Now that we’re post-FOMC and ECB we have a clear playing field for another 6 weeks. The US debt ceiling theater is now center-stage along with completing the transition away from LIBOR, which will become an anachronism at the end of Q2.
SOFR will be the law of the land in the US come July. The change over from LIBOR is effectively complete with LIBOR-based Eurodollar Futures now consigned to the dustbin of history.
Markets will have to do without central bank drama for a month… whatever will we talk about?
Bank runs, I guess. But, I’m getting ahead of myself.
Both Powell at the Fed and Lagarde at the ECB hiked 25 bps as the markets had ‘priced in’ this week. But, I need to remind everyone that Powell held serve in all of his communications from last meeting. While everyone screamed “PIVOT!” during the Silicon Valley Bank debacle, Powell gave the markets nothing.
We got 25 bps and neutral language that so many people wanted to believe was a dovish statement, even though it wasn’t. We got an equally neutral statement and presser this month which the “pivoteers,” as Danielle Dimartino Booth calls them, keep trying to read the statement the way they want to rather than look at the picture as it is.
Powell will raise again in June. LIBOR’s swan song is currently the 3 month rate over SOFR. It’s been signaling 25 in May and another 25 in June for nearly two weeks.

The LIBOR rate has to rise to anticipate the Fed’s policy action to minimize any rate shock. The 1-month LIBOR rate yesterday was 27 bps (5.08%) over the SOFR rate (4.81%). The 3 month LIBOR data is clearly signaling that the Fed has another rate hike in its arsenal despite what the pivoteers want or think they should do.
This is despite what the SOFR and Fed Funds Futures are saying as well. Those markets have been almost as volatile day-to-day as the oil and US Treasury markets. So, clearly, right now they aren’t good indicators of what’s likely to happen in six weeks.
Which brings me back to Lagarde and the ECB this morning. At the last meeting Chrissie was telling us that she had one more 50 bp rate hike in her back pocket because inflation was attenuating. And today she told us that 25 bps was appropriate because inflation is still stubbornly high.
And yet no one is calling her out for this.
To my conspiratorial mind it’s because we’ve been led to believe there is an incipient meltdown of the US financial system thanks to a whisper campaign in a concentration of California regional banks taking the focus and pressure off Europe.
It’s not like I shy away from making controversial statements or teasing out connections. By now, you know I really like it.
So, let’s play a little game shall we?
On Monday I published my thoughts about Blackrock and the threat of it becoming a SIFI to the US political system via pension nationalization. While I worked on that piece it came out that PNC, backed by Blackrock and Apollo Group, made an offer for First Republic Bank.
FRC ultimately went to JP Morgan Chase in what looks like a good deal for them AND depositors. You can feel free to disagree with me. But, correct me if I’m wrong, it looks to me like a major NY Fed regulated bank just took control over a major San Francisco Fed regulated bank.
And the next day, after the FOMC goes into blackout mode, a whole slew of California banks stocks got bitch-slapped, leading to PacWest is in the early stages of collapse.
Now, to me this screams coordinated attack by someone.
This isn’t to fully discount problems with these banks. It is to say once the jitters start they multiply based on fear, not rationality. Bank runs aren’t rational. They are a panic. Who benefits from a panic within the US regional banking system?
Um, could it be Davos and the ECB? Just sayin’.
The timing with the FOMC meeting and all the manufactured drama over the debt ceiling bill passed by the House is simply too convenient.
This is especially true when you look at the price JP Morgan paid for First Republic’s assets. It wasn’t a stink bid, folks. This wasn’t a shotgun wedding. This was a bank JP Morgan already pumped money into because it believed there was value there!
So why was First Republic in trouble? Good question. And one everyone should really be thinking about hard.
Look, I don’t know who began the whisper campaign against these California ‘banks.’ I can make a credible argument both for and against Davos here.
On the one hand Davos is trying to freeze capital abroad by toppling over a series of US banks and coordinating media coverage to create a mess that Powell and the rest of New York can’t clean up.
On the other, like I believe about Silicon Valley Bank, and which Ellen Brown did a fine job of writing about recently, the Fed executed a major source of leveraged Eurodollars floating around the US to fund political operations all over.
