The Fed’s worst nightmare. Yellen’s sly maneuver just revealed. Now in the high stakes game of global macroeconomics, there’s two major players who have more control than anyone else, and of course, that’s the Federal Reserve and the United States treasury. And while they should be in alignment, as they’re both studying financial policy for the United States, which, of course impacts not just the US, but the entire world, today they find themselves at ODS, each one running different goals and objectives.

So today we’re going to dive into a strategic maneuver the US treasury just took that’s turned the tables on the Federal Reserve and put them in a very tight spot, forcing their hand in a direction they don’t want to go. And in this video, we’re going to look at the move that the treasury is taking right now to force the Fed’s hand. We’re going to look at why the Fed is stuck and how moving now undermines their ultimate goals with interest rates, inflation.

And then we’re going to discuss the strategies for us to be taking as this fight continues and plays out. So let’s go. All right, welcome back. If you’re new, my name is Mark Moss. I make these videos to change the way you think about money and to make these super complex moves of the global financial system easier to understand and more actionable. Now, we’ve been discussing the fight between the treasury and the Fed and how they’ve been at odds, how they’ve been fighting ever since the Fed went on the war path against inflation, raising the Fed funds rate at the fastest rate in history, which, of course, put the US treasury into a very tough spot as they watched their income from tax receipts plunge and at the same time, their expenses on the interest on the debt that they have exploded through the roof.

Now, as this has been playing out, we’ve seen interest on the US debt exceed $1 trillion, which is insane. As a matter of fact, it’s so incredible. Think about that. The interest on the debt is now more than what the US government spends on the military, which, to put that into frame of reference, is more than the next ten countries combined. So it’s a really big number. So the battle between these two agencies comes down to the Fed needs rates up, the Fed needs rates higher for longer, and they need to do that to cool the market and to tame prices and asset inflation.

They need that to regain any type of confidence they have. So they’ve been in this official quantitative tightening, or QT, for over two years now. Now, on the other side the US treasury needs fed rates to come down. They want the Fed to switch back to QE quantitative easing. And they want that for two main reasons. One, to get the markets and economy humming so tax receipts go back up.

Two, to get the interest on the new debt down. Now, Janet Yellen said that the interest on the debt would be 1% of GDP for the rest of the decade. I did a whole video on that. If you want to watch that, we’ll link to it in the show notes down below. And now it’s projected that the Fed is going to pivot. Like we already talked about this.

I’ve done videos on this, and it’s projected they’re going to start lowering rates this year, 2024. However, they’re projecting less cuts than what the market wants. They’re also dragging their feet. They’re trying to delay the inevitable out as far as they can. And so Janet Yellen and the treasury decided we’re just going to force their hands. Now, this is going to be very good for risk on assets, but it’s going to be very bad for your purchasing power.

And just as a quick side note, before we go through the rest of this, I can only cover so much in this very short video. I don’t want it to be too long. And if you want to know why the governments actually want high inflation, next week I’m hosting a live event where I’m going to show you why the governments want record inflation and how to use it to build wealth fast.

Instead of falling further behind like most people, I’m going to break it down with about 30 charts so you can see the actual data, see exactly what you should be watching as this breaks down. More importantly, what you should be doing. And I’m going to be answering all your questions about this live in real time. It’s all free. Come hang out with me. Let’s get through this together.

There’s a link down below. Click on that, sign up for free. Come join me live. Q a okay, now back to the battle at hand. Now, for now, depending on who wins this policy battle, there are very different outcomes for the economy, the market, and for our portfolios, which we’ll come back to in a minute. But for now, let’s dive into what the treasury is doing right now so you can understand how this is working and you can see what’s going on in the markets, which makes more sense.

All right, so what we’re seeing now when we dig into the bond market is instead of historically an 80 20 split in net issuance on the short term bill side. In 2023, we saw a net issuance of almost 2 trillion in bills and a negative net issuance on the longer dated notes. What this means is more notes were redeemed in dollar terms than issued. And as far as I know, we haven’t seen negative net issuance in notes since the Clinton air surpluses.

And it’s not just that they’re easing up on the note issuances. They’ve brought it down to negative. And the key piece right here to dig into is that they’re front loading everything they can into the short term bills. Now, you can see how extreme the situation is from this table from SIFMA. And just to catch you up here, bills, they’re short term paper notes, are longer dated two to ten year maturities.

Now, many people, including myself, had thought that the treasury had no choice but to issue all of these bills on the short side, because with the rates being so high by the Fed being pushed up and held high, the treasury didn’t want to lock him in into long term rates at those really high levels. However, it appears now, it’s deliberate. It’s deliberate by Janet Yellen and the treasury to actively fight against the Fed policy and ultimately to force them into taking an action they don’t want to do.

Now, in an article I was just reading by Stephen Moran from the Manhattan Institute, he’s a former senior advisor at the US treasury. Just in 2021, he said, quote, the Treasury Department has offset Qt by increasing the share of total issuance for bills far beyond the norm. The increased duration risk that Qt supplies to the market has been nullified by the reduced duration risk supplied to the market by changes to Treasury’s issuance profile.

