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The Fed Doesn't Want Banks to Increase Lending
Tim Duy - Director of Undergraduate Studies of the Department of
Economics at the University of Oregon and the Director of the Oregon
Economic Forum - noticed an amazing sentence in the minutes of the most recent meeting of the Fed Open Market Committee:
As has already been widely noted, the minutes of the most recent FOMC meeting reiterated the Fed’s eagerness to reverse, not extend, policy:
Overall,
many participants viewed the risks to their inflation outlooks over the
next few quarters as being roughly balanced. Some saw the risks as
tilted to the downside in the near term, reflecting the quite elevated
level of economic slack and the possibility that inflation expectations
could begin to decline in response to the low level of actual
inflation. But others felt that risks were tilted to the upside over a
longer horizon, because of the possibility that inflation expectations
could rise as a result of the public’s concerns about extraordinary
monetary policy stimulus and large federal budget deficits. Moreover,
these participants noted that banks might seek to reduce appreciably
their excess reserves as the economy improves by purchasing securities
or by easing credit standards and expanding their lending substantially.
Such a development, if not offset by Federal Reserve actions, could
give additional impetus to spending and, potentially, to actual and
expected inflation. To keep inflation expectations anchored, all
participants agreed that it was important for policy to be responsive
to changes in the economic outlook and for the Federal Reserve to
continue to clearly communicate its ability and intent to begin
withdrawing monetary policy accommodation at the appropriate time and
pace.Read that carefully and realize this: An apparently not insignificant portion of the FOMC believes that there is a terrible risk that banks loosen their credit standards and increase lending at a time when, even if the economy posts expected gain, unemployment remains at unacceptably high levels. Silly me, I thought increased lending was the whole point
of the exercise to lower interest and expand the balance sheet. That
whole credit channel thing. If not to expand lending during a credit
crunch, then what else are they expecting?
I am in shock that
this sentence made it into the minutes. One can only conclude that a
significant portion of policymakers are simply clueless. Or, more
disconcerting, they have lost all faith in the ability of financial
institutions to channel capital into activities with any hope of
financial returns. Has the Fed now embraced the view that they manage
the economy through little else then fueling and extinguishing bubbles?
Yves Smith has the definitive last word on the issue:
These
statement is an indication of intellectual bankruptcy at the Fed, that
they have learned nothing from the crisis. But that isn’t surprising.
CEOs usually need to be fired after they have presided over a disaster.
They are incapable of seeing and remedying their errors. Why should
senior bureaucrats be any different?
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The Fed and all its branches will have to be physically destroyed before we can prise this bunch of criminals out of there.
How about banks as a symbol of the late great past? Those tall stately glass & steel buildings as a symbol, not as a functioning part of the present. This is the kind of stuff Politicos get off on; their equivalent of a dwarf sex porno site on the web. Politics is all about symbols. Of course interest rates are still at zero; they HAVE to stay there both the banks & the government can't afford to pay interest & they are running the show. Imagine the debt figures on those trillions at even 1% of lousy interest. It's financial dictatorship for you LITTLE MAN & stop your whining or they'll give you SOMETHING TO WHINE ABOUT. They aren't the children WE ARE & don't you forget it.
Who said deflation is bad?.The idea is deflation and soup kichens go in line,is banks propaganda. Simply because inflation enables banx to lend more,because people borrow now thinking that what they pay in the future is less and everything will go up to infinity. Despite the trillions of dollars the fed have been pumping,which started even before the melt down in equities,there are 35 million people on Food stamp. Read;that is 35 million standing in lines waiting for their soup,except there is a safety net now sponsored by the goverment. In fact deflation if accompanied by eliminating all non profitable businesses through market forces,is the only solution for a cpiatalist systme(with safety net in place for the affected).It brings wages down which helps establishing the foundation for the next rebound.Otherwise,one can always choose the alternative,and distribute wealth according to need. Waht we have now,is billions for GS and food stamps for the rest....
I visited a BAC branch on Wed . The maximum withdrawl amount is now $ 2500 . SHTF NOW !
It is prudent not to have banks lending madly. On this score the Fed is, oddly, acting in a responsible manner.
Most here understand the dilemma we have. Only more credit can stop the decline and bring growth, but we have far too much outstanding credit already. It's damned if we do and damed if we don't. It's devil or deep blue sea. It's an impossible situation.
