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China's Dagong Sees No Threat Of Fed Monetization Ending, Believes "World Credit War" Is About To Escalate

Tyler Durden's picture





 

Starting to get doubts about QE3? Don't tell that to the official Chinese rating agency Dagong, who in traditional uber-pragmatic fashion, has the following summary observation on US monetary policy, and any imaginary changes thereto: "The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011." What does this mean for China and the rest of the world: "The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system." Any questions?

Full selection from Dagong's report on the question of US monetary policy:

The United States, as the biggest country involved in sovereign debt crisis around the world, will continue its  quantitative easing policy when the country is in danger, and the world credit war will be escalated due to the overflow of US dollars

The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011. The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system.

First, the trend of long-term depreciation of US dollar will result in haircut of international creditors’ debts dominated in US dollar. As the interest rate of US government debt is lowered due to the quantitative easing policy adopted by  the United States, creditors can not obtain the investment return commensurate with the risk status of US Treasuries. At the same time, the depreciation will also cause continuous exchange losses for the international creditors. Since June 2010, the US dollar has significantly depreciated compared with the currencies in emerging market countries and some developed countries, and the depreciation is 3.0% against RMB, 12% against Brazilian Real, 14% against South African Rand, 19.5% against Australian dollar and 11.4% against Korean won. The trend will continue in 2011, and international creditors will lose all their profits of the US dollars in exchange for the export income under the gradual depreciation of the currency. The behavior that the United States ignores international creditors’ legitimate interests indicates a dramatic decline of the country’s willingness to repay the debt.

Second, rapid inflow of capital will cause risks regarding inflation and asset bubbles in the emerging market countries, which is unfavorable for those countries to maintain their debt repayment credit. As a result, emerging market countries, including some developed countries and regions with good economic recovery, will have to withstand the economic and financial impact arisen from the inflow of capital in 2011. If the capital inflow exceeded the capacity that the domestic economic and financial development can absorb, some of the capital will flow over in the real estate market, capital market such as stocks and bonds and some commodity market to raise the asset price in the domestic market and eventually accelerate the inflation. Most of the countries have transferred to neutral monetary policies and will speed up the contraction of their monetary policies; however, due to the viscosity of the currency and imbalance of capital inflow in different industry, and yet the policies and measures will exert general restrictive effect on capital in the overall domestic market, the healthy development of the domestic economy will inevitably be damaged. Some Asian countries, for the purpose of eliminating the damage to the export in case of rapid currency appreciation, take some intervention measures, which bring increase of foreign reserves at a faster speed, and the consequent hedge cost is not favorable for the inflation control. While the capital retrieves quickly, the fall of asset prices will impose adverse impact on the robustness of the banks, domestic consumption and stability of the exchange rate.

Third, the issuance of US dollar encourages numerous speculative capitals into the global commodity market, leading to an increasing pressure on global inflation. The quantitative easing policy conducted by the Fed in a continuous way failed to promote the expansion of domestic credit scale; rather, the liquidity accumulated inside the financial system, in addition to flowing to foreign markets, has been used for financial speculative investment, causing surge of prices of global commodities including energy, raw materials, and foods; and almost all countries, as a result, have suffered losses arisen from the imported inflation to different extent. In EU and the eurozone countries where see the slowest recovery, the annual inflation rate has increased to 2.6% and 2.2% respectively by December 2010, the figure for countries with serious inflation, such as Romania, Greece and Hungary, has reached 7.9%, 5.2% and 4.6%  espectively.

The anti-inflation measures make the weak economic recovery even worse. In general, the capital inflow and inflation pressure that emerging market countries are experiencing will, on one side, directly affect the governments’ capacity for repaying local currency debt from the perspective of its influence on the value of local currency, and on the other side, indirectly and more seriously threaten the governments’ credit based on its adverse influence on healthy development of macro economy and financial security.

Currency system is the carrier of credit system, and therefore, the value of the currency determines the quality of credit system. International currency is the carrier of international credit system, and the instability of the currency value and the depreciation trend arisen from the over issuance make the function of the US dollar as the value scale distorted, which make other countries in the world pay an undeserved cost for their subsistence and development. The strike of shortterm capital dominated in US dollar to the emerging economics has made the excess US dollar capital become the destructive factor to the healthy economic development in different countries. The international credit system established on the basis of US dollar as the intermediary has been twisted in a way that the impartiality and reasonable aspect of the current international credit relations gradually vanish. Different countries, in order to avoid unpredictable losses on their own interests, will have to seek for adjustment of international credit relations, and the global credit war, no doubt, will become the turning point of reforming international credit relations in 2011.

Full report link

h/t Cate Long

 


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Tue, 03/29/2011 - 15:16 | Link to Comment DosZap
DosZap's picture

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/27_Jim_Rickards.html

Rickards,already in the mix(QE3) is ongoing as we speak.

Tue, 03/29/2011 - 15:21 | Link to Comment Tyler Durden
Tyler Durden's picture

As observed many times already, here is the maturity schedule of all Fed securities maturing within one year:

Rolling this will add maybe 1 point in Netflix.

Tue, 03/29/2011 - 15:27 | Link to Comment Sudden Debt
Sudden Debt's picture

You should add the forecasted deficits with that and the chart gets pretty interesting.

A trillion here, trillion there and you get a real picasso :)

Tue, 03/29/2011 - 15:26 | Link to Comment TraderMark
TraderMark's picture

Just an amazing statistic.

 

1 in 3 defaulters in homes have not made a payment in 2 years or more. 1 in 2 have not made a payment in 18 months or more!  Talk about stimulus.  Ponzi baby.

http://www.fundmymutualfund.com/2011/03/nearly-13rd-of-home-owners-in-us...

