The Military And State Can't Handle The Trump Truth

Authored by Larry Johnson via Sic Semper Tyrannis blog,

An excerpt from a soon to be released book, "A Very Stable Genius" (which appeared in Saturday's edition of the Washington Post) apparently was written with the intent of presenting Donald Trump as a crazed, unstable individual.

The authors of this hit job (two Washington Post reporters) clearly relied on Rex Tillerson, Gary Cohn and Jim Mattis as primary sources. But rather than expose Trump as mentally unfit to be President, the authors unwittingly expose their own extreme bias and highlight how the men Trump named to key positions in his administration--Tillerson at State, Cohn at the White House and Mattis at DOD--tried to undermine the President and drug their feet in carrying out Trump's directives.

These men, in my view, are bureaucratic cowards. They should have resigned if they felt so strongly about Trump's violations. But they wanted to hang on to their little pieces of turf.

The piece is introduced with this telling paragraph:

So on July 20, 2017, Mattis invited Trump to the Tank for what he, Tillerson, and Cohn had carefully organized as a tailored tutorial. What happened inside the Tank that day crystallized the commander in chief’s berating, derisive and dismissive manner, foreshadowing decisions such as the one earlier this month that brought the United States to the brink of war with Iran. The Tank meeting was a turning point in Trump’s presidency. Rather than getting him to appreciate America’s traditional role and alliances, Trump began to tune out and eventually push away the experts who believed their duty was to protect the country by restraining his more dangerous impulses.



Yep. Trump's a bad, crazy, deranged individual because he did not want to continue the failed policies of the last 20 years. That's the complaint of these Deep Staters in a nutshell. And Donald Trump, unlike the serpentine politicians that infest Washington, did not speak praise to the faces of these clowns and then backstab them in the press and to other members of his Administration. Nope. He called them out to their face. Can't have that. Telling people off to their faces is just so uncouth. Always better, according to the Swamp creatures, to say one thing to a person's face and then trash the hell out of them when they are not around.

Let's look at the key issues discussed in this brief that put the reporters panties in a knot.

“The post-war international rules-based order is the greatest gift of the greatest generation.” Mattis then gave a 20-minute briefing on the power of the NATO alliance to stabilize Europe and keep the United States safe.

Trump's response should not have surprised these guys if they had paid attention to the campaign:

We should make money off of everything.

”
Trump proceeded to explain that NATO, too, was worthless. U.S. generals were letting the allied member countries get away with murder, he said, and they owed the United States a lot of money after not living up to their promise of paying their dues.
“They’re in arrears,” Trump said, reverting to the language of real estate. He lifted both his arms at his sides in frustration. Then he scolded top officials for the untold millions of dollars he believed they had let slip through their fingers by allowing allies to avoid their obligations.“

Trump was exactly right with regards to NATO. It is an anachronism. The equivalent of maintaining the horse cavalry in the U.S. Army on the eve of World War II. But there is a lot of money and high paying jobs for senior officers to be had. Cannot let that sugar tit dry up.

The men at around the table also tried to thwart Trump on Iran:

He wanted out of the Iran nuclear deal that President Obama had struck in 2015, which called for Iran to reduce its uranium stockpile and cut its nuclear program.


It’s the worst deal in history!” Trump declared.


“Well, actually . . .,” Tillerson interjected.


“I don’t want to hear it,” Trump said, cutting off the secretary of state before he could explain some of the benefits of the agreement.

“They’re cheating. They’re building. We’re getting out of it. I keep telling you, I keep giving you time, and you keep delaying me. I want out of it.”


Here again Trump never hid his intent with respect to Obama's Iran deal. So why the surprise on the part of Mattis and Tillerson?

Next up, Afghanistan:

Trump erupted to revive another frequent complaint: the war in Afghanistan, which was now America’s longest war. He demanded an explanation for why the United States hadn’t won in Afghanistan yet, now 16 years after the nation began fighting there in the wake of the 9/11 terrorist attacks. Trump unleashed his disdain, calling Afghanistan a “loser war.”

That phrase hung in the air and disgusted not only the military leaders at the table but also the men and women in uniform sitting along the back wall behind their principals. They all were sworn to obey their commander in chief’s commands, and here he was calling the war they had been fighting a loser war.



