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Is The Fed Enabling Foreign Central Banks To Swap Out Their Agency Debt Into Treasuries?
Another quite intriguing piece by Chris Martenson "The Shell Game - How The Federal Reserve Is Monetizing Debt" reveals some of the intricacies of the Fed's monetization game and, by digging deeper into the Fed's Custody Account, demonstrates not just how the Federal Reserve is enabling foreigners to swap out of Agencies into Treasuries, but how it is implicitly monetizing a markedly larger portion of debt than is assumed.
For the full details of the article we eagerly refer readers to the original Martenson piece, but in a nutshell here are the components of what Martenson coins "The Fed's Shell Game":
It is no secret that capital flows into the US have declined precipitously, a fact that can be substantiated by TIC flows and by the St. Louis Fed:
Comparing this data with TIC releases, indicates that from January to May the total capital outflows from the U.S. amount to ($314) billion in assets, consisting of central bank purchases of $50 billion, however, matched with private investor dispositions of $364 billion.
Ignoring the implications of what this decline would mean for an economy that relies exclusively on credit growth in order to perpetuate the monetary Ponzi scheme that the US economy has been for years, the simple conclusion here is that a combination of declining consumer credit and foreign interest for US debt purchases has very negative implications for the credit bubble the Federal Reserve is trying to reflate. As for the consequences for the U.S. Dollar as a result of this activity, these have recently become all too clear.
All well and good up to here.
However, what is very troubling is what Martenson points out is the cumulative change in the Fed's Custody Account, which at last check was roughly $2.8 trillion, and represented by Martenson's chart below:
Martenson provides a good explanation of what the function of the Custody Account is:
The Federal Reserve actually holds the bonds (or rather an electronic entry representing the bonds) in a special account for these various central banks. This is called the "Custody Account" and it holds US debt 'in custody' for various central banks. Think of it as a magnificently vast brokerage/checking account, run by the Federal Reserve for central banks, and you'll have the right image.
Indeed, while TIC may indicate one thing, an observation of the CA indicates that foreigned have in fact been accumulating substantial amounts of US debt since the crisis began in earnest, at a rate that has not budged from its long-term average.
Yet the concerning conclusion by observing the above chart is the dramatic divergence in the CA of Treasury versus Agency holdings. Says Martenson:
Here we note that agency bonds peaked in October of 2008 at nearly a trillion dollars but have declined by $178 billion since then. Treasuries, on the other hand, have increased by over $500 billion over that same span of time. A half a trillion dollars! If you were wondering how the US bond auctions have managed to go so smoothly, here's part of your answer.
At this point it bears pointing out the Fed's balance sheet, where the Fed's large appetite for agencies (including MBS for the purposes of this analysis) is evident. I present the most recent Federal Balance sheet as presented on Zero Hedge a week ago:
May this be an explanation of what is happening:
It would appear that foreign central banks have been swapping agency bonds for Treasury bonds, but that's not how the markets work. First, they would have to sell those bonds, before they could use the proceeds to buy government debt. So to whom did they sell those Agency bonds in order to afford the Treasury bonds?
And here is where the concept of the appropriately coined Shell Game comes into play:
These are the three critical points to remember as you read further:
- The US government has record amounts of Treasuries to sell.
- Foreign central banks, which have a big pile of agency bonds in their custody account, would like to help but want to keep things somewhat under the radar to avoid scaring the debt markets.
- The Federal Reserve does not want to be seen directly buying US government debt at auctions (and in fact is not permitted to, but many rules have been 'bent' worse during this crisis), because that could upset the whole illusion that there is unlimited demand for US government paper, but it also desperately wants to avoid a failed auction.
For various reasons, the Federal Reserve cannot just up and start buying all the Treasury paper that becomes available in record amounts, week after week, month after month.
Instead, it uses this three-step shell game to hide what it is doing under a layer of complexity:
Shell #1: Foreign central banks sell agency debt out of the custody account.
Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.
Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction.
The question arises, where are the agencies that the Fed is purchasing at such as gluttonous pace coming from? Absent an audit of the Fed, one can merely speculate, but likely is one of the primary motivations for the Federal Reserve Chairman and the Secretary of the Treasury to claim that any additional openness into the activities of the Fed would be "problematic to the country."
Would this "behind the scenes" rotation endorsed by the Fed, whereby the Custody Account is the middleman for Foreign-Fed transactions, be the primary reason for an apparently unwavering indirect interest in US Treasuries?
As Martenson concludes:
The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.
This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.
The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.
When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.
One possible result of the abandonment of these efforts is a wholesale flight out of the dollar and into other assets. To US residents, this will be experienced as rapidly rising import costs and increasing costs for all internationally-traded basic commodities, especially food items. For the rest of the world, the results will range from discomforting to disastrous, depending on their degree of dollar linkage.
As more and more people dig behind the Fed lustrous facade, increasingly more troubling discoveries are made. On one hand you see POMO auctions that repurchase recently auctioned off securities; on the other - potential capital rotation via custodial accounts of which there is no mention in mainstream media venues. If this analysis is in fact correct, the Fed is monetizing not only the Treasuries it purchases via POMO, but effectively also the indirect bidders' treasury interest, which is represented by their rolling out of agencies purchased by the Fed, and the newly raised cash used for UST purchases. Has the Fed essentially monopolized the entire Treasury Auction process?
