This page has been archived and commenting is disabled.
The Dark Gray Swan: No More Foreign Dollars With Which To Buy US Treasuries
Could the next black/green/dark gray swan be so obvious that it has avoided everyone? Well, except for the deputy governor of the Bank of China, who just gave the world a startling reminder of economics 101, when he said that it is "getting harder for governments to buy United States Treasuries because
the US's shrinking current-account gap is reducing the supply of dollars
overseas." Oops.
The funny thing about natural (and economic) systems: they can only be pushed so far before they snap back to default state. With the entire world embarking on an unprecedented spree of domestic bubble blowing to mask the collapse in global GDP, everyone forgot to trade. Zero Hedge has long emphasized that the drop in world trade can only sustain for so long before it brings the current destabilized system back to some form of equilibrium. Because with every country intent on merely printing more of its own currency, whether it is to build bridges or to make the stock of electronic book fads trade at 100x earnings, said countries ran out of non-domestic cash. Alas, this is most critical for the United States, now that Treasury monetization is over, as the US needs to constantly find foreign buyers of its debt to fund unsustainable deficits. Foreign buyers who have US dollars. And according to Shanghai Daily, this could be a big, big problem.
Here is what the BOC's Zhu Min said earlier:
"The United States cannot force foreign governments to increase their
holdings of Treasuries," Zhu said, according to an audio recording of
his remarks. "Double the holdings? It is definitely impossible.""The
US current account deficit is falling as residents' savings increase,
so its trade turnover is falling, which means the US is supplying fewer
dollars to the rest of the world," he added. "The world does not have
so much money to buy more US Treasuries."
In a nutshell, in printing trillions of assorted securities, the Treasury has soaked up the world's dollars, which due to US banks not lending, is sitting and collecting dust in the form of bank excess reserves. These excess reserves can not be used to buy Treasuries and MBS as that would be literal monetization (as opposed to the figurative one which is what QE has been). And the world is running out of dollars with which to buy Treasuries.
Does this mean that the "world" will be forced to buy dollars, and thus spike the value of the greenback? Not necessarily:
In a discussion on the global role of the dollar, Zhu told an academic
audience that it was inevitable that the dollar would continue to fall
in value because Washington continued to issue more Treasuries to
finance its deficit spending.
Critics of this line of thought can point out that China still has trillions in foreign exchange reserves. However, even as China has been selling mortgage backed securities almost as fast as PIMCO, it has not been buying treasuries: China's Treasury holdings have been flat at exactly $800 billion since May 2009. In the lesser of two maturity evils (the instantaneous, dollar bill, and the long-dated, the 30 Year) China has followed in the footsteps of so many millions of High Frequency Traders opting for that which can be liquidated instantaneously.
»
- 26254 reads
- Printer-friendly version
- Send to friend
- advertisements -
Everyone is short USD right "the new carry trade right" ? Just a shot here....
Greece Implodes
Hungary Implodes (along with several others)
Spain Implodes
Italy Implodes
Japan Implodes
Nobody will then be able to to find USD and we have a MASSIVE squeeze?
Just a guess...
Don't forget Ireland, laddie.
50% for new money for me in gold Eagles. 50% in FRNs, ready to be deployed QUICK when inflation them starts.
Good luck!
Gold Eagles? Good luck finding that. Krugerrands, Maple Leafs, etc.: all of these are fairly hard to find these days...
GAE coins easy to find if you know the best dealers
www.tulving.com/goldbull.html
1/10 Krugerrands are easy enough to get if you're willing to pay the premium.
"laddie"
No-one in Ireland uses this word. You're thinking of Scotland.
But you're right about our default risk...
Must see, "How to speak Irish"...
http://www.youtube.com/watch?v=6GO-irf4ZP4
Brazil implodes
Britain implodes
China implodes
Germany implodes
India implodes
Russia implodes
Portugal implodes
Venezuela implodes
American dollar explodes!
