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Chasing Red Liquidity Herrings
In response to the earlier post on Treasury's supply/demand imbalance, a keen reader shares the following insight:
if there are ~16t usd assets in banking per the article and ~1% are in treasuries today that means 9% conversion of assets to treasuries remains....the banks are woefully undercapitalized
if figured on a pre-fasb mark to market basis.... so the only other location of assets / capital is the 1t usd sitting in the fed...(unless the banks sell good performing assets for treasury junk)....
9% of 16t is 1.44t so the banks can't meet the 10% requirement although some will get close....my concern is that the 1t usd sitting in the fed may already be in treasuries and that it is not truly cash - frn....
regardless of the form of the excess reserves it means that ben cannot possibly implement reverse repos or any other trick to sop up liquidity and impose a treasury holdings requirementkeep a watch on excess reserves as qe continues until march...i bet those reserves rise to the 1.3t level as ben buys more mbs and takes them off the books in an elaborate shell game....
clearly these are acts of desperation....the titanic did not sink immediately and there was the orchestra playing tunes until the bitter end...
this shell game is more proof that ben will be reconfirmed...who else could manage this joke?
Certainly, should this line of thinking be correct, the Fed will never permit any transparency into its holdings. The circular approach to extracing liquidity by sopping up Treasuries would be blatant monetization of the most criminal degree: the Fed would not only be purchasing Treasuries at a makeshift price, but also paying interest. In such a way both the Treasury and the Fed would be facilitating funding. And one wonders why all of a sudden Tim Geithner is disposable.
And speaking of liquidity, elsewhere Karl Denninger brings up the interesting point that last week's crash may well have been a function of a rapid and premeditated liquidity extraction by the very same Fed, which would thus be sending a political message, as many have already speculated, as to what may happen should Bernanke not be reconfirmed.
I will remind people that in September of 2008 when Bernanke and
Henry Paulson demanded $700 billion for EESA/TARP, and threatened that
"if this doesn't pass the market will blow up."
Well, The House initially refused to pass the bill, if you remember.
Do you remember what Ben Bernanke was doing behind the scenes at the time?
I'll show you - once again - as I pointed out at the time:
Remember this? $125 billion of "slosh", or excess liquidity, drained from the system in the four days from 9/19 - 9/24/2008.
To put this in perspective that was a drain of sixty-five percent of the total excess liquidity in the system - a "starvation diet" if you will - and that withdrawal was an intentional act!
The above is an irrefutable record of what The Fed actually did.
Remember that Bernanke's argument at the time was that the
credit markets were suffering from a lack of liquidity. That is, there
was no problem with firms actually being bankrupt, but they were
illiquid.
If that's true why did Bernanke intentionally drain $125 billion from the system - two thirds of the market's total excess liquidity - instead of adding to it?
What did the market do after The Fed pulled $125 billion in system liquidity out over the space of four days?
Do you remember?
Does this prove
that The Fed intentionally crashed the stock market? No, but it
sure is a damning argument - statements of "do what we want or the
market will crash" along with claims that "the system is illiquid" coupled with an intentional liquidity drain at the very same time, and leaves open the question as to whether The Fed provided "a damn big nudge" to "emphasize their point."
Remember the events surrounding this withdrawal of liquidity?
On September 7th, Treasury took over Fannie and Freddie.
On September 15th, Lehman failed.
On September 16th, The Fed loaned AIG $85 billion.
And on September 25th, the FDIC stepped in and effectively closed Washington Mutual.
Yet in the middle of this "liquidity crisis", while Ben Bernanke and
Hank Paulson were corralling House and Senate leaders in the Capitol
and demanded $700 billion in bailouts for Hank's unlimited and purely
discretionary use, The Fed inexplicably drained $125 billion from the banking system.
And now they're at it again, with Gibbs issuing thinly-veiled
threats that sound suspiciously like the very threats that were made in
2008 - either give the banksters effectively unlimited access to the
taxpayer's jugular vein or the market will crash.
One has to wonder:
Did our economy fall down the stairs or was it pushed?
Three questions remain:
Is not a threat to destroy financial markets along with acting intentionally and directly opposite what you claim needs to happen an act of financial terrorism?
If it is an act of financial terrorism, why has it been ignored for
more than a year instead of leading to a full investigation and
hearing in front of a Grand Jury?
And finally, is the same thing happening - this time hidden because
we can no longer see Federal Reserve liquidity actions in the clear
light of day - once again, this time as a means of bludgeoning The
Senate into reconfirming a man who is demonstrably unfit for his post?
That is, is the economy and our market being "pushed" once again?
Regardless of whether or not one takes these observations seriously, the liquidity endgame is approaching fast if not here already. Zero Hedge will shortly present a cash flow projection model for the United States which will demonstrate what a positive feedback debt collapse spiral looks like.
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Yes it proves it stolen! Well done!
While they pulled the liquidity, Timmy called all his friends for a sleep over.
Yes it is happening again! NWO pillaging the treasury, raping your money market funds.
Running on empty....running free!
