Kudlow: Fed’s T-Bill Purchases Are “Basically” QE

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Kudlow: Fed’s T-Bill Purchases Are “Basically” QE

Back in October, when the Fed restarted permanent open market operations in the form of $60BN in T-Bills purchases each month, Powell scrambled to convince the market that his panicked effort to inject reserves into banks (such as JPMorgan which single-handedly triggered the repo crisis) so that trillions in levered hedge fund pair trades did not collapse on themselves once their repo funding was pulled, he said “growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis” and just to make sure there was no confusion, added “This is not QE. In no sense is this QE.”

Ever since then, anyone who was ideologically aligned with the Fed (i.e., a wealth-redistributionist, either for the people or the big banks, and in some confused cases, both), would blindly parrot Powell’s mantra, even though as we and others admitted “The Fed’s “NOT QE” Is Indeed QE… And Could Lead To Financial Collapse.”

This semantic insanity, of refusing to expose the money-printing emperor as naked, peaked last week when arguably the most intellectually-challenged Fed member, Neel Kashkari (who lacks a formal economic education and yet whose earnest desire to replace Powell has not been lost on anyone), under pressure from a barrage of media, strategists, traders, even his own Fed peers and anyone who is still capable of independent thought finally admitting that “NOT QE” is in fact “QE”,  exploded and tweeted:

QE conspiracists can say this is all about balance sheet growth. Someone explain how swapping one short term risk free instrument (reserves) for another short term risk free instrument (t-bills) leads to equity repricing. I don’t see it.



Well, we saw it, and we explained to Neel exactly how the Fed’s QE4, i.e., swapping of cash for T-Bills, leads to equity repricing. Alas, we doubt that for Neel even a clear, reasoned explanation carries any weight, and as such we are confident he would merely add us to the ranks of “QE conspiracists”, we wonder how he would respond to a striking admission from none other than Trump’s top economist, Larry Kudlow, who earlier today spoke at Davos and confirmed that the emperor was, indeed, naked, to wit:


Once again, consider that just three months ago Powell vowed that “this is not QE. In no sense is this QE.” 

Turns out it was QE after all.

While we are confident that this will simply make Kudlow a honorary member of the “QE conspiracist” club, at this point we simply refuse to give a shit about anything Kashkari – who we are now convinced is simply a “legacy” Fed hire in exchange for Neel’s “contribution” to bailing out his former employer (as a reminder, it was Kashkari who pulled the $700BN TARP number bailout out of thin air) – has said or will say, and instead will lay out the following three observations, now that even Kudlow has admitted “NOT QE” is in fact “QE 4”:

  1. The market highs are all an artificial byproduct of massive liquidity injections:
  2. The US economy was on the edge of a recession, and only QE prevented it from careening over the edge
  3. The Fed now appears to be directly managed by the White House, and whatever Trump wants (such as “some quantitative easing“), Trump gets.

Everything else, alongside fundamental market analysis, is now simply noise.

Tyler Durden

Tue, 01/21/2020 – 15:22

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