It seems the "exit strategy" talk will have to be pushed bask once again, not that it was ever really in play. Friday's upside (downside?) surprise in the jobless numbers means a print over 10% for unemployment.
Not to worry, as Wall Street likes these numbers. As long as liquidity is ample, the dollar carry trade is alive and well, and banks can sit on reserves or deploy them into the stock indices jobs are sort of a drag anyway. Wall Street can make plenty of money while the masses are jobless. It is not as bad as the Great Depression because there are no foodlines is the common line, but what do you call the highest number of Americans ever on extended unemployment? That is not a bread line?
Of course easy money is all fun until it is not. When do you get into trouble? When you lose your credibility on repayment. Some economists like Paul Krugman think the way out of this mess (and the way out of everything for that matter) is t appear a little reckless with monetary policy to scare up some inflation. This chart from Eric Janzen of Itulip show just how disciplined in regards to deficit spending the USA has been over 19 years:
4 wins and 15 losses for fiscal sanity. We will really stop doing this world, we promise, just a bit longer and what's 50 years between friends anyway?
On the "Exit Strategy" page, there was a report out Friday on Zero Hedge which is important to this discussion:
Reverse Repo Failure Confirmation, Primary Dealers Want Exemption From Tier One Capital Requirements To Do Reverse Repos
A few weeks ago we speculated that the Federal Reserve's attempt to conduct a reverse repo test as part of a liquidity drainage failed. In a stunning piece of news, Zero Hedge friend Jim Bianco sent us the following. Little commentary is necessary: the banks are about to unleash the massive leverage ploy all over again, this time with the pretext that they are happy to soak up liquidity, yet in the same time, their stupidity and inability to gauge risk will blow up the financial system once again when Tier One ratios for dealers are allowed to go back to 100:1. Zero Hedge will forward this information to all of our correspondents in Washington as what the Primary Dealer community is doing is extortion, pure and simple, and it is likely to be endorsed by their cronies at the Federal Reserve (which, in turn, has already received a carte blanche to do so by its purported master, Goldman Sachs (GS)).
Read the whole thing.
I wrote about the money market angle that the Fed was looking to use for reverse repos a while ago. It seems the primary dealers see yet another way to game a system and this will need watching.