Scott Brown, pinup boy and go-go dancer was at a lot of parties with Barney Frankk. Easy money.
Buy Silver!
Keen reader - connecting dots.
Excellent but uncomfortable!
I eagerly await your promise from last sentence of post. I don't have time in my life to follow this as closely as I'd like, but I certainly would love to hear a source that I trust as much as the zero hedge crew giving solid predictions of the moment brakes may or may not lock. My rational mind tells me that these money-for-nothing games can't go on forever and I have been waiting for years to see some comeuppance for the enormous institutionalized scam underway.
Is there a chance a painful lesson could flush out the obfuscation of the thievery and hit a reset button? I want a reason to trust the financial system so I can get back to taking part in it instead of hoarding savings in gold and cash.
Osama for fed chair.
Obama for Al-Qaeda chair.
Timmay and Fat Larry traipsing through the caves of Afghan-i-nam with turbans and Kalashnikovs would be a just career move for our boys...
What the reader has pointed out has been pretty obvious from your own posts for a while. Didn't you post a graph, which showed the rate at which FED's MBS assets were increasing were totally correlated to the treasury debt being issued.
TO me it has been obvious that there was a tacit undestanding that the banks can offload their MBS as long as they buy the treasuries with it. Excess Reserve that Ben talks about is complete hogwash.
I think Karl makes good points on most if not all of the issues that he writes about.
I have enormous respect for the man.
I read your thoughts daily Karl and truly you are a man of honor, deserving of respect.
Karl is NOT a man of honor....
He's more of an authoritarian idiot savant....He IS well versed in all things economic but blinded by Right-wing tropes and censorship issues at his blog which experiences frequent "purges" of non-sycophantic members....
DO check out his blog talk radio show for verification....He sounds positively unhinged at times....
one reason for my suspicions about the state of the excess reserves is based upon the sharp drop in velocity of m3 (as published by shadow stats) in face of intense qe ....if the fed is printing / releasing rain forests of money why is m3 velocity dropping? one possible explanation is that excess reserves - once part of the money supply when cash - are now part of short and long dated treasury portfolios which would not be counted in m3....
in fact m3 - the integral and 2d derivative - is in decline although m1 is sharply up....i think some research would help shead light on the relationship between the money supply, the fed balance sheets, and effects of qe....might be a good doctoral research subject....
This post does not seem to understand how markets function or the Fed.
Yes, if everything is controlled by the Fed...
THEN... everything is controlled by the Fed.
Or one can look at other factors that better explain each of the data points mentioned in this post. Its typical "grand conspiracy theory" bulls---t.
Can you elaborate on the other factors? There is value in hearing both sides of the story.
as a standard issue cia disrupter cum conspiracy
denier you comment without originality or
insight....
regarding the reach of the fed and its highly
symbiotic relationship with the treasury you
fail to acknowledge that it was the fed which led
the merger of boa and ml, pushed for the purchase
of 5% of the major banks by treasury, has purchased
vast tracts of the mbs market, and bloated its
balance sheet by over 1t usd in the past 12-15
months...not bad work for a so-called apolitical
independent monster squid....
the invasiveness of the fed and its indespensibility
for propping up acres of green sheets in breath
taking and the coordinated effort of a grand
conspiracy....your bullshit sheads no light on the
subject and provides cover for those who have
engineered the financial catastrope we face...
ps. and of course gm, aig, and a host of other
"market working" corpses operate without fed or
government intervention.....pay your clue phone
bill - it is in danger of permanent service
disconnection...
ignoramus
I wonder if Bernake is part of the Bilderberg group...? He's probably following the orders of their supreme leader Undead Hitler. bis zum Hals in der Scheiße stecken
BS was caught on film being chauffeured in through the front gates in '08...Lude Radowski exlaimed, "Thats Bernanke!" They do their shit in plain view.
Bagholder, instead of posting nonsensical jiberush of such magnitude, perhaps you would share your favorite verse of a favorite song for mindless misers (Madonna is a favorite of the doelarrs worshiping heretics). "Quicker than a ray of light".....that is what the doelarr is..."zephyr in the sky I wonder do my tears of mourning (morning) sink beneath the sun".....goodbye doelarr, goodbye you little rey of light, hope you did what you came to do, because you are finished. "Quicker than a ray of light she is crying." BigBagHolder, your name is quite ironic. have fun with your bag of doelarrs.
probably think gold is in a bubble too, right?
this is a terrific read, very insightful
Bill Gross Say FED Will Exit Easy Monetary Policy, Quantitative Easing in March 2010
http://www.marketoracle.co.uk/Article16377.html
Soon the dollar puke fest will commence. Inflation-Deflation-whatever...distraction argument's to cause trader paralysis along with manufactured "rally's" and "take-downs" at key junctures. Keep it simple. Too much debt-too many dollars-over the top corruption at the highest levels equal a currency crisis in the making and is more likely to take everyone by surprise when the world votes "no confidence".....and sets fire to the dollar. It could literally happen at any moment and there will be no exits unless...you close your eyes now and buy on the (commodity) take-downs......the pimps are and its a gift there for the taking...
if anyone has any questions on this see greece for a primer...
