It is amusing to hear all the gold bulls, and more recently the mainstream media, proclaim that the Fed is “pumping liquidity” into the system. The logical conclusion is that either the Fed is going to ruin the dollar or save the stock markets, depending on who is talking.

But John Hussman has a different take on it… all the “pumping” is simply the roll-over of short term paper lent to banks. Here is a quote from his December 17 commentary:

Last week, the Fed executed the first of its highly publicized ?term auction? transactions. As I noted in A Little Acid Test for Fed ?Liquidity? last week, the Fed had $53 billion in repos outstanding on Friday December 14, fully $39 billion of which were due to expire last week. This ensured that the Fed would initiate new repos of a similar amount. The acid test was whether the term auction repos would represent a) new liquidity, or b) just a different way of rolling over the same money. Last week, we learned the answer to that question is b.

This will be something to watch, as Hussman points out in Monday’s notes:

…on Friday January 4, the huge 16-day 350 billion EUR refinancing from December 19 expires. This ensures that the media will (misleadingly) report a huge apparent injection of liquidity by the ECB on Friday. The question is how huge.

…As for the Fed, a few of the short-term repos the Fed provided for holiday liquidity will expire on Thursday [Jan 3]. Until then, the extra $10 billion or so of repos in the system may put a bit of pressure on the Fed Funds rate, holding it below the target of 4.25% for a few days. The most likely day for any apparent “liquidity injection” will be that same day (Jan 3) due to the expiring repos…

Fascinating stuff, and quite interesting to peel back beneath the headlines about liquidity injection. Hussman recommends going directly to the Fed or ECB’s websites to see the data yourself; see his full articles for links and more detail on the topic.