Hey everyone Me: Kevin Here the Federal Reserve just came out with a Sunday update. The last time the Federal Reserve came out with a Sunday update was, well, last week. Uh, but this is actually very rare that the Federal Reserve comes out with Sunday updates. Uh, the last time before that was actually back during Covid March of uh, the pandemic.

The Federal Reserve on a Sunday cut interest rates from like two percent to zero. It was so shocking. it was like, all right, that's a Fed user and that's by time. Well, the bottled Market was like two weeks later.

So the Federal Reserve just came out with a Sunday update. I'm not going to read you the update because nobody didn't understand the update. it has to do with liquidity swaps. It's very complicated.

I'm just going to explain it in the simplest manner possible. So we're gonna go over here where there's less wind. And of course I'll start with what I usually start with, which is reminding you that I really appreciate you being here. So here's what just happened.

The Federal Reserve has agreed with the Bank of Canada Bank of Japan, the ECB, the Swiss National Bank Etc uh, and Bank of Canada and I think Bank of England. If I didn't mention that already, they've agreed to provide a liquidity swap Agreements daily rather than weekly. All right, that's not English Kevin. Come on.

help us out here. Roll with me on this. Banks need Dallas Why? let's say you're a Community Bank in Japan And all of a sudden everybody in Japan is freaking out because there's a banking crisis in America I Mean even China is saying Hey Y'all tightened way too fast. That's why y'all having problems and uh, don't worry, our banks are fine.

Don't cause a bank run over here. The whole world is panicking over the spanking crisis. So let's say you're a bank in Japan not the bank of Japan A small Community Bank is a fan. Like it has an ATM right? You walk in, you get 20 Yen out or whatever.

All right. So you're banking and everybody's showing up to take money out. and now the money's like crap. We need money.

Well, we have all these United States Treasury Bonds on our balance sheet because that's what international communities do. They hold U.S treasury bonds as well as their own and a mixture of other assets. but some of it are also U.S treasuries. They're like, well we could dump those and then we'll have more cash so we can give people the money.

they want their deposits back. Imagine that giving people their deposits? Okay, well how are you gonna dump the treasury book? Well, somebody's gonna buy it from you. Fantastic. But what are they gonna buy it with? Well dollars? Okay, great, but what if the person who wants to buy it some half dollars? Well, they need to exchange the money that they have for dollars.

So if they have Japanese Yen and let's say they're an institution, they go to their Central Bank and they say hey, I'm E dollars here are all my Yen Uh, can you give me dollars They say sure, but we don't have any dollars either. Let's just call up J-pal Hey Jpal, we need some dollars and then Jay Pal says, all right, here's some dollars. Give us your Yen and we'll swap that back overnight in a week in a month whenever. So you have some kind of predetermined swap.

That's why it's called a liquidity swap. It's just swapping Dallas again, back and forth. predetermined, Uh, daily, weekly, whatever terms. By moving these operations to daily, the Federal Reserve is saying to help alleviate banking stress and to prevent any kind of contagion.

Or Panic where all of a sudden you have that local Community Bank That's like, okay, we got a bunch of people wanting to take their deposits out, but they can't because we can't dump our bonds because we have to wait for the weekly operation of the FED Uh, you know the Fed's not operating daily. We have to do this once a week. Well then people start panicking. So to prevent that Panic What do we do? Well, now we do the operations daily.

Okay, the purpose of that is to keep Banks functioning. So that way, if a bank continues to function, they could continue to leave your home equity line of credit open. or your credit card open. Or let you borrow money as a business.

Or get a mortgage. Whatever. Keep the economy going, Draw down your credit line. By the way, something I'm talking to course members about as well.

Uh, which reminds me about that coupon code linked down below. and I'm going to tell you some more about these implications about the Fed and stuff. but yes. Remember, Uh, next? uh, week on the 22nd, coming up here for the Fomc meeting, we will be having another price increase for the programs of building your wealth.

