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King Dollar Is Dead: Long Live the King!


ZIRP may become an idea whose time has come and gone.


The report of my death was an exaggeration.
-- Mark Twain

Instead of the death of the dollar, we may be witnessing the death of zero interest rate policy (ZIRP).

US Treasury Bill rates are no longer .01%, as they were in the latter half of 2008 and from August 2011 to the end of January 2012. It appears that demand has outstripped supply in 3-month US Treasuries. The effects of this phenomenon are showing up in the Fed funds rate; not only is it rising, but it has become more volatile!

On September 17, 2012, ICAP ( the world's largest interdealer broker) announced:

Fed funds, the US overnight interbank lending rate, is projected to open between 0.14% and 0.18%, within the Federal Reserve's target range of 0.00 to 0.25%.

Fed funds closed at 0.12% on Sept. 14 after trading from 0.07% to 0.23% and averaging 0.15% (NB: Do we notice an incremental hike in expectations?)

This market may experience extreme high and low rates at quarter end and other technical calendar dates due to balance sheet positioning by financial institutions or cash supply aberrations such as quarterly tax payments.

Could the spikes in the Fed funds rate be due to distress in the banking system?
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