Tue, 03/29/2011 - 15:27 | Link to Comment Tyler Durden
Tyler Durden's picture

That's amazing? It has been highlighted for over 6 months here. Just today: "the average U.S. loan in foreclosure now having been delinquent for a record 537 days" delinquent means nobody pays the loan. It also means the liar banks probably have the loan market at par.

Tue, 03/29/2011 - 15:34 | Link to Comment medicalstudent
medicalstudent's picture

magnesium deficiency.

 


Enhancement of learning and memory by elevating brain magnesium.

Slutsky IAbumaria NWu LJHuang CZhang LLi BZhao XGovindarajan AZhao MGZhuo MTonegawa SLiu G.

Department of Brain and Cognitive Sciences, Massachusetts Institute of Technology, Cambridge, MA 02139, USA.

Comment in:

 

Abstract

Learning and memory are fundamental brain functions affected by dietary and environmental factors. Here, we show that increasing brain magnesium using a newly developed magnesium compound (magnesium-L-threonate, MgT) leads to the enhancement of learning abilities, working memory, and short- and long-term memory in rats. The pattern completion ability was also improved in aged rats. MgT-treated rats had higher density of synaptophysin-/synaptobrevin-positive puncta in DG and CA1 subregions of hippocampus that were correlated with memory improvement. Functionally, magnesium increased the number of functional presynaptic release sites, while it reduced their release probability. The resultant synaptic reconfiguration enabled selective enhancement of synaptic transmission for burst inputs. Coupled with concurrent upregulation of NR2B-containing NMDA receptors and its downstream signaling, synaptic plasticity induced by correlated inputs was enhanced. Our findings suggest that an increase in brain magnesium enhances both short-term synaptic facilitation and long-term potentiation and improves learning and memory functions.

it was always a war on our brain anyways. thanks for your work, td.

Tue, 03/29/2011 - 15:43 | Link to Comment bob_dabolina
bob_dabolina's picture

If you like this website wait 'till you check out

http://www.webmd.com/

Tue, 03/29/2011 - 15:58 | Link to Comment The_Dude
The_Dude's picture

Wow...are there any American born students in our PhD programs anymore?  Either the American education system drove off a cliff (which is likely) or the liberal agenda to reshape America using the tool of the University system has gone into overdrive.

Tue, 03/29/2011 - 16:17 | Link to Comment Sophist Economicus
Sophist Economicus's picture

Slutskey of 'Slutskey et al.' sounds American -- Probably one of Robo's pin-ups too

Tue, 03/29/2011 - 19:31 | Link to Comment strannick
strannick's picture

The university thought police prefers to have its population thoroughly indoctrinated before opening the floor to free speach. Otherwise who knows what those kids might say??

Afterall, you cant have people watching Obama's Pravda broadcast and wondering  why his hypocritical doublespeek is met with millions of progressive drones  nodding their heads in unicent, mumbling in monotone 'yes we can'

Tue, 03/29/2011 - 16:28 | Link to Comment NidStyles
NidStyles's picture

Well that makes sense when you look at the fact that purified sugar and short chain carbohydrates sap the magnesium out of your system. Nothing worse than an over sugared person. Either they can't slow down enough to listen, or they are falling asleep after the sugar wear's off.

Tue, 03/29/2011 - 16:52 | Link to Comment adeptus
adeptus's picture

"Limitless" NZT48 baby! Ok, maybe NZT03 or so...

Tue, 03/29/2011 - 15:36 | Link to Comment Sudden Debt
Sudden Debt's picture

I think he doesn't have 4 hours time a day to keep up with all the posts you put on here T. :)

 

perhaps he has a social life? just guessing here...

Tue, 03/29/2011 - 16:00 | Link to Comment Alienated Serf
Alienated Serf's picture

dlt

Tue, 03/29/2011 - 15:49 | Link to Comment Reptil
Reptil's picture

In any war, there's propaganda. Is it about "consumer expectations"?

They all know their backyard is BBB-, and they know the other side knows it.

http://www.bloomberg.com/news/2010-08-04/chinese-regulator-said-to-tell-...

 

Tue, 03/29/2011 - 15:51 | Link to Comment Pladizow
Pladizow's picture

To: Tyler Durden

The incredible thing is even while the bank is not collecting from the mortgage they still are allowed to show it as income on their books.

It's not until the forclosure takes place that the bank writes down the asset.

This is just another reason for the banks not to expedite forclosure.

Nice accounting scam, huh!

 

Tue, 03/29/2011 - 15:55 | Link to Comment crazyjsmith
crazyjsmith's picture

You need to post more often. 

Tue, 03/29/2011 - 16:07 | Link to Comment Pladizow
Pladizow's picture

Wish I could, but I have to feed the kids and milk the cows!

Tue, 03/29/2011 - 18:16 | Link to Comment BigJim
BigJim's picture

Is that what you call them?

Tue, 03/29/2011 - 22:09 | Link to Comment Bitchin Bear
Bitchin Bear's picture

Doubleplusgood!

Tue, 03/29/2011 - 16:08 | Link to Comment Boxed Merlot
Boxed Merlot's picture

Doesn't this just show the plan is progressing nicely in that the fed's mother ship's directive to increase title to real estate holdings as assets increase substantially? 

 

Owning soveriegn governments is not enough unless you can get the serfs to be obligated to grind the meal.  It may just be that the serfs in the US may end up telling the fed's foriegn authority to pound sand, that the deed / mortgage paper they hold has the same intrinsic value as the currency they're flooding the earth with.

 

The US foundation is still intact.  The sticks and straw that have been used since 1913 are deteriorating rapidly due to a severe lack of trust.  I'm willing to rebuild, but not with these inferior materials.

 

Establish weights and measures.  Coin intrinsically valuable currency.  Provide for the common defense.  Assure domestic tranquility.  Establish uniform laws of bankruptcy.  C'mon folks, this isn't nuclear science ya know.

