U.S. URGENT: Banks Are Preparing for a Rate Collapse?

American banks have been, in effect, bailing out the rest of the world. They've been lending hundreds and hundreds of billions of dollars, yes dollars, to other financial firms and banks all over the planet. And whenever they do this, treasury yields decline, because of course they do. We're talking about deflationary monetary conditions, therefore the very fundamentals that go into interest rates in the first place. And this story has almost everything. Banks, dollars to foreigners, treasury collateral, repo, interest rates, basically anything that anyone has been wondering about right now today. But what you'll hear instead is how the world is rotating away from dollar assets, especially treasuries, thanks to Donald Trump. And we heard the same damn thing from the other side the past four years, how Joe Biden was weaponizing the dollar, and that was causing everyone around the world to ditch it. You have to set aside the partisan bullshit to get to some actual truth. And we can do this using real facts and evidence. And those facts and that evidence comes from the Treasury Department too, not that anyone in the government knows what to do with it. And even if they did, they've got the Fed problem. And none of this reflects positively on that quote central bank. In other words, what the numbers conclusively show is that American banks are the real lender of last resort to the world using, you betcha, the global offshore repo market. And these are truly huge numbers in it. While the entire mainstream of financial media is littered with a litany of stories about how everybody is rotating away from treasuries and dollar assets, the actual evidence shows quite the contrary. Because fundamentals are what matter, not narratives. Just look at the swap market as we'll do in this video too. But what we're going to start with is treasury international capital. That's where our evidence is coming from. It's prepared by the Treasury Department, and it's supposed to capture what the world is doing with U.S. treasuries. But what most people don't know, the tick data as it's known, covers a whole lot more than which treasuries are owned by what foreign country. It actually gathers bank data. Sadly though, not collateral for collateral swaps, what we would really like to as far as securities lending is concerned, only things that are related to cash. Now the downside to the tick data is it's already two months behind. So the figures we're going to be talking about here are through the month of February. But that leads us right up into March and April, and all the deflationary conditions that we saw during those two months, which are consistent with everything that we get in the evidence leading up to that point. Now the part we're going to focus on, and there's lots of parts to ticks, but the part that we're focusing on here, these are American bank claims on foreign institutions, foreign depositories, as well as other types of financial companies and financial businesses. And these American banks can be foreign banks' domestic branches. So a foreign parent might set up a branch here in the United States, which the United States, the Treasury Department, and the Federal Reserve, and all the bank regulators consider as an American bank. And we're talking about claims on foreign banks, which simply means loans made from these American banks to offshore counterparties somewhere around the rest of the largely in offshore places. And the transaction that we're focusing on here is something called a resale. Now a resale is just repo, but from the opposite perspective. So repo is really a repurchase agreement. It's an agreement to sell a bond today and receive cash for it, and then repurchase the bond later on with that cash plus some interest. It's really a collateralized loan from the cash borrower perspective. So a resale quite simply is just the other side of that. You're going to buy a bond today with the cash that you have and agree to sell it back to the person later on with the same cash plus some interest. So in this case, the resale is collateralized lending from the perspective of the lender. So it's really just the other side of repo, which means because we're focusing on American bank perspective, in this case, they're lending cash on a collateralized basis offshore into the rest of the world. And by cash, we mean virtual dollars, not physical dollars, so ledger money. So during the post-crisis era of the silent depression, these repeated euro-dollar cycles ever since the first one, which was what everybody calls the global financial crisis when it was not financial. It was global, but it was a dollar short, and it wasn't the last one. QEs did not solve the problem. So from the tick data perspective of resales in the 2010s, resale activity matches our euro-dollar cycles almost exactly to a T. And they also match, as we'll see in just a minute, treasury yields very, very closely. So resales were rising right away during 2010 and 2011, the early days of euro-dollar number two, what everybody mistakenly called the European sovereign debt crisis, was really a repo problem. But from March 2010, tick data records 624 billion in American bank resales to foreigners, so lending cash outside the U.S. to other foreign participants. By February 2012, that had