Fed will provide them dollars. Dollars are not in short supply and are real easy to make
The swap lines already exist to fund any dollar needs all throughout the world.
As soon as we pass the healtcare reform we should be OK. That's what our Intelligent Mugabe Jr. said.
"Our president is the most intelligent and has the highest IQ of all US presidents..." John Kerry
What's his IQ? Don Imus
"That I don't know.." John Kerry
Mugabe Jr, LOL.
How about Mau Mau Hussein?
Affirmative action don't need no stinkin' IQ...
And Bernstein might be top-ticking the rally:
http://www.cnbc.com/id/34468514
He changed from 'analyst' to CEO of his own fund (His name on it). Bear Analysts always morph into Bull Slingers when they become fund CEO's (TD is an exception since his is ZeroHedge)
Bingo Bango Bongo.
(What other Merrill analyst wrote that before he
keeled over prematurely short?)...
The government will keep financing the deficits for a while once deflation sets in. Deflation will draw money out of the commodities, stock markets and toward the US bond markets.
Normally bonds benefit from deflation.
However, we have no gold standard and US
Treasuries on credit watch - mine - not theirs.
Watching higher interest rates on all but Fed
Funds, 2 and 5 year T Notes...
They'll probably just extend bigger swap lines and pretend it isn't a big washing machine.
You really think they're going to let a technicality like finite supply stop them? Anything is possible with imagination, like a finite supply of multiplying money being in two places at once, on both sides of the multiplication operator.
The invisible hand of the market already stopped them...
If China's treasury holdings have been constant since May then they must have been buying.... either that or none of their holdings matured, which is unlikely
The debt is being rolled over. They are not buying new paper.
The Chinese have been net sellers of MBS and Agency debt in a big way. Even with the Fed buying Treasuries up the October, the Chinese have been buying enough to offset maturities.
They've redeployed a lot of their dollars in raw materials for construction projects and storage. Diversifying away from dollars as the DXY was going down made good sense, especially since yields remained awfully low.
The if there is a dollar shortage, the Fed will likely conduct currency swaps. If debt supply exceeds demand for the debt, rate will go higher. I think we will see some incremental demand from Europe as things unwind there. And we are likely to see additional movement to Treasuries if risk assets fall here.
The Chinese want to export real goods and services to the U.S.-- just like in the good 'ol days. It simply isn't going to happen as credit continues to contract here. And time is running out on their own effrots to "inflate" domestic demand.
Swaps require two sides to the trade.
What central bank wants to be short the dollar now?
central banks don't care...their currencies are fiat as well
everyone wants to devalue their own currencies. the world in its entirety has debt whose interest cannot be repaid with future production growth.
I suggest an edit:
"the world in its entirety has debt whose interest cannot be repaid with future energy growth."
Our economy has been driven for 200 years almost entirely on stored sunlight.
cougar
I'm still not sold on the "net deficit equals net supply of dollars' equation, but do wind up at the same place. Imports is the supply, the dollars that were exchanged don't disappear, they will go into some dollar demoninated asset no matter how many times they get traded for some other asset That supply was $130B+ in Oct, so call it a $1.6T annual run rate
Thats the match vs the fed deficit in terms of supply /demand for dollars, in isolation. Fed deficits draining savings from around the world are an entirely separate, valid argument. QE1 obviously helped with both in the near term on a dollar supply/demand basis. Problem is the path of our Federal deficit, hence the need for QE2
But, announcing a QE2 basically blows the cover on both...
So, my question/opinion poll: what currency or asset (beside gold) will serve as a liquid store of value in the QE@ sudden stop scenario?
Bernanke and increasingly Gross would say paper. Rogers would say soft ag. GG and Chumb would say GOLD BITCHES. Me? I say look to where there will be demand absent speculation, even under a multidimensional trade disrupted world and where the efforts to maintain or surpass rough equivalence in the era of the race to the fx bottom are successful. I suspect that of the three general camps I discussed Rogers is probably closest to the mark in general terms. Especially since I expect the concept of control will continue to undergo marked reassessments.