 

 

 

 

 

 

 

Tue, 03/29/2011 - 16:28 | Link to Comment PulauHantu29
PulauHantu29's picture

Good post. Sure makes a "sucker" of those who pay. Banks have no incentive to foreclose since they are getting "free money" from the Fed on the backs of the Middle Class Savers.

Shame.

Tue, 03/29/2011 - 17:20 | Link to Comment Milestones
Milestones's picture

BINGO!!      Milestones

Tue, 03/29/2011 - 21:35 | Link to Comment MonsterBox
MonsterBox's picture

maybe this has been already asked.... but "Who is paying the property taxes?"  the bank?  some insurance co?  some TARP clerk?

just seems really, really odd that counties are not seizing property yet, with all the state & municipalities sucking wind.

Tue, 03/29/2011 - 15:38 | Link to Comment Innocent Bystander
Innocent Bystander's picture

Yes the tipping point is behind us, however, something doesn’t add up, with all the noise from FED sock puppets, of ending QE2 sooner and no need for QE3 and now this from China, of all places

The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system."

 

I have fro sometime thought Dr.B has lost control, and now I think there is another piece to this puzzle, something is brewing and it makes me uneasy not able to figure it out.

I feel there will be cease fire from Dr. B’s monetary cannons for a some time, but make no mistake he is under siege and will have to start firing incessantly and in the process take the system down with him … but I’m not able to figure is who is going to be taking the slack when there is no flak, from Dr.B.. and why this statement from China.. now?

 

Tue, 03/29/2011 - 15:53 | Link to Comment MachoMan
MachoMan's picture

No loss of control, rather the onset of diminishing returns (early/mid stages of loss of control).  The entire lot right now is directed at spooking the herd towards austerity...  they need a pullback to blow off steam from commodities and give themselves more room to operate...  think numerous cycles, all stair stepping downware...  an attempt at a controlled demolition...  well, in order to maintain control, you need to keep ambiguity alive...  how long the world tolerates it is anyone's guess... 

Tue, 03/29/2011 - 16:17 | Link to Comment Innocent Bystander
Innocent Bystander's picture

"they need a pullback to blow off steam from commodities and give themselves more room to operate"

agree,

but with looming short term maturities.. how long can they give themselves room to operate? with statements from Bull and Co. aren't they painting themselves in a corner.. you maybe this may be a slow downward stairway hell.. IB

Tue, 03/29/2011 - 17:24 | Link to Comment MachoMan
MachoMan's picture

Conceptually, if you create the stampede from equities (rise in the dollar), you can get at least some bonds sold... 

Also, not really sure how the FED would just now be painting itself in a corner...  I'm pretty sure this happened decades ago...  the end of the dollar is a certainty, the only question is when and the intermediate monetary method(s) chosen...

Tue, 03/29/2011 - 15:54 | Link to Comment hambone
hambone's picture

Yeah,

I don't get today - actually totally baffled.

How in the face of supposed cesation of massive QE liquidity, corporate margin compression, housing slow down, blah fucking blah and the market runs up? 

I don't know what I'm looking at - looks like somebody is simply buying stocks with money from nowhere, from nothing, and simply removing them from existence. 

My econ 101 book didn't have a chapter covering this!

 

Tue, 03/29/2011 - 16:03 | Link to Comment eddiebe
eddiebe's picture

Well, how about the bond is down=stocks are up?

Tue, 03/29/2011 - 16:09 | Link to Comment Yield2Greatness
Yield2Greatness's picture

Insanity never looks the same as before.  I just shake my head and keep buying gold and silver.

Tue, 03/29/2011 - 15:54 | Link to Comment JonTurk
JonTurk's picture

are coupon payments from long-term bonds included in these flows?

Tue, 03/29/2011 - 16:23 | Link to Comment Tyler Durden
Tyler Durden's picture

Those are remitted back to the Treasury. Hence - ponzi

Tue, 03/29/2011 - 17:05 | Link to Comment hambone
hambone's picture

I don't think this is a Ponzi - a Ponzi requires ever greater new investors to bring a limited supply of money for maintaining the scheme.

Fed is not looking for investors any longer.  Fed nor banks need your "money" (capital) any longer.  "Money" (digital credits) is created from nothing and digitally circulated to PD's (who else?) buy things of "value" be they T's, MBS, stocks, etc.  These are effectively retired from circulation thus lessening the supply of goods to buy and increasing the "money" with which to buy those remaining.  This process is very effective pushing prices up and would likely also have the effect of reducing volumes as these retired goods never return.  Fed doesn't care cause they can always create more "money" to reduce outstanding assets further.  In fact will actually require significant new corporate / T's issuance to maintain a semblance of a market.  Roundy roundy.

Not a Ponzi - needs a new name altogether...or just call it "fiat gone wild" or plain vanilla hyperinflation.

Tue, 03/29/2011 - 17:07 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

Not a Ponzi - needs a new name altogether...or just call it hyperinflation.

I see it more as a protection racket.  I am looking at you, oil exporters.

Tue, 03/29/2011 - 19:33 | Link to Comment strannick
strannick's picture

The Treasury Ponzi doesnt need new investors when its one investor, the FED, can print money without end.

Tue, 03/29/2011 - 21:31 | Link to Comment davepowers
davepowers's picture

perpetual motion machine paired with a check kiting operation

 

Tue, 03/29/2011 - 18:09 | Link to Comment Howard_Beale
Howard_Beale's picture

Rickards seems to be under the impression that the Fed can do stealth QE by reinvesting that which matures + (and this is where he is wrong) the P & I income from MBS and Treasury et.al. coupons.

If you listen to the interview that is what I take away from it. But the revenue the Fed receives clearly goes to the Treasury and cannot be reinvested as Rickards seems to think. I don't know where he is getting this idea that keeping the balance sheet at 3 trillion will allow stealth QE of any significance.