So getting back to the Fed. Their moral dilemma is that they saved or are trying to save banks that we don't need. The saving of the banks became and is an end in itself. They might not lend but they will still be there. Shiny office buildings and all. That's it.
The big lie has always been we need to save the banks to save the system. No, they saved the banks, to save the banks.
Verbal diarrhea to the point of senseless drivel. It is just incredible the amount of doublespeak presented.
The FED talks like its actions are not the case, but merely an innocent respondent to market forces. The tone was that the Federal Reserve is just a lowly part of a financial fairy tail Mr. Rodgers neighborhood, with Ben wearing the sweater. Would you be my, could you be my, banker.
FOMC exactly what data are you acting upon?
The expectations, or
a possibility, or
the possible expectation of a public concern,
which is apparently unanchored to the reasonable inability to clearly communicate expectations.
It looks like they have no real plan. Remember they are setting policy here. Policy is a directive, a plan of action, a series of steps based on conditions. The FED's plan at this point is to have no plan. That way, it can adapt to the expectations of the unanchored inability to address possible concerns.
Perhaps you could try and clearly communicate what you know. Show us some data, some research, something other than un-actionable gray areas.
FED FOMC: Perhaps, at some point, we may have a plan, if by inaction, the result is clearly one of acceptable expectations.
How do you control something you treat as hands off? Grow up. Its time for Ben to wear the daddy pants.
Mark Beck
Investment Banks should be disemboweled. Pitchforks on sale now.
Ummm, with all due respect GW .. this is not new and this is not news.
Yves is a great writer but not exactly Schumpeter on the whole economics & finance thing. Funny, how Keynesians find this "new" & "news."
Folks, if you take a look at #'s instead of adjectives you'll see the picture clear as day. hint hint inflationistas !
The Fed "Contradiction" IMHO is because they can't say the following to jobless Americans. The Fed wants to collapse capacity through takeovers?
The next phase in this crisis is where the job losses really begin through M&A, (my note: followed by buying back shares).
From The Aleph Blog :
http://alephblog.com/2009/11/24/problems-with-constant-compound-interest...
"Why are commodities rising amid surplus conditions in storage? Why is it reasonable to take over corporations when it is not reasonable to expand organically? We are in a position where yields on short Treasuries are nonexistent, investment grade and junk yields are low for corporates, and equities are rallying, but there is little growth, or some shrinkage in productive capacity. Why?
The liquidity offered by the Fed is being used by speculators for financial positions, levering up relatively safe positions, rather than speculating on areas that are underwater, like housing and commercial real estate. This is consistent with prior experience. When the Fed does not allow a significant recession to occur, one proportionate to the amount of bad loans made, but comes to the rescue to reflate, what gets reflated is the healthy parts of the economy that absorb additional leverage, not the part that is impaired because they can’t benefit from low rates. They have too much debt already relative to the true value of their assets.
That is why a booming stock market does not portend a good economy. Banks aren’t lending to fund new growth. They are lending to collapse capacity through takeovers. ROE is rising from shrinking the equity base, not by increasing sales and profits."
Which one more reason why I think that the Namke Debt Consolidation Idea would work where other ideas (like the Fed's current policies) will fail. The NDCI would support jobs and small businesses in every single community in the USA instantly.
2) and a bit about deflation and living in Japan from Jesse's Cafe Americain at :
http://jessescrossroadscafe.blogspot.com/2009/09/japan-on-ground-view.html
Happy Thanksgiving
Namke von Federlein
Yes, but M&A where? The financial sector has already absorbed all of the problem banks that it can, to the extent that bank failure rates are dropping not because the small and mid-sized markets aren't failing but because there's no more capacity for m&a - and no tolerance for assuming more toxic junk. There's no retail M&A, without access to capital markets and an uncertain future, it makes little sense for a company to buy out a competitor, even if they are weakened - they don't need more inventory, more employees or more physical plants. Heavy manufacturing's in an even worse position, and at this point junk bonds are not worth the paper they're printed on.