“You’re all losers,” Trump said. “You don’t know how to win anymore.”
You may not like the tone, but Trump's position was not new nor should it have been unexpected. To his credit he called out the Generals to their face. And he was factually correct. We defeated the Japanese and German armies in four years. Here we are entering our 19th year of a meaningless war in Afghanistan and all we have to show are losses of hundreds of millions of dollars and the deaths and maiming of thousands of U.S. military personnel. Damn straight Mr. President. We've been pouring U.S. taxpayer dollars down an open sewer that masquerades as a country. For what purpose?

Then we get this "pity party":

They stunned nearly everyone in the room, and some vowed that they would never repeat them. Indeed, they have not been reported until now.


“I wouldn’t go to war with you people,” Trump told the assembled brass.
Addressing the room, the commander in chief barked, “You’re a bunch of dopes and babies.”


For a president known for verbiage he euphemistically called “locker room talk,” this was the gravest insult he could have delivered to these people, in this sacred space. The flag officers in the room were shocked. Some staff began looking down at their papers, rearranging folders, almost wishing themselves out of the room. A few considered walking out. They tried not to reveal their revulsion on their faces, but questions raced through their minds.

“How does the commander in chief say that?” one thought. “What would our worst adversaries think if they knew he said this?”


Grab the damn fainting couch. Trump told the assembled military leaders who had presided over a military stalemate in Afghanistan and the rise of ISIS as "losers." Not a one of them had the balls to stand up, tell him to his face he was wrong and offer their resignation. Nope.

They preferred to endure such abuse in order to keep their jobs. Pathetic.

This excerpt in the Washington Post tells the reader more about the corruption of the Deep State and their mindset than it does about Trump's so-called mental state. Trump acted no differently in front of these senior officers and diplomats than he did on the campaign trail.

He was honest. That is something the liars in Washington cannot stomach.

Deployment of Russia’s hyper-sonic missiles is causing heartburn in the West.

Authored by Michael Brenner via ConsortiumNews.com,

Deployment of Russia’s hyper-sonic missiles is causing heartburn in the West. Media headline the news as a dramatic breakthrough on a par with the first Sputnik. “Experts” are rushed into play like those self-styled pundits pronouncing when the initial exit polls appear on Election Day. Pentagon officials assure us that the United States is at the top of the nuclear game and able to respond to (if not exactly match) anything that the Russians can put out there.

Ninety eight percent of all this instant reaction is “fog-horning.” It simply signals that something big and important is out there even though we don’t have a clear picture of its actual shape or dimensions — or its significance. That’s normal. What counts is moving swiftly to the “searchlight” stage of close observation and hard thinking.

Whether analysts, official or otherwise, get there is problematic. We’re out of practice when it comes to serious strategic appraisal. After all, we’ve been flailing about in Afghanistan for almost two decades with no realistic aim or evaluation of the chances of achieving it by whatever means at whatever cost. The disorientation on Syria is even greater. There, we haven’t as much as figured out who are the “bad guys” and who are the “good guys” — except for ISIS.

If you can’t differentiate friend from foe for want of rigorous strategic analysis, your actions are predictably erratic — little more than the expression of mental fibrillations. The same can be said for the rest of the Missile East.

The Washington consensus is sure about one thing: Russia is a mortal enemy. We sanction the Russians, we denounce the Russia, we coerce our European partners into ostracizing them, we conjure frightful images of Vladimir Putin while ignoring just about everything he says (as if they were Hitlerian rants). Still, no one seems able to provide a crisp formulation of what the Russian threat is — other than getting in our way in places where we demand to have full sway: Syria, Libya, Iran, Turkey, Ukraine, Georgia.

Of course, we also accuse them of working relentlessly to undermine American democracy. Yet, that remains debatable as does everything that bears the dubious label of “Washington consensus.” Anyway, whatever minuscule role the Kremlin might have in the accelerated unravelling of the American Republic, it barely registers amidst the hammer blows struck by the craziness of President Donald Trump, his enablers and a largely compromised, abject resistance.

Cold War Dread

Understandably, it is not that easy to overlook nuclear weapons. It wasn’t that long ago that many of us were tormented by the dread of a prospective Armageddon, when the Cold War carried manifest dangers, when the air was thick with hostility and menace.

In October 1962, Americans were terrified over Soviet missiles in Cuba, as this newspaper map showing distances between Cuba and major North American cities demonstrates.

Those acute fears gradually faded over the 40 years of the nuclearized Cold War. We came to live with the Bomb — if not to love it. Subsequently, concerns shifted to the risks associated with nuclear weapons proliferation among less stable states in more fraught places.

The reasons for this sedating were three-fold.