Whether this speculation of dollar abusive policies by the Federal Reserve, which will stop at nothing, to reinflate the credit bubble and debase dollar-based debt, is in fact true, is questionable. However, definitive answers from Chariman Ben will not be forthcoming until he is forced to show his hand, whether via a legal order such as the recently won Bloomberg lawsuit, or through political means, such as HR 1207 and S 604. In the meantime, it appears the Federal Reserve, whose accountability should be to the entire US population, not just to a select crowd of Wall Street oligarchs, continues to pursue activities that facilitiate at any and all cost the stratification of US society into that minority that will benefit vastly from the Fed's ongoing actions and the significant majority who will see the purchasing power of the paper in their wallets gradually disappear, and effectively put the entire concept of the "American Middle Class" at risk.
For the full link to Chris Martenson's article, please click here.
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OT: I KNEW this was coming, but couldn't they have the courtesy to wait until his body is cold? ARRRRGGGGHHHHH! Bastards, all of 'em!
Dodd: "Maybe Teddy's Passing" Will Spur GOP To Act On Health Care
http://www.huffingtonpost.com/2009/08/26/dodd-maybe-teddys-passing_n_269581.html
as Rush aptly pointed out "let's honor Teddy by giving every American the same Health Care Teddy himself had"
as Rush aptly pointed out "let's honor Teddy by giving every American the same Health Care Teddy himself had"
Ted was a good catholic. He rubbed his beads while he lay dying hoping God would forget the murders and the rapes. But He won't. This man was about as worthless a individual that ever lived and now he is held up as some kind of hero. God help us.
Is The Fed Enabling Foreign Central Banks To Swap Out Their Agency Debt Into Treasuries?:
Crystal ball says "yup"
Could you guys help me with this, wasn't the first week that the Fed bought agencies one week after the surge in treasury demand?
Man in the Mirror too. Ben is channeling Michael Jackson. El-Erian's sugar high? ...more like crack and a course of propofol..the new FED speedball for the 21st Century deconomy. The public isn't spending because it doesn't believe there is an economy to replace their assets and they need to learn how to invest in their survival without....credit AIDS. That disease is now being spread by the FED at their crack house at 33 Liberty.
It's shit like this that is sending the usa into the crapper (well, bidet I guess for the ZH crowd, lol!). the only good news is these phucks can't sneak it by anymore due to the new media. I hope this pushes H.R. 1207 forward.
Hey CNN, why don't you steal this article too. Doubt they'd let you print it!
Ponzi, Ponzi, Ponzi, Ponzi!
Standards Board decided to eliminate a concept known as the special purpose entity"
thanks for posting this!
ok, then the question begs to be asked. how does this affect the velocity of money? and then my statement would be in this case. can this create the hyperinflationary collapse that many have been talking about?
there are two sets of funds to consider when
thinking inflation....there is tarp, talf, etc
money which is largely on deposit at the fed...
there is about 700-800b usd which is sitting there
but has not entered the economy.....if it does its
expansion coefficient is at the least 10x...and
could be as high as 50-100x according to numbers
i have recently read....
the 2d set of money (1.25t usd) is the money discussed here...
much of that money as we just read is going overseas
and as such ben thinks he is so clever because
he thinks he is keeping the inflationary effect
out of the usa while at the same time stabilizing
foreign banks and economies....
however there is still some good sized portion
of the 1.25t usd which is staying stateside
and will feed directly inflation....that money
will not stay in fed unless the pd are buying
massive amounts of citi and other zombie banks...
but they in fact may be doing so as evidence
here recently suggests....
these dollars are fueling the rise in
the markets and as such is not entirely
irrational - there
is indeed money behind the rise just as there
was in the early 1930s when the market bounced
50% on its way to its nadir in 1932 at -90%....
so part of the 2d set of money is contributing
to inflation and yes the money expanded will
result in hyperinflation....but it takes time...
there are still counterveiling forces but expand
even .5t usd by 10-50 and you can see it
overwhelming deflation....
actually i erred...i do not think any of the
fiat money is going overseas....i overlooked a
step in the shell transfer...
People who don't understand what the phrase "begs the question" means should not use it.
I assume lots of these Agency bonds were sold to fund FAN, FRE, etc.
Would you not be delighted to trade FAN and FRE agency bonds for Treasuries?
buy gold. buy silver. and put your head between your knees and pray.
How do you convince the world that your credit worthy???
pay your debts - principal and interest...and
do so in currency which is not tanking.
deleted.
yeh but rememeber paulson told the congress that unless they got their money there would be hell to pay.
does this put the torch to the mish shedlock theoretical exposition? me thinks it does. oh wise mish, what say ye? i know it pisses him off. he said a couple of years ago, he never trusted anyone that posted on seeking alpha and never wanted to hear from them....ha ha ha
Mish still thinks the Fed is incompetent rather than a criminal operation
mish will hit that deflation drum until the time when he must take a wheel barrow full of money down the store to buy a loaf of bread....
LOL!
