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Fed Will Now Monetize The Most Recently Issued Agencies
The Federal Reserve announced earlier a shift in its strategy in purchasing Agency debt, whereby it would purchase almost exclusively the most recently issued Agency paper:
Prior to August 31, 2009, purchases were focused on off-the-run securities in that category. Going forward, purchases will include on-the-run securities in that category. This change represents a technical adjustment designed to mitigate market dislocations and to promote overall market functioning. Over the course of the program, the Federal Reserve may change the scope of purchasable securities.
"Overall market function" is a wonderful euphemism for attaining a sufficiently high stock price for commercial banks so that when the FASB requires off-balance sheet items to be reincorporated on their respective balance sheets at the end of the year, we don't have another massive bank raid once every single emperor's clothes are proven to be non existent as Tier 1 Capital Ratios start collapsing like dominoes, and the Stress test is determined to be a government sponsored fraud.
John Jansen provides the following expansive explanation:
“…That approach had several consequences. It made the agency market less liquid as the Open Market Desk soaked up off the run paper and owned increasingly large pieces of those issues. Dealers would be quite hesitant to offer bonds to clients as covering the short position would be hazardous to a traders health.
So by shifting focus to recently issued bonds the Desk will be able to procure bigger blocks of bonds without further disrupting already damaged liquidity.
In addition, in my experience the Federal Reserve has always bought that which is cheap on a yield to maturity basis. There purchase activity has made off the run paper expensive to on the run paper and this new procedure will allow the Desk to buy that which is cheap on the curve…”
Zero Hedge has a simpler one: monetization (and after all the Fed is already doing this with Treasuries; did anyone think that Agencies, which as TIC showed recently, are being shunned by all CBs are any different - it was only a matter of time before the Fed tipped its hand in "advising" foreign purchasers that it will now backstop virtually every piece of US-issued paper, even those from the dreaded GSEs).
And lest we forget, the Fed is already facilitating the rotation of MBS and Agencies by foreign CBs into Treasuries. At this rate a $5 trillion Federal Reserve balance sheet by this time next year is looking conservative.
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+1, thumb up!
+1, thumb up!
+1, thumb up!
even nassim taleb was FOOLED and actually thought that the current administration would be better than the last:
"I am particularly depressed because, having been disappointed by George W Bush, I had high hopes for Obama. David, spare us from such hubris.
Yours, Nassim"
http://www.guardian.co.uk/commentisfree/2009/aug/16/nassim-nicholas-tale...
Damn the torpedoes, full speed ahead!
If everyone is fucking up and trying to blame me, well fuck them. I am the commander of this shit.
BB
Guess fishing for Koi in open waters didn't pan out.
What is the endgame for the agencies? With the fed rolling foreign CBs out of agencies and into Treasuries, what do they do after the 1.25T commitment? Formally nationalize and nuke the agency balance sheets in the process? Leave anyone stupid enough to still be holding treasuries with a big bag of doo? At some point duct tape and hope will cease to hold the agencies together.
Reason #9872343995 that the USS Hindenberg is continuing its slow death spiral.
Can anybody shed some light on the rumors of China floating its Yuan? and if it does, the dollar is ashs.
Bit by bit, they're a patient bunch
"Cross-border yuan settlement in Shanghai has exceeded 39 million yuan since early July."
http://english.caijing.com.cn/2009-09-01/110236328.html
Guess which bank I moved my funds too...nice one Steak....
Yep, the PBOC is slowly but surely establishing bilateral currency swaps with all trading partners. Before too long the only time they'll be using the US dollar is to trade with the US. Enough countries follow suit and and the USD is dead.
Now if you *really* want to see hyperinflation, that's the way to get it; when every man and his forex dog start sending the fiatscos home.
China has a long history of shooting itself in the foot, or to use that other well-worn phrase, snatching defeat from the jaws of victory.
I will bet on China no more than I bet on Japan in 1990 when it had all the money in the world and was about to own or control everything. Sometimes things just do not pan out according to plan.
Look what has happened after China’s $580 billion stimulus? What have they gotten for it? A quick pump, and burst, of its stock market. A quick pump, and burst, of its property market. A quick pump, and burst, of commodity markets. A quick buildup of factories, of which they already had too many. A quick pickup in industrial production, at a time when their exports continue to tumble.