Gold is what will make me untouchable...a highly desirable trait to have in a world gone insane, as is what we are about to enter.
But the real wealth will be in food and energy production, as well as tools of productivity. I fully expect trade routes to disintegrate, at least for some time, and so we'll resort to local production to fulfill basic community needs.
Those who have useful stuff, or those who can make useful stuff--to include food, energy, and tools--will be the ones to prosper.
Those with gold will rule their local region, their reach being based on how much gold they manage to stockpile before the Great Reset.
I am Chumbawamba.
"But the real wealth will be in food and energy production, as well as tools of productivity. I fully expect trade routes to disintegrate, at least for some time, and so we'll resort to local production to fulfill basic community needs.
Those who have useful stuff, or those who can make useful stuff--to include food, energy, and tools--will be the ones to prosper."
yup...absolutely...
Donuts to dollars...
Don't forget douche. That starts with a 'd' also.
I am Chumbawamba.
Out here in Asia I'm beginning to see the effects of Helicopter Wen going into autorotation and setting back down on not-so-solid land. That massive Chinese stimulus has done its magic, but now the bloom is off the rose. Container rates are falling dramatically for intra-regional shipping, down from $925 per 20' container in May to $400 now. Throughout the region there are construction projects where work has simply stopped. There are complaints around the area that a number of employers are falling behind on wage payments.
It's no wonder the supply of dollars to purchase US Debt instruments in down. And if anyone is still of the belief that Asia is going to pull the world out of this crisis, your 2010 might turn into a disappointment.
Thanks. You are telling the same story many others are telling from overheated Asia. It will not end well.
The question is merely, who falls first and due to what?
Obviously you like being wrong in regard to China.
China will continue to print monies and lend internally, their capital build up is immense and whilst you sit here continually predicting their downfall they keep on printing the money, buying commodities and building.
Try getting out of this negativity as regards China popping. The powers that be will be (and are) micro managing every uncertainty in an endeavour to maintain continued growth.
The amount of capital infrastructure that they are undertaking dwarfs whatever the US has done in the past and some say 'about time' due to the demographics and population.
As regards their stock exchange not all of the chinese are gambling on outcomes within the markets. Look at the population and policies, then work out why demand in certain areas is high. No social net means that the populous does whatever it can to survive....
What would make them pop would be mass civil unrest, but that aint happening as the guns are borne by the mitilary and police!
Hmmmm...
Good luck with that. What happens in case a Black Swan shows up? By definition (Taleb's, not mine) a Black Swan is something that cannot be foreseen. Managing every uncertainty is, therefore, impossible. Continued growth, in a finite system is also impossible. Continued growth, in any economy, is also a pipe dream: history has proven that time and time again.
Good luck with that, too. There are approximately 660,000 military personel in China. Chinese population is approx. 1.3 billion people. If all chinese rebelled, the PLA would be outnumbered. Not to mention that soldiers are also Chinese citizens, and could decide to turn their guns against their own governement and officers.
Just a thought.
Indeed. Especially since the world in which we live is undergoing one of the greatest reassessments of what control really means.
Quick.
Name a central command economy that lasted a generation before collapsing...
How the fuck was a region of low-margin PRODUCERS going to drag us out of a problem of systemic OVERcapacity and OVERconsumption based upon debt?
There is no fucking consumer in China because the entire nation is NOT PROFITABLE. It's built on GDP to build more GDP...a complete ponzi fiction!
Yawn. This post is a bit histrionic in this day and age, and indeed does not go beyond Econ 101. As we should all know by now, the Fed has engaged in massive currency swaps...though not disclosed, some estimate these to figure in several trillions of dollars, in the last 18 months.
This took place, in particular, when the dollar carry trade went bust last spring, and short covering revealed a dearth of USD (Bernanke did admit so much in an exchange with Alan Grayson).
