Taps Coogan – January 1st, 2020

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As the new year kicks off, the following chart from Robin Brooks is a reminder that the Federal Reserve is, practically speaking, now the entire Treasury market.

Not only is the Fed now responsible for the overwhelming majority of demand for new treasury issuance, the level of demand being met by the Fed is larger than all other sources of demand combined (including the Fed) at any prior point in history. The Fed simply can’t stop monetizing at current deficit levels.

As for the deficit outlook, the fact that fairness apparently now requires that the $600 dollar checks Washington just started sending out should immediately be followed by $1,400 checks (regardless of need) because Congress’s stimulus bills have been stuffed with hundreds of billions in wasteful pork and ill-advised corporate bailouts probably sets the tone for 2021.

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