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Europe's Problems - US Money Funds and Politics
It’s been my thinking that the US financial system is somewhat immune to
the unfolding events in Europe. To be sure, there are some potential
losses. And should Europe screw up in their efforts to kick the can down
the road, there would be economic consequences. Europe would slow down,
that would impact the rest of the globe. But no systemic crisis. That
kind of thinking is “out there”. The US has an ocean in between the
storm that is brewing.
That may not be the case. Fitch did another of its reports on US Money Market exposure to European banks. (Link to Fitch, but you have to sign up to see the info) . From the report:
Over the past three months, MMF exposure to European banks has been stable, at roughly 50% of total MMF assets.
Huh! 50% is a very big number!
Where is that MMF exposure concentrated? Its mostly in the Core countries:
What banks are dependent on US MMFs for dollar based financing? The list:
My thoughts on this:
When I look at the list of banks and the countries that they are domiciled in my first thought is;
“Don’t worry. These banks WILL NOT default on short-term IOU’s to US MMFs.
So what did I do after coming to the conclusion that this was not a solvency issue and that I needn’t worry about it? I took a decent chunk of money out of MMFs. I bought Bills.
What I’m concerned about is a liquidity problem. And while I am as sure as I can be that those MMF assets are “money good” I just don’t want the hassle and aggravation if one of these funds “Breaks the Buck”
(even if it is just for a short period of time). I was earning 1/8% or
so on that idle money. I do not take any risks when the return is that
low. (Screw you ZIRP [and the Fed] on that one)
There is a better than 50% chance that the wheels just keep coming off
in Europe. If the outcome continues to deteriorate this business of the
US MMF is going to go mainstream (this has been brought up recently by Jim Grant and a few others). It would only take one fund someplace in the world to go to 99.9 for there to be an issue.
I still say it would not be a true/lasting crisis. What would
happen ASAP is that the Fed would open the swap windows with the
European Central banks. They in turn would provide the needed dollar
liquidity and that would pay down the MMFs.
But wait a minute. The numbers here are at least ½ Trillion. That would be perceived as a Mega Bailout. Something like this would create a fire storm in American politics. This would not be a TARP situation, but I don’t care. That is how the vast majority of Americans would look it at.
US Bails Out European Banks would be the headline.
We’re not far off from something like this occurring. Like I said, it
doesn’t take much for people to head for the exits these days. I already
did.
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Bruce, you are buying US treasury bills right? How do you do it? Is buying SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL) good enough?
If Euro-banking goes insolvent, the banks will be looking for cash anywhere they can find it. There's already a slow motion run on the banks underway because of all the lies and uncertainty.
There is no reason the bank runs would not pick up steam with any further distress. The bank customers have been abused and sucker punched by the banks every single time. Not this time.
I totally forgot the MMF, and didn't one of them break the buck back in 2008?
Yes, but of course Benron covered it.
If USD gets scarce I guess we'll have to sell our gold and silver to buy grocerys.
gh
"If USD gets scarce."
Yeah right, like that's gonna happen. It will get scarce when we run out of toilet paper.
As long as the stupid asshole politicians sell the greedy, asshole billionaire bankers the privilege to print paper money in return for a few measly campaign contributions the banks are in control of the economy & that's us.
Just went to my road association meeting and got our financial statement, 99% of our money is in a MMF. Pure effing genious.
This is nothing. I have a plain-vanilla MMF that is a sweep account at a big-name bank/brokerage that I use. It is an $8B fund. 12% of the fund consists of asset-backed commercial paper. Remember that one? ABCP? It is funding for SIVs. Remember those? This stuff is being marked-to-fantasy just like bank assets. The fund pays a great big 0.00%. Get out of all MMFs. Take t-bills. $20 bills in an ammo can in a secure location is not a bad idea either. Or gold, of course.
LOL - Scott Walker moves to Springfield.....wonder if any Illinois reps will hide out in Wisconsin....
http://www.myfoxchicago.com/dpp/news/politics/governor-pat-quinn-state-w...
I almost lost my money in The Reserve MMF when the bust hit a few years ago even though the Reserve Fund I had held ALL Treauries. The Reserve froze ALL their funds for weeks. It was not a pretty sight.