So, if the Fed wishes to help out Treasury to overcome the shrinking current account deficit, all it needs to do is swap a few hundred billion USD with Japan, Germany, England CBs, thus supplying them with USD for them to buy up Treasury debt.
But what happens if Japan, Germany, England refuse to engage in these swap transactions without extremely favourable implied forward rates... More value lost for the American people
Or worse, if the Fed deems the risks/costs of a currency swap too high and simply and directly monetizes the deficit unilaterally.
U.S. Coyote is going to look down in '10
world wide depression since previous spending levels were insane and yet everyone is dependent on those levels to be sustainable
I don't believe in anything anymore.
I'm going to law school.
And that's going to help? :)
won't help...law school helps teach you to believe in everything simultaneously
"The US current account deficit is falling as residents' savings increase"
************************************************
The above statement is what China is REALLY worried about from their own perspective. China is worried that its trade advantage/trade surplus over the U.S. is declining now that the American consumer is tapped out.
American multinationals will no longer offshore their production to China which is causing a large increase in Chinese unemployment. The CCP is very afraid that its citizens will riot/revolt with high unemployment. China has tried to mitigate this by using its forex reserves to pump liquidity into its own banking system to fund a lot of development projects, many of which are largely useless... such as empty malls and empty office buildings.
The Chinese stimulus has also created an asset bubble internally as investment into export production does not make sense anymore since the Western consumer has drastically reduced consumption. The whole "we are not going to buy your Treasuries anymore..." is just a way of hiding a Chinese weakness and trying to make it look like an American weakness exclusively.
It is important to remember why China bought Treasuries in the first place; in order to maintain a trade advantage with the United States by propping up the dollar as much as possible, otherwise American MNC would have moved production back in-house.
-Oxidation
Ox-
That is the truth about China. When it falls, it will fall hard.
Frankly, I have believed since 2007 that the globalists' plans were all about bringing down the Chinese juggernaut without having fired a single shot. Over the next several years, I will be proven correct.
Can someone help me understand? I thought that the Chinese "pegged" their currency to the dollar by printing yuan and buying dollars to then buy treasuries.
Is this not right?
This doesn't sound like a problem another Fed currency swap won't solve.
Yep. And the Fed will have no incentive to disclose any of those currency swaps, either.
Assetman - I suspect that the one of the greatest telltales of the Feds condition that it is not holding onto the concept of ascendancy is marked by this repeating concept of the "need" to manipulate and prop up the flow via currency swaps. Especially telling is the flow of currency swaps with the oft discussed mismatch in funding requirements for "private" state owned or supported enterprises, especially in the financial sector.
Dollar strength lock-stepped with past swap facilities.
Maybe the Fed should have a go at printing foreign currencies.
Please help. Doesn't China "peg" its currency to the dollar by printing yuan and then buying dollars, which are then used to buy treasuries? How will China maintain the peg without buying treasuries?
Thanks
China has been buying currencies and commodities other than the dollar.
Last gasp before the peg pogos up and their
economy keels over...
The rmb (yuan) is a controlled currency, which means it is illegal to move any sizeable amounts beyond chinese territory. All forex transactions conducted at local banks are subject to rate and quantity controls. They do not need to print to maintain the peg, they simply arrest anyone (locals and foreigners alike) found to be violating these laws. Corporate entities will be subject to harsh penalties, up to and including revoking their operating licenses.
China's vast reserves of US dollars comes from accumulated trade surpluses. Same case with japan.
Their effectiveness in maintaining a watertight peg is laudable (many countries have tried and failed), or detestable, depending on one's allegiance.
Oops is right! HAHAHAHAHAHA!!!! January is the month, bye bye dollar!!
He who laughs last laughs best.
HaHa...
Article says "Alas, this is most critical for the United States, now that Treasury monetization is over, as the US needs to constantly find foreign buyers of its debt to fund unsustainable deficits. Foreign buyers who have US dollars."
That is were the rising savings rate, and a rising allocation into government securities (away from Mortgage and commercial debt) of investors comes in. Just like Japan, we "can" fund the government debt ourselves.