I suspect that in many cases what's happening now is that relatively healthy companies are waiting for the marginal companies in their sector to just go into BK where their assets can be bought at pennies for the dollar, or just let to go fallow. While I agree with you that the sectors that are in most need of a correction - such as the FIRE sector, and to a certain extent "critical" industries such as auto manufacturing - will continue to exist in zombiehood for as long as possible, the recession is busily at work destroying overcapacity in many sectors that were overbuilt but not critically so (yet).
The recession is also having another, more subtle effect - it is weaning those companies that remain from the teat of the FIRE sector. When credit is easily available, it can be a powerful drug that causes businesses to undertake actions that may not benefit them in the long term, and it makes it easy for those businesses to lose financial discipline or to grow so big that they are unmanageable. When credit is not available, businesses adapt - they become smaller, more focused, reduce their dependency upon outside credit and build up their own internal reserves when possible. They begin to look at their books and recognize the cost of that credit to their actual bottom line, and begin to shape their businesses to work without it.
I think this is what's beginning to happen now. It's not just that the banks have increased their lending standards - indeed, that's precisely what they need to be doing, as it was the very laxness of these standards that led to the crisis we're in now - it's that companies are becoming less willing to trust the continuance of their own business with the banks, are becoming more self reliant, and are simply not borrowing as much.
The tipping point is coming soon. People's confidence in the equity market's rise is ebbing daily, as it becomes increasingly obvious that much of it is due to very questionable manipulation on the part of the Fed and the Treasury department. When the market drops again (there's a whole flock of black swans just waiting for their chance of stardom right now), I suspect that any corresponding flight back to Treasuries will be impaired by the dollar carry trade (which, with the massive unwinding that would result, would otherwise wreak havoc globally), and as such would cause the TED spread to spike to levels well above where it was even this time last year.
One side effect of this is that the superbanks - GS, Citi, BAC, WF, etc. - will effectively implode at that point, and then you WILL see a massive run on the banks as people scramble to get everything out while they still can. I find it instructive that in the 1930s Depression, the bank runs didn't start until about a year after the stock market crash. There were hints of it last year, but most people at the time still believed that the banks (and most especially their bank) were still solvent. After a year of people watching the Fed shovel money by the trainload into these banks, I think the illusion of their solvency is finally beginning to shatter, and all it will take will be someone yelling "fire!" for people to bolt. That's when Depression 2.0 starts in earnest.
Personally, I find the Fed+Treasury strategy both criminal and stupid (the way I read it). They are killing the golden goose.
Every action that the Fed and Treasury have taken forces job losses in the USA. It's really quite amazing to watch one dum idea after another become policy.
1) "M&A where?"
IMHO
First, everybody is trying to create a decent Dec 31st year-end/quarter close. Not much happens until Jan 1st 2010.
a) The FIRE sector is sitting on a trillion in cash. They are waiting for Jan-Apr (post-Xmas to tax time) to see what banks (and other FIRE companies) get crunched so they let the FDIC take the trash and they can absorb the rest. Instead of the cash becoming available for MBS reverse-repos (as the Fed seems to intend), the next phase is consolidation in FIRE. Which has created a rather desperate need for the Fed to increase the nominal value of other assets it uses for collateral?
b) Productive corporations. They can only survive in the USA with mergers. Most will probably be stock swaps with the intent of selling excess capital machinery to ChinaEtc Inc, picking up a loss for the tax write-off and reducing staff. The vulture capitalists looking for returns and some asset stripping are happy to invest in a decent company that can absorb their largest competitor(s) (which reduces competition and improves margins). The target will have goodwill valued at zero to improve the tax-loss carry forward. BTW: I know people who have done this. The new flippers will flip corporations, not real estate.
2) "Companies are being weaned off the teat." My grandfather was funny. He hated debt but he was very successful at business. He ended up expanding far beyond his intent for a funny reason. Every time somebody wanted to sell a company in trouble the bankers would come and offer him great terms because they trusted him as a competent businessman. His comment : "Well, if they want to give me the company for free, I guess I'll take it." I think Warren Buffett is not the only business person with bankers offering them free companies right now. Perhaps I would put it this way : the companies are getting pushed by the local bankers into the hands of competent businesspeople. This is a good thing "in general", but it creates job losses.