Call these “bad debts”. Money went out the doors of banks at a rate three times last year. Due diligence? Major companies on the receiving end then either bought BMW’s, or sent the money out the door to smaller firms and speculators who would not otherwise have been able to tap into a major bank.
So China has begun setting up all these currency swaps with potential trade partners. Wonderful. China doesn’t need to buy anything else (commodity stockpiles are huge), and their trade partners do not need to buy anything from China.
Now what if: 1.35 billion people who had all expected to be driving MB’s or BMW’s by now get upset. Yes, they are accustomed to deprivation (as well as depravation), but the last decade or so has given them something wonderful but potentially extremely dangerous: HOPE. Dashed expectations are something with which no authority likes to deal. If China has a blow-up, and not just the small kind that are popping up from time to time in steel factories, the Shensen area, areas where the degraded environment is causing great harm to local inhabitants, what happens to the yuan? Its inexorable rise, like that of the country where it is used, is not guaranteed.
No doubt, no doubt. Don't think for a second that I'm a China bull, no way. I side with Hugh Hendry's call: "China is a deep out-of-the-money call option on American consumption", and the decoupling effort, to replace the foreign consumer with a Chinese one is not proceeding well. I'm just less bearish on China than the US right now as China actually has industry of worth.
I am kind of surprised the Chinese allowed themselves to be surprised by this. They are behind the curve getting trade established in Yuan; or did they merely need a public reason to do so?
Japan cuts us off
China cuts us off
Russia cuts us off
Canada cuts us off
That leaves america isolated, broken and in trouble. Then they watch to see what happens to the citizens. If things look very dangerous facist, genocidal etc. Then they put the rabid dog down.
This monetization is going to create a crater so large in the long term value of the dollar it should have any sane person buying bullion by the truckload. Hedge funds are not loading up on bullion for any other reason as they knew this was the ultimate course of the Fed as did anyone else with two functioning brain cells.
The rotation into recently issued MBS follows the rotation out of retiring old treasuries to purchasing newly minted bills. This is another clear signal that the pretense is over.
The Green Toilet Paper is now single-ply.
Oh if only gold were not such a barbarous relic! I would certainly buy some if only it would pay interest!
Gored by bull, mauled by a bear, or wrapped in a body bag. The Perps are going to need one helluva a "distraction" to save their asses. Disconcerting.
I've heard estimates that China is now unloading foreign reserves at the rate 100+ billion per month; which seems realistic considering the ramp-up of investments - that we know about - over the past 2 years. The bell, cliff & reaper await.
where the heck is cheeky bastard? i kinda miss that punk. well maybe his avatar.
...etc,etc,etc,
I'm new here...WOOHAH !!!! this is sweet.
Coupon passes are nothing new. Go back to the spring of 05, when this charade began to break down, and you'll see that Greenie did 5-6 in a three week(April-May) period that ultimarely saved the market and perpetuated(root cause, imo) the mortgagae bubble. Greenie wanted to go out with a bang; with rep and ego intact( Marketing deals intact; he always thought he was way underpaid).I was short and lost big. Ben new otherwise, and shunned the "coupon pass", in effect, tightnening money, which subsequently led to a blow up of the system and hence the problems we face today. Think of it in terms of drug addiction... Ben thought he could quit cold turkey; his dealers thought otherwise.
Crash to save bonds and $. Then Kapoom, dollar plunge, probably instantly-catastrophically. Globalism ends. Latency then WWWIII in some form.
John Jansen's Across the Curve and Zero Hedge are the two best financial blogs that I know. Keep the good work guys!!!
The most hidden of realities might be: that however a man tries to position himself in life, however he tries to manuever a portfolio of dead works of industry (saved monies), however he tries to cheat any system, or skip on life's tab, an ultimate unseen balance sheet keep track. There is no escape from the compleat accounting system of the universe. Dust to dust, ash to ash, and all in between is all-and-ever seen. By which man rises or descends the pyramid (or Jacob's Ladder) to a pinnacle of life.
But maybe evolution is the right path, and all is random, and theft from one's future can actually be done.