Which will be his undoing. You bring up an excellent point, PM. In fact, this type of thinking is common to many deflationists that have interacted with. They generally believe that there is no significant government manipulation occurring in various markets - that they are generally free and fair; believe that government is more stupid than criminal when in fact the opposite is the truth; think that government is incapable of spending enough to overcome "deflation" (whatever they fantasize it to be); vehemently deny the existence of precious metals price rigging scheme even when faced with mountains of incontrovertible evidence; believe that people will mostly "struggle" to pay their debts thus increasing demand for the dollar/cash instead of defaulting on them (IMNSHO, the majority of us - i.e. those with a brain and survival instinct - won't give two shits about defaulting on an underwater house); usually live in a US Dollar centric world where they are are totally, madly IN LOVE with the USD and cannot explain what will happen in other countries which are basically on a similar fiat regime; think that the USD today is same as the Gold backed USD of the 1930's when in fact due to removal of Gold backing we are talking about two entirely different monetary regimes; totally ignore the possibility of hyperinflation due loss of confidence in the currency.
mish thinks he is always right and everyone else is always wrong. denniger is the same way. also throw in that pinhead on kitco that goes by the name of jon nadler.
haha Nadler sucks so hard
nadler is a douche bag's douche bag.....
Good post. What I don't get then, is if they are more "criminal" than stupid, and if they are in this to benefit their buddies and cronies etc, under the scenario we are in two things may happen:
1) Hyperinflationary spiral, in which people's cash becomes worthless, and we riot and lynch politicians, Bernanke etc. the lot of them. BUT, their buddies, who are loaded up with cash (yes, foreign currency and precious metals, which are easily stolen and looted from them in such civil unrest) also become poorer via the value of their dollars being destroyed.
Or
2) Massive deflation, in which a country with no savings and loads of debt is effectively crushed by this deflationary force, we lynch politicians, Bernanke etc. BUT their buddies, who have loads of cash, no debt, and some forex and commodities, literally get to own the place and buy the country for pennies on the dollar.
Hyperthetically, it would seem to me that if pure "crime" was behind their motives, the secondary outcome would be better for their cronies. Thoughts?
Disclaimer: The "lynching" comments were merely used for "effect"!
2, then 1. They have backups standing by.
Anyone with lots of money and at least a little brains, whoc is in on this scheme at any level, will leverage themselves so that they gain at some multiple of the rate of hyperinflation. That's what most deflationists dont get about these schemes. The GD's of the world will not lose any money even if money is debased by 50 or 99%. Because they are the ones who will be getting all the new money.
btw http://www.chrismartenson.com/ appears to be down
Re the $700B Bank reserves held on the Feds books - If such funds could experience a multiplier of up to 100x when relased into the economy, when does the point arrive when people start not accepting paper in exchange for goods? It's a lever primed 'pull for hyperinflation' isnt it?
And does this make sense - could the Fed be trying to shake foreigners out of their long USD (savings) positions before smackin the deflation button? The Fed wouldnt want a severe deflationary episode to occur whilst foreigners hold all the cash would it?
The "buddies" in group two are already hedged out of the dollar. They will buy things with gold silver and commodities, not with appreciated dollars. How can the dollar gain value. It's dilution is the mechanism of all of the theft. If I have a $1,000 and you steal $500, how can I be left with $1,500? Dilution and inflation are the tool of the theft. People that hoard an increasingly diluted asset because they believe the asset will appreciate in value are a counterfeiter's dream.
If there are a million tons of corn in the world, and all of which is hoarded (ie the velocity is almost zero), and I am the only seller (say three tons) I am going to love the price I get and I'm going to encourage the hoarders. This is why the govenment loves the deflation myth. It can keep selling dollars while everyone else is hoarding.
PM and GG
Interesting that you can lay so much crap on a bloggist that is yet to be proven wrong. A recent report showed that out of the 15,000 economists, only about 120 predicted accurately. Neo classical economists missed the boat. The classical ones did not.
As for deflation, history will be the judge. Quite frankly though, do you not think it is a tad deflationary when capital goods and rent are reducing? With the unemployment one would expect as much. Then again, the both of you know what you are talking about don't you?? And before any snide remarks read up on the definition of deflation, so you both know what you are talking about.
Same to with homebuyers underwater... you two should go read his blog instead of forming preconceived ideas that have no relevance to his comments. Then again it is easy to bad mouth and trash people isn't it .. the anonymity of the internet... I appreciate TD's anonymity but seriously your personalities and sometimes sanctimonious comments are making it tuff to really appreciate the site.
I forgot GG has a brain and makes this comment without reading the Blog!
As regards the currencies I think that you fall far short of expectations when addressing the USD. When markets collapse the money will still flow through to the USD. All CB's have done worse than the Fed and all CB's attempted to deflate their currencies. It is mind boggling. And on the Euro I will follow Keynes idea of the road bump. The individual States unemployment and various other problems will no doubt see to that.
For the hyper-inflation angle ... again history will decide who is right and who is wrong .. but why dont you go buy some Real estate or shares if you feel that the inflation is going north .. is that not the cure?
So instead of being right proper wankers just concentrate on the big gorillas, the Fed and the people in charge of the US (whoever they may be) ...
Time to sell your gold holdings.