3) Now some random, unresearched, unverified blather about the dollar carry trade. "The Carry Trade" sounds convincing but I'm not convinced (hey - Who just said "So what?" grin). People are taking their profits faster? I haven't been able to dig up any good info on the carry trade. I can't find Mr. Who. Current working hypothesis : faster profit taking will drive up commodity prices by sucking hard asset supply into contango. It will actually be the unwinding of the carry trade that will spark hyperinflation in the USA because nobody will be holding excess "dollar to hard asset collateral" ratios. (Possible example of this is China. Their foreign asset strategy is an attempt to prevent having an unholy "dollar to hard asset collateral" ratio?). The dollar will just keep dropping. It is one thing to have a lot of loans in USD invested in leveraged paper. It is quite another to have a lot of loans in USD invested in hard assets? (Just pure random brainstorming until I see some decent data.)
Last but not least : IMHO the big banks are functionally insolvent (cute term, huh? - like people with intellectual challenges). They still have lots of good assets (including the US war machine). Painting by numbers, it would seem that it is the US government and the Fed that are insolvent.
Hence the gold push? The Fed absolutely needs the price of gold to go up right now (for collateral)? It would also seem that China will need another 8,000 tonnes of gold to have their holdings exceed that of the US.
http://www.financialsense.com/editorials/casey/2009/1125.html
BTW: I'm not really a fan of any asset class. I'm a fan of people and freedom.
I am still hoping that a credible economist will debunk the Namke Debt Consolidation Idea in the "secret language of economists" so that I can stop thinking that it is the only way to end the credit crisis and just despair along with everybody else.
all the best from
Namke von Federlein
Namke,
Some very nice analysis. A couple of quick comments on
1a) Given what's happening in Dubai (and what may very well end up happening in Greece and possibly Switzerland) we're set for some major housecleaning over the next few weeks, depending especially upon what kind of exposure the big banks (Citi and BAC in particular) had to those particular parties. Yes, the banks are sitting on trillions, but they also have trillions in toxic assets still on the books, especially with both sovereign CDS's and now sovereign CREs to contend with, and its becoming politically increasingly difficult for Congress to backstop any new kind of support (thinking especially of GS here). This may turn into a game of last man standing before it gets to the M&A stage - especially since I think there's a very real possibility that we will see bank runs (of the electronic kind) before year's end.
1b/2) I'll concede on this one - the free company when you open a new savings account approach makes a lot of sense, especially when dealing with competent owners/senior management. One good thing to come out of that is that at least some of the cost cutting will be at the boardroom level, which should probably do wonders for the economy long term. It may also help a lot of SMBs aggregate and and share a temporary(?) financial umbrella while the storm's working its way through the economy, with likely the most sound business-wise surviving. We're not going to see significant job growth until the economy finally reaches a point of relative stability anyway, and while this may not be much consolation to those currently or imminently unemployed (speaking from personal experience here) the consolidation process that you indicate here is healthy nonetheless as a precursor to that.
3) Absolutely agreed; my sense at this point is that you are seeing investors racing through the currency system right now just to stay one step ahead of the impending collapse. Treasuries may very well bounce on the latest news, but I don't think the "flight to quality" factor of t-bills is anywhere near as strong or compelling as it was even this time last year- should be interesting to see just how much of a bounce there really is.
4) The question in my mind is the extent to which knowing where the bodies are buried will in fact keep the US from having to face the consequences of that insolvency. That it will lose reserve currency status is pretty much a given, and in the long run probably not a bad thing. As a country, that position of privilege has made its citizens complacent and given them a view of the world that is out of alignment with both much of the rest of the world and of current economic reality, some adversity may actually help jumpstart a lot of the social and economic reforms it needs to be competitive again.
As to the banks - at the end of the day, the real economy is undergoing a phase shift as the fundamental oil economy of the last century finally begins to sputter seriously. Hyperinflation occurs when people no longer have trust in the issuers of currency to maintain economic stability; the banks exist (at least putatively) to act as the conduit of that stability. When they fail in that role, then whether they are functionally solvent or not becomes immaterial - they become irrelevant, because their product - the state's money, or at least credit that can masquerade as money - becomes irrelevant. We're several years perhaps from that reaching its natural denouement, but certainly the pieces are now in place for that to happen.