Then again however much I hoist my tail, I cannot levitate.
A JP avatar? That would require a Rothschild as the Stromboli puppeteer. And a sleepy, ignorant village of Katchfools to sit for performance.
Ah, but of course. We have that.
No-one has mentioned ye-olde 'moral hazard' yet.
All the geniuses in Product Creation just found themselves a buyer with infinitely deep pockets. Sweet! Now the new slogan is "Re-risk like it's '06!".
Thanks to guys like Martenson bothering to look (something that seems out of the capacity of the MSM), we know that the Fed's direct acquisition of Treasuries is a smaller component of the QE program. A larger component is to allow foreign Agency holders to swap to Treasuries, facilitated by QE cash.
I see two main reasons for Count Fedula now stepping into the horrible burning daylight as a direct buyer:
If I'm right about this then that last point (a global casino) presents as a major kick to the balls. Bets cross borders and many do not settle in US dollars. The Fed stepping into the game means we can expect to see some big fat currency swaps going down and, depending on the ratio of losers to winners, big moves in the US dollar in the future. Which way? I have no idea, perhaps only the IMF, BIS and select members of the Central Banking Cartel know? Who else is any position to monitor the network? My guess is down.
Putting my conspiracy hat on for a second, these activities seem to play nicely into the single world currency story, providing a very simple mechanism to 'break the buck', allowing the IMF to come riding to the rescue with SDRs, as PM already pointed out. I'm not saying that this would necessarily be a bad thing...just saying.
In summary, it seems that derivative bets are fast becoming *the* mechanism now for controlling money supply. Oh dear, the Fed is a problem gambler. But hey, on the positive side, if you're in the risk assessment game, your future employment prospects at the Fed are looking up! And, on the other side, there will be jobs a-plenty for obfuscators whose mission it is to game the Fed's risk-assessment teams; something tells me that will be like shooting fish in a barrel.
Here is a quote from A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Patrick Robinson;
So revered was this group that they were permitted to invent, along with other Wall Street firms, a moneymaking scheme that by the middle of 2005 took off like a whirling dervish and made billions and billions of dollars before finally disappearing up it's own backside, helping bankrupt half the planet.
There is just no way that the people of the United States and the world will let the crimes of this syndicate continue. The people who passed the laws to take down Glass Steagall, increase leverage and turn a blind eye to it's own will be accountable very soon. Their gig is up and they know it....the cat is out of the bag, this last bankheist was enough to wake up a very complacent country, and i am getting some hope that indeed, we will get our country back.
They exploded a bomb outside the Greek stock exchange just fucking now.
Project Mayhem, get these guys on board ASAP. We need them over here in North America on the double.
They made sure no civilians were hurt, so the message of the bombing will actually be absorbed by people. You can bet the people in Greece aren't going back to sleep any time soon. They have this shit figured out.
This group who is claiming responsibility earlier bombed a Citigroup in Greece!
"Revolutionary Struggle". They got balls, and it looks like they got enough brains to figure this shit out.
Does anybody ever read anything this far down the list!?
Anyway, the Fed has been trying to create inflation as a way to blunt the effects of WAY too much debt both public and private. They have flooded the world with money, but its not working. The debt is too big and will drag us all down no matter what the Fed does.
We are in a global deflationary spiral. It is due to too much debt being created by the worlds bank's and the shadow baking system. The central banks are standing before a tidal wave of credit defaults they cannot begin to cope with. They are printing and "borrowing" money as fast as they can, but its way too little, way too late.
We are experiencing mild deflation at the moment, but this is at the same time the Fed is unloading everything it has to stop deflation. In other words, all Hanks's bazookas and all Ben's helicopters aren't nearly enough.
The sad thing is we all thought the central banks could save us. Heck, they thought they could save us. But it is dawning on all of us, one by one, that this monster is totally out of control.
This credit crisis is like a glacier. It moves slowly but inexorably bull dozing villages as it descends the valley. We become aware of its inevitability, but we have only one choice: move down the valley or be crushed.
Best thread ever on ZH. ZH best blog ever.
First post
TD (and all his/her creators), many thanks.