You get a uh a guarantee going forward that you have the best price possible. So make sure to check out those programs linked down below. Okay, now what do we need to address? Well, we need to address is this: QE Oh yeah. and if I haven't made it clear, draw down your credit lines, put the cash somewhere in an account, maybe even at a different bank, have it as cash.

My take: I I Wouldn't be surprised they start freezing credit lines. They did that in 08 too. Okay, now what does this actually mean? Well, what it means is the FED is probably temporarily going to expand the money supply Now Is this? QE Technically no. QE is technically the purposeful expansion of the money supply.

This liquidity swap does not expand the money supply as long as the Federal Reserve has ample liquidity. As soon as the Federal Reserve does not have ample liquidity. In other words, they run out of dollars. then they turn the money printer on, and then they unintentionally increase the money supply Technically temporarily.

Okay, if the bank of Japan or the Bank of Canada are the bank of England. If they don't have enough of their own currency, guess what they do. They print it. So yes, the money supply expands.

Is it technically QE No. Is the money supply going to expand in the short term? Very likely? This is why JP Morgan projected that the money supply could expand by two trillion dollars thanks to these Uh Bank bailout programs that are going up. And these these liquidity issues. So that means the money supply will probably expand.

And yes, that is inflationary. It is also a sign of at least some franticness by the FED. Is it a sign that more things are breaking? No, not necessarily. Uh, Maybe it's preventive, but it is likely going to expand the money supply.

That's not the intention here. the intention. The goal is to try to get inflation down without destroying the economy, right? But an implication of this will likely be the expansion of the money supply even more. Uh, and that could be inflationary as long as that is mostly transitory, right? As long as that inflation isn't too sticky, This is okay.

Some banks are gonna fail. A lot of people are going to lose a lot of money in the banking system. Hopefully our deposits are safe. Be at the big Bank Stay away from the smaller Community Banks if you're above the FDIC limits if that's even a concern.

If you're not above the limits, don't worry about it. How does this change anything for a 25 BP hike next week? it changes Nothing. It changes nothing just because they're operating something daily. And just because they happen to be panicking and announcing something on a Sunday Does that mean that they want to freak the market out even more by going for zero? That would be a surprise to me.

I'm really expecting 25 and then after that 25 I am expecting zero and then soon after that, they will probably start slashing and that will be the official signal. the bat signal of the FED U-turn Although I think we're getting enough writing on the wall already of what's to come. So again, liquidity swap thing. Yes, happening on a Sunday A little panicky, but they want the operations to start tomorrow.

It's because they're trying to contain this banking disaster. the banking crisis. The contagion, right? That's that's the point of this. So again, liquidity to Banks trying to keep loans continuing going Financial Conditions and lending standards or tightening.

Which means if you have outstanding lines of credit that they might be going away soon. Other implications: Hopefully this leads to more stability and no more crisis. That's the goal. We don't want more crisis, but it's probably going to expand the money supply.

and hopefully that does not push up inflation even more. Because we already have enough sticky inflation, it's time for that inflation to stop. I Expect the Federal Reserve A lot of people are calling for basically the FED not only to cut rates, but then basically say let's jack up Uh, the inflation Target the three percent. They don't need to do that.

They're gonna pull the Fate hat out of them out of the bottle or the the genie out of the bottle of Fate flexible average inflation targeting. And then they will use the policy of the 1980s called opportunistic Disinflation which is just a fancy way of saying they're going to take 10 years to get inflation down. That's my take. so they're gonna take their time to get inflation down.

In the meantime, probably gonna cut rates. And today's update really practically doesn't mean much to us, but from a sort of a messaging point of view, seems a little panicky. Uh, so if you're panicking, make sure to get yourself life insurance in as little as five minutes by going back. Kevin.com Life, Get yourself 12 free Stocks by signing up for Weeble Link down below at Kevin.com Weeble and we'll see in the next one.

Good Luck.