Will gold serve that purpose? I'm not sure. The issue, ultimately, is energy - oil and other hydrocarbons, uranium, arable land (food being somatic energy), water, usable thermal or kinetic gradients, as well as the support infrastructure for same. Gold is still ultimately psychological - a holder of value only in that it has comparative scarcity and ductibility, and as such can serve as a proxy store of value for promissory notes for that energy in periods of strong economic instability (when you don't trust my currency and I don't trust yours, it becomes a medium of exchange). However, it has the distressing tendency to collapse in value in its own right when that stability is achieved, as it tends to be nearly impossible to easily transport 8,000 tonnes of gold ;-) Thus, like everything else its a gamble.
It's also something that most central banks have no desire to see come back into vogue, because it's much more difficult to benefit financially in a fractional reserve setting when you have a gold dependency in the system - it in fact tends to inhibit credit creation. Of course, given that most industrialized societies at this stage are now in fact shrinking, perhaps this may not be such a bad thing. Hmmmm ... I'll have to think about that.
Like you, I'm not a believer in any one asset class. Instead, I'm far more interested in this process from a socio-economic standpoint, and I suspect that fixation upon investment while chasing alpha may itself be ultimately one of the concepts that will seem quaint in twenty years time.
Thanks for the thinking!
Some thoughts on your question :
I don't think there are many "buried bodies". I've joked for years that there are no secrets on planet Earth. They're just assets. Power is about what you control, not what you own (and certainly not about the nominal value of what you own).
Back in the fall of 2007 I suggested that this whole thing would become a pricing crisis. I was particularly vocal about oil pricing. I put it this way : If the GCC doesn't stop pricing oil in dollars then they will see their achievements evaporate like dew in the desert sun.
The Economist magazine picked up on this (probably independently) about a week later in an article about the GCC but I had the feeling that the guy who wrote the article didn't really understand it. The only comment in the article was : "Of course, the pricing mechanisms have to work."
Dubai's plight would indicate that I was pretty close.
Gold : Gold is a funny thing. I used to put it this way : Gold is great. It keeps the wife happy.
If I was a central banker then I would be stockpiling rare earth metals as collateral. But hey - that's just me.
And : credit is a good thing if you are "chasing productivity".
If people borrow to invest, things go well. If people borrow to speculate then things go to hell.
The whole world could really use a Tobin Tax (tax on flipping). It forces the casino capitalism off-shore - where taxpayers can't be hit for losses.
What will reform "The System"? IMHO The fact that all those nice folks at the Treasury and the Fed have kids. Sooner or later, their kids are going to ask them : Why are you destroying everything in the world?
There is a funny film called "Richie Rich". In one scene you see Richie's Dad patiently explaining to the President "You see, Mr. President, if you spend more than you have then you end up in debt." like this is some sophisticated concept.
Obama's not an idiot. Neither is Geithner nor Bernanke. A crisis like this has a nasty side-effect. The guys who need to deal with it get "too busy to think".
So, thanks again. The incredible amount of human suffering in the USA due to poor economic and fiscal policy is very sad. America's defining moment (for now) was George W. Bush saying (I paraphrase) : "Terrorist attack! Go shopping." Epic.
all the best from
Namke von Federlein
This is utter garbage.
Yves Smith is mindless, please stop pimping her Keynesian drivel. Crazy Tim Duy too.
Yves wants the FED to pump more money, and is clueless as to what inflation is or what causes it. Her last paragraph is blather about how bad the banks are and how the FED refuses to see this, but then she rails against the FED for not wanting to promote more lending?
You are right Yves, the answer to all our problems is more credit. Save the consumer. Krugman smiles on you.
Inflation? In an economy with slack capacity, high unemployment, consumers duly cautious about spending, and labor utterly lacking in bargaining power even when times were better? What planet is this inflation talk from? Bond market yields rising over supply fears are not the same as inflation worries. Are there any signs of consumer hoarding in anticipation of price increases, of spending their paychecks ASAP because they fear their money will be worse in a few month’s time? No. Consumers are trying to cut debt and build up their cash buffers, the polar opposite of the behavior you’d expect if any were worried about inflation.
The Fed is shockingly seeing the US as an economic island, when pretty much all investors can seek other currencies as stores of value. And the consensus is that the dollar is a really bad bet, and a dollar bear posture is not very kind to long-dated Treasury yields. How hard is that to understand?