Great thread. One thought. When tshtf bureaucratic rats jump. first signs may be apparently random departures as 50 something middle-level powers that be see that they're not on the lifeboat list. fwiw
This problem is so easy to understand.
There is too much debt in the system.
I ain't no rocket scientist but I sure can read ;)
The problem is that economists don't understand Physics. They have tried to build a perpetual motion machine which, if they understood Thermodynamics, they would know is a pointless exercise and can only fail.
Entropy here is being represented by debt.
That is the fundamental problem. Physics pass, Economics fail.
There is a point at which even physicists fail (yes, even Einstein)
There is an innate desire imbeded within the human that MUST understand the unknowable.
Humility is a virtue that even the smartest fail to understand.
Must be good for to warm their hands with the heat from the friction they got by loosening a bolt in the town watermill.
Cart before the horse. Too much debt a function of less than living wage. Surely you feel that PDM.
Too much debt is a consequence of a fundamental flaw of the monetary system. Almost all money comes into existence through new loans but no money is created to represent the interest that is charged on those loans. A classic Ponzi dynamic.
The consequence can only be debt. High taxes, insufficient wages, social strife, deflation and eventually war are inevitable consequence of this.
The only way to keep the Ponzi scheme going is to draw an exponentially increasing quantity of resources from nature and bring them to market at a rate that exceeds their decay. On a finite planet it can only fail. I have to laugh at the tree-huggers, while they fail to address the core problem (the economic system), all their attempts to save the world are doomed. Sounds funny to say, but Ron Paul is way more 'green' than Al Gore.
Again, if people actually understood Thermodynamics, this insane system would be long dead and buried.
"Too much debt is a consequence of a fundamental flaw of the monetary system"
Too much debt is a consequence of spending more than you have...greed (which happens to be a good thing) untill it isn't....
Coke is great...till' you overdose bleeding out of your nostrils and have a cardiac arrest (same as too much leverage)
No, the problem *is* the monetary system itself. Before the collapse ~99% of new money came into existence as a loan of some form. This is the method that our lords and masters determined to be most efficient at distributing money to where it is needed in the economy. Distribution is perhaps the most important component of economics and in that respect, the existing model is very successful (compare it to the utter failure of distribution in the USSR).
The flaw is usury. It is not possible to pay all debt back because there isn't enough money in the world to do it. The system, by its very nature, requires a greater amount of debt to come into existence in order to pay off existing smaller debt. That's the Ponzi dynamic right there. Debt can only increase and increase until something breaks. When the break occurs then the smoke and mirrors come out in force, as we see now.
The whole scheme collapses under a mountain of debt, it's the only possible outcome for a Ponzi scheme. Greedy people may bring that collapse forward a little by willingly running up unnecessary debt, but this is not the root of the problem. Blaming them is like blaming the people who trusted Madoff. Of course, the MSM blame this all on greedy, ignorant speculators, it's the lazy answer and part of the smoke and mirrors. What interest does the MSM have in explaining what Central Banks actually are or how they work?
Mwhahahahahaha....
" Distribution is perhaps the most important component of economics"
Precisely...The distribution of debt.
More importantly the distribution of debt to those who can't pay it back.
haha...if you don't get it at this point than this is fruitless.
"What interest does the MSM have in explaining what Central Banks actually are or how they work?"
-Who cares about the MSM? I certainly could care less about msm. Do you care about what they say? If not, than what is your point?
Wow, from all your posts you seem to just be out for confrontation today, trying to disagree with anything and everything even if it conflicts with what you say in your other posts. I guess it's fitting for a pizza delivery man...
+1
So simple. Someday, your second sentence should be the opening line of an American history textbook.
You've finally given me a way to explain this to my parents.
"All money comes into existence through loans but no money is created to represent the interest charged...In order to repay the loan, plus interest, new wealth must drawn from natural resources faster than the rate of decay."
The money/loan and debt can be sold at increasing rates to buyers with decreasing likelihoods of return.
When the default rates rise to a point where there are no more money/debt buyers, there are a few options:
1) Debt forgiveness: Lenders eat it and don't return to lending in that market. (Chrysler)
2) Loan/debt devaluation (printing money): Triggers inflation and only extends the end date of the same problem.