Paulson is talking his book (obviously to unload)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJF7iETlOjQ4
Lack of confidence in a currency does not lead to hyperinflation in that currency - it leads to no currency.
That is precisely the point where new currencies are introduced. (Think Brazil, Rome, Mexico, Argentina, etc)
In Zimbabwe most transactions are not paid with wheelbarrows of money; they are paid with dollars and euros on the blackmarket. The Zimi is the currency that is used only when forced to.
"In fact, this type of thinking is common to many deflationists that have interacted with. They generally believe that there is no significant government manipulation occurring in various markets - that they are generally free and fair"
Fair enough!
"believe that government is more stupid than criminal when in fact the opposite is the truth;"
OK ! So, the goverment is more criminal than stupid, big deal !
THAT DOESN'T MEAN THEY'RE INTELLIGENT : you can be criminal and stupid too !
At least not enough intelligent nor ALLMIGHTY to manipulate everything.
Here is your implicit fallacy : assuming they can do anything, it's like if the universe was still and they were ultimate masterpuppets. But hey , they're humans they FAIL time and time again. And we're speaking about a SYSTEM and systems FAIL too, especially human hysterical finance ponzi systems.
Your theories evolve around your adoration for them, their money and supposed unlimited power :just look at your nickname and avatar:)
This combination of hyper-inflation scare and power fascination brings mainly more submission : you're preaching the same market cult of the greespan era, same hubris "don't fight the fed! they want inflation they'll get inflation. Don't ask questions!". Only this time, instead of Y2K euphoria, you have post-crunch ben and statist-finance fascism. The neo-cons in pure old fashioned fascist theory wanted to force the creation of a new reality in geopolitics, now the world powers want to revert to a situation where everybody believes everything is ok.
that was me :)
pd are buying
massive amounts of citi and other zombie banks...
but they in fact
Mish is FINISHED. Put a fork in him.
Well I still read Mish in hopes some day he'll come around... yeah we are in deflation sort of , M3 might roll over. But M0 and M1 will not. What's it matter what the net 'difference' between the two (printing vs credit destruction) if there is currency crisis?
As some people have mentioned before, prices of everything you don't want will go down. Prices of everything you need will go up.
Exactly, PM.
Economists will call it stagflation.
The rest of us will call it Major Pain.
If this hypothesis has truth behind it, prision may well be the safest place for Bernanke, Geithner and Summers.
Stagflation? Would we be so lucky
boycott just like hole foods
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Knew it, Ben says sorry bout them agencies. please don't dump'em I buy 'em back with Treasy's. Oppps, but when those turn into poop, what will he use to make them whole?
Again, why are we making everyone whole except the freaking citizens of this f'd up country....never mind, back to my charts.
Humm, wonder why AIG FRE FRM ect are running....who had this inside info? f'king sick of these inside trades
Some suggest ( i think probably bank agents) that there were private threats from around the world, and that the "giving" of money to AIG, and probably many programs by the Fed are like ransom money.
Even if this is true, it is exponentially worse that no clear statement against the operations, laws, and the people who pushed the laws and operations to bring us this mess has been made by either of our governments administrations. Furthermore, on the day of the big announcement (Feb 09) when Obama reported that he and Geithner would be backing the Paulson/Bernake plan, some reporter asked when the people responsible for this mess would be prosecuted, and Obama's response was that we can't look back, we have to look forward--effectively letting everyone responsible for the crimes that brought us this mess, off of the hook.
very good speculation....are any of these swaps part of the 1.25t usd announced purchases by the fed or are they in addition to?....
when the dollar goes into the crapper there will be the benefit of more expensive imports which may encourage more domestic production....although i am sure that the oligarchs would have a shit fit over that and stop it cold in its tracks....
The Fed has announced some time ago that it was going to buy $1.25 trillion MBS securities and $300 billion US government bonds. Which adds up to $1.55 trillion. Or almost exactly the same amount as the latest estimate for this year's US government deficit.
The US Treasury is basically borrowing $1.55 trillion from the Fed. And that's why the US government has no problem borrowing this much money despite the lack of demand from foreign lenders.
But this is probably being done with the consent of China and other large holders of US debt. Because the US government could've easily let Fannie and Freddie go bankrupt and let the foreign central banks loose their money.
The US government probably got a deal with foreign central banks where the Fed would print the money and buy back this agency debt from the central banks. And this was a good deal for the central banks. Because it's far better for them to have the Fed print the money than to end up with no money at all due to complete and total bankruptcy of Fannie and Freddie.
This was a deal that foreign central banks literally couldn't refuse.
Yep. Extortion, money-laundering, monetization.
Imagine we defaulted on those (worthless) MBS. Chinese and Russian dirty bombs would be popping up faster than Jack could shut them down.
#49120 Excellent observation. I would only add a few additional ideas. When we look at GOLD as we all like to do, WHO has the MOST?
The short answer, is here...
http://en.wikipedia.org/wiki/Official_gold_reserves
Here is a real RE US National total value number in 2005 dollars.
$23.5T
http://realtytimes.com/rtpages/20020725_homeowners.htm
Macro food for thought.
They wanted more interest, now they are paying the price for the risk associated with that desire for a higher rate.
