This page has been archived and commenting is disabled.
NY Fed's Bill Dudley On The Economic Outlook And The Fed's Balance Sheet
Bill Dudley, who is merely Bernanke's propaganda mouthpiece, provides his two cents on the economic recovery and the Fed's engorged balance sheet.
"The economy should be boosted by three factors: 1) a modest recovery in housing activity and motor vehicle sales; 2) the impact of the fiscal stimulus on domestic demand; and 3) a sharp swing in the pace of inventory investment. In fact, if the inventory swing were concentrated in a particular quarter, we could see fairly rapid growth for a brief period."
You are right Bill about cause and effect, however all three items have yet to demonstrate any impact, aside from their "fudged" presentation. As for inventory - everyone is awaiting the GDP report: should provide for a good read.
Also, some shocking truth from the NY Fed ChairmanPresident:
Third, the Federal Reserve is taking on some interest-rate risk in terms of its balance sheet. The excess reserves have an overnight maturity. These liabilities are being used to purchase longer-term assets. In principle, if short-term interest rates were to move up very sharply, the cost of funding could eventually exceed the return on the Fed’s assets. The bigger our balance sheet, the greater the amount of interest-rate risk we are assuming.
We have examined this issue in detail. Suffice it to say, it is conceivable that the Federal Reserve’s net-interest margin could be pinched in certain evironments—say if the economic recovery turned out to be very robust. But our analysis shows that it is extremely unlikely that the Fed’s net-interest margin will turn negative. In part, that is due to the fact that the balance-sheet risk associated with the interest-rate mismatch is offset to a large degree by the fact that the cost of much of the Fed’s liabilities—the amount of currency outstanding—is zero. So when short-term rates rise, the cost of a significant portion of the Fed’s liabilities is unaffected.
Good to know what exactly the Fed will never let interest rates do. Not to mention that there are roughly $300 trillion in derivatives betting alongside Bill's bet against interest rate Black Swans. It will be truly entertaining to watch what happens if China really does stop playing ball and the entire scenario has to be reevaluated while hundreds of billions in net derivative exposure comes crashing down.
»
- 4766 reads
- Printer-friendly version
- Send to friend
- advertisements -
isn't what Dudley described in terms of term funding discrepency basically EXACTLY what killed CIT? borrow short, lend long?
To his point about the cost of assets - the Fed has an asset that is limitless - the printing press. That is basically what he is saying about currency having zero cost: they can produce it at will.
CIT did not have a printing press, if they did, they would be fine.
Apocalypse Now-
Think about the leverage in the $300 Trillion dollar derivative figure. It is hard to comprehend, but laid end to end in dollars you could go to the moon and back to earth 600 times or go to the sun and back then back again to the sun (over 93 million away). The printing press can manufacture more 0's than General Mill's can manufacture CheeriOs.
I often wonder about the Swiss bank accounts and would be willing to hazard a guess that a significant sum of the threatened to be revealed accounts are most likely the bribe deposits from elected representatives and diplomats from around the world. If you had a printing press, you could buy each representative with 50,000,000 or whatever it takes and just add digital zeros to an account in Switzerland in their name. It is double entry accounting, so the other side of that might reside in our $300 trillion figure. If they step out of line, threaten to reveal the account holder information (through Swiss & US channels).
The only hope for mankind is to restore the national bank. Why pay interest on debt to a private company when the constitution states Congress has the power to mint money?
Ok, let's all just back off the ledge here
Sometimes I think I'm Alice in Wonderland after reading between the lines. How can the world hold a gun to its head and say with a straight face that there is no gun?
thats nothing more than basic human nature ....
If the avatar is a mirror, then Andy Dufresne = Milken, but have not yet settled in Zihuatanejo
from: http://www.newyorkfed.org/aboutthefed/orgchart/dudley.html
William C. Dudley became the 10th president and chief executive officer of the Federal Reserve Bank of New York on January 27, 2009. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee (FOMC), the group responsible for formulating the nation’s monetary