Rule No. 1 for working in the far East:
.... the Chinese are inscrutable....
Rule No. 2
.... no, the Chinese are inscrutable....
Rule No.3
....are you not listening, the Chinese are inscrutable...............
To understand the current state of affairs, you must keep in mind that consumers are not "saving," rather, they are "not borrowing." Consumers, as a whole, were already maxed out both in terms of credit limits on their cards and as a function of cash available to service the debt. All available cash flow is going to service debt. The limit has been reached and the tactic of raising the interest rate on those credit cards has the immediate effect to the banks of raising interest income, as an ever-decreasing (and now vanishly small) portion of the minimum monthy payment is devoted to principal.
Until wages increase, there can be no movement in Consumer Land. Now, add to that the considerable domestic (read spousal and issue demand) pressure on Joe Sixpack to produce some goods under the tree for Commercial Xmas and I'll concede you'll see some blood actually produced from that stone, but forget about Q1 2010 showing any signs of life from him and look for a fresh wave of defaults as x number of households sink beneath the debt load.
Same with the government. We are going to see dramatic steps to avoid failed auctions at some point; one likely form of QE/debt monetization would be "allowing" (really, forcing) banks to "go patriotic" and acquire Treasuries with their borrowed reserves, and why not? They pay more than the Fed does, but we all know if this occurs, well, buy gold or anything tangible at that point. In fact, I say we create those Ts in the form of long term "Liberty Bonds" and drape them in some sort of flag motif to complete the charade, and stifle dissent.
Hello.
Big banks already bought Treasuries at 2.518%
last December and are now underwater,
typical result of gambling and plunging to
get even...
Although I agree with your argument TD. The data does not support such an event.
The U.S. balance of payments deficit widened in the third quarter to $108 billion from $98 billion in the second quarter.
The current account deficit totaled 3.0% of gross domestic product, up from 2.8% in the second quarter, which was the smallest percentage since the first quarter of 1999.
The deficit peaked at 6.5% of GDP in the fourth quarter of 2005.
The last gasp before trade slows to zero
and everyman hoards for his life...
From here at the bottom of the food change
All Swans looks pretty black lately.
Current account? It's not so much current account
as Foreign holders are suddenly lowering our Credit Limit.
Current Account may all of a sudden start to matter.
Hmm... too many people act like economics is a game
of Pin the Tail on the Donkey. However the donkey's
alive and kicks everybody in the Ass who thinks thinks they've
got it nailed.
TruthPoacher...(no license)
This can be resolved in the near term with Central Bank currency swaps. Quantitative Easing, international edition.
Problem is China doesn't want to do swaps because they know they are a ripoff for an Economy that generates EARNINGS. (see comment above)
Debt Maturity Schedule for the US Government according to BBerg
2009 227,287
2010 2,184,648 + 2010 Projected Deficit
2011 811,192
2012 754,508
2013 411,081
2014 583,406
2015 180,723
2016 452,980
2017 161,523
2018 213,081
Mercantilists always meet the same end.
Let us watch them meet their fate.
inflation, deflation, blah, blah, blah....
The world economy, especially the USEconomy will look like a whirling dervish on crack (inflationary-deflationary parabolic spikes) in the near future...
The third seal is open...it's just a matter of time....
So what are you buying/selling?...
"A measure of wheat for a penny, and three measures of barley for a penny, and see thou hurt not the oil and the wine."
I'm a bit confused by the US debt thing and was hoping somebody could help me out. In post 168562 "Apocalypse Now" talks about our current debt and borrowing just to service interest, with the principal being essentially unpayable. But past data shows debt to GDP was way worse sometime around WW2. Can someone put this in perspective?
I know back then the US economy actually produced stuff, whereas now it is a consumption based economy, with the consumption paid by huge consumer debt. Is there anything else I'm missing? I'm just trying to fit together the puzzle.
I never understood this "consumption based economy" statement.
All money earned in the economy is used for consumption or investment.