Tue, 03/29/2011 - 18:35 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

He is getting that idea from the Fed itself. Did you listen to the interview where he dissected the Stock vs Flow presentation regarding the Fed balance sheet?

http://www.federalreserve.gov/pubs/feds/2010/201052/201052pap.pdf

Tue, 03/29/2011 - 19:00 | Link to Comment Howard_Beale
Howard_Beale's picture

Thanks for the post. I have not listened to the dissection but I will find it. Read 5 pages of the Fed Babble.. Here is my main question:

Does the Fed only pay Treasury once a year? If the Fed can reinvest monthly income (from all coupons and MBS principal) and payout at the end of the year (as they did a few weeks ago) then I can see that there would be additional liquidity injected. 

I don't know the intricacies of the Fed's swap lines so lets just deal with a hypothetical of $2 trillion in ABS, Agencies, MBS, Treasury's, etc. With the back end loaded with MBS (which for some idiotic reason they claim are 10 years or longer assets when everyone knows they average a 7 year duration) we'll give them 4.5% on $1 trillion. That's $45 billion in yield. Let's be generous and give them $20 billion on the rest.

That would imply that there could be roughly $65billion that could be put back into the system in addition to runoff reinvested. So next year runs off $110 billion plus this possible $65 billion and we have a rough stealth QE of $175 billion. A pittance compared to what QE2 is.

How does keeping the balance sheet at 3 trillion allow stealth QE of any significance more than the above stated amount? Additionally, do they pay the Treasury monthly? The only link I found for payments to Treasury was this from last week:

http://www.nytimes.com/2011/03/23/business/economy/23fed.html?_r=1&ref=business

Can anyone clear that up?

Tue, 03/29/2011 - 19:21 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

It's Rickards contention that the Fed isn't going to QE(x) to monetize the debt per se, they still expect to gin up conventional debt sales in the future the old fashioned way (coercion and fear). The purpose of the QE flow is to present a credible threat to cut the bond vigilantes off at the knees should they get uppity. The size of QE2 was necessary to get the balance sheet stock up to where flow could operate.

Tue, 03/29/2011 - 19:52 | Link to Comment tom a taxpayer
tom a taxpayer's picture

"The purpose of the QE flow is to present a credible threat to cut the bond vigilantes off at the knees should they get uppity." My vote for the quote of the day or week or month or year. Thank you, Bendromeda Strain, this is the best explanation I have heard for the Fed's QE behaviour.  

Tue, 03/29/2011 - 20:12 | Link to Comment Howard_Beale
Howard_Beale's picture

Your explanation makes sense but I don't think anything will hold off the vigilantes if higher rates are truly warranted.

When I traded MBS on the street in the late 80's and 90's, the old fashioned Treasury way was called the quarterly refunding (7's, 10's, 30's) and open market operations every day at 11am eastern.

Now it's the daily or weekly funding. Times have changed so much it's just unreal. However, if the Fed really thinks they can control the yield curve when all hell breaks loose then I would be thrilled to see that academic turd of a chairsatan get a teach from the market.

Tue, 03/29/2011 - 21:35 | Link to Comment davepowers
davepowers's picture

don't know how often they pay the Treasury, but the FED's new accounting policy announced on jan. 6, 2011 adjusted accounting treatment to allow the FED to offset losses on it's balance sheet against $ owed the FED on a daily basis. Formerly this adjustment was done annually. Perhaps, both the offset and paymt to the Treasury is now daily.

Tue, 03/29/2011 - 21:38 | Link to Comment davepowers
davepowers's picture

Howard, I checked it out.

Per the below FED policy change announcement of Jan 6th, the remittance to the Treasury occurs weekly.

http://www.federalreserve.gov/releases/h41/20110106/

Tue, 03/29/2011 - 22:02 | Link to Comment Howard_Beale
Howard_Beale's picture

Thanks so much Dave! That tells us a bit more about the "flow" and that Tyler is most likely the one who is right as far as the Rickards debate goes. If the Fed has to transfer their coupon and principal payments every week to the Treasury, then that leaves the Fed with only the ability to reinvest runoff. For Rickards to say that the Fed can swap maturities and make deals with the Morgue or the Squid is possible (of course at our expense) but if they were to outright sell what they have that would be soaking up liquidity. So, unless they continue QE to infinity they have pretty much shot their wad.

Tue, 03/29/2011 - 16:06 | Link to Comment crazyjsmith
crazyjsmith's picture

Nothing like satisfying a short term need with a long term liability.  Isn't that the definition of an addiction?

Crack?  Heroin?  Meth?  QE..............

None of those ever have a happy ending do they? 

Tue, 03/29/2011 - 16:30 | Link to Comment willien1derland
willien1derland's picture

Good point CrazyJ - perhaps we should recommend that Ben & Timmah be candidates for the Cable TV show INTERVENTION - that would be interesting 12 Steps & the Federal Reserve - Hi, I am Ben & I am an Addict -

Tue, 03/29/2011 - 19:14 | Link to Comment crazyjsmith
crazyjsmith's picture

There are all kinds of good drug analogies here.  Like keeping the Crack/Debt cheap just long enough to get everyone addicted.  Once that is done, and it is done, it is all over but the crying.   

Tue, 03/29/2011 - 18:24 | Link to Comment Bendromeda Strain
Bendromeda Strain's picture

As observed many times already, here is the maturity schedule of all Fed securities maturing within one year:

The way I heard Rickards explain it, the longer maturities are in play at any time. The Fed just has to shuffle the deck and make some offers that can't be refused. Capice? Since he referred to ZH by name, (Rickards is reading? Congrats) I have to assume you did take the time to listen.

Tue, 03/29/2011 - 19:25 | Link to Comment ebworthen
ebworthen's picture

 

Wow - look at that chart - now there's a Bridge hand!

The FED keeping the worst cards at 10 years or beyond well breasted, and the easiest to fudge on the table, with the in-betweens in play in the middle.