Japan, despite massive pump-priming, still had deflation because it was unable to get its broken bank plumbing fixed. The authorities like to pat themselves on the back and say how good our emergency responses have been, but Japan-type outcomes are real possibility. We have better demographics and a less severe debt hangover, but the Fed’s refusal to see that the banking system is still a mess is breathtaking.
This statement from the Fed should have been expected. Actually, they must withdraw liquidity (or pretend to) to keep some sense of confidence in the dollar. They are faced with a choice of saving the banks or the dollar. This should not be a surprise to anyone who reads ZH.
I generally agree with you Green Sharts however I think the construction of any lending they do, as prompted by the FED, is as serious a problem as the fact, that you correctly point out, that there is certain type of lending not going on. In particular a stunner for me was on October 30, 2009 the FED issuing guidance to examiners to look the other way when a lender rolls over a loan related to commercial real estate and the value of the collateral doesn't support the loan.
Therefore we have two things happening the banks not lending for the purposes of economic growth and buying securities in order to positively affect their capital ratios while at the same time keeping mismarked assets on their books in order to protect their capital levels. If the banks lend to third parties that will lead to prices (I am thinking particularly of CRE) which will then lead to a re-evaluation of similar assets on the bank's books. They, along with the FED, believe that can't happen as they would all be considered bankrupt. They are just delaying the inevitable.
Which leads to the following question:
If you have your head so far up your ass as to not be aware of what is going on around you, does that mean that what is going on all around you is not happening?
mberry, with regard to the extend and pretend strategy on commercial real estate loans, Koo divides banking crises into 4 types based on a matrix of whether the banking crisis is localized or systemic, and whether there is normal demand for funds or weak/non-existent demand for funds. The current situation is a systemic banking crisis and weak/non-existent demand for funds. Koo argues that in that type of recession/depression, non-performing loans must be disposed of slowly because there are insufficient buyers to deal with a rapid mass liquidation of bad assets.
I agree with you that extend and pretend is likely delaying the inevitable, but given the choice between certain near-term insolvency of banks via rapid liquidation and probable/possible future insolvency of banks via extend and pretend, it's no surprise the government and the banks are opting for the latter.
I was also pretty shocked (and disgusted) at the Fed's guidance of October 30 to banks on CRE, but after watching Koo's presentation have a better realization that whether they said it publicly or not there really isn't another viable option at this point. Koo says virtually all the major banks in the U.S. were insolvent in the early 80's during the Latin American debt crisis, Volcker knew it and via extend and pretend they gradually worked their way out of it. Of course, in the early 1980's the U.S. wasn't on the back end of a 30 year debt binge that took credit market debt from 150% of GDP to 370% of GDP.
Can you please provide a link to Koo's analysis I would appreciate it. And your last point is dead on why I think the extend and pretend won't work; the overall debt load environment is very different from a duration, funding and use standpoint. That is partly why I believe this extend and pretend will not work this time and that "ripping the bank aid" off approach would be better. I just think with the debt overhang we have the remedy of extend and pretend won't work and will cause significantly more damage then facing the problem head on ----> write it off now.
mberry, here is the link: http://www.zerohedge.com/article/primer-balance-sheet-recessions
Thank you.
The presentation by David Koo of Nomura that was posted at ZH a couple of days ago has some good observations on this issue. The government is not leveling with the public that this is not a relatively normal, albeit deep, recession and a normal economic recovery is not right around the corner. It is a balance sheet recession whose closest parallels are Japan since 1990 and the U.S. Great Depression. Koo says in balance sheet recessions such as those two and the one we're currently in, "bankers not lending" is front page news, but what is not often reported in the news but is equally true is that borrowers are disappearing even faster. Koo notes that for every $1 of capital a bank writes off it must reduce its loan portfolio by $12.50. Bank managements know they still have huge losses ahead on commercial real estate, residential real estate and other bad loans on their books, so they're reducing their loan portfolios as fast as they can. Keeping capital parked in securities rather than lending it reduces regulatory capital requirements for banks. I suspect the bank examiners are encouraging this behavior by banks while the Fed and the executive branch and Congress jawbone about how the banks aren't lending.