GDP is a composition of all earnings in the economy and thus even money saved is spent elsewhere for investment.
The US economy does still produce stuff. In fact, we produce a great deal more than most of the world.
And you're not missing anything. It's simply that the fiscal trajectory of the US, in long run, is horrible. It is definitely still possible to reduce the debt/gdp ratio over a period of time given small, neutral, or surplus deficits so long as GDP grows sufficiently. There is no reason that it won't. No, the world isn't going to implode, as some here would have you believe. People will continue to be industrious and produce goods and services. The world will go on.
My question to the readers of ZH are, why shouldn't we increase inflationary expectations? High inflation expectations can and were expansionary in the short run during the great depression when NIRA was enacted. Consumers expected inflation and thus were forced to purchase goods. When consumers expect deflationary pressures they reel in spending and increase savings, as well as cut down on their debt because the real cost of debt is rising substantially. When interest rates are at the lower bound The only way to decrease the real interest rate is by increasing inflation.
oh yeah, NO reason whatsoever to expect that GDP won't grow...lol
Yeah, a GDP based upon notional values of synthetic debt instruments.
Just for my edification...what exactly does the US produce these days? Be specific.
Remember this:
- WWII ended with Europe pretty much in ruins. The USA were the only country left with industrial production intact - that really helped.
- The USA was a net exporter of oil until the 1960s. That also helped a lot.
- The USA, due to the above, was a net creditor. Other countries owed it money (for instance, the UK). That really, really helped.
Nowadays, all of the above is untrue: industrial production has been outsourced to China and other countries, the USA has to import its oil from the Gulf and it owes money to pretty much everyone, from China and Japan to Europe and all countries in-between. Which is why the US sovereign debt is such a problem today, while it was not, say, in 1950.
Just a thought.
"all countries in-between"...especially those tiny islands just below US...
Budget deficit debts approaching the size of GDP.
Back in WWII we had savings.
No longer.
Pity those living in the past and selling puts...
Maybe this is a backhanded attempt to create a new reserve currency: Fed starts accepting foreign currency for Treasuries. Fed fills reserves with foreign currencies. The dollar is still the world`s reserve currency, but the dollar is made up of the world`s currencies.
nice call J6P, the currency swaps were a nice little beginning yes?
Yes, you may be on to something there.
Canada is roughly 1:1 with the USD and the Euro is probably soon to join 1:1.
Financial engineering 1to1.
The Global Dollar (TM)
Here's a black swan for everyone:
Everybody expects that Bernanke, et al are full of it with regard to winding down/stopping QE in March (myself included). Everywhere I look it is widely expected that we will either see official QE v2.0 or some sort of backdoor/hidden QE II (again, myself included). What if (for one of the very few times) Bernanke and the FOMC are telling the truth and QE really is over come March. Now THAT would be one hell of a black swan.
Coincidentally, this black swan dovetails quite nicely with PIMCO's recent paring of it's MBS exposure (with everybody expecting they will buy it back once the haircut has been imposed by QE ending).
The U.S. current account deficit is shrinking because the domestic savings rate is rising. U.S. savers are gonna fill the hole left by declining Chinese demand for Treasuries, so I wouldn't lose sleep about this. Also, a big reason the U.S. budget deficit is so huge is because the economy is still flat on its back. If budget deficit begins shrinking, it would likely be a sign of increased business activity/tax revenues. If that's the case then I WOULD want to dump Treasuries. FWIW I don't see the latter scenario happening anytime soon...
We speak of a mild outcome to all this, a new normal, as we stuff the pig on the scale of fate. We are so far down the rabbit hole Alice, so arse over tit, that it is quite plausible that the power law being applied here is masquerading mild as wild as well as its' converse.
What if the mild prognostication is deflation or hyperinflation with either A cascading to B or B cascading to A?
What if the Black Swan is just, hope upon hope, muddling through?
Meaning you are long or short what, exactly?
(Dollar up 10% from March 2008 lows)...
Q: Is it actionable?