3) Debtor's ostracism (homelessness, reposession, prison): Leads to social unrest and civil war in extreme circumstances.
4) Debt socialization (bailout, sovereign aid): Eliminates incentive for development, leads to eventual sovereign default, and alienates trade partners.
It appears we've opted for a mix of these with heavy emphasis on #2 and #4.
The usual outcome is a deflationary crisis, standards of living decline rapidly, nationalistic idiots are elected and then there is a big fat war. All wars are nicely inflationary because fresh money that is created to represent the tools of war stays in existence long after said tools are blown up and become worthless.
In theory we could start cranking out kids and hope the genius rate of X per million is sufficient to advance science faster than we deplete our current resources. Keep up the scheme by breeding some new suckers!
Finance is the art of passing money from hand to hand until it finally disappears.
Robert Sarnoff
The system is full of calculus that was never meant to add up. The dollar is what we measure things by. The value of future dollars is a derivative future dollars (treasuries). The value of those is a derivative of the credit market which is a derivative of the fed's balance sheet, which is an integral of SDR's which are supposedly the integral of "importance" according wikipedia, (nevermind the fact that no credit nations' currencies are part of the basket of currencies that SDR's are but I digress) But then again, credit derivatives depend on credit, which are derivatives of the stock market thanks to 401ks and IRA and all the other fuckery abound which leads to wealth being derived from stocks, which are actually a derivative of the dollar which is a derivative of the fed balance sheet. Did I meantion that the Fed's balance sheet is a derivative of the world as Bernanke sees it?
It goes in circles until we realize that the people in charge of our money are nothing but the scavangers of inefficiency, which would be fine if they didn't at the same time breed it. Furthermore, the excuse for their existance is the double think notion that they are providing price discovery and efficiency for our markets. Maybe it was so at some point, but definitely not today.
There is no derivative here in there that puts families back in their houses. You don't change the world into a better place by moving numbers around. You do so by battling entropy, be it with your words or with your hands, not by perpetuating it. "They" must know this as well and most likely try to "cover that angle" but our shit's better. You can't hedge entropy.
BB: hey Timmy, this guy on ZH says you can't hedge entropy
TG: man, these guys at ZH are total assholes
BB: yeah I know, but hey, do you think he might be right? They have been right before...
TG: maybe, but I have a question.
BB: yeah?
TG: what the hell is entropy?
BB: I dunno.
Hahahaha +5
"Finance is the art of passing money from hand to hand until it finally disappears."
No. Finance is balancing your budget.
Anything involving the term "art" in the finance world is called a "SCAM"
If you fall for it...than you are a "bitch"
It's even more simple than that. New dollars come into being through Treasury borrowing from the Fed. This means that Treasuries are backed by dollars, which are backed by...Treasuries.
Taken to the next logical step, this means that central banking is built on a pretense, a false premise of "independence". The Fed creates new dollars and gives them to the Treasury in exchange for Treasury securities, which are nothing more than promises to pay...dollars. "Money-thingies", born of a debt swap, which are their own vehicle of repayment. If these two functions existed within the same entity, everyone would see what a lie it is. But no, we have an "independent Fed". Otherwise, everyone would see that dollars are nothing more than "I promise to repay myself". It's ludicrous on its face.
"It is also the only path that preserves the power of those in control. He who controls the cash...dictates what others shall do. After all, we can't have the farmers dictating what people should do just because they feed everyone. Cash is the control and the yardstick. I presume that is what is commonly referred to as a "civil society."
You've never been to France. The Government lives in fear of the 90%. When Middle France rolls into Paris, security forces clear a path for them. (They know they're part of the 90%)
The French took the warnings of your Founding Fathers to heart. Never forgot them and never will.
That, is a civilized society. Following some puffed up peacock with a fat wad is for fools. Odds are it's only loot.
Regards.
"He who controls the cash...dictates what others shall do."
That is a nice concept. Like all things...it works till it doesn't.
In this case I'd hate to be on the opposite side of an angry mob.
Sometimes the populous is more powerful than money...in this case you betta beware.
Regards/
take a look at this:
http://www.imf.org/external/pubs/ft/wp/2009/wp09120.pdf
pages 33 and 34.