• Above all was the “balance of terror.’’ Leaders among the major nuclear powers absorbed the fundamental truth that not only was the notion of “winning” a nuclear war an oxymoron — but also that any use of nuclear weapons inexorably would escalate into acts of collective suicide. The survivors would envy the dead — as Nikita Khrushchev one said. That conviction became formalized in the doctrine of Mutually Assured Destruction.
• Second, it was reified by a number of treaties and understandings: START I,II (Strategic Arms Reduction Treaty), the Anti-BallisticMissile Treaty (ABMT), the Comprehensive Nuclear Test Ban Treaty, introduction of the Hot Line between the White House and the Kremlin, and the several arms reduction accords signed when Mikhail Gorbachev came to power in Moscow. Their collective purpose was to ensure that no conceivable advantage might be gained that would jeopardize — however slightly — the balance of nuclear power, i.e. the assurance that any resort to nuclear weapons was tantamount to the death of civilization.
• Finally, a number of technological developments reinforced Mutual  Assured Destruction: the deployment of submarine launched ballistic missiles — SLBM (immune to location and possible destruction in a “first strike” — thereby, guaranteeing a retaliatory capability); improved controls that reduced the chances of an “accidental” or miscalculated launch; and the moratorium in placing ballistic missile defenses around major population centers that could have the effect of removing their “hostage” status.

The last has turned out to be a largely redundant measure since the strenuous efforts of the Pentagon/NASA as well as their Soviet/Russian counterparts to devise a workable BMD all have come up well short of producing anything meaningful.

U.S. President Gerald Ford and Soviet Premier Leonid Brezhnev sign joint communiqué to limit strategic offensive arms, 1974. (Wikimedia)

Unfortunately, two policy developments have awakened the nuclear issue from its somnambulant state. One is Washington’s abandonment of arms control treaties that were important parts of the nuclear stability package. George Bush removed us from the Comprehensive Test Ban Treaty(while observing its provisions), and effectively voided restrictions on ballistic missile defense in the vain hope of countering remote threats from prospective nuclear powers (Iran), bolstering the sense of security of some East Europeans (a non-solution to a non-problem)and – frankly – to get under the Russians’ skin. Barack Obama had neither the conviction nor political courage to reverse those retrograde moves.

Under Donald Trump, there has been a comprehensive plan to break free of all manner of restrictive commitments — military, diplomatic or economic. Deployment of regional BMD systems directed at Russian, Chinese and North Korean forces has been expanded despite their demonstrated efficiencies (one version could not even protect Saudi oil complexes or U.S. air bases in Iraq from primitive Iranian missiles).

Modernization of Nuclear Arsenals

The other troubling development concerns the modernization of nuclear arsenals by both the United States and Russia. President Barack Obama committed us to a trillion-dollar program to refine and upgrade American warheads and delivery systems over the next 20 years. The strategic rationale is obscure.

The Russian hypersonic missile development is a parallel development. In a purely technical sense, they obviously are “ahead” of us. And that irritates the hell out of the American security establishment.

Does being “ahead” have any practical meaning, however? Is there a genuine contest for advantage that translates into their gaining an upper hand in some sense or other? The clear answer is “NO!” It is strategically meaningless. Why? Because it in no way alters the logic of Mutual Assured Destruction.

Theoretically, there are only two imaginable ways to do that. The most significant would be development/deployment of a massive, truly effective BMD system that shields population centers and other critical, high value sites from retaliatory attack. That has shown itself to be impossible – even if the initiator of an attack succeeded in reducing the other side’s retaliatory forces by some significant fraction.

A totally disarming first strike in principle could be the second method logically to qualify MAD. It cannot be done, though.Fortunately. The combination of SLBMs, cruise missiles, and increased warhead lethality makes the idea of a disarming first strike a pipe dream of military strategists disengaged from reality.  Hypersonic weapons do not change that calculus.

Accuracies of MIRVed warheads were lowered to 100 feet many years ago.(CEP, or Circular Error Probability = 50 percent chance of landing within radius.) Reducing that to 20 feet, therefore, is pointless – the silo is destroyed either way unless its missile has been “launched on warning” (tripwire automaticity as ultimate assurance of retaliatory strike). Similarly for missile defense.

Then, there is the question of an incoming missile’s speed. Current ICBMs that may give 18 minutes warning do not permit any defensive measures to be taken. If they arrive on target within six minutes, there is no additional benefit to the attacker. Today’s missiles that follow a straight trajectory cannot be intercepted — with or without their distracting decoys.