A: Take a deep breath buttercup.
That's a very sensible idea- accepting foreign currencies. ..unworkable, unfortunately. Central Banks would have to agree with each other almost constantly which at least would be politically sensitive.
Today, people are stating that they are not prepared to accept the dollar.
That leaves the US consumer out on a bit of a limb vis-a-vis imported goods. Since that's very clearly an 'inflationary cause': buying goods from other countries includes a premium for having them accept the dollar. Exchange rates are fluctuating so much anyway that it may or not be true/relevant/particularly matter.. uncertainty in the future in the dollar aint great for imports..except also that it is a marginal effect, since trading partners Japan and Europe are presently also basket cases.
So 'inflation' due to exchange-rates isn't primarily a problem, Foreigners' Debt uptake or lack thereof.
Inflation due to a perception that there is more money to be made by putting prices up (like if there had been a rise in aggregate wages and salaries)..also not a strong concern.
The theory states that prices should come down -in order to clear output- where it is expected that the purchasing power of the consumer has fallen. Of course, the problem is that the US is a huge country, with many suppliers. So it is just as likely that margins for suppliers were thin already and that lowering production is more rational than bringing prices down. Retailers do well from this position.
If the sales figures going from October to November were flat, to my eyes that implies retail prices adjusted demand to supply. I think Retail does use sophisticated algorithms to control inventory, which is why I think this is a more likely scenario: which implies 'inflation' between the superstore and the consumer versus 'deflation' between the superstore and the supplier.
That's entering a vicious circle. And at +10% unemployment, price controls on basic goods is going to have to be addressed. While uncertainty remains in the dollar -which, please correct me if I'm wrong, is entirely due to isolating damage caused from the Credit crisis and the monetization of that damage- the shadow of Hyper- inflation and deflation is going to stay beside anyone who uses the dollar.
-the Holidays crowds not at the Mall this year. ZH Rocks.
What happened to the $14 trillion the banksters got to play as hedge funds? Is that all counted in this assumption. What about all the toxic assets that we the taxpayer paid for? Please tell Mr Deflation man what is deflating besides my buying power? Did your tax man call you today to tell you your real estate taxes went down? Did the university call you and say your kids college tuition is going down? Maybe it was the supermarket telling you everything is 50% off. Give me a break with this deflation crap. Please give me a list of what is deflating? None of you can and never do who profess it to be. I can give you a luandry list of things that inflating.49
Fed Up By Ron Paul, 05.15.09 | Forbes
The Federal Reserve's recent and unprecedented actions in the realm of monetary policy have provoked a backlash among the American people. Trillions of dollars worth of loans and guarantees have been provided to Wall Street firms, while Main Street Americans suffocate under harsh taxation, the prospect of higher debt levels and increasing inflation. These events have awakened many Americans to problems with the Fed's loose monetary policy, the bubbles it has created in the past and the potential hyperinflation it might cause in the future.
One of the fallacies of modern economics is the idea that a central bank is required in order to keep inflation low and promote economic growth. In reality, it is the central bank's monetary policy that causes inflation and depresses economic growth. Inflation is an increase in the supply of money, which in our day and age is directly caused or initiated by central banks. All other things being equal, inflation results in a rise in prices. A so-called "mild" rate of inflation of 3% per year leads to a 56% rise in prices over a 15-year period. Even a "low" rate of inflation of 2% per year leads to a 35% rise over that same period. How is that conducive to long-term growth?
…The Fed's open market operations are not at all neutral in allocating credit. The Fed creates new balances out of thin air and uses those new balances to purchase Treasury bills from banks. Thus the banking sector is the first to get the use of the new money created in these bank balances. As this new money circulates through the economy, prices rise, and individuals further down the chain experience a higher cost of living before their salaries rise.
...If Congress fails to scrutinize the Fed and the actions of its unelected bureaucrats, it will only have itself to blame as this country's economy crashes and burns.
http://www.forbes.com/2009/05/15/audit-the-fed-opinions-contributors-ron...