The goal for them? Dismantle the capital base of the California banking system and neuter the growing power of the San Francisco Fed, pumped up for decades under the tutelage of the current Treasury Secretary, Janet Yellen.
Yellen’s response to this has been to announce yield curve control over the long end by buying bonds to ‘provide liquidity.’ Who benefits from a slumping long-end of the US yield curve most?
It ain’t the US or the Fed…
… it’s the ECB who then has cover to keep the euro strong while it continues holding EU/US credit spreads within a tight band, extending the euro’s rally to $1.10 for another few weeks.
This keeps markets focused on the troubles in the US while Europe is given a pass for another couple of months.
To further sell this story, oil prices are pushed down through the reweighting of the Brent Crude Index to include West Texas Intermediate to further sell Yellen’s oil price cap as the “Biden” administration runs out of oil in the SPR to suppress prices there keeping the imminent recession fresh in trader’s minds.
During the debacle in oil prices this week Vince Lanci proclaimed “Oil the New Gold.”
All of this is timed with the end of LIBOR and the US Treasury General Account running out of money as the debt ceiling fight takes center stage.
Welcome to the Occupation, folks.
With this in mind, I was contacted Tuesday morning by Sputnik News to give my thoughts on the looming debt ceiling fight. The article is here. My answers [in normal font] along with some ancillary commentary [in italics] I gave to my patrons are below the line.
I think this summarizes why this debt ceiling fight is fundamentally different than all the previous ones.
Q: Treasury Secretary Janet Yellen said Monday that the US would default in a month if there were no decision from the Congress. It’s worth noting that the US has never defaulted, and the consequences of this event seems to be difficult to predict. Could you help our readers understand: how serious is the problem and what could happen if the US fails to pay its debts?
Answer to Sputnik: This is a serious problem because of the degradation of our political sphere here in the US. Janet Yellen and the “Biden” Administration do not represent the American people at all, IMO. She has been playing up this debt ceiling fight going back to November, as a warning that she will get her way to continue unlimited spending or she will force a default.
This was a warning to the incoming GOP majority in the House (and de facto majority in the Senate) that she and President Biden will force a default by not paying on US Treasuries rather than the Executive Branch, i.e. the President, shut down portions of the government until a deal is reached.
The big picture here is creating chaos for the financial markets to consider – freezing foreign capital that may want to flee into the US. That’s the goal. Yellen doesn’t have a lot of cards but she and “Biden” will bluff until the very last minute.
Comments to patrons: As I wrote in the Munchings about Blackrock last week, so much rests on the debt ceiling resolution now. It is the fulcrum on which the entire next year of D.C. politics rests. Because McCarthy is in a tough spot and he knows it.
Will this cost him the Speakership if he caves? Likely. Are Uncle Jamie and Father Jay (and I use these terms very ‘tongue-in-cheek’) really in charge of things up there? Again, the way this plays out will tell us that.
The expected outcome is for the GOP to cave as they always do. But a divided House and Senate give the majority of the power to the ones who sit in the middle, not the leadership who we know to be fully compromised.
That’s why this time could be very different. I stress “COULD,” not will.
Q: As a response to Yellen’s statement, Joe Biden called the top four congressional leaders, including House Speaker Kevin McCarthy, to discuss raising the debt ceiling. In the 2011 debt ceiling crisis both parties managed to find an agreement and avoid the default. How possible is the agreement this time?
Answer to Sputnik: Biden wants a clean raise without strings, exactly the opposite of the November 2021 fight where Pelosi demanded tying spending bills to the debt ceiling. The GOP won that fight. Or, in my view, the Fed and NY banks won that fight. It was the beginning of the current era of tight monetary policy in the US.
Biden lost that fight because he never had a majority in the Senate. This time he’s facing the same challenge but with a GOP majority in the House willing to burn the Speaker to the ground if he doesn’t cut spending.
In the Senate Chuck Schumer is Majority-Leader-In-Name-Only, able to only set the committee populations and leadership. Legislatively, he’s a lame duck. Joe Manchin is in charge of this negotiation. The closer we get to 2024 the more DNC solidarity on insane spending against the wishes of the American people will fail.
Manchin can force a “Biden” veto. Biden’s legal troubles are also mounting. If Schumer loses this fight Biden will lose his political cover over the Hunter Biden laptop and his corruption in Ukraine.