The fact that “swerve” capable hypersonic missiles can mambo their way to the target adds nothing to their effectiveness. Anyone who tells you that the Russians gain a strategic advantage thereby is lying — either in order to extract larger sums for R & D from the Treasury or to accentuate irrational fears of Russia.

NEVER MISS THE NEWS THAT MATTERS MOST

ZEROHEDGE

President Vladimir Put visiting an exhibit of advanced weapons before meeting with Russia’s Defence Ministry Board, December 2019. (The Kremlin)

Finally, no reasonably sane leader would risk national suicide for a 1 percent chance of getting away with a first strike and surviving retaliation. There is no stake worth even contemplating it. Indeed, that logic holds even were there an impossible 50 percent chance of pulling it off.

Today, the United States and Russia are not engaged in a life-or-death struggle for world domination or for ideological vindication. Ascribing anything like that notion to Vladimir Putin is simply a sign of mental derangement – ours, not his. The same holds for the super-power competition between the United States and China.

So, if this line of reasoning is compelling, why did Russia’s leaders bother with investment of great sums to produce hyper-sonic missiles? The answer is a matter of speculation. Doubtless, technological and bureaucratic momentum has much to do with it. These sorts of long-term programs take on a life of their own — just as they do in Washington. The is no more reason for the United States to squander a trillion dollars in refining our nuclear arsenal as two successive administrations have committed us to doing.

In Russia’s case, there likely is another factor at work. Historically, Moscow leaders have exaggerated American technical capabilities; they have something of an inferiority complex on this score despite their own remarkable accomplishments. It is particularly acute in the nuclear realm — most especially in regard to ballistic missile defense.

This goes back to Nixon’s proposed Safeguard system, followed two decades later by Reagan’s Star War’s plans. Neither of which in actuality had the potential to alter the strategic balance. This free-floating strategic anxiety should be placed in historical perspective. There is a touch of paranoia in the Russian strategic mind — engraved by the events of the 20th century.

Some of this sentiment is conveyed by Putin’s remarks in announcing the deployment of hypersonic missiles: “We’re used to being in the position of catching up. That no longer is the case. Russia is the   only country that has hypersonic weapons.”

To some unknowable degree these neuralgic points in the Russian psyche have been stimulated by the aggressive American program to surround Russia with BMD systems. “Might it just be conceivable that the United States could perfect them, make it work, and somehow jeopardize the credibility of our nuclear deterrent? Why are they expending so much money and effort? Why do those BMD sites make Poland and the Baltics feel more secure when they are in fact militarily useless and it makes no sense for us to attack them?”

Informed analysis suggests that the answer is negative to all these questions. The alternative explanation: U.S. leaders are inclined to do feckless things; they are strategically obtuse.

The broader lesson is that there is truth to the old adage: “Russia never is as strong as it seems; Russia is never as weak as it seems.” We wrote it off as a world power in the 1990s and never since made the proper adjustment. That perception may have contributed to the glaring failure of the United States’ intelligence community in missing Russia’s remarkable break-throughs in weaponry. 

It’s intelligence that counts more than Intelligence.

944 Trillion Reasons Why The Fed Is Quietly Bailing Out Hedge Funds

From Zero Hedge: 

On Friday, Minneapolis Fed president Neel Kashkari, who just two months earlier made a stunning proposal when he said that it was time for the Fed to pick up where the USSR left off and start redistributing wealth (at least Kashkari chose the proper entity: since the Fed has launched central planning across US capital markets, it would also be proper in the banana republic that the US has become, that the same Fed also decides who gets how much and the entire  democracy/free enterprise/free market farce be skipped altogether) issued a challenge to "QE conspiracists" which apparently now also includes his FOMC colleague (and former Goldman Sachs co-worker), Robert Kaplan, in which he said "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."

To the delight of Kashkari, who this year gets to vote and decide the future of US monetary policy yet is completely unaware of how the plumbing underneath US capital markets actually works, we did so for his benefit on Friday, although we certainly did not have to: after all, the "central banks' central bank", the Bank for International Settlements, did a far better job than we ever could in its December 8 report, "September stress in dollar repo markets: passing or structural?", which explained not just why the September repo disaster took place on the supply side (i.e., the sudden, JPMorgan-mediated liquidity shortage at the "top 4" commercial banks which prevented them from lending into the repo market)...

... but also on the demand side, which as Claudo Borio, head of the monetary and economic department at the BIS, explained was the result "high demand for secured (repo) funding from non-bank financial institutions, such as hedge funds heavily engaged in leveraging up relative value trades."