Slight editorial recommendation:
Fed Up
by Ron Paul, 05.15.09 | Forbes
not
'Fed Up By Ron Paul'
But only because your love for RP is as strong as mine. Yours might be stronger - I'm a newer convert.
Thanks! It's either very late...or very early.
Here's the part I don't get about the deflation scenario.
How do governments finance their budgets?
are they going to just close up and start turning out the lights?? Fed, local govt.s WW are on the verge of default.
So where do they get the money from in the big deflation???
repeat
Gold is currency. Therefore inflate the price of gold.
People then sell their gold and use their FRN's to buy
more crap.
Now tell me what other 'commodity' besides gold (and silver)
allows you to go somewhere and exchange it for goods and
services?
So those badmouthing both don't know what the hell they're
about and what their intrinsic defensive role is in a fiat
house of cards.
FED LAUNDERING MONEY THROUGH THE BIG BANKS INTO THE STOCK MARKET by Mike Whitney | Aug. 04, 2009
Fed Chairman Ben Bernanke is a man who knows how Washington works and uses that knowledge to great effect. His appearances on Capitol Hill are always worth watching. He sits politely with his hands folded in front of him playing the bashful professor while one preening congressman after another makes a fool out of himself. In contrast, Bernanke looks like a modest and thoughtful academic faithfully upholding the public's trust. But things aren't always as they seem. The Fed chief is sticking it to the American people big-time and no one seems to have any idea of what's really going on. Former hedge fund manager Andy Kessler sums it up in a recent Wall Street Journal article, "The Bernanke Market". Here's a clip:
"By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market."
What does it mean?
It means the revered professor Bernanke figured out a way to circumvent Congress and dump more than a trillion dollars into the stock market by laundering the money through the big banks and other failing financial institutions. As Kessler suggests, Bernanke knew the liquidity would pop up in the equities market, thus, building the equity position of the banks so they wouldn't have to grovel to Congress for another TARP-like bailout. Bernanke's actions demonstrate his contempt for the democratic process. The Fed sees itself as a government-unto-itself.
Over at Zero Hedge, Tyler Durden did the math and figured that the recent 45% surge in the S&P 500 had nothing to do with the fictional economic "recovery", but was just more of the Fed's hanky panky. Durden noticed that the money that's been sluicing into stocks hasn't (correspondingly) depleted the money markets. That's the clue that led him to the truth about Bernanke's 6-month stock rally.
Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!
”Where, may we ask, did the balance of $2.3 trillion in purchasing power come from? Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer, whose net equity was almost negative on March 31, could have some semblance of confidence back and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn't care less about leveraging themselves any more."
So, the magical "Green Shoots" stock market rally was fueled by a mere $400 billion from the money markets. The rest ($2.3 trillion) was main-lined into the market via Bernanke's quantitative easing (QE) program, of which Krugman and others speak so highly.
Wouldn't you like to know if Bernanke sat down with G-Sax and JPM executives and mapped out the details of this swindle before the printing presses ever started rolling?
http://www.marketoracle.co.uk/Article12507.html
hogwash! i buy something at 20 cents and tomorrow it gaps up to 1$. There is no continuity to draw from the two because money markets and the stock market are not zero sum. 20 cents drawn from "my mythical market market" was all that is required to create the additional wealth if someone decides to buy it at 1$.
The chinese are rerouting their purchases of treasuries through hong kong. that much seems obvious although they are doing it at a lesser rate than before;;
The chinese are rerouting their purchases of treasuries through hong kong. that much seems obvious although they are doing it at a lesser rate than before;;
The process of Home Flour Milling Machineis the flow of currency swaps with the oft discussed mismatch in funding requirements for "private" state owned or supported enterprises, especially in the financial sector
I have to admit that I have never heard about this information I have noticed many new facts for me. Thanks a lot for sharing this useful and attractive information and I will be waiting for other interesting posts from you in the nearest future.keep it up. car insurance quotes