Doesn't this imply that their will be a bid in Treasuries until the rest of the world has finished liquidating their agency securities?
OK just posted on an earlier thread before seeing this post...
ghostface,
Thanks for the reply. Of the $2T MBS to be issued this year, what does that mean in terms of net growth of the MBS market? I'm assuming that a lot of that $2T is refi, and there is retiring of earlier vintage MBS.
It is right to think QE for MBS is a means to rotate FCB holdings from MBS/agencies to Treasuries? The most recent TIC data showed an increase of Chinese holdings of Treasuries, including 10/30's (foggy memory here, but I think that is right).
Is the refi component of the MBS market destined to shrink, and along with a continued slow pace of home sales (relative to 00's) will it lead to a secular decrease in the size of the MBS market?
I'm trying to imagine an exit strategy for QE, where it continues until FCBs have sufficiently swapped MBS/agencies for Treasuries. Then with a smaller refi market leading to a smaller MBS market, the FED can have a similar impact on the mortgage spread with a much smaller marginal purchase.
Of course, even if the above picture were accurate, it might chart a course to ramp down FED purchases of MBS/agencies, but if $1T budget deficits do become the norm, the FED will need to redirect its QE fire-power to Treasuries, since FCB rotation will have run its course.
I realize this is a very simple view of things! Just trying to make sense of this some how!
All complexity is simplicity in motion.
Yeah, I don't think Chris is really on to anything, sorry to say, it is pretty much as you describe: all money is fungible, so when the Fed buys agency debt, it frees up money to buy something else, like Treasuries. Likewise, when the Fed monetizes 30 year Treasuries, it frees up money to buy 3 month Treasuries. Which is what the Chinese are doing.
Note that the agency debt operations are for seasoned paper, just like the UST operations, so they can buy from FCBs.
With the MBS, you are correct - the Fed is not buying seasoned MBS, but the loans that go into the new MBS are partially mortgages that refi out of seasoned agency MBS (and seasoned private label MBS). And that money goes back into Treasuries (or the stock market, or oil).
Bottom line is, the Fed's purchases of MBS and agency debt create dollars for someone to buy something. that is all that is happening here.
Much more insidious is the monetization that is going on with the banks. As they free up capital by unloading their toxic borrowers onto the govt, where is that money going? UST.
The problem with the exit strategy for QE on MBS is not clearing out all the MBS and agency debt from the FCB, it is keeping the market for new MBS issuance from cratering. Remember, the Fannie and Freddie MBS is still guaranteed by Fannie and Freddie. Would you buy a pool of 30 year mortgages guaranteed by Fannie and Freddie without full faith and credit backing of the US govt? What kind of guarantee are you going to have in 5 years?
Volume is a good question, though. Say we do $2T this year. Unless rates drop a lot, we won't do $2T next year, maybe $1.5T.
That has a lot of other implications - what happens in employment in the mortgage origination space if origination volume drops 25 - 30%? The mini refi boom sure helped a lot of pocketbooks this spring. That dries up and a lot of people get thrown on the unemployment pile.
Why can't part of the exit strategy be a much smaller MBS market? Smaller due to refis, smaller due to prolonged lower levels of housing sales, etc.
Could spreads remain within historic norms without such a level of QE if the market were to drop below $1T?
Yeah, I think at a $1T annual run rate market (as an example) spreads would stay a bit more in line, there will always be some index fund buying, some servicer buying, etc., and with the Fed holding a large chunk of the market, you don't have to worry about secondary market selling putting pressure on new issuance.
Right now, though, the basis is about 50bps below what would be normal, and mortgage rates are probably at the high side of where the Fed wants them already. and the 10 year is at 3.45%. Widening spreads or a rising 10 year rate and rates go well above what the Fed wants.
They know that any recent rebound in the housing market is artificial, due to the $8K FTHB credit and the lack of supply due to the foreclosure moratoriums, and once the pent up foreclosures hit the market we will have another leg down in prices. So they want to keep rates as low as possible. Without a fix to Fannie and Freddie they will have to stay active.
Imagine this scenario - foreclosure moratorium backlog hits the market in the fall, $8K tax credit expires in Nov, unemployment continues to rise, and the Fed stops buying MBS at 12/31. I can't see it happening.
I don't think anyone would be ashamed of asking for $233 million dollars, if there is the slightest chance that he or she might get this much money.
For this kind of money many people would commit murder and not be ashamed of it.
And that's the problem with Wall Street compensation. The incentives and the pay is so huge that ethics, morality, and a sense of shame no longer inhibit people's behavior.
This is like being offered to sleep with 80 virgins in paradise after you die. Such a temptation is hard to resist for those who believe in paradise. And on Wall Street, the huge offers of compensation are very easy to believe. Because they are real.
sleep?
i think he meant lay :-O
LOL!
The whole system needs to be overhauled
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Assuming Martenson's theory is valid, what happens when the foreign central banks complete their swap from agencies into treasuries?
How do the treasury auctions get sold then?
The Fed is offering primary dealers the tempation of risk-free profits in bond speculation. The Fed can put a floor on the 5y, 7y, and 10y interest rates at the expense of the US dollar. Therre will probably be a disorderly collapse at some point if this madness continues.