Compliments to FED
Mattacchiuz
take a look at this
http://www.imf.org/external/pubs/ft/wp/2009/wp09120.pdf
pages 33 & 34
STOP. EVERYONE TAKE A DEEP BREATH AND THEN WORK OUT THE WILDCARD YOU'VE ALL MISSED.
There is no way countries like China , Russia et al can cut off America. The first and most practical reason is the American consumer is almost 1/5th of the Worlds GDP and keeps economies like China afloat.
The 2nd and more desperate reason is they dont want to see civil war in a country that has nukes and will use them.
Think about it. Those 2 reasons are very compelling. The World needs the US period.
China loses just as much out of a US implosion if not more than the US does.
We are in a devalutaion race. Protectionism is the name of the game. Once the rest of the World realises the US is ahead of the curve , the competitive devals will come.
The next move in the Yuan will be to WEAKEN it v the dollar.
I'm inclined to agree that competitive devaluation is going to become the new norm, just as it did in the Great Depression. Question is, what role with the IMF play? The whole reason it was brought into existence in the first place was to help prevent global 'beggar thy neighbour'. Of course it strayed far, far away from its mission, but the single world currency crowd *have* to be watching all this with glee. It'll be interesting to see how much power they actually have should they decide to act.
Also, China has already been devaluing the Yuan to take stress off the currency peg. It started about the same time it started bagging the USA for QE. Classic Chinese: say one thing while doing another.
Henry Kaufman on Bloomberg TV/Radio this hour. And separately, this headline:
Oldest Swiss Bank Tells Clients to Sell U.S. Assets or Leave
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJstU9MVcYSg
He's doing his book promotion. I watched Bair on Kudlow last night and she was not optomitic about CRE going forward.
Swiss bank is telling clients to sell the US assets or leave the US to protect the bank from client outrage over disclosure of formerly private account records. Its not necessarily an indicator of their valuation of US assets.
TD, We will never get to $5 trillion. We will be dead soon after we pass $3 trillion.
Question to the market historians: Has there ever been a historical instance where monetization has worked (defining "worked" subjectively)?
The only case I can think of is when the French first issued assignats backed by seized church lands. But they got greedy and went back to the well, which was their undoing.
If u think monetization is not the way to go, what is the alternative? If money doesn't get to the market and banks don't have the balls to lend money, the economy will choke itself to death. It is understandable that the Fed chose to flood the market with money and maintain liquidity. To a certain extent, we got to admit we needed Helicopter Ben for the past few months. Is there a better alternative to monetization?
Think its under the 10 and 110 interchange...see it when im on 10 west
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
I'm in Canada - you guys aren't going to invade us for allowing China to buy some oil sands project are you?
I feel an Amero experience coming on - I have to go.
They've already put more than 23 trillion on their balance sheet via backstopping the loans. These loans are worthless, thus at least 22 of that 23 trillion will be 'on' their balance sheet. When they 'monetize' that, or if the street 'thinks' they will, it's all over.
If you consider that it's already on there, and accept the FACT that these things are worthless...both in terms of actual loans gone bad, and the fact that most of it aren't homes at all...but pieces of homes...then it's not a question of IF, but WHEN. We're going to get a lot of good info come this October that's going to SHOW the fraud in it all.
Meanwhile they have what they already have 'announced', are increasing it, via the ways mentioned in article above.
Oct 1st of 2009 should be the start of the currency crisis. Give or take a couple of weeks.
Hundreds of banks are already failing or about to fail. This WITH mark-to-fantasy.
So if all of this fantasy moved the market up from 6200 to 9300 or thereabouts, and it was all based on fantasy. That the reality is much worse than we were at 6200, you can see, that a 3000 Dow jones number by end of October, maybe actually be a conservative guess. Or the currency devaluation gets so bad, it does the opposite and pushes us up to 100k while our money is worthless, then the stock market drops and drops and drops. So it's worth what it is today, except that amount has the purchasing power of 10 or 100x less.
That's what we're facing. It's coming soon. Take that 23 trillion away, and things are still collapsing. Add that 23 trillion in, and there is NO DOUBT we are screwed.