the US Senate passed its massive “inflation reduction” boondoggle that is expected to NOT reduce inflation, but raise taxes on the middle class and low-wage workers.
Stablecoin refers to a new class of cryptocurrencies which offer price stability and/or are backed by reserve asset. In recent times, stablecoins have gained enough traction as they attempt to offer the best of both world’s – the instant processing and security of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
US Senator Pat Toomey, ranking member of the Banking, Housing and Urban Affairs Committee, announced today legislation to create a responsible regulatory framework for STABLECOINS.
Toomey Announces Legislation to Create Responsible Regulatory Framework for Stablecoins Releases Discussion Draft of the Stablecoin TRUST Act
Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today released a discussion draft of legislation establishing a new regulatory framework for payment stablecoins.
“While today stablecoins facilitate trading with cryptocurrencies, tomorrow stablecoins could be widely used in the physical economy. They have the potential, among other things, to speed up payments and automate transactions,” said Ranking Member Toomey. “The proposed regulatory framework I’m releasing today will allow this crypto-innovation to continue flourishing while protecting consumers and minimizing potential risks from stablecoins to the financial system. I look forward to receiving feedback on this legislation from my colleagues and stakeholders as Congress continues its work on stablecoin regulation.”
· Authorizes three different options to issue payment stablecoins:
o Establishes a new federal license designed specifically for stablecoin issuers;
o Preserves the state-registered money transmitter status for most existing stablecoin issuers; and
o Clarifies that insured depository institutions are permitted to issue stablecoins.
· Protects consumers by subjecting all payment stablecoin issuers—regardless of whether they are a state money transmitter or receiving a new federal license—to standardized requirements, including:
o Disclosures regarding the reserve assets backing the stablecoin;
o Clear redemption policies; and
o Subjecting them to routine audits by registered public accounting firms.
· Provides much-needed clarity that, at a minimum, stablecoins that do not offer interest are not securities.
o Provides a clear regulatory framework for payment stablecoins and rejects the Securities and Exchange Commission’s approach of regulating through enforcement actions.
· Applies privacy protections to transactions involving stablecoins and other virtual currencies.
· In August 2021, Ranking Member Toomey announced he was soliciting legislative proposals to ensure federal law supports the development of digital assets and its underlying technologies while protecting investors.
· In December 2021, Ranking Member Toomey released a set of principles to lay the framework for forthcoming stablecoin legislation.
Crytpos in general are having a bad day, with Bitcoin down 4.78% today and Ethereum Classic down 12%.
Toomey’s proposal is a great step forward in the regulation of stablecoin.
Highlights for Children has a popular segment called “What’s Wrong With This Picture?”
I give you my economics version of “What’s Wrong With This Picture?” It features The Federal Reserve’s M2 Money year–over-year compared with Real Average Weekly Earnings year-over-year.
Yes, M2 Money growth has “slowed” to 12.8% YoY while US Real Average Weekly Earnings YoY is now -1.6%. In other words, while M2 Money is still growing at a rapid pace, real weekly earnings growth is NEGATIVE.
The Fed continues to pump money into a bottle-necked economy while The Federal government pays people NOT to work.
The US Senate has a plan to fix the problem: Biden has nominated Saule Omarova, a dingbat law professor from Cornell (alma matter for The Office’s Andy Bernard), who proposes the following:
(1) Moving all bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;
(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;
And Ohio Senator Sherrod Brown (D-of course) thinks there is NO MORAL HAZARD PROBLEM with The Fed confiscating bank deposits for its own use?????
If I was attending Omarova’s confirmation hearing, my verdict would be ..
The Federal Reserve continues to JOLT markets with excessive monetary stimulus despite numerous reasons why they should back off.
For example, today’s JOLT report (US job openings) revealed that 10.4 million jobs were open in September. This is the fourth consecutive month of 1 million plus job openings, yet The Fed refuses to raise their target rate.
At the same time, the University of Michigan survey revealed that buying conditions for houses dropped to 66 (baseline of 100). To show how bad this is, buying conditions for houses was at 144 this time last year.
UPDATE: UMich revised their number downward to 62, the lowest since 1981.
In The Fed’s mind, they are still chasing at least 3.5% unemployment, the lowest rate under President Trump prior to COVID. But with perpetual million plus job openings GOING UNFILLED, trying to get to pre-COVID unemployment rate of 3.5% is a fool’s errand.
Of course, with The Fed helping to pump up house prices to largely unaffordable levels, it makes sense that enthusiasm for buying expensive homes has crashed.
Meanwhile, The Fed continues to JOLT the economy with excess stimulus.
Overall inflation fears are leading to lowest consumer confidence since 2011.
Powell and The Fed’s policies have veered from their mandate requiring Chairman Powell to meet 350 times with Congress to sell The Fed’s policies.
Bloomberg) — The Federal Reserve’s floor for overnight funding markets is proving to be no match for the deluge of cash.
Money-market securities ranging from Treasury bills to repurchase agreements continue to trade below 0.05% — the offering rate on the overnight reverse repo facility, which is supposed to act like a floor for the front end. The Fed at its June meeting had raised the rate by five basis points to help support the smooth functioning of short-term funding markets.
Still, usage of the tool climbed to a record $1.136 trillion on Monday, eclipsing the previous high of $1.116 trillion on Aug. 18.
Demand for the so-called RRP facility has surged as a flood of dollars threatens to overwhelm funding markets. That’s in part a result of the central bank’s long-standing asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. As a result, liquidity has been swelling, especially as the Treasury cuts supply to create more borrowing room under the debt ceiling.
The pressure pushing down overnight rates toward zero is proving a major headache for money-market funds. It hampers their ability to invest profitably, and can lead to further disruptions as they begin to waive fees to avoid passing on negative rates to shareholders. A number of firms including Vanguard Group shut down prime money-market funds last year after struggling to cover operating costs in the low-interest-rate environment.
Yes, overnight rates such as the US SOFR rate, are near zero.
Powell’s Charm Offensive in Congress Positions Him to Keep Job
Perhaps that is why Federal Reserve Chair Jerome Powell is acting as a lobbyist with Congress for The Fed’s nontraditional approach to monetary policy.
(Bloomberg) Since he took the helm of the Fed in February 2018, through June of this year, he’s held at least 350 meetings, dinners or phone calls with members of Congress, according to his monthly calendars. That’s almost nine per month, and many of those included more than one lawmaker. The tally doesn’t count at least 16 appearances as chair before numerous congressional committees.
Well, the stock market has zoomed-up since Bernanke and The Fed adopted zero-interest rate (ZIRP) policies and the now famous quantitative easing (QE) policies in late 2008.
Congress member Alexandria Ocasio-Cortez asked Fed Chair Powell about the Fed helping with US unemployment. We are already at zero rates (on the short-end), and Congress should look at their policies on why labor force participation is slow to recover from the Covid epidemic.
The Covid Delta Variant seems to be picking up steam, we are seeing “flight to safety” assets other than Treasuries rising.
Gold and Silver experienced some serious corrections last week, perhaps because things were looking up. Then we saw Anthony Fauci scaring everyone about Covid … again. So, there is enormous uncertainty about how this will play out. In other words, ALARM!
Bitcoin and Ethereum have been climbing since Gold and Silver corrected last week. But both are up this week, particularly Gold.
The US Dollar is down slightly since the same time last year and M2 Money Stock growth has slowed.
Here is a chart showing another fear factor: the rise of the Covid Delta Variant. Deaths are only 1.7% of confirmed cases (if we believe the actual cause of death).