Incidentally, we harbor a slight suspicion that Kashkari, who also admitted to "finding amusement in needling critics calling them conspiracists or goldbugs" (which is a delightfully ironic statement for a person responsible for the biggest asset bubble in history, and one which we are confident in 1-2 years time he would love to retract), was being disingenuous and knows exactly how the Fed is impacting markets, because in what was perhaps the most important news last week which flew under the radar, the WSJ reported that the Fed was considering lending cash directly to - i.e., bailing out - hedge funds, or as we put it, "Fed officials are considering a new tool to ease repo market stress: namely bypassing the existing system entirely, and lending cash directly to smaller banks, securities dealers and hedge funds through the repo market’s clearinghouse, the Fixed Income Clearing Corp., or FICC."

And so we once again get to the real issue at hand, namely the bailout of those hedge funds which even the BIS said were on the verge of failure had the repo market not been unfrozen - and which the Fed was all too aware of - and had the massive leverage that some hedge funds operate under collapsed, forcing an unprecedented liquidation cascade.

Incidentally, it is the repo-utilizing hedge funds that is the transmission mechanism of the Fed's monetary policy, and the source of so much Neel Kashkari confusion. Luckily for Neel, and everyone else still confused, the BIS explained that too:

Shifts in repo borrowing and lending by non-bank participants may have also played a role in the repo rate spike. Market commentary suggests that, in preceding quarters, leveraged players (eg hedge funds) were increasing their demand for Treasury repos to fund arbitrage trades between cash bonds and derivatives.

And there you have it: when properly funded, repos issued by commercial banks are critical in preserving and boosting risk prices, by way of levered hedge fund pair trades; indeed as the FT noted in December, "one increasingly popular hedge fund strategy involves buying US Treasuries while selling equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or difference in price between the two."

While on its own this trade is not very profitable, given the close relationship in price between the two sides of the trade. But as LTCM knows too well, that's what leverage is for. Lots and lots and lots of leverage. And when the repo market seized in September, the risk was that all this leverage would be pulled, forcing an unprecedented liquidation wave among the massively levered hedge fund world.

Hence the need for an emergency liquidity intervention by the Fed.

But as the WSJ noted, it's not just about preserving a handful of hedge funds - fundamentally, the very foundation of the US financial system was suddenly at risk, and with the Fed suddenly targeting liquidity injections into claringhouses, it immediately became apparent what the weakest link was: Clearinghouses themselves.

This is hardly the first time we have discussed clearinghouses as the weakest link in the US financial system. As a reminder, the "hail mary" thesis of the uber bearish CIO of Horseman Global, Russel Clark (who in 2019 was down a record 35%) is that clearinghouses will collapse as liquidity is drained from the market:

LCH claim to have done a quadrillion of compression trades or netting in the last year, this is more than twice the notional of all outstanding interest rate derivatives.

If initial margins rise significantly, the only assets that will see a bid will be cash, US treasuries, JGBs, Bunds, Yen and Swiss Franc. Everything else will likely face selling pressure. If a major clearinghouse should fail due to two counterparties failing, then many centrally cleared hedges will also fail. If this happens, you will not receive the cash from your bearish hedge, as the counterparty has gone bust, and the clearinghouse needs to pay from its own capital or even get be recapitalised itself.

For those confused, here is another quick primer on clearinghouses from Horseman's November letter to clients:

Clearinghouses have become the center of the financial system, but they do not bear the cost of any mistakes they make in pricing risks. This is borne by other clearinghouse members. But what the BIS note and the note issued by the banks and other users of clearinghouses makes clear is that the market has become very directional, with banks supplying liquidity to the repo market, while leveraged funds are taking liquidity (until 2017 banks were taking liquidity from the system). As the near bankruptcy of a clearinghouse highlighted last year, it is other members that bear the risk when things go wrong, and hence big US banks have acted rationally in looking to reduce liquidity to the repo market, which of course forced the Federal Reserve to act.

And since things are getting a bit fuzzy, let's summarize here is what we know:

1. The repo crisis was the result of a liquidity shortfall at the "Top 4" banks, precipitated by JPMorgan's drain of over $100BN in repo market liquidity (a wise move, which eventually forced the Fed to launch QE4, and helped JPM report its most profitable year on record)
2. The Fed addressed the "supply side" of the Sept repo crisis by injecting over $400BN in liquidity to replenish bank reserve levels, first via repo and then via T-Bill POMO, i.e., QE4.
3. The Fed has yet to address the "demand side" of the Sept repo crisis, namely the market transmission mechanism which is intermediated by hedge funds. And it is here that, as the WSJ reported, the Fed is currently contemplating providing liquidity directly to hedge funds to prevent a systemic collapse during the next repo crisis, whenever it may strike.