Let's hope the FED doesn't try to beat the Chinese at Mahjong.

 

Tue, 03/29/2011 - 19:40 | Link to Comment strannick
strannick's picture

+13 (spades)

Wed, 03/30/2011 - 01:23 | Link to Comment Howard_Beale
Howard_Beale's picture

Wow look at the chart?... The Fed said they were going to buy MBS and that's what they did!

They are not any easier to fudge. That crap at Maiden Lane 1 and 2 is far more toxic than this stuff. MBS are on average a 7 year duration instrument due to moving, divorce, death, etc. The other kicker is how interest rate moves affect prepayments. Now in this case, if we were living in a normal world (we're not) it doesn't seem feasible that MBS will get much lower in terms of yield. So in another era of average mortgage rates in the zone of 6%-8%, a  4.5% MBS would trade at a big discount to par since they were unlikely to prepay as fast as the current coupon. So while it seems crazy that the Fed would buy something yielding so little with a 10 year and longer maturity is simple not the case. MBS don't live that long and that in and of itself is bullshit on the chart.

The real kicker is still foreclosure: Much of what the Fed has purchased are new MBS issued in 2009/10. Data on new mortgages in any of the hot 4 (CA, FLA, NV, AZ) show that defaults on these are as high as kites as property values continue to go down. Many could have been reworked and rebundled through FNMA and Freddie Mac. And yes, some were perfectly good MBS that as long as purchased at par or below would most likely yield close to their coupon over time.

But people are still defaulting and not paying their mortgages. So that big lump in 10 years and beyond (which really doesn't belong there due to stated duration above) are newly issued MBS that who knows how well they are performing other than the Fed itself. But with a Bloomberg terminal I could tell you much more just from the magnitude of the Fed's purchases vs. the universe of MBS issued in the last 2 years in terms of normal prepayment and default data.  

If there are more defaults, the Fed and the taxpayer lose, period. And in the long run, the Fed has screwed the pooch so it's all semantics at this point.

Tue, 03/29/2011 - 22:47 | Link to Comment rapier
rapier's picture

Who is Jim Rickards?  I mean you can find the bio and he has been an insiders insider.  There for example in the LTCM bailout.

Who is Eric King of King World News? 

I mean who are they in relation to and within the competition among our elites. Are the related to Christian Reconstructionists on the right?

 

Tue, 03/29/2011 - 22:48 | Link to Comment rapier
rapier's picture

Who is Jim Rickards?  I mean you can find the bio and he has been an insiders insider.  There for example in the LTCM bailout.

Who is Eric King of King World News? 

I mean who are they in relation to and within the competition among our elites. Are the related to Christian Reconstructionists on the right?

Wed, 03/30/2011 - 00:54 | Link to Comment Rasna
Rasna's picture

Rickards said that he didn't expect more QE as we have come to know and love it... But that we would have "stealth" QE to infinity... What he said was:

  1. The Fed balance sheet was so big that they could generate enough by reinvestment of principle to fund most of the Treasuries needs.
  2. The Fed didn't really have to fund the entire expected deficit.  Just the 7-10 year maturities ($750B?) which they could easily do from the balance sheet.
Tue, 03/29/2011 - 15:28 | Link to Comment buzzsaw99
buzzsaw99's picture

Bang Dae-Gong?

Tue, 03/29/2011 - 15:46 | Link to Comment WALLST8MY8BALL
WALLST8MY8BALL's picture

    Baseball Hot Dogs Apple pie and Brilliance Jinbei!

Tue, 03/29/2011 - 15:48 | Link to Comment Vergeltung
Vergeltung's picture

no, silly.

Bang Dae Ho!!

 

Tue, 03/29/2011 - 16:05 | Link to Comment buzzsaw99
buzzsaw99's picture

I did not junk you. Whoever did is an[sic] ass-newb outlander.

Tue, 03/29/2011 - 16:18 | Link to Comment Sophist Economicus
Sophist Economicus's picture

"Bang Dae-Gong?"

Don't know about him, but dog-gone if Dagong isn't right!

Wed, 03/30/2011 - 03:55 | Link to Comment StychoKiller
StychoKiller's picture

I really don't get why the Chinese continue to wag their disapproving finger at the Fed, when they could, at any time, call the Fed's bluff and float the RMB -- of course, that would send the FRN into the sewer.

Tue, 03/29/2011 - 19:29 | Link to Comment Bendromeda Strain
Tue, 03/29/2011 - 20:16 | Link to Comment Howard_Beale
Howard_Beale's picture

How do I know this is T-Rex without checking the link....LOL.

Tue, 03/29/2011 - 15:15 | Link to Comment The Axe
The Axe's picture

Maybe they should stick to land development, and try to sell some of those 66 million vacant apartments...

Tue, 03/29/2011 - 15:17 | Link to Comment Infinite QE
Infinite QE's picture

They are changing the marketing material into Japanese

Tue, 03/29/2011 - 15:17 | Link to Comment Haywood Jablowme
Haywood Jablowme's picture

WWIII.....let's get this over with already.

 

 

Tue, 03/29/2011 - 15:22 | Link to Comment George the baby...
George the baby crusher's picture

WWIII.  History will show it has already started.

Tue, 03/29/2011 - 15:40 | Link to Comment kridkrid
kridkrid's picture

+8 years ago.

Tue, 03/29/2011 - 16:03 | Link to Comment The Disappointed
The Disappointed's picture

No, not 8+ years ago.

The opening shot was 9/11.

Tue, 03/29/2011 - 16:32 | Link to Comment kridkrid
kridkrid's picture

Shot by whom?

Tue, 03/29/2011 - 17:23 | Link to Comment philgramm
philgramm's picture

20 brown guys who hate us for our freedoms...........AND they have boxcutters!!!!!!!!! /sarc/

Tue, 03/29/2011 - 16:25 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

Trade wars lead to real wars.