Oversight by these guys --gubberment AND fund managers is sloppy if non-existent imho. Many of these fund managers are like bankers---it's all about 3 martini lunches and Bonuses.....
Check out Jim Grant on just this MMF issue here...
http://www.investmentpostcards.com/2011/06/21/james-grant-on-u-s-bank-regulations-european-risk/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wordpress%2FVYxj+%28Investment+Postcards+from+Cape+Town%29
Watch and worry
This may be one bailout that the spells the end of line on the ability to bailout. The smart thing to do would be to get the money in cash and store it in a highly secure bank vault. Short term t-bills only pay a few basis points why bother.
Of course if there was substantial money involved that would invite money laundering suspicion from law enforcement.
What an absurd scenario for the prudent.
You have a whole lot of faith in the existence of "a vast majority of americans", believing something when the truth is that vast majority doesn't know crap about what you are talking about.
And therefore won't do anything about it politically.
What happened the last time the buck was broken? MSM made a big deal out of it, panicked everyone, and the up shot was a whole lot less than underwhelming.
Sigh. What is so hard to understand about the word swap?? Central bank liquidity swaps are not bail-outs. No value changes hands! When the FED and the ECB open a swap line, they mutually exchange an equal value of their own currency for a defined period, e.g. one month, and they both pay interest to eachother.
So, if the FED makes $500B available to the ECB and the exchange rate is 1.40, the ECB will simultaneously hand over € 357B to the FED. A month later, this is reversed, a bit of interest is paid and both are where they were before the swap took place.
If the US wants its currency to remain the world's trade and reserve currency, so it can keep up appropriating the world's wealth in return for nothing but paper, then it has no choice but to provide ample liquidity to the world. After all, foreign central banks cannot print US Dollars. The US has to provide these, so that the rest of the world can buy and sell oil, weapons, commodities, etc, using these dollars. Now, the regular way that the US provides these dollars to the world is simply by running a trade deficit: Americans order oil, BMW's and Chinese-made iPads from abroad and 'pay' for them in US dollars. But sometimes, that isn't enough. For instance, when the US housing market melts down and the market scrambles for dollars to pay off the debts that were backed by those houses, dollar liquidity everywhere in the world will quickly dry up and artificially drive up the USD exchange rate. That's where those currency swap lines come in: they stabilize the exchange rates to prevent further shocks to the various economies.
If you don't want to engange in these swap lines, fine. The world will take oil, gold, weapons, airplanes, commodities and finished products off the dollar. You can have all your 10 trillion dollars back (in return for, say, your houses, stocks, harbors and airports) and the euro and yuan will be more than happy to assume the role of global trade and reserve currencies instead. As French president De Gaulle once said, it's one heck of a privilege..
it was actually Giscard D'Estaing, the Finance Minister who complained about our "exorbitant privilege".
True! But if I'd written that, ten people would have replied saying "Wasn't it De Gaulle who said that?" :-b
ZIRP has (predictably) killed the commercial paper market here in the US.
Money Funds must go overseas to find enough yield so they can take their management fees and still leave the share owner with 1 or 2 basis points.
Anyone that has any of their money in a money market mutual fund that yields something like 0.01% at this point is either crazy or unconscious.
UBS is going to suck Switzerland down the vortex when the liquidity dries up. The Feds will force the Eidgenossen to bend over and serve as thier vassals too. The rest of the Swiss gold will be lost as well to pay for US cover and protection.
There's a amazing lack of redundancy in the world economic system - the banks have stretched the fabric to absurd levels , its already thorn and I suspect it will be ripped to shreds.
Such comical fragility is a design flaw and not a natural occurrence in organic systems - its a product of mad derivative alchemists.
The base is a point of inflection and not a foundation.
The central bankers really believe that they are Atlas holding up the world's financial system. The more things become unbalanced, the more they will insist that only they can bring the system back into balance through their increasingly drastic measures. Anything else would mean their loss of control and irrelevancy.
I'm not sweating this. If Vanguard or Fidelity's MM's break the buck, there will be a lot more to worry about than money.
Just have plenty of "alternative" assets. Read that any way you want.
Just put your cash in a simple non interest checking or savings account at a safe local bank?
What am I missing here?