There also can be a skyrocket in dollar during deleveraging. Basically we have entered period of nonlinear dynamics. The system is no longer stable, how much longer this continue is hard to say. Days, weeks, a few months if they are really clever. But certainly not longer.
"The Fed can put a floor on the 5y, 7y, and 10y interest rates at the expense of the US dollar."
Forgive me PM, but then it's not really risk free, is it? It's more like Bernanke saying: "TRUST me, it's risk free!"
Yes I think you are right. It will work until it doesn't.
equity money
check. Big float there that can be used no doubt.
Put it this way, any money you make on SDS calls will be worthless when you collect. Hahahaha.
Back to the make/collect discussion... Bwhaaahaaa
either fronting foreign central banks the money
or naked monetization....
in the end the scheme fails....ben is betting
that he can outpace the horizon...
The Treasury "gifted" $500-$600billion of US debt to Fed to facilitate this transaction...
widely discussed by those in know in DC
Treasury may have also been covertly "gifting" some Reston, VA Hedge Funds. I read this on FOFOA. I am still researching this I don't have any proof yet.
the Reston 6. I do hope something comes out on this matter.
let's hope someone at one of the R6 sends an email to tips at zerohedge dot com
Amen.
is Sir Allen Stanford in that mix. I think his fund was CIA, Mossad, Russian mafia drug cartel etc. These are the people who really run the world drug operations. These are the people who bring the drugs into this country to destroy the society. The Mexican and Columbian pimps, aka, drug lords, etc, that serve as the faces of these drug organizations are merely there for show. Stanford Financial Group was also connected with Madoff.
Markopolos implied in his Congressional testimony that Madoff was laundering billions in drug money. So it wouldn't surprise me to see the same with other scams.
Welcome to 1989, 1999 & 2009.. Glad to see ya made it (hehe) here PM
The public deserves to know, apparently the rest of the world knows about the PPT, according to "Move over Adam Smith: The Visible Hand of Uncle Sam" avail at www.sprott.com
One wonders if the recent change in the definition of "indirect buyers" at Treasury auctions enables this process?
Checked the original article- addressed, but not answered: "
As we now know, at least some of that money has been recycled into US government debt, where "indirect bidders" have been snapping up an unusually high proportion of the recent offerings. (Note: The way Indirect bidders are calculated has recently changed, and I am not entirely clear on how much this influences the numbers we now see….I'm working on it)."
Audit the Fed.
If Bernanke is Mr. Blue, who is Mr. Pink?
More importantly who plays Harvey Keitel?
Mr. Pink is Monkey man
tentativly knwn
Do you really want to see the emperor naked?
Might sound like a good idea, beforehand
Then once the lights go out, maybe not so much
I heard the emperor isn't hiding what he says is under there
Nothing can go wrong as long as the Great and Powerful Bernanke is in charge.
the sycophantic ass kissing of this guy is just too much to bare.
The backside trade that helps make the 4 & 5 ceilings possible. For the moment.
That means foreign central banks are being treated like primary treasury dealers. They buy, knowing they can sell back later--in this case agencies. Jeez, what would int. rates and prices be already if this hoax wasn't going on?
This move is actually quite ingenius. BB has to back the agency bonds anyway, and when FCB swap for Ts he/we get to pay lower interest on that money. If the trade deficit dies it will be more difficult to manipulate the bond market after the agency paper is gone tho...
The BTW to the OhBTW
This is a very important piece, thanks for bringing it to us.
I've come up with a very useful and accurate means for evaluating whether or not the government will engage in any given activity. Simply put, if a) the activity in question is needed to maintain government control, then b) they will do it. There are no other considerations. Collateral damage, loss of jobs, loss of life, loss of reputation, etc do not matter.
The ONLY means we possess to influence this behavior is in the area of their "getting away with it."
Bingo.
There is always the presidential pardon.
Tim Geithner Video: Auditing the Fed is a "line we don't want to cross"
http://www.fundmymutualfund.com/2009/08/tim-geithner-video-auditing-fede...
If he was there in front of me and there was a line, I'd cross it....
I want to cross it too. I also want to drag a wood chipper across it.
Are these people just acting like they want to do something knowing they can't possibly. (Timmy droped the F bomb when this was staffed).
WASHINGTON (Reuters) - U.S. regulators plan to gauge how severe a hit banks will take from an accounting change that will force them to bring more than $1 trillion of assets back on their books, the Federal Deposit Insurance Corp proposed on Wednesday.
The FDIC voted to seek input on whether banks need more time to build capital cushions against the assets that were once held by off-balance-sheet trusts.
The accounting change requires that banks move those assets back on to their books on January 1, 2010, in an attempt to bring more transparency to banks' financial statements.
"I think it's very appropriate that we're asking the question should we phase this in over time or not," said Comptroller of the Currency John Dugan.
"Some type of transactions may require a different type of capital treatment than others," Dugan told the meeting of the FDIC board.
Banks have used off-balance sheet vehicles to avoid reporting requirements or to reduce the amount of capital they needed to hold to offset risks.
Banking regulators are worried about how current capital requirements would work with the accounting change.