 

-Gerald Celente

Tue, 03/29/2011 - 19:35 | Link to Comment crazyjsmith
crazyjsmith's picture

At least we have had 20 years of modern war games using live ammo.  Our pilots and troops having been sharpening that axe at the expense of a few Muslim countries.  We should be all polished up for the big one.  What was the last engagement the Chinese have been involved in? Hmmmm, it's been awhile for them it appears. 

That rust might come to our advantage.  

Will this mean I have to rename my favorite dish Kung Pao chicken to Freedom Chicken?

Tue, 03/29/2011 - 16:33 | Link to Comment l1xx3r
l1xx3r's picture
All your base are belong to us
Tue, 03/29/2011 - 15:31 | Link to Comment Sudden Debt
Sudden Debt's picture

It already happened. Your in heaven right now. I hope it's everything you ever imagined it would be.

 

Tue, 03/29/2011 - 15:16 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

Looking at the market right now, apparently QE3 is already underway.

Tue, 03/29/2011 - 15:24 | Link to Comment cowdiddly
cowdiddly's picture

On NYSE volume of half a billion. What a farce this has become.

Tue, 03/29/2011 - 15:31 | Link to Comment Cdad
Cdad's picture

Indeed.  It is the one statistic that cannot be made to lie...and it reveals just how desperate the situation has become.

$5 trillion in stimulus...$8 billion per day in POMO, and this is where we are...where we have arrived.

But they will say...."wow, what a surprise...who knew the market was in trouble...things were so bullish...no one could tell that it was coming...no one was selling"...surprise...sure.

 

Tue, 03/29/2011 - 16:50 | Link to Comment SheepDog-One
SheepDog-One's picture

Thats exactly right Cdad, the implosion will certainly not be announced, it will likely happen on a big uptick, when everyone just turned off their monitors for the day after seeing their big gain for the day. 

Tue, 03/29/2011 - 15:36 | Link to Comment John Law Lives
John Law Lives's picture

Terrible new home sales data in February.

Terrible durable goods orders data.

Terrible consumer sentiment data.

Anemic volume melt-up.

100% FUBAR Ponzi BS market.  Someone please smash HAL 9000 to bits.

Tue, 03/29/2011 - 15:40 | Link to Comment Cdad
Cdad's picture

HAL 9000 will be destroying itself very soon...all by itself.  

Tue, 03/29/2011 - 17:29 | Link to Comment Milestones
Milestones's picture

Daisy, daisy, give me -an---answer-----do. ____I'm-----half-------crazy----   Milestones

Tue, 03/29/2011 - 16:28 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

I'm afraid I can't allow that Dave.

Tue, 03/29/2011 - 16:47 | Link to Comment Calmyourself
Calmyourself's picture

HAL'S demise will not be allowed.  Bens machinations seem bizarre now but they will become downright byzantine.. I don't know how it will end but it will take much longer than we think and approach comedy just before it does.  The American people are so dense and so blinded to reality, Goebbels could only dream of such a blank canvas to work with as the American people.

Tue, 03/29/2011 - 17:25 | Link to Comment hambone
hambone's picture

Mr. Calm,

A++++++++

give yourself a raise and take the rest of the day off.

Tue, 03/29/2011 - 15:18 | Link to Comment Infinite QE
Infinite QE's picture

Great stuff. Spot on!

Tue, 03/29/2011 - 15:18 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Wow a Chinese official telling the truth.  Just remember, when goods stop crossing boarders, troops do.  Hedge accordingly.

Tue, 03/29/2011 - 16:27 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

You know things are screwed when the official Chinese propaganda is actually true!

Tue, 03/29/2011 - 16:48 | Link to Comment Calmyourself
Calmyourself's picture

Stocked up on lead painted toys and plastic rice here boss..

Tue, 03/29/2011 - 15:18 | Link to Comment The Rogue Trader
The Rogue Trader's picture

Dagong would not have written this unless given express consent by the Chinese Government......so you can bank on it....

Tue, 03/29/2011 - 16:39 | Link to Comment edotabin
edotabin's picture

The fact that the goverment had to approve these statements doesn't add any validity to CNBC.

Approved or not, the truth is the truth.

 

Tue, 03/29/2011 - 16:51 | Link to Comment SheepDog-One
SheepDog-One's picture

Bank on it being what, misdirection? Totaly fits, China announces QE will not stop, while Ben is painted into a corner unable to do it. This is a rope-a-dope, Chinese boxing style.

'QE will not stop, complacent americans do not worry Ben will keep printing to keep your retirement up'....why would they care the least about this? I say they know Ben cant keep printing and uppercut him.

Tue, 03/29/2011 - 16:53 | Link to Comment SheepDog-One
SheepDog-One's picture

Oh and dont forget every news article and sure thing changes by open the next morning in these times. If CHina is saying it, theres something behind it, and you can bet its not for avg americans benefit.

Tue, 03/29/2011 - 15:19 | Link to Comment Troublehoff
Troublehoff's picture


Is it possible that they've expanded the monetary base enough that with a few years of moderate inflation and a little austerity, the good citizens, municipalities and governments of the 'developed' world might just make good on their debt repayments?

 

Is it hell!

 

This shit is structural, demographic and fucking geological. It's a fact... and they might lay off the QE accelerator for a little while but we all know they'll panic sooner or later...

and when they do...

Gold, Silver, Wheat, Oil and fucking manure are where it's at.

Tue, 03/29/2011 - 16:30 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

There's truth in that.. manure is going to be a very valuable commodity, as it once was.

The future is shit!

Tue, 03/29/2011 - 17:36 | Link to Comment Milestones
Milestones's picture

Like the syntax!!     Milestones

Tue, 03/29/2011 - 15:19 | Link to Comment Ari Gold
Ari Gold's picture

If the currency war escalates, who are the biggest losers over the longer term (other than the serfs of course)?  Manufacturing countries... a good way to control China without overt action is through currency devaluation...