And political actors at treasury have managed to run roughshod over the stance of monetary policy, end quote. So we said it right there, the treasury is running roughshod, or in normal non Fed speak, they’re basically having their way with him. They are forcing their own agenda on the Fed. So how exactly does this do that? You see, by issuing so many short term bills, the treasury is effectively printing money which is counteracting what the Fed’s doing on the quantitative tightening side.

Now, in this article, Stephen Rohn goes on to say that Janet Yellen is draining the reverse repo facility on purpose. So the Fed is forced to stop QT. He says, quote, by increasing bill issuance, the treasury ensures the RRP drains more quickly. By keeping bill issuance high, the treasury is able not only to counteract the Qt performed by the Fed, but also to force the Fed to taper QT.

This is an abomination. Monetary policy under the control of fiscal authorities, end quote. Now, monetary policy, the Fed sets that fiscal authority, the treasury sets that. So just to catch you up, but why would Yellen try to force the Fed back into QE from their Qt stance? Now, before we answer that, let’s look at the Fed’s dilemma and why that’s a disaster for them if they decide to move.

Now, the Fed, of course, has a dual mandate. We’ve talked about this, right? Stable prices and full employment and the stable prices, well, let’s just say that shooting from up to 9% inflation and then back down to 3%, it’s anything but stable. And so people all over the world were hit with this inflation, inflation wrecking ball, if you will. And the Fed looks horrible. They look way horrible after saying inflation wasn’t a problem, calling it transitory, and then letting it run way too hot, and then they scrambled with this knee jerk reaction.

Now they’ve gone way too far, too fast the other way and trying to tighten things back down. Jerome Powell and the Fed, they’re desperate to regain the confidence of the people and the government in the Fed. And so Powell, he’s focused on winning the war on inflation. The problem, though, in order for the Fed to win, the treasury has to lose. That’s the stage that’s been set for this battle.

It’s the one that we’ve been watching over the last year. Now, we’ve already seen the Fed pause the rate hikes, and they’re saying that they’re going to start lowering this year. We talked about that. But like I said, they’re dragging their feet. They’re trying to delay the cuts as long as possible. But let’s go back to the question from earlier. Why would Yellen try to force the Fed back into QE from QT? Well, it’s a math problem.

Well, it’s a math problem and it’s a political problem. Let’s start with the math first. If the Fed sells ten year paper at 5%, then that rate is locked for ten years. The treasury can’t afford 5% paper. Janet Yellen needs zero rates again before she starts issuing notes in any serious quantity. And she needs to issue some serious quantity to keep the government’s runaway spending programs going at the current rates.

The US, what we call true interest expense is more than all the US tax receipts. And this is just the true expenses. This is just the interest on the debt and the entitlement spending, not including all the other stuff. So the treasury is in a very tough spot now. The last big note issuance year was in 2021 when rates were still at zero. And so now Yellen’s trying to force the Fed back into QE before she starts flooding the market with notes again.

That’s why she’s trying to drain the rrps with Bill issuance. So that’s the math problem. Like I said, it’s also a political problem being an election year with the economy teetering on the brink. Janet Yellen and the Biden administration have an agenda to win the election and to maintain power. And so Yellen is forcing their hand by stacking short term paper and draining the RRP. Now, is that checkmate, or will the Fed pull another rabbit out of the hat and fight back? My guess is sort of checkmate.

The Fed is going to pivot sooner and faster than they want to. Now, this puts us in the following insane situation. For 2024, for all of 2023, the treasury had been flooding the market with t bills to counteract and fight against the Fed’s QT. But now, with the treasury actions of front loading the bills to drain the rrps, probably by March, then two things will happen at the same time.

First, the Fed’s going to have to reverse QT and go back to QE. Second, we can expect inflation to come back in another wave, probably a lot heavier and harder than most people want to believe. Now, this is going to be good for risk on assets. It’s going to be bad for our purchasing power. Now, as I said, sort of at the beginning, I can only cover so much in this video.

I’m already going long here. If you want to know why the treasury is really fighting the Fed and why they actually want high inflation, then come join me next week. I’m going to go through about like 30, 35 charts so you can actually see them. You can understand the charts that you should be watching so you can understand how this plays out. More importantly, how we can play this, how we can build wealth fast instead of falling behind like this inflation.

I’m going to break it all down, like I said, the charts, and I’ll do live q and a to walk you through this. It’s all free. There’s a link down below, so hopefully you come hang out. But if you want to know why the treasury is really fighting the Fed and why they don’t care about inflation, then watch this next video that I have here. If you want to know where rates will be for the rest of the decade.

Janet Yellen already told us. Then watch this video right here. Either way, leave me a comment down below. Let me know what you think about this. Of course. Thumbs up if you like it, thumbs down if you don’t. That’s okay. But leave me a comment and tell me why subscribe if you’re not already subscribed. And that’s what I got. All right. To your success. I’m out. .

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