Earlier this year, the Financial Accounting Standards Board decided to eliminate a concept known as the "qualified special purpose entity" that banks have used to keep assets such as mortgage-backed securities off their books.
FDIC Chairman Sheila Bair said regulators needed more information about how the accounting change could affect securitization markets and loan modifications.
(Reporting by Karey Wutkowski and Steve Eder; Writing by Rachelle Younglai; Editing by Simon Denyer)
thanks for posting this.....this item is a huge deal and the ABankersAssoc has been lobbying on this for months already, and hitting it VERY hard, make no mistake. Judging by this statement, "I think it's very appropriate that we're asking the question should we phase this in over time or not," said Comptroller of the Currency John Dugan." it looks to me like the ABA is making progress.
This analysis surely points to the fed swapping treasures for agency debt, but NOT monetization.
For monetization the Feds balance sheet would have to be expanding which the graphs don't show in the last year. If the fed prints money and buys agencies and then sells treasuries to the same entities, it receives the money back. Only if it is a net buyer will it show up on its balance sheet and we would have monetization.
The fed is purchasing agencies on its balance sheet. The cash goes to the sellers: the article points out the sellers may well be foreign CBs who use it to purchase USTs in their stead, effectively skewing the S/D for both sets of securities, and making indrects more willing to buy USTs.
Which at some point WILL be monetized. Those who think the US Goverment (or any government for that matter) will pay off it's debts without resorting to the printing press are delusional.
Didn't they already monetize by buying the MBS with printed money?
i.e. Print money -> Buy MBS for printed USD -> sell treasuries for CB USD
1.25 trillion BABY!!!! Yeah Baby!!
In this mechanism on the net they have monetized only one set of bonds - the MBS's - the money from which has then been funneled to fund US govt.'s operations via the UST's. The creditor is still left holding UST's, which WILL be monetized at a future date.
Oh fuck.
Thanks Gordo.
What potential role does the previous gigantic FCB currency swaps play in this particular caper?
Better to take a look at Bar,SocGen,DB and the other key players in the great circle route of liquidity and the processes of stripping headers....This has been the great float
don't forget about the money leakage at that wonderful government institution known as AIG.
THE go to folks for side letter arbitrage for the mentioned entities.. At 100% before event capital.. What a ratio!
it's used to sustain the value of the usd to the
extent that it can....
Looking at the Fed's balance sheet it looks like what they are doing is taking the proceeds from the "wind down" of the Maiden Lane (Bear Stearns) assets and using that to buy the FCB-held MBS. This frees up cash for the FCB's to use as indirect bidders at Treasury auctions.
The size of the Fed's balance sheet has not changed materially since 2008. The actual 'monetization' took place back then -- when the Fed took on the Maiden Lane 'assets' with newly created dollars. Once the Maiden Lane assets have been disposed of, the Fed will once again need to increase the size of its balance sheet to keep this 'shell game' going.
Why would this be even done? The interest savings? Don't make me laugh. Is the long term plan to let agencies default? Just asking. If this proves to be the case, the Fed is committing fraud.
We both know that when it happens it will be called responsible monetary policy... After all, they will just scoop up the paper.
In addition to this swap, if it is happening, if the US gov't doesn't backstop agency paper with its full guarantee, the Fed, Treausury, and Obama have been executing fraud for a year or more as the agencies have been operating recklessly as defacto gov't policy arms.
It would appear as this article discusses that when Ben & Hank decided to scoop up Fan n Fred that the guarantee was de facto, at least until the FCB's and their institutions could move out of their agency holdings. Part and parcel of the quid. Once this play on agency paper has run its course their belief is that this "temporary crisis in confidence" wil have also run its course and they will have successfully swapped paper on our housing stock for gov't paper...
You are absolutely correct in saying that the agencies have been operating recklessly. On one level this could be a play to regain the paper on our housing... and the other being the need to prop up the international swap n trade flow with more predictability, on our backs.
This way they have to monetize only one set of bonds right now - the MBS's - and not both. See my comment above.
uninhabitable and more expensive to repair than tear down and rebuild. This needs to be subtracted from inventory.
The regulators are speculators, the referees are in the game. It's economic science-fiction.
"This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves."
There is only one question that I want to ask all deflationists - Is Zimbabwe facing deflation? IS IT? Last I heard, Prechter was short Zimbabwe's stock market and advising Zimbabwe residents to stay in the safety of Zimbabwean cash.
I don't think I've seen a single deflationist saying "deflation forever". To the contrary, I've seen most or maybe all of them saying we'd experience deflation for a period of time and depending upon FED actions we would either reach a balance point or rush past it into high or hyper inflation. I'm fairly confident that what this post and others lately are pointing to is that the FED will likely not have the finesse or the understanding to stop when they need to, just as I'm fairly confident that what we've been seeing up until this point is largely what the deflationists have been saying.
Hyperinflation is closer than most deflationists think. For example, Mish has put a timeline of at least a decade on it happening in the US. He thinks US will muddle around kinda like Japan for at least the next decade.
After eight months, I'm starting to think it's not Gekko, it's Godot.
Most of the world's debt was not denominated in Zimbabwe's money.