A settlement is inevitable. The question is who will win. IF the GOP holds their water and gets most of the spending cuts it wants, it will set off a chain of events that “Biden” cannot control politically. It will be a good thing for the US.
Comments to Patrons: Manchin isn’t the only one with pull here. There will be squishy Democrats who can see the wind shifting and who even don’t want to be around after next year, so withholding vote fraud support or money for re-election may not be as powerful blackmail as it has been in the past.
At the same time do not count out the Romneys in the Senate. This is why they were put there, to ensure at certain moments Davos gets exactly what they want. What’s interesting is how quiet Romney has been so far on these things. He’s not either had to be activated (likely) or there is more division within the DNC than we suspect and he couldn’t make a difference crossing party lines (less likely).
We’ll see. Again, if Gaetz et.al. win this fight, even if only symbolically with a minimal spending cut, it will have enormous repercussions for the rest of “Biden’s” first term.
Q: How sustainable is it for America to keep increasing its national debt?
Answer to Sputnik: It’s not. At all. We have no more room on the national balance sheet to absorb more deficits. And yet, that’s all Yellen and “Biden” want…. more deficits, because they are vandals put in charge to ensure the destruction of the US rather than make even the barest minimum attempt at changing course.
That’s why this fight is so important. It is the signal to the world that we’ve reached Peak US Empire politically and are ready to begin cleaning things up at home. If the GOP fails here, the results downstream of this will be catastrophic, not just for the US but for most of the world.
No one should welcome a disorderly collapse of the US and yet that is exactly what I see from so many commentators.
Q: JP Morgan Chase CEO Jamie Dimon claimed yesterday that the US banking crisis was over after his bank bought out First Republic. Do you agree with this assessment? (If more banks fail, can JP Morgan bail them all out?)
Answer to Sputnik: I think Dimon is signaling to the world that the Fed and Wall St. are in control of this demolition of certain, toxic aspects of the US financial system. He made a good deal for First Republic for his company. But he also made a good deal for the banking system, by keeping the fallout from FRC to a minimum and the cost to the FDIC low. That cost will be borne, ultimately, by Wall St. through fees which they won’t be able to pass on to consumers. Those fees will help level the playing field for regional banks in the long run.
This wasn’t Lehman Bros. where JPM was forced to take on their toxic garbage. FRC was the victim of a whisper campaign and, in my opinion, a target. Look closely at the resolution, there is very little ‘bad stuff’ in it. Nothing like Silicon Valley Bank or, historically, Lehman.
I saw that Blackrock wanted FRC and was denied. That’s a tell to me as to who is and who isn’t in the Fed’s favor right now. Read my latest piece on this.
Comments to Patrons: The Blackrock being denied FRC is the biggest part of this story, folks. No doubt in my mind, JPM and the Fed came in and saved FRC who Davos wanted as a scalp. And if Blackrock had bought FRC wouldn’t that make it easier for Yellen to execute the SIFI-Two-Step because now, BLK owns a major bank.
In fact, that may have been the gambit all along to tie up Powell’s hands. On the other hand, BLK owning FRC would also allow them more cover to play balance sheet games and keep the con going for a little while longer. From the beginning, JPM and Dimon swooping in to help out FRC smelled like defense against Davos. I think this just ties a bow around that inference.
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Things are moving rapidly. Add what Lavrov said today, via RT — The tensions between Moscow and the West can only be resolved by talking with the Ukrainian president’s foreign masters, Russia’s FM has said. “All this has to be discussed, of course, not with Zelensky, who is a puppet in the hands of the West, but directly with his masters,” Lavrov said, noting that such talks would take place “sooner or later.” Would Russia say such a thing if there was any chance they would not meet their objectives in Ukraine? Also add today that the WHO declared covid is no longer a global emergency.
Davos is on its back with all fours up in the air. Seems this Fed battle is all they have left. If Vivek Ramaswamy is being backed by the pro-Fed Wall Street faction, he’s our next president. Someone get Trump’s ego in check, and it’s over, we win. There will be no war with China.
No matter who wins, they will need to assemble a couple of thousand individuals who can immediately go in and start dismantling the administrative state. As there are so few people that might qualify, there is likely to be a huge personnel overlap in the staffing a second Trump, Kennedy or Ramaswamy administration.