Technically, when you deposit money at a bank, the money becomes an asset of the bank, and the bank then has a liability towards the depositor, hence "it" is no longer "your money" so if something goes wrong with the bank you stand in line with all the other creditors, unless the FDIC shows up and installs an express line for depositors.
I am not sure if you can even still get safekeeping, as opposed to deposit accounts in US banks anymore.
Further complicating the list of MMF counterparties - five of the banks are among the G14 derivatives counter-parties, and there another 5 G14 banks domiciled in the US (JPM is in both subsets) - so depending on the mechanism of breakdown in the MMF markets contagion could be extremely quick and widespread, only to matched by the speed of Bernanke's Armageddon QE.
Here's a better idea.
Just take the cash and hold it yourself.
No pesky bank fees to worry about.
Personally, I like mutual fund MM's better than banks. I'd say FDIC goes insolvent before MM's.
Just my opinion. It shows how slim a chance I think there is of this happening.
http://www.huffingtonpost.com/david-segal/stop-the-internet-blackli_b_739836.html
http://my.firedoglake.com/demandprogress/2011/05/17/the-first-rule-of-the-internet-blacklist-bill-dont-talk-about-the-internet-blacklist-bill/
Zerohedge is a NO! NO!! whether Bruce is stupid or a fucking plant? I will go with stupid.
they are now allowing! great!!
anyone who follows Bruce's link to Fitch will be barbed and denied access to Fitch Reports forever and added to the list.
I said in the piece that a sign up was required. Relax.
It will soon be time for Bruce Krasting, noted and honoured ZH commentator and citizen of Switzerland - who is thus able via treaty to live most anywhere in Europe - to 'vote with his feet' another way, and get the heck out of the United States.
Maybe about the time, perhaps not too far off, where the US Fed finally issues the 'Red Money' US currency notes, as one of its last-ditch efforts ... as described in a favourite past essay of Bruce's on Zero Hedge:
http://www.zerohedge.com/article/red-money-conspiracy-theory-11
"I believe in Red Money too"
I hear you but, in my case, Vanguard has left me little choice. Being a designated beneficiary of an account my late father possessed Vanguard required me to open an account to transfer his assets into. Not sure if that is really kosher but that is what their reps told me. I didn't want to keep any funds in equities at this time as I think the risk is too high so elected to have everything put in MM funds and the Treasury one was closed. Any idea why?
Now I just have to hope the Euros kick the can far enough down the street for my to exit Vanguard entirely. Can't see why anyone would want to put money with an outfit that moves as slowly as these big mutual fund outfits. This is the 21st century not the days of ticker tape and all they offer you is 'deer in the headlights' transaction speed and those deer end up road kill!
Get thee to a PM IRA...pronto.
Here's an idea: get OUT of Vanguard.
He may not have a choice. If it's an irrevocable trust and Vanguard (or some subsidiary) is acting as trustee, he's SOL. The only thing he can do is ask them to resign, but chances are he would just have to find another corporate trustee to take over. And no corporate fiduciary is going to go to all cash or all bonds, regardless of the market environment.
+100 One step forward and two steps back. With U.S. Dollar devaluation you are jogging backwards.
As if TPTB give a shit. They've been bailing out European banks all along, from the TARP, to opening the discount window, to the half-trillion is mystery swaps, to QE2, to IMF funding and so on. Hell, they've been bailing out state pension funds, motorcycle manufacturers, failed automakers. I would be shocked if there's a bankster's pet or infant child who hasn't gotten at least a million bucks of filthy swag.
Taxpayer, you'll take your ass-ramming and like it. Meanwhile, if you have the temerity to believe your vote has any meaning, we'll give you your corporate-approved choices from The Banker Party and The Other Banker Party to choose from.
no identity, no value...
Identity Theft & Bankruptcy
It all begins with self-identity. The education propaganda system, certification, credit reports, and the rest are designed to impose identity upon you. That’s the DC current, and the vast majority simply floats downstream with it, expecting the minority to follow suit, when the latter are holding all trump. If landlords and employers are stupid enough to define you by your credit and education reports then they are stupid enough to get what they get.
Facebook was popular because it gave people the opportunity to self-identify, but, of course, the vast majority chose to reinforce the identity assigned to them by their social filter, giving control right back to Caesar. How you use the tools is up to you. If you want to blow up the planet, no problem, the universe will get along fine, with or without humans.