There's a very simple explanation for all this. The government knows that a Yellowstone supereruption is imminent and many of the economic distortions since then are part of the secret decades-long preparation plan.
http://www.youtube.com/watch?v=FOn3wkehluk
http://www.youtube.com/watch?v=VR1bg_Yf0T4
This is why they created the subprime mortgage mess (to ensure the Wyoming and Montana evacuees), forced the banks to increase liquidity, expanded FEMA's powers and created the so-called "FEMA camps," implemented tax credits for roofing and insulation in the stimulus package, manipulated the natural gas markets, and much more.
Oh yeah this is old news. It's all timed around the return of Halley's Comet in about 80 years or so. Well, to be more precise, Halley's return plotted against the recent strikes of an unknown planetesimal near Jupiter's pole. (Unknown to J6P but of course known to the reptilian overlords who control the stock market). Cheer up citizen, your Supreme Plutocracy of Unknown Noble Kleptocrats (SPUNK) have your future well planned for you.
Now I know. Plot disabled.
On a brighter note:
A husband and wife were having a fine dining experience at their exclusive country club when this stunning young woman comes over to their table, gives the husband a big kiss, says she'll see him later and walks away.
His wife glares at him and says, "Who was that?"
"Oh," replies the husband, "she's my mistress."
"Well that's the last straw," says the wife. "I've had enough, I want a divorce. I am going to hire the most aggressive, meanest divorce lawyer I can find and make your life miserable."
"I can understand that," replies her husband, "but remember, if we get a divorce it will mean no more wintering in Key West, or the Caribbean, no more summers in Tuscany, no more Cadillac STS in the garage, and no more country club, and we'll have to sell the 26-room house and move to two smaller homes, but the decision is yours."
Just then, a mutual friend enters the restaurant with a gorgeous young woman on his arm.
"Who's that with Jim?" asks the wife.
"That's his mistress," says her husband.
She replies, "Ours is prettier."
lol
tnx, i needed that :^)
The motivation for swap/rotation comes from the FCB holders of MBS/agencies.
FCBs no longer want to hold FNM/FRE paper; they are willing to hold Treasuries.
That this enables such a shell game is a convenient by-product of the FCB's desires.
There's a very simple explanation for all this.
The government knows that a Yellowstone supereruption is imminent and many of the economic distortions since then are part of a secret decades-long preparation plan (kept secret to avoid mass chaos and the wholesale destruction of public confidence, the stock market, and America's economy).
http://www.youtube.com/watch?v=FOn3wkehluk
http://www.youtube.com/watch?v=VR1bg_Yf0T4
This at least partially explains why they:
-Created the subprime mortgage mess (to ensure that there would be plenty of foreclosed properties for the Wyoming, Utah, and Montana evacuees to move into)
-Forced the banks to substantially increase liquidity
-Expanded FEMA's powers and created the so-called "FEMA camps" during the Bush administration
-Implemented substantial tax credits for roofing and insulation in the stimulus package
-Manipulated the natural gas markets
-Invaded Iraq and Afghanistan
... and much more.
This is yet another reason to buy some canned food, store some water, buy a firearm, and brush up on your survivalism skills.
On that firearm thing, I dug out my Star Ultrastar 9mm, then googled up some info (manual etc), and what-the-fuck, Star are out of business.
Even bloody gun makers are falling.
Not to mention that if just 2% of the Fed's "assets" default then the Fed is rendered insolvent. Charles Ponzi would be proud.
http://mises.org/story/3281
Can a printing press default? To answer that question we need to ask another one: Is the paper that the printing press emanates money? If so, what makes it so?
Why are they valuing their gold at only $44 an ounce?
They can reflate bubbles over and over, but the impact will be less and less. Eventually the anger will spill over and (as one rube put so eloquently)good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Gordon, Prechter says that the US will not be able to print money because people will lose faith in the Central bank...wait so they will have an increasing amount of faith in the currency of CB but lose faith in the CB itself. I have never heard a more stupid argument.
No matter what a CB does, fiat currencies have a finite life and they all end in hyperinflation. That's a historical fact. Period.
Wasn't it Voltaire that said paper money always returns to its intrinsic value? Something along those lines.
Zero value = hyperinflation. 1/0 = infinity.
hyperinflation or hyperdeflation (read:default) it will indeed happen, and if things keep going at this rate sooner rather than later.
true, and that life is one hundred years or so. it started in 1913, so that puts us at about 2013 more or less, probably less
We didn't have a pure fiat money system till the '70's.
and this is the administration that has the gall to lecture China on currency manipulation!
Comrade obama also said, in a speech to a bunch of rabbi's that the government is partners with God in life and death, whatever that means. Frankly I don't like the sound of that, not one bit. So now we have talk about internment camps being set up....hmmmmmm...
http://www.washingtonjewishweek.com/main.asp?SectionID=57&SubSectionID=7...
those crazy indonesians just never know when
to shut up....those words were spoken like a true
nazi.....the nazi's were exceptional at leveraging
religion to advance the burning of jews....with
much thanks to martin luther....
politically correct, self righteous, absolutists
are always doing the "lord's will".....and
saving us from ourselves....
"Matrix Revolutions" - we're fighting against machines (algos) to save Zion. What color is the cyanide pill?
why does the gold market continue not to react to what is going on?