Then they have to get past the uni-party Senate confirmation gatekeepers. To do that they will need a massive mandate… which might be triggered by some outside event, like a humiliating loss in Ukraine, another Great Depression or massive global de-dollarization? Such that the US elites finally realize that the interests of the common person coincide with their own.
If anyone doubted Tom’s thesis that Davos exists and that there are factional conflicts, this article lays it all bare:
Here’s Why Democrats Are Way Better at Managing Their Populist Fringe
Political parties are private clubs. As such, the party decides (or at least, it used to). Whether this vetting was done in a smoke-filled back room, or some less carcinogenic location, we were better off when strong political parties (elites and bosses) served this vital gatekeeping function.
While it sounds almost sacrilegious for a political party to essentially rig the nomination, that’s exactly what they should be doing.
Modern Democrats are, ironically, less democratic than Republicans. This is a feature, not a bug.
https://www.thedailybeast.com/why-democrats-are-way-better-at-managing-their-populist-fringe
If the candidates are to be selected that way, then why not use the same logic and process to select the President? That is how the USSR used to operate and how the PRC and EU currently operate. :) /sarc
Those are good points, but I think the idea here is it’s the priority to defeat old colonial Europe once and for all and give the world a break after 300 years. That’s the greater evil. I don’t have much hope for America regardless, but I’m not going to live under the rule of “German eugenicists”, as Tom puts it. So either the backers of the Fed take care of the problem, or all hell breaks loose and millions of guys with gun safes in their houses take care of it, like it happened similarly in 1776. Only this time those gun safe guys aren’t going to then give power back over to Alexander Hamilton. I think the Fed-backers fear that outcome more than they fear Davos.
Agreed. The Hamilton Solution is not possible in a world with Bitcoin and digital gold
I read Gary North to come to that conclusion about folks like Hamilton. Around my late teens early 20s I still had reverence for the Constitution, Federalist Papers, etc. all that patriotic BS, because I wasn’t an anarchist yet. The anti-Federalists were right. North essentially stated that the Convention was done in secret because it was a betrayal of everything 1776 was about. The Whiskey Rebellion was a stark example of how bad that betrayal was.
Game of Thrones was a lame series for so many reasons, but one scene comes to mind where Bronn asks Tyrion why the Iron Bank is so powerful. Bronn figured that nobles borrow money from them to raise armies, why not just keep the money. Why pay it back? Tyrion’s only answer was, you have to pay it back it’s the Iron Bank. So what? Bronn figured. You’re the one with the army. Well, Hamilton and his ilk were Tyrion in this sort of mindset.
I just listened to your interview with Patrick Timpone. I love it when you get wound up & go off on everyone. End the Fed has been a rallying cry for a long time and, here we have a guy that has the best interests of the US in mind at the helm. May he kick ass, take names & chew some bubble gum.
I know what our problem is! We are Luongoarians!!! 😊
This podcast is a great recap of all your work:
The Ongoing Fed-Treasury Conflict – Old Glory Club
Special Guest Phil Gibson joins Paul Fahrenheidt to discuss the intra-elite conflict between Jerome Powell and Janet Yellen.
Great to see the younger generations picking up your work !!!
That is major white pill stuff right there! Young people found Luongo, that is awesome.
I also just watched a video on YT with a psychologist interviewing Tom — Rachel Maldonado. She doesn’t have many subscribers or views, but she asks the right questions and lets Tom talk. One of the best interviews you will ever see. Nothing about geopolitics, just about life, culture, and male-female social dynamics…and a great part about Dune.
I’ve been a rabid consumer of alternative info for over 30 years, and I’ve never seen or read an analyst who combines this many skills in one package — actual scientist with ideas who goes where the data leads him, an interest in writing and story telling recognizing how important stories are for shaping culture, a board game enthusiast which gives him insight into geopolitical strategy, and now this — real discussion of how to have a decent relationship as a man. I’m not just blowing smoke on someone’s blog, and I don’t believe that there’s a higher force in the universe that is looking out for us, but Tom does indeed seem like exactly the right person at this particular time in history for the Remnant. Yeah, we are Luongoarians.
Here’s the link to the Rachel Interview
https://youtu.be/Ba5oRufK5a4
Simple solution. Reduce our expenditures by 25 per cent.