Tue, 03/29/2011 - 15:19 | Link to Comment surfwon
surfwon's picture

I think he said it's ON!!!!!!!!!!

Tue, 03/29/2011 - 15:20 | Link to Comment Yikes
Yikes's picture

Yep.  On like Donkey Kong.

Tue, 03/29/2011 - 15:22 | Link to Comment falak pema
falak pema's picture

WWIII is the current monetary war...kinda phony war...It's WWIV that is the big one, when the nuclear reactors become generalized...not just in Fukushima; Every ship, every plane, every missile head. That's when you all have to hide in Fukushima with me, the only safe place on earth.

Tue, 03/29/2011 - 15:32 | Link to Comment Mr Anderson
Mr Anderson's picture

WWIII-  The phony war using phony money

Thats great!

Tue, 03/29/2011 - 15:22 | Link to Comment RunningMan
RunningMan's picture

Did they say "war"? An earlier post was saying it was up to Congress to declare war... there's no war here, just police action from the Fed.

Tue, 03/29/2011 - 15:36 | Link to Comment NotApplicable
NotApplicable's picture

No, no, no. It's now known as "kinetic currency action."

Didn't you get the memo?

Tue, 03/29/2011 - 15:22 | Link to Comment TradingJoe
TradingJoe's picture

Gees Now Even Robert "the shill" Shiller is advocating for "more" QE!!! as seen on Bloomberg! So, it's ON folks! I just decided to sell a little gold for some more ammo and a brand spanking new DIGITAL SCOPE!

Tue, 03/29/2011 - 15:45 | Link to Comment Alienated Serf
Alienated Serf's picture

+7.62x54

Tue, 03/29/2011 - 16:53 | Link to Comment LFMayor
LFMayor's picture

True dat Mosin-Nagant.  The gal is old, but she can still dance.  Reliable as a shovel.  Cheaper than bottled water and even easier to use.  I love 'em.

Luidmilla Pavlochenko FTW!

Tue, 03/29/2011 - 17:25 | Link to Comment Calmyourself
Calmyourself's picture

This is really funny but I am easily amused..

http://www.mouseguns.com/compare.htm

Tue, 03/29/2011 - 22:31 | Link to Comment Alienated Serf
Alienated Serf's picture

I've got the M44 carbine, thing hurts!!!  Just bought a butt-pad (huh-huh), gotta try it out.   

Tue, 03/29/2011 - 15:22 | Link to Comment NotApplicable
NotApplicable's picture

Damn the Torpedoes! Full Speed Ahead!

Tue, 03/29/2011 - 15:21 | Link to Comment I am Jobe
I am Jobe's picture

Let the games begin, I say. America's greatest minds from Ivy League schools, schows the stupidity.

Tue, 03/29/2011 - 17:41 | Link to Comment Milestones
Milestones's picture

Love your spelling!     Milestones

Tue, 03/29/2011 - 15:21 | Link to Comment youngandhealthy
youngandhealthy's picture

It will be a QE3...but not as one expect, just USTs. I beleive PIMCO is just 50% right. It will be MBAs AND USTs in QE3....

Tue, 03/29/2011 - 15:22 | Link to Comment I am Jobe
I am Jobe's picture

Air drop ben and Congress in Libya and let them fight.

Tue, 03/29/2011 - 16:24 | Link to Comment willien1derland
willien1derland's picture

And the WHOLE CONGREGATION said AMEN....

 

I, too, am not Chumbawumba

Tue, 03/29/2011 - 17:41 | Link to Comment Milestones
Milestones's picture

Surely you jest!!     Milesatones

Tue, 03/29/2011 - 15:24 | Link to Comment jkruffin
jkruffin's picture

The two things I get from this:

 

China is pissed off, and they won't be buying Timmy's paper anymore

and

US Dollar is being pushed to be removed as the reserve currency, if this happens, say hello to a depression style Zimbabwe.

 

Bernanke better get the dollar up quick, or it's all she wrote.

Tue, 03/29/2011 - 15:28 | Link to Comment rocker
rocker's picture

Shits and Giggles.

'Bernanke better get the dollar up quick'    He can't get himself up.

Geee. That a lollygagger.  Don't choke, but he does not want the dollar up. And he does not care about China. It's the Plan. 

Tue, 03/29/2011 - 15:30 | Link to Comment Sudden Debt
Sudden Debt's picture

China needs a weak dollar to keep on loading up on cheap commodities.

Without a cheap dollar, commodities would skyrocket.

 

Tue, 03/29/2011 - 16:14 | Link to Comment Traianus Augustus
Traianus Augustus's picture

I agree 100%.  China is totally complicit in this scam.  This is not a war where countries are fighting each other.  It is the elites against everybody else!!

Tue, 03/29/2011 - 15:24 | Link to Comment buttmilk
buttmilk's picture

LOL was this for me

Tue, 03/29/2011 - 15:24 | Link to Comment Jack Sheet
Jack Sheet's picture

interesting terms "global credit war" (=global debt war) and

"adjustment of international credit relations" which presumably is a thinly veiled intent to dump US treasuries.

I am not Chumbawumba.

 

 

 

 

Tue, 03/29/2011 - 16:56 | Link to Comment SheepDog-One
SheepDog-One's picture

How anyone can read this and conclude its great news for US must be smoking the same shit Ben is.

Tue, 03/29/2011 - 15:23 | Link to Comment aVian
aVian's picture

definately bullish

Tue, 03/29/2011 - 15:24 | Link to Comment Reptil
Reptil's picture

My guess is, the chinese people and government now attained enough PMs to establish and maintain stable exchange of goods on the basis of the Yuan with those emerging economies. Otherwise they'd not use the words "credit war".
They'll not back down now.