Your identity depends entirely upon your relationship with God, and you are free to define God, until you give that right to the majority, which is pretty damn stupid, and you get what you get. Free will is a grant from God, not the government.
This last gal is sending an old copy of my trade resume, from two states away, applying for jobs she wants me to have, planning my future as her workhorse. Others have taken my identity on blogs, republishing previous work, “thinking” to use it as a segway for themselves. At the end of the day, however, I don’t have to care how others identify me, because there is only one me, and to the extent they misidentify me they either open the gap, disconnecting their own economy, or close the gap, shorting it out.
It doesn’t matter what you did yesterday, because you are about to get the opportunity to identify yourself again, and join the community of your choice accordingly. How you employ that tool is up to you. Those who have been practicing for the last three years will be farthest ahead initially. If you want to give control back to Caesar, that’s up to you. I don’t need the defense establishment overhead. All politics are local; the rest is an aggregate outcome.
If you are dependent on agency for a check, you are f***ed. Get out of that box, even if it means creating your own currency. If you start a business and bring any value of any kind to it, that is an asset on the balance sheet. Your identity, your brand, is your most important asset. You have intrinsic value (Declaration of Independence). Goodwill is your next most important value, which represents the quality of your customers (market). Next is your unique skills and abilities (Constitution). Do you see anything physical, dependent on Caesar, there?
If Caesar’s minions can write off expenses, to pay 0 taxes until their product is finished and get “special” tax treatment, so can you. Build your wave randomly and wait until the noose is about to break Caesar’s neck before you insert the last piece to catalyze the cycle. If the current crop of operators doesn’t want to pay you, the next will, with interest and penalties. Income is a derivative. Quality of life is what you care about, which is no way dependent on fiat currency, and is entirely dependent on the community you choose to join.
Some people are worth charging no rent, requiring no fiat currency, and others are not worth rent, no matter how much fiat currency they have. No law requires you to send money to the state, unless you accept your assigned identity. Taxes are a function of fiat currency. Accept currency accordingly. It’s an addiction, like everything else peddled by Caesar. All things in moderation. A dc regulator filters out. An ac regulator filters in. Affect time in your community accordingly. Effective use of time is more important than efficient use of time, which is why the latter results in slavery to the curve every time.
They have spent $20 trillion in “wealth” over the last three years and what do they have to show for it? Caesar is a tiny dot in the universe, and always will be, unless you make fiat currency your universe. Accept sunk costs, salvage what you can, and move on. That’s the learning process.
imo, one of your very best kev and i've pretty much read them all.
"Build your wave randomly and wait until the noose is about to break Caesar’s neck before you insert the last piece to catalyze the cycle. If the current crop of operators doesn’t want to pay you, the next will, with interest and penalties. Income is a derivative. Quality of life is what you care about..."
this is a most important lesson i've learned this spring = patience aka allowing nature to take its course. timing is critical here and no need to shoot the wad before it's most useful. just a waste of energy.
patience is always the hardest. not expecting others to be there doesn't hurt.
After hearing Jim Grant speak last week, I did the same thing. Pulled cash out of generic MMF's and put it into:
1) US gov. only MMF's, and
2) T-Bills
Same as Bruce, I wasn't worried about losing money. I was worried about being frozen, especially when we have a panic hit.....preventing me from buying when I would want to.
You're joking right? Who would be stupid enough to buy that shit when you can still get physical gold and silver for paper??????????????????????????????????????????????????????????
Don't worry, the idle cash is a small % of my total portfolio.
Bright idea, jump off the Titanic so you can board the Lusitania. Diworsification.
Good analogy, and a good idea: after all, Lusi floated 3 more years after Ti sank. And I'll take a torpedo over an iceberg any day. Quicker death.
I pull money (USD) out of the markets to buy PM's.
What do you use to buy your PM's, wampum?
And where do you get it---return on your capital or on your labor? Cause, last I checked, both almost always use USD to settle obligations.
Me: Paycheque -------->Bank------>Bullion
You: Paycheque-------->Bank------>Money Fund------->Bullion
??
I just hope your spidey senses have a good Swiss ETA movement going on for timing!
Thanks. I just wanted to verify that you use paper too.
bidet.
50% of MMF assets in European bank bills? I find this number almost impossible to believe.