Where are all the good businesses that have great investment opportunities for expansion and hiring employees but can't get a loan? Where is the demand to justify business expansion? Most businesses have too much capacity for the new level of demand, not too little. I think government officials understand this but are not willing to say it to the American people. So they're talking out of both sides of their mouths.
Sounds like Koo is spot on. I'm going to dig up his presentation.
Yup - which would mean the actions of the banks are driven by fear and dismay more than greed at this point. It certainly reeks to have the Fed preemptively warning banks not to get optimistic, but seriously, worrying now about them lowering their standards? The Government has that market cornered.
It's only a matter of time before some ignorant demagogue political candidates start screaming "screw China - America first!" Sovereign debt default soon to follow - intentionally.
End the fed
But hold on! Ben (my hero) just said some days ago:
"Banks' reluctance to lend will limit the ability of some businesses to expand and hire," Bernanke said. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."
Bernanke predicted that the unemployment rate will get worse before it gets better. "The best thing we can say about the labor market right now is that it may be getting worse more slowly"...
"Access to credit remains strained for borrowers who are particularly dependent on banks," Bernanke said. "Bank lending has contracted sharply this year...[and] banks continue to tighten the terms on which they extend credit for most kinds of loans."
Why contain inflation? Better the monster youo know. After 13 years in Japan I've seen deflation be a nation wrecker. And far harder to cure. When interest rates hit zero and spending is still drying up you can kiss goodbye to jobs, industry, exports, loans, everything. I guess no-one in the US has experienced it full on and so can't believe it's that bad. It's worse than bad... it's a depression.
Because the FED is our savior and clearly the only way to prevent the Japan like deflation outcome is not to do what the FED has done, and pump an assload of money, but to go absolutely bonkers and burn up the currency. Japan had their issues because they were monetary weaklings too timid to print enough, right?
Oh I forgot, we have an output gap, inflation is impossible. Are you clowns serious with this crap?
Maybe you can't cure it (a credit collapse) with more money in an attempt to create more credit because the answer is not the dellusional notion that more credit is the solution. Fuck Keynes, Fuck Friedman.
OMG maybe the problem is too much credit.
Correct. The problem is too much debt.
http://farm4.static.flickr.com/3549/3382546343_997fe867de_o.jpg
Which can't be solved with more debt, private or public. I think we need an equity arm at the Treasury, with strong congressional oversight, a kind of sovereign fund to recapitalize key sectors.
George Washington, you need to do less writing and more research. If you had, you would already know that the Federal Reserve is a criminal organization in business only to enrich themselves and their owners. They lied to you and the American people when they said that their lowering of interest rates and the establishment of their alphabet soup of programs was to help our economy. Their sole purpose is to enable the banks to loot the citizenry. For future reference pay no attention to what they say. Just remember what they're doing. What their doing is continuously emptying wheelbarrows full of money into the banks' vaults and lining their own pockets, while you and the rest of mainstream commentators meticulously analyze what they say and write.
It's actually quite consistent with what's been apparent for some time, from at least the time the Fed started paying 3% interest on excess reserves left on deposit. Unemployment? Who cares? This was never about the real economy, it's been about the banks, first, last, and only.
the fed pays .25% - not 3%....
I guess FHA (no down payment loans on poor credit) and Congress (credit for buying a home) didn't get the memo.
Unbelievable.
I sense a stirring of the sleeping Sheeple, however...
as if. they're all too busy watching xfactor or dancing with the stars.
those that can see what's actually going on are in the minority
Agree, sheeple are awakening and unremarkably they're pissed ....... I practically fell over at the opener of last weeks Saturday Night Live; pissedOffedness is going mainstream
China Cold Open ----- China would like their money back ----- Views: 152,626
http://www.nbc.com/saturday-night-live/video/clips/china-cold-open/1178451/The Fed has a long history of not being completely forthright. I agree that was a pretty big miss by the information police. The reason they missed it is because they all know they don't want banks making more bad loans. They also know but won't tell you is that they only reason they keap rates low is to keep banks profitable. Banks need to pay for deposits and other forms of funding. Lowering interest rates lowers the banks cost of goods which is money. It is like giving the auto industry a 25% reduction to cost of goods.
What is really scary is that the banks still have trouble making it. These guys are criminals.
new debt for old debt
trade up ...