Jim Bianco Says This Is QE, Like Y2K


In contrast to Hussman, Jim Bianco, at Bianco Research says the Fed's repo actions are QE.

Earlier today I posted, Hussman Sides with Powell: It's Not QE4.

If Hussman convinced you the Fed was not conducting QE, I will give you a chance to change your mind again.

“Not QE” Looks a Lot Like Y2K

This is a guest post by permission from Jim Bianco

Jim Bianco at Bianco Research says “Not QE” Looks a Lot Like Y2K

We would argue the special lending facility that started in late 1999 to support the feared Y2K computer glitch offers a historical analogy to the current period.

Stories 20 years ago sound like they are describing what is happening today:

Dow Jones News Service – (December 28, 1999)CASH IS FLOWING LIKE CHAMPAGNE FOR Y2K
The volume of cash that the Federal Reserve has temporarily given to banks to avert potential Year 2000 strains is rising to dizzying levels. Including nearly $20 billion it gave to the banking system in the form of term “repurchase” agreements Monday, the Fed has almost $100 billion in hard currency loans outstanding to banks. That’s the most money lent out through repurchase agreements ever, said Peter Bakstansky, spokesman for the New York Federal Reserve. For some perspective, the Fed had $23 billion in outstanding “repos” in December 1998, and around $9 billion in December 1997.

The Y2K special lending facility had a similar effect on the Fed’s balance sheet. It was also done for “plumbing reasons.”

And, as the [Champagne] story points out, the Fed supplied record amounts of repo never before seen at the time.

Fed Supplied Repo to the Market During Y2K

Image placeholder title

In fact, the amount of repo the Fed supplied in late 1999 was significantly more than on 9/11 and on par with the support offered during the financial crisis.

It was not until September 2019 that the Fed’s repo operations finally saw a meaningfully higher level.

Image placeholder title

Y2K Special Lending Starter Oct 7, 1999

Note that the Y2K special lending facility ran from October 7, 1999, to April 7, 2000. And what did stocks do during this period? Below is the NASDAQ.​

Image placeholder title

The Nasdaq went on a tear rarely seen in American finance, starting literally the day the Fed opened its Y2K lending facility. It crashed 25% the week the facility closed (April 7, to April 14, 2000).

2019 Repo Rally

Image placeholder title

How does this analogy currently compare? The Fed announced it would start buying T-bills on October 11, 2019. Stocks have gone a tear since (clearly the magnitude of the NASDAQ returns above were larger, but the timing of the bottom in each case is similar).


There is no such thing as a one-factor model to explain the stock market. Metrics such as the Fed’s balance sheet, repo, etc. cannot explain the stock market’s movements in isolation.

That said, when the Fed injects money, funds generally flow to the best-returning market. During the financial crisis, it was the bond market. Today, as was the case in 1999, it is the stock market.

There have been indications of how important the Fed’s balance sheet is to financial flows in the recent past.

During the Fed’s Dec 19, 2018 presser, the stock market collapsed when Powell said the balance sheet was on “automatic pilot.” It soared almost a 1,000 DJIA points on January 4 when he said the Fed would be “patient and flexible.” On June 4, when he said the Fed would “act as appropriate,” stocks continued higher. Again, no single measure can predict the stock market, but these were clear signs that the size of the Fed’s balance sheet and policy matter.

The following table highlights this. Through June 5, half the gains to that point came on the two days Powell commented on policy.

Powell PUTs are Half This Year's Gains

Image placeholder title

Another 9% of the stock market’s gains came after October 11, when the Fed announced its T-bill purchase problem. So, a big part of this year nearly 30% stock market gain has come on the heels of Fed moves, much like last year’s 20% decline was coincident with the Fed’s hawkish rhetoric.

Given all this, the big question is, what happens when the Fed ends T-bill purchases and repo support in Q2 (the current projected end date)? Will the April 2000 analogy apply?

End Bianco - Mish Comments

The above was a guest post generously provided by James Bianco.

It was part of his proprietary research.

I asked Bianco if he would make that post public, and he did.

Free Trial

Those wishing a Free Trial to Bianco Research can click on that link.

Final Thought

Although the point about Y2K is clear, I asked Jim explicitly if this was QE.

He replied:

By saying it is “Not QE” they are arguing it is not impacting financial markets. By detailing the Y2K “Not QE” episode, I’m arguing that not only is is QE, but we also have a historical example of how it has worked previously.

In retrospect, it is not important how one labels this.