A lot of smoke and mirrors. Intelligence and counter....spy versus spy...a rubix cube. All information is welcome and use it wisely.
Hey, maybe it was a false flag like 911... [/sarcasm]
What comes into play fastest...A quickly rising M1 or a contracting M3? My feeling, based on how things went down in the last year and a half, is that the M3 is the trump suit at least short and intermediate term. Obviously any and all means will be utilized to drive the bid back into all flavors of treasuries, the longer maturity the better. This will work as long as it does....it seems exceedingly difficult to predict when an auction failure might occur. Karl is a super smart and astute individual who is more keenly aware than most, that the painful math lesson will eventually commence (with an emphasis on exponents!).
The liquitity drain was a polite warning shot from the banksters(FED). "Do not touch the Ponzy Master or I will kill the market.
VIVA EL PRESIDENTO DE LA REPUBLICO DE LOS USA !!!
Just because Karl rants, doesn't mean he is wrong...
Facts are a thorny business that keep poking holes in a Myth Narrative at the most inopportune times...
Congressman Brad Sherman had his finger on this historic swindle.
http://www.youtube.com/watch?v=55lOhYw8Lxk
http://www.youtube.com/watch?v=_bH1mO8qhCs
Shut up you rabble!
Robbed and raped by those in power!
http://www.reuters.com/article/idUSTRE60N1S220100124
NEW YORK (Reuters) - U.S. securities regulators originally treated the New York Federal Reserve's bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.
I think the BIS data analysis was much better than a Denninger rant.
Bernanke is right on one thing: the banks were illiquid. But the banks are inherently undercapitalized under fractional reserve banking. They can play their confidence game to prevent a bank run, but short of banking holiday, there's nothing they can do but print money when people actually start calling their deposits. I find this emperical analysis to be a waste when you know aprioristically what's going on fundamentally.
But take the tin foil hats off. Why would they ever want to threaten to crash their system in the middle of a bank run? For $700 billion? All they have to do is hold down their finger on the zeroes and money is created. They were looking for immunity from oversight and criminal consequences.
What's to the stop the FED and the other CBs from QE and buying each other's worthless paper for a while longer? Seems it's already happening to a degree. Not saying this will stop the end game, but will delay it a bit longer. Euro, Yen, Dollar and Yuan all have issues. There is no good substitute for a world reserve currency. Gold and hard assets will play a part certainly, but I'm thinking this game continues a while longer while the FED creates deflationary panics from time to time spiking the Dollar and allowing the inevitable decline to stretch out time wise.
What's to the stop the FED and the other CBs from QE and buying each other's worthless paper for a while longer?
A sustained move into gold from the public and general investing public. wont take much, say 5% of total holdings and thats every ounce of all the central banks gold. And thats if they have what they say they have.
terminal velocity...er, i mean hyper inflation.
While Denninger correctly identifies the financial terrorism being perpetrated by Bernanke et. al. (whodatunk it?), he then lamely parrots the Volcker as financial messiah meme. Denninger is deluded when he calls for Volcker, or one of his lackeys, to be appointed as the next Fed chairman.
It should be obvious to even a fifth grader that Volcker was merely sitting on the bench until the time came for Obama to tap into the populist outrage and put into play the final end game strategy eventually resulting in the handing over of US financial sovereignty to the IMF/BIS/FSB gnomes.
How brain dead do you have to be to be unable to see that the central bankers are playing both sides of the table?
Instead of actually rooting out the ENTIRE criminal cabal that is destroying this country, Denninger recommends we put in the gang's head enforcer to finish liquidating the busted out US financial system.
word is the sheeple will not be sheared again by banks and will sell b4 they are..
The Obama Team has adopted the 1984 Philosophy of Rove:
"WE CREATE REALITY---TRUTH IS WHAT WE SAY IT IS"
“We’re an empire now, and when we act, we create our own reality.
And while you’re studying that reality—judiciously, as
you will—we’ll act again, creating other new realities,
which you can study too, and that’s how things will sort
out. We’re history’s actors . . . and you, all of you, will be
left to just study what we do.”
K.Rove...via G. Soros New Paradigm for Financial Markets
Every bank is broke - so is every government - so is the FED but you know this already - there is no need for more confirmation. The great majority of individuals are also broke. We need a day of reckoning but we aren't prepared for it to really hit the fan. Even if you think you're ready - Murphy's Law will be certain to clean all of our clocks. We are way beyond paying off the debt so it's a matter of cash-flow to pay the interest.
The real estate revaluation is a good thing. Without it our kids or grand-kids would never be able to buy a house. Lets start there - a place to live should never cost beyond 3 times income and you've got to put 25% down. We watched this run-up in prices and could never understand the stupidity of prices going up while the cost of bricks and lumber didn't.
Has anyone looked at the Slosh Report over the past month? It shows on 1/14/2010 that nearly half of the liquidity in the system was apparently drained. I am not sure if this report is a credible source, because I could not find any information on the FRBNY website. Have I missed an old post? Or is this report bogus?