Iceberg. Dead Ahead: Tariff Chaos, Shadow Repo and Liquidity Crisis.
There’s a hidden market that might crash the economy in 2025. Tariff chaos. Leverage in the Repo Market. A burgeoning liquidity crisis. There’s an iceberg, dead ahead, only we can’t see below the surface to know how big it is. In this episode Max takes a big swing at the existential crisis brewing in the financial markets. Trump’s tariffs, declining economic data and slumping global demand will potentially neutralize half of the Fed’s crisis response arsenal. The logical and expected response to what is shaping up to be a catastrophic summer is the “Fed Put.” In other words, another bailout. But if the Fed looks to expand its balance sheet to accomplish this during a liquidity crisis, will the buyers of U.S. debt show up? Inflation and a weak dollar, frayed nerves in the bond market and more reckless behavior coming out of the White House could cause a run on the big banks and other firms that live in the “shadow repo” market leaving the Fed balancing the world on its shoulders.
Resources
Apollo Global Management: How are US consumers and firms responding to tariffs?
LendingTree: BNPL Tracker: 41% of Users Late in Past Year
The Fed: What Happened in Money Markets in September 2019?
Brookings Papers on Economic Activity: Treasury Market Dysfunction and the Role of the Central Bank
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