My friend Pater Tenebrarum at the Acting Man Blog pinged me with this comment on Hussman's thoughts.

Who cares what it is called, the result is an explosive increase in the money supply!! And it's not bank lending that's behind that, because bank lending growth continues to slow down. So the economic effect is exactly the same as with "QE". It walks like a duck, quacks like a duck, guess what: it's a duck!

Thanks to all for the discussion.

Mike "Mish" Shedlock

Comments (14)
No. 1-9

There's this interesting take on repo/Deutsche Bank. Meanwhile, I'm going to listen to Mister Metokur tonight for some good laughs at social media and SJWs. Maybe down a beer or two. Happy New Year https://www.youtube.com/watch?v=MFhQNugglXk


QE ushered in an decade where the US officially became a banana republic,and like all 3rd world bankrupt banana republics that produce nothing and prints money to drive growth,all QE did was buy some time, borrowing (printing)trillions creates the illusion of "prosperity",problem is …..you simply can't print your way to prosperity and pretending everything is "booming"won't come close to paying the bills.



Excellent analysis. Very insightful.


Mish - thanks for both posts. Really insightful. Great way to start the year or finish it!


The gold mining sector went on to go up 10X for the senior miners, and 20X+ for the junior miners in the next decade after Y2k. Gold itself went from what, $300-ish to $1900?


So the difference between QE and not QE is that with QE the fed decides to let assets roll off its balance sheet at maturity, and not QE it decides when those assets roll off.

Hussman notes reserves now bear a yield, but that yield is, theoretically at least, relative to market returns. Low yield in a stagnant market, high yield in one which is buoyant and where there are also returns outside. In terms of risk and interbank it might say banks don't trust the market and so neither other banks, and as that trust is via public debt which is supposedly liquid, this might speak of an effort or need to lower treasury rates and/or support their price. That or the value of the dollar.

So it could be asked if fed is following or leading the market. As it is trying to channel the market between certain parameters it is doing neither and both, it is following market moves and then controlling them by providing leads, but the market is not the fed, ultimately.

What is funny is that fiat is QE, the fed balance sheet is based well before "QE" on government debt. The interest paid on reserves comes from interest paid on public debt, i.e. taxes or in a loose setting more fiat, which is just more QE.

So we are just talking how big the circle is, but not much point only calling it a circle when it is getting larger and then going quiet when it isn't, unless of course we actually like that circle, but "our way".



Hi Mish, For the sake of debating, what's your take on this one from Mr Armstrong? https://www.armstrongeconomics.com/markets-by-sector/interest-rates/understand-what-is-the-repo-market/

Understand What is the Repo Market | Armstrong Economics
Understand What is the Repo Market | Armstrong Economics

QUESTION: Mr. Armstrong and thank you for what you are doing for us regular people. For my first ever question for you, would you please explain as simply as possible exactly what the REPO market is and how it works and how it affects our multi-faceted financial world. I am truly grateful for your work and communication. GLH ANSWER: The REPo Market is where banks will post AAA securities and borrow against them for the night. Normally, the big banks like J.P. Morgan provide over $300 billion in liquidity daily which allows banks, hedge funds, and institutions to raise cash for the night. When the banks withdrew from lending into the Repo Market, the Fed was compelled to inject cash and thereby lending into the Repo market to prevent the short-term interest rate from rising as it did to 10% on September 17th, 2019. A Reverse Repo (RRP) injects the purchase of securities with the agreement to sell them at a higher price at a specific future date. The party selling the security to raise cash in the market agrees to repurchase the securities (repo) from the lender at a future point in time which is known as a Repurchase Agreement (RP). Repos are classified as a money-market instrument, and they are usually used to raise short-term capital. This is not a market that is open to the public. However, it is the basic market where everything else is factored on top of this rate. If the Fed did not intervene, then short-term rates would rise and instead of the consumer paying even 20% on a credit card, it would have jumped as must as 10%. QE was where the Fed was trying to lower long-term rates after the mortgage-backed crisis hit in 2007 so they were buying 30-year bonds. This is the short-term which has nothing to do with QE. Here the Fed is trying to prevent short-term rates from rising rather than lowering long-term rates which they can only "influence" since the Fed posts only short-term rates like the discount rate (wholesale rate) which banks can borrow at. Here the economy is not declining and unemployment is back to the 1960s. All the talk about QE makes zero sense for these people do not understand what is taking place and it takes professionals in the field to grasp this issue and they cannot speak since they are under confidentiality agreements.

Global Economics