soared, I mean absolutely soared, to 865 billion, and it would even spike farther to very nearly a trillion dollars by April of 2012. Again, largely European banks, in this method of using American banks, which might have included their own domestic subsidiaries and branches here in the United States, in order to fund in U.S. dollars that they were not being, they're not able to obtain outside the U.S. in their normal means. And then, just like we saw in reflationary economic data during what we call reflation number two, 2013 into 2014, resale activity diminished. The need to use American banks as lender of last resort declined with better financial conditions, better monetary conditions, and better economic conditions, at least for a little while. June of 2014, the level of resales had dropped back to 747 billion, but from there, euro-dollar number three developed, which was the next dollar shortage, dollar tightening period, has nothing to do with the Federal Reserve, it's not about Fed policies, certainly not interest rates. This was about tightening in the real dollar system, the euro-dollar system, and over the next couple years of euro-dollar number three, resale activity once again soared. By June of 2016, there was very nearly a trillion in resales that the tick data picked up on. And from there, once again, you see the resale activity fall off in a reflationary period, what was called globally synchronized growth in 2017. By September 2018, resale activity had fallen back to 890 billion dollars, but from there, what we call the landmine, October, November, December of 2018, very clear deflationary conditions, especially when you see what happened to U.S. Treasury yields, resale activity absolutely soared. By the time we get to October of 2019, after the yield curve had inverted, we had the recession scare of the summertime, we had the repo problems in September 2019. By October 2019, the amount of resales, outstanding U.S. banks lending cash on a collateralized basis to foreigners, 1.24 trillion dollars. 1.24 trillion dollars. So throughout the 2010s, when American banks were acting as the lender of last resort, which the Fed is supposed to be, but it isn't, when American banks were doing that, resale activity rises, they're lending more and what we see is typical dollar shortage behavior, which means the American bank lenders are the lender of last resort. And into the 2020s, again, reflationary conditions. During the supply shock, which everybody thought was an actual recovery, which wasn't a recovery, during that period up until December of 2022, resale activity was largely flat to slightly lower. You get to December of 2022, resales are about 1.2 trillion. But then, in the months leading up to the bank crisis, and remember, the bank crisis was not just U.S. regional banks, it also included Credit Suisse, resale activity suddenly began to rise in early 2023, and it kept going right on through 2023, so that by January 2024, resales are up to 1.68 trillion, absolutely soaring. And then they would spike again during the carry trade blow up last summer. August of 2024, resales up to 1.78 trillion, but then they back off during the artificial high, the temporary period that we keep running across last year, October, November, and into December, where there was some positivity and some optimism throughout the marketplace that maybe things were different and everything was going to pick up, but it didn't last. So by December 2024, resale activity had come back during that artificial high to just 1.58 trillion, but then it absolutely exploded. January and February 2025, and as I said before, February is the latest data, gets up to 1.8 trillion. So whenever we see global Eurodollar circulation that's being impaired, which is the very definition of deflationary money, the interruption in the free flow of cash, collateral, and credit throughout the global system, deflationary money, American banks step in and lend hundreds of billions of ledger dollars offshore and on a collateralized basis, which means demand for collateral. And again, as I keep saying, American banks have repeatedly shown they are the lenders of last resort using the repo market, not the Fed. And by the way, the Federal Reserve knows this, something I just wrote about in our deep dive analysis, and the hedge fund bailout, the basis trade, and all that stuff is more proof that the Fed is not actually a lender of last resort, and this data shows that the repo market actually is. The Fed is nothing more than a janitor. That's why the Fed's mantra these days is not to be lender of last resort, because they know they can't, it's actually to be market of last resort, trying to clean up the damage after a dollar shortage shows up, and that dollar shortage shows up in repo activity from American banks and their offshore funding activities. But where all this relates to the treasury market is there's a very close relationship with resale activity and the behavior of nominal U.S. treasury yields, and when you understand why that is, this makes perfect sense. And to understand why that is, you have to get outside of mainstream economics, forget everything that central bankers are telling you, because everything they're telling you is backwards to begin with, and usually because of an agenda, but once you do that, all of this stuff