But going back to the clearinghouse issue, how are these linked to the potential failure of a handful of (massive) hedge funds? Well, we have an explanation for that too, and it once again comes from Horseman's Russell Clark, who in his latest letter to the few clients he has left (which is a damn shame, because despite his dismal performance in 2019, one can argue that Clark is one of the best investors of his generation, yet one who will soon be out of a job due to endless central bank intervention), writes that "since 2016, its has become much harder to short. There are two reasons. One is negative interest rates have made almost any amount of investment risk justifiable, as owning a safe asset will cost you in real terms. The second is that the malinvestment has moved from bad investment in real assets, into bad investment in financial structures that actually push up markets before crashing them."

How is that relevant to clearinghouses... thus hedge funds... thus repo... thus liquidity... thus the Fed.... thus QE4? Clark explains:

In 2019 there were many signs that the Japanese were perhaps beginning to step away from US debt markets, which made me very bearish. Yet US corporate debt continued to trade very well, which ultimately was the main support for US markets. As I looked more and more closely at clearinghouses, I realised the way they priced risk, and the provided leverage through compression, meant they were the grease that kept the US debt markets operating, and in fact kept spreads much tighter than they should be.

This brings us to the punchline, namely the reason why clearinghouses have emerged as the weakest link in the Frankenstein monster of a market that the Fed has created over the past decade, and why the Fed is, quietly, preparing to backstop hedge funds and clearinghouses themselves during the next crisis. Or rather 944 trillion reasons. Here is Clark's conclusion:

Regulators, clearinghouses and central banks have published notes saying that clearinghouses are safe and the problems in the Swedish exchange in 2018 were due to one rogue trader. But when the biggest clients of the clearinghouses, banks, say there is a problem, then I suspect they are right. I spent the Christmas period trying to prove that compression is dangerous, and the best nugget I could come from was from the biggest interest rate clearinghouse in the world, LCH.

In a pamphlet on their website, pushing the benefits of “Compression with Swap Clear”, in the 12 months to October 2019, LCH did a record 944 trillion USD (11x world GDP) of compression. LCH also provide an estimate of the amount of capital this saved members (i.e. banks) under Basel III, a princely 37 million USD. To restate, USD 944 trillion of compression, yielded the banks USD 37 million of regulatory capital saving.

Which leads to the 944 trillion dollar question asked by the Horseman CIO: "If the banks are not benefitting, who is?"

His answer:

"Leverage funds with huge interest rate derivative positions. And who is on the hook if they blow up? The big banks who are on the other side of the trade, as they would be forced to recapitalise the clearinghouses."

In other words, if enough liquidity is drained, mutual assured destruction between funds and banks will almost instantly follow. And since banks are now aware of the risk and are trying to reduce their exposure, it is very hard if not impossible to see how this can be unwound "without triggering all the other bad financial structures and malinvestment that QE has produced."

It also explains why the Fed had to get involved, if under the guise of saving the repo market, when in reality the Fed was once again bailing out the banks and levered funds that are facing trillions of dollars in losses should one clearinghouse go under, as the cascade of resulting events would lead to a domino effect where one counterparty after another failed, and one clearinghouse after another has to be bailed out, initially by banks, and ultimately by the Fed.

And there you have it: while the September repo crisis was fundamentally represented by the Fed as one of insufficient reserves, and the resultant QE4 was painted by Powell merely as an exercise in "reserve management" the real reason why the Fed stepped in so decisively was to prevent a cascading sequence of hedge fund failures that would have not only sent the market crashing as funds were forced to liquidate all positions once leverage as high as 10x (see chart above) was yanked, but would culminate in the failure of one or more clearinghouses. Which is also why now that the Fed has stepped in, and backstopped this weakest link, stocks keep hitting new all time highs.

As for Mr Kashkari's childish "needling of critics", if after reading the above he still doesn't understand what is going on, we have a suggestion: announce on Monday the Fed will no longer inject $100 billion in liquidity each month via repo and POMO, and see what happens to the stock market. After all, the Fed's actions - or in this case the lack thereof - do not lead to "equity repricing", right?