JP Morgan Warns the Big Squeeze is Coming


JP Morgan, Bank of America, and Goldman Sachs all say Fed funding issues remain.

Bloomberg reports JPMorgan Warns U.S. Money-Market Stress to Get Much Worse.

JPMorgan Chase & Co. says the money-market stress that sent short-term borrowing rates surging last month is likely to get much worse despite the Federal Reserve’s attempts to inject billions of dollars into the financial system.

JPMorgan says it’s not convinced the Fed has resolved the issues in the funding markets, according to a note from analysts led by Joshua Younger in New York. Funding pressures resurfaced last week even after primary dealers, firms approved to trade directly with the Fed, took all of the available overnight liquidity from the central bank and sold it as many T-bills as possible.

“Given the benefits of our newfound perspective, we recommend viewing these moves as highlighting the limitations of the Fed’s chosen solution to their operational issues,” the analysts wrote. “With year-end coming up, this is all likely to get much worse, in our view, before it gets better.”

JPMorgan’s note follows similar warnings from Bank of America Merrill Lynch and Goldman Sachs Group Inc., who have also attributed September’s funding stresses to factors including post-financial crisis bank regulation. Even after the Fed’s latest moves to ease the log-jam in funding markets, “intermediation bottlenecks remain,” Goldman Sachs said.

Not QE Revisited Again

Overnight rates spiked to 10% in September prompting the Fed to claim the spike was due to end of quarter funding issues.

At the time the Fed stated a "Need to Resume Organic Balance Sheet Growth".

One to three billion would be "organic".

On October 4, I noted At Least $250 Billion In Short-Term Repos Through Oct 17.

On October 8, Federal Reserve Chairman Jerome Powell said the Fed Will Increase Supply of Bank Reserves, but it's not QE.

Amusingly the Fed said these emergency operations were neither QE nor monetary policy.

I wondered how the heck can operations designed to control interest rates not be monetary policy.

More Wonders

Apparently, I am not the only one wondering.

JP Morgan, Bank of America, and Goldman Sachs are all questioning the Fed.

Meanwhile the Fed is doing $60 billion a month in emergency repos to control rates yet a "big squeeze" happened again.

"Overnight" Operations Oct 17

If the Fed keeps repeating "overnight" operations (and they are) it's not "overnight".

Pain Killers

Through November 4

Then till when?

Pertinent Question

Not in Control

If you think the Fed is in control, think again.

Mike "Mish" Shedlock

Comments (28)
No. 1-12

If the Fed isn’t in control, why do they park their money there?

Tony Bennett
Tony Bennett

"JPMorgan says it’s not convinced the Fed has resolved the issues in the funding markets,"



Especially, since weeks ago the rumor was that JPM at epicenter of shortage.

In 2012 President Obama had this to say (on The View):

"JPMorgan is one the best managed banks there is. Jamie Dimon, the head of it, is one of the smartest bankers we got"

Tony Bennett
Tony Bennett

"then begs the question: just why are banks so scared of lending money to each other"


FASB 157

The problem is overnight lending (at FFR) between banks ... which is done with no collateral. The repo operation re-instituted to alleviate that problem. In 2009 Congress strong armed FASB to switch from Mark to Market to Mark to Model on illiquid assets (anyone with a shred of cynicism guessed that banks were allowed to price crap at par. Meaning no more write downs/offs or large set asides for losses boosting profit .... IMMENSELY). Almost to the day stock market started it relentless surge upward.

Fast forward to today. These same banks KNOW that the other guy is holding garbage ... because they themselves are holding garbage. For it to get to this point must mean the rug can no longer hide what has been swept under it.

When it blows up - and it will - even those jaded will be surprised by how bad. But, hey, it kept the "recovery" going a few years longer than it had any business lasting.


How can there be Tr$1.4 in reserves, but the nobody wants to swap cash for Treasuries for a night to earn 10× the going rate? One of the following must apply:

  1. There is no Tr$1.4 in reserves
  2. The reserves cannot flow because of liquidity rules imposed on banks
  3. The banks don't trust the chain of ownership on the treasuries being offered as collateral
  4. The banks are trying to force more QE by faking a dearth of cash/liquidity, stuck with a truck load of bonds that they want to sell back to the Fed for a higher price, like they anticipated. The Fed buying bills doesn't quite work for them, so they're keeping their purse shut.

Recent comments have got me thinking, did Jamie Dimon have a meeting like that scene from "Margin Call" where Jeremy Irons sat at the head of the table and told everyone, "There are three ways to make money at this business: be first, be smarter, or cheat..." Is JP Morgan going first and in doing so bringing the problem to a head? One wonders...


Who needs overnight funding and why? Can't the borrowers fund in a longer term way? Do the borrowers have a viable business model without the Fed? Why should we care?


The real question is who's paying the high interest rates? Who desperately needs cash? Hope it's not my bank.


"During the latest earnings call JPMorgan CEO Jamie Dimon told analysts that the bank had $120 billion in cash on deposit at the Fed during the repo blowout."

$120 billion is twice the size of the US monthly trade deficit, yet considered small change for JPMorgan. I don't know, maybe the biggest risk is in clear sight: the size of the financial industry is out of whack with the real economy.


Beyond the massive levels of official credit market debt outstanding, unofficial shadow banking is estimated to be $52 trillion, and then there is the $600 trillion notational value of various derivative contracts outstanding.

It's clear someone has taken a hit and is hemorrhaging badly - the question is who and how large? And it's also clear that they want to keep their issues under wraps. Perhaps we will wake up one morning and be surprised.


We’ll know the Fed has lost it when it finally breaks the money market buck, and the FDIC doesn’t/can’t come to the rescue this time.

Until then, as long as the “False Confidence” band is playing, get up and boogie.

Really, wouldn’t gold be at 5k if this was the “End?”


The lines between big banks and the Fed are blurred enough to the point where they dont exist. This is stealth modern monetary theory. One day we will wake up and Ray Dalio will be right about MMT.


I read about something related to this several months ago in Europe. A financial institution needed funds from a central bank, but in order to secure the funds, the institution had to provide “pristine collateral” which in this case meant a financial asset with a negative interest rate.

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