Is Dementia Contagious?

It appears US Treasury Secretary Janet Yellen has some very concerning short-term memory problems, just like her boss.

Yesterday, during an interview with CNBC, she offered the following reassuring comments about the state of US financial markets… “… we really haven’t seen any of these signs of financial instability in the United States financial markets…”

Today, answering questions following a speech in Washington, she said:

“We are worried about a loss of adequate liquidity in the market,” adding that the balance-sheet capacity of broker-dealers to engage in Treasuries market-making hasn’t expanded much, while the overall supply of Treasuries has climbed.

So just to summarize (via Bloomberg headlines):

• 1638ET Today: YELLEN: WORRIED ABOUT LOSS OF ADEQUATE LIQUIDITY IN TREASURIES

• 1623ET Yesterday: YELLEN: NOT CONCERNED ABOUT LIQUIDITY IN MARKETS

And in case you were wondering which Janet Yellen is right, it’s simple…

Bloomberg’s measure of prevailing liquidity conditions in the US Treasury market is at its most stressed since the peak of the COVID lockdown crisis.

The last time Treasury liquidity was this bad, The Fed injected $1 trillion every day to unlock the bond market and launched $120BN in QE to short circuit a catastrophic USD short squeeze.