by ilene - September 10th, 2009 7:58 pm
Courtesy of Chris Martenson
One of the key questions is, "Can the Fed ever unwind all of the positions it has taken on from failed banks and Wall Street firms?"
This is an important question, because if the answer is "No, at least not precisely when they wish to do it," then it raises the risk that all that hot money will prove immune to efforts to recall it and it will whiz around creating all sorts of monetary trouble.
Now that the Fed has declared that the recession has ended and green shoots are everywhere, the next obvious part of this journey will have to be the unwinding of the massive amounts of stimulus and thin-air money that has been injected into the system.
Certainly after watching the risk-money out-chasing junker stocks well up off their lows, we can surmise that the speculative animal juices are flowing again and that the Fed might want to consider taking away the punchbowl.
Instead, today the Fed bought another $18.8 billion net ($32.4 billion gross) in agency mortgage-backed securities, which represents the exchange of thin-air money for GSE MBS paper.
So far, all that we know about is that the Fed is talking about how to take the punchbowl away but that bankers are warning the Fed to "go slow."
Fed Tries to Prepare Markets for End of Securities Purchases
Sept. 3 (Bloomberg) — The Federal Reserve is trying to prepare investors for an end to its housing-debt purchases, while keeping interest rates near zero, reflecting an economy pulling out of a recession with little momentum.
Federal Open Market Committee members discussed extending the end date of the agency and mortgage-backed bond programs, minutes of the group’s Aug. 11-12 meeting showed yesterday. The move would be aimed at avoiding disruptions in housing credit at a time when recovery prospects are clouded by rising unemployment and slowing wage gains, analysts said.
While the economy is projected to expand this quarter, central bankers had “particular” concern about the job market, signaling that the FOMC may need to see a peak in the unemployment rate before it begins withdrawing monetary stimulus. Some policy makers saw dangers of “substantial” declines in the inflation rate, yesterday’s report showed.
“They need to see labor markets improve and inflation stabilize, and not fall,
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Tags: assets decline, Banks, Fed, Fed's thin-air money program, financial industry, monetary stimulus, quantitative easing, unwinding positions
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by ilene - August 26th, 2009 8:31 pm
Fascinating! H/t to Zero Hedge for finding this excellent article by Chris Martenson. (See also Tyler Durden’s "Is The Fed Enabling Foreign Central Banks To Swap Out Their Agency Debt Into Treasuries?") And welcome to Chris Martenson of ChrisMartenson.com!
Courtesy of Chris Martenson
Executive Summary
- The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.
- Non-US demand for the dollar must remain high, or the dollar will fall.
- Demand for US assets is in negative territory for 2009
- The TIC report and Federal Reserve Custody Account are reviewed and compared
- The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.
- The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.
The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush.
This report will wade through some technical details in order to illuminate a complicated issue, but you should take the time to learn about this because it is essential to understanding what the future may hold.
One of the most important questions of the day concerns how the dollar will fare in the coming months and years. If you are working for a wage, it is essential to know whether you should save or spend that money. If you have assets to protect, where you place those monies is vitally important and could make the difference between a relatively pleasant future and a difficult one. If you have any interest at all in where interest rates are headed, you’ll want to understand this story.
There are three major tripwires strung across our landscape, any of which could rather suddenly change the game, if triggered. One is a sudden rush into material goods and commodities, that might occur if (or when) the truly wealthy ever catch on that paper wealth is a doomed concept. A second would occur if (or when) the largest
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Tags: Agencies, Banks, Ben Bernanke, Bloomberg, bubble, Cash, Chris Martenson, Commodities, consumer credit, credit, debt, Dollar, Fed, Federal Reserve, Federal Reserve System, Foreign Interest, HR 1207, MBS, Monetization, Money, POMO, Ponzi, purchasing power, speculation, Treasuries, Treasury, Treasury Auction, Treasury Bonds, Zero Hedge
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by Zero Hedge - May 26th, 2009 4:07 am
- Must Read: Henry Paulson – "I didn’t understand the retail [mortgage] market, I just wasn’t close to it" (Newsweek)
- Dallas Fed’s Fisher: "Don’t monetize the debt" [too late Dick] (WSJ)
- Cushman & Wakefield exec says CRE is doomed due to lack of securitization (NYPost)
- Euro falls on renewed concern over European banking system (Bloomberg)
- Deripaska nears deal to retain empire (Reuters)
- China warns Fed over "printing money" (Telegraph)
- Yuan drops by most in 2 months on signs China gains halted (Bloomberg)
- Libor’s plunge could trap banks (Telegraph)
- South Korea won, stocks drop on concern over more North Korean nuclear test (Bloomberg)
- ECB to buy bonds in June, to seek quick exit [mm hmm] (Bloomberg)
- 50% of employers suspend college recruitment (Guardian)
- Geithner dismisses Republican socialism charge as ridiculous
Tags: CHINA, debt, Fed, Geithner, North Korea, Paulson, printing money, South Korea
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by Phil - May 20th, 2009 7:11 am
Fed days are always great fun.
Although it’s just the minutes and not a policy decision, often the minutes of the Fed meeting move the market more than the decision itself. Sure a cynic may say that the reason for this is that the minutes are less meaningful and they are just an excuse for manipulators to create whatever market reaction suits their needs but we are no cynics here are we? On the last Fed Minutes Day (April 8th) the market opened up 1%, then fell 1% on a poor oil report at 10:30, then rose 1.5% by 1pm, then dropped 1.5% through the minutes until 3pm when it amazingly recovered and we finished the day up about .75%. Isn’t that exciting?!?
It sure was exciting for us as we had grabbed the DIA $78 puts at 1:10 as the market rallied for no particular reason and we caught the dead top of a 150-point drop for a huge win. We’ll be looking for opportunities like that today but we’re not going to force it – that opportunity came because the markets were up irrationally so it was easy to play. My quick notes (at 2:03) from the last Fed release were: "Credit not easing. Concern over assets they are buying under TALF. Serious downward GDP forecast to -1.3% for 2009 AND 2010 Continuing deflation risk. Economic activity fell sharply and should continue to contract. Uptick in housing starts was a glitch, not a trend. Energy and Ags now being affected by slowdown where they were not before." As I concluded at the time "Not exactly rally fuel."
Nonetheless, the next day we jumped 250 points to 8,083 as "green shoots" were seen in the Fed’s language. That was April 9th and we spent the rest of the month struggling below the 8,100 mark but punched over at the end and here we are, up 10% from the last minutes and looking for even greener shoots to break us over our 40% lines. What gave us a boost on April 29th was the FOMC non-decision where the Fed said: "Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower." I know – don’t you just get goosebumps? Exciting as a statement like that may be to investors…
Tags: Baltic Dry Index, Bernanke, DHT, DIA, Fed, OIH, Oil, TNK
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
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