Tue, 03/29/2011 - 15:29 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Drop the peg then mother fuckers.

Tue, 03/29/2011 - 15:34 | Link to Comment Reptil
Reptil's picture

lol

I think they're about to drop everything except their pants.

(That's our job.)

Tue, 03/29/2011 - 18:03 | Link to Comment spartan117
spartan117's picture

Drop the reserve currency status first.

Wed, 03/30/2011 - 00:50 | Link to Comment Creed
Creed's picture

Drop the reserve currency status first.

 

 

Why? We paid for it with our blood, still are.

Tue, 03/29/2011 - 15:24 | Link to Comment trav7777
trav7777's picture

DROP THE PEG THEN!

<crickets>

Tue, 03/29/2011 - 15:34 | Link to Comment youngandhealthy
youngandhealthy's picture

Thats the thing.....FED playing the rage aginst the machine tune here...

"...And now you do what I told ya..."

The chineese play to the second part

"...Fuck you, I won't do what you tell me
Fuck you, I won't do what you tell me..."

Tue, 03/29/2011 - 16:27 | Link to Comment William Wics
William Wics's picture

Perhaps my favorite Rage tune.

We used is as a company anthem during the dot-com time.

'course the investors are still real mad.

Man, I miss that era.

 

Tue, 03/29/2011 - 15:54 | Link to Comment Mr Anderson
Mr Anderson's picture

Trav,

What would the price of an Ipad 2 be if the peg were dropped?

Tue, 03/29/2011 - 16:11 | Link to Comment trav7777
trav7777's picture

It'd be made in vietnam or some other country that would peg.

china may not realize this, but nobody is playing their "technology sharing" game any longer.  Japan figured this out as has Germany and even the US.  The core IP is kept closely but they use China's labor base to get construction done cheap.

China has a manufacturing base so long as it is useful for them to have one.  If they won't play ball there are always 1.2B indians and hundreds of millions of other SE asians.  It's useful for multinationals that China's gov't has overbuilt factories and has idle capacity and empty cities.  It means that margins won't compress.  If factory 1 tries to raise prices, the owner of idle factory 2 might be persuaded to give a better deal.

Nobody wants cloned Chinese cars, cloned Chinese airliners, or Chinese fighter jets featured in "top gun" ripoff clips.  What they do want is Japanese, American, Korean, German designed and engineered products made by chinese worker bees.

Tue, 03/29/2011 - 16:20 | Link to Comment Mr Anderson
Mr Anderson's picture

Thank you for the thoughtful analysis.

If the peg were dropped rather than weaned, what do you feel the short term effect on US. consumer prices be? That is before the manufacuturing moves to another country

Wed, 03/30/2011 - 00:46 | Link to Comment Creed
Creed's picture

drop the peg or 40% tariffs, same diff

 

US consumer prices skyrocket

 

US citizens learn they don't really need some things currently thought to be essential and learn how to do without like their grandparents did

 

US manufacturing suddenly finds it profitable to manufacture in the US and returns to feed it's own citizens

 

 

China eats a bag of dicks

Tue, 03/29/2011 - 16:21 | Link to Comment bbaez
bbaez's picture

Sounds like the chinese slit their own wrists via excess capacity

Tue, 03/29/2011 - 16:53 | Link to Comment Calmyourself
Calmyourself's picture

That and the mercantilist strategy is difficult to extricate an economy from especially theirs with their population metrics.  Going to be many angry young men there shortly..

Tue, 03/29/2011 - 16:45 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

Lots of third world countries willing to supply desperate workers willing to work for a pittance. You'll soon be putting the US on that list. Who will buy the iPads and salad spinners though?

Tue, 03/29/2011 - 15:55 | Link to Comment tmosley
tmosley's picture

That would be in their own best interests.  And ours, long term.

Tue, 03/29/2011 - 16:14 | Link to Comment trav7777
trav7777's picture

not sure I can agree with that.  I mean, long term, sure, trade flows simply have to normalize; the center cannot hold.

But China is sitting on a seemingly perpetual need for credit inflation.  You know how ponzis work and their economy is one.  I'm sure they imagine there is some self-sustaining plateau they will achieve "someday," but it seems clear that isn't today.

Tue, 03/29/2011 - 18:33 | Link to Comment long juan silver
long juan silver's picture

dickweed

Tue, 03/29/2011 - 16:28 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Wouldn't this devalue the debt that China holds?

Wed, 03/30/2011 - 00:42 | Link to Comment Creed
Creed's picture

yep, drop the peg

 

or we put up tariffs to match it...say, 40%?

Tue, 03/29/2011 - 15:26 | Link to Comment jkruffin
jkruffin's picture

How will Apple sell the I-pad 3 coming out next week? 

Tue, 03/29/2011 - 15:30 | Link to Comment Sudden Debt
Sudden Debt's picture

Operation RECALL IPAD 2?

 

 

Tue, 03/29/2011 - 15:36 | Link to Comment cosmictrainwreck
cosmictrainwreck's picture

apparently a sufficient number of goobers still have functioning credit cards; witness the last 3 rounds; no problem, until they're all maxed out

Tue, 03/29/2011 - 15:46 | Link to Comment Alienated Serf
Alienated Serf's picture

actually the name has been changed to I-Rad1.  it glows in the dark even when its turned off.

Tue, 03/29/2011 - 15:30 | Link to Comment Boilermaker
Boilermaker's picture

I love the fact that China likes to glaze over the fact that they are printing money like hell also.

Wed, 03/30/2011 - 00:59 | Link to Comment Creed
Creed's picture

I love the fact that China likes to glaze over the fact that they are printing money like hell also.

 

yeah, and I see our resident commie lovers junked you for speaking the truth boilermaker

 

America bashing is the soup du jour that many clamor for these days

 

China's economy and government are just as solid and trustworthy as that shit they sell us that breaks when you look at it.

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