really does make perfect sense. So I'm showing you the tick figures, the resale data on an inverted scale, which means more resales are down on the charts that we're going to go through here. So throughout the 2010s, nominal treasury yields behaved very closely with resale activity. You start to see some Federal Reserve interference, that's the rate hikes at the short end around late 2016 into 2017 and 2018. Suddenly the relationship isn't as strong as it was, simply because the Federal Reserve is doing something the market actually doesn't agree with. So the Fed was hiking rates which were raising short-term nominal yields, which were pressuring longer-term nominal yields more than the market agreed, but all that did was flatten the yield curve, which is a sign the market didn't agree with the Fed. The market was instead more concerned about, especially in the longer-term maturities, what was happening in the dollar system and the consequences of it, which were not inflationary, which were not a labor shortage, and by 2019 we had global pre-COVID recession, which after the landmine in 2018 became very, very difficult to continue to ignore, even among central bankers in the mainstream, which would have liked to have done anything but admit that things were going in the wrong direction, monetary, finance, and economy. So a high degree of correlation 2018 into 2019. But then we get to the pandemic period, the aftershocks, the price delusion, and the Fed's response to it. If you thought there was interference at the front end from the Federal Reserve in 2017 and 2018, it was huge interference, obviously, in 2022 heading into 2023. In fact, the Fed essentially erased that correlation because of how aggressively it was acting in the short-term part of the yield curve, even though the market was again resisting the Fed, which is why not only the inversions developed in treasuries as well as around the rest of the world, but also how much they developed. Record amounts of inversions on the curve, and largely because of the fundamentals that we're seeing here in the monetary system, argued for lower interest rates, an increasingly fragile system. But while the Fed interfered its way to wreck the correlation between the tick data and treasury nominal yields, by 2023, when the bond rally began, it starts to come back. The correlation shows up all over again. And really, the bond rally was just the market saying, oh, the Fed's going to get out of the way. We can now reflect more exclusively the fundamentals of the marketplace and the economy as we see them without the interference of Jay Powell. And part of those fundamentals, the monetary side of it, we see in the resale activity, growing deflationary pressures. So as there are more deflationary problems show up, more resale activity, among other indications, like swap spreads we keep pointing to, that simply means that there's potential for more deflationary conditions down the road, therefore more demand for US treasuries. However, that's not what you've been hearing for the last couple of years, and especially now from the mainstream. The mainstream is only talking about how everybody is ditching treasures, everybody's ditching the dollar. In a world of lies, telling the truth is seen as counterproductive. And so we get something like this from Bloomberg just today. The picture for longer-dated securities has been more mixed. We're talking about US treasuries. And in light of solid demand for recent 10- and 30-year auctions, which surprises everybody, so far concerns of less foreign buying hasn't yet appeared, according to George Katrombone, head of fixed income from DWS Americas. We can't ignore the fact that 25% of treasuries are held by foreign entities or persons. So when I see dollar weakness, I don't think the US can go it completely alone without foreign participation in treasury auctions. And there's so much wrong with that comment. The auctions are reportedly a litmus test, a foreign appetite for US debt amid Trump's trade war, according to Gareth Barry, who's a strategist at Macquarie Group in Singapore. There has been speculation that China, the second largest foreign holder and a key target of Trump's tariffs, may abstain from buying more debt as a retaliation tactic. And this is utter and complete nonsense. And it also confuses a couple other things. The Chinese have been buying and selling and buying and selling according to the euro-dollar cycles that I just laid out. We see resale activity among American banks, lending dollars in repo to foreign counterparties. We also see the Chinese selling for the very same reason, because as foreign counterparties are encountering difficulty in dollar funding, if they're Chinese banks, then we're going to see the Chinese selling treasuries to try to make up for that market dollar shortfall. It all comes back to the same thing. The one thing we're not allowed to talk about because we're supposed to believe the Fed has the monetary system covered. When it doesn't, the data all shows the repo market. And it also confuses that when you say China is ditching the dollar or China is selling treasuries, China isn't a monolithic thing. It's all China doing all the same thing all at the same time. So maybe the Chinese government is selling treasuries, but private sources in China might be buying them. We also saw this in the TIC data too. And I talked about this this past weekend with Steve, where we showed private foreign buying of US treasuries was absolutely astronomical in the month of February 2025, for what should be obvious reasons, flight to safety and liquidity. But also the TIC data shows that foreigners have been doing this. Private foreign entities have been buying US treasuries hand over fist ever since around late 2022. Why late 2022? Because thanks to the Federal Reserve, which was cheapening treasury prices, it made treasuries a lot cheaper to buy for a world that continued to demand them. That's seeing inflation, but quite the opposite. That was when they forgot how to grow global economy showed up. So the Federal Reserve did everyone a favor by cheapening US treasuries, raising short term rates and therefore having a limited impact on the long part of the yield curve. At the same time, the economy fell off worldwide, even if no one wants to admit it fell into a recession that forgot how to grow economy for quite understandable reasons, drove a demand for safety and liquidity. And the entire time that was going on, all the experts and gurus kept saying inflation, the Fed, treasury debt, Biden, Trump, everything was going to wreck the US treasury market. At the same time, resale activity was going higher, strongly suggesting deflationary conditions that were going to lead to heightened demand for treasuries, regardless of what anyone else said. And that's why this relationship exists to begin with. There's two fundamental reasons why resale activity would correspond so strongly with the behavior of nominal treasury yields. Treasury yields are determined by fundamentals, growth and inflation expectations. And you never hear this because more often than not, those expectations in the marketplace conflict with the Fed and central banks. So central bankers, ever since Greenspan's conundrum back in 2005, have been trying to come up with other explanations for the behavior of interest rates so that market rates don't continue to embarrass and expose the Fed for what it actually is. So they keep focusing on supply factors or political factors in this case, rather than the fundamentals, which the fundamentals as perceived by the marketplace, look at the swap market, does not agree with the Federal Reserve or anybody in the mainstream. So resales, that activity is fundamental. When banks are lending a lot more cash on a collateralized basis to offshore counterparties, they're doing this during periods of monetary tightness acting as lender of last resort. In other words, they're doing this during deflationary conditions. That means, one, demand for collateral and overall access to resales, which drives demand for treasury specifically, since during these periods of deflationary conditions, junkier collateral is not going to be as acceptable and as usable. So as we see lender of last resort activity go up, that means heightened collateral demand for U.S. Treasury's yields go down. But there's also the deflationary conditions that mean a drag on real economic growth and growth potential. Therefore, the consequences of lower growth and less inflation, maybe even deflation, which are consistent with fundamentals of interest rates, lower rates, lower growth potential. So during these outbreaks, when resale activity soars, more deflationary conditions, the demand for U.S. Treasuries goes up. It's the same thing that we see interest rate swaps. And interest rate swaps are just another side, like we've seen all these extreme indications from copper to gold on down. There are other perceptions in the Eurodollar system looking at the same things and coming to the same conclusions as we're seeing here. Except in resale activity, it's not a perception, it's actual activity. So deflationary monetary conditions quite naturally lead to higher demand for safety and liquidity. While people are saying the partisan politics of whatever president's in charge, they're not really in charge of the monetary system, that challenges the perceptions of safety. That's complete nonsense. All the evidence shows otherwise. And the only reason there was selling in Treasuries over the last month or so was because of dollar shortage-induced selling from foreign reserve managers, official reserve managers, private side was buying, foreign officials were selling, as well as basis traders. It all comes back, everything including resale activity, demand for Treasuries, basis trading, it all comes back to dollar shortage. What rising resales have been telling us this entire time, just like swap spreads or the inverted yield curve that uninverted in the bull case, was fragility. Deflationary conditions were growing. Doesn't matter what the Fed says about strong and resilient, it was a fragile system. That sounded ridiculous last year, not so much this year. The facts, the evidence, and the truth are all pointing in that direction, not the crap that you hear in the mainstream. And another indication that fits with everything that we're talking about here, the facts and the evidence that shows deflationary conditions, comes to us from Switzerland. Went over that in the video link below. As always, thank you very much for joining me. Huge thank you Eurodollar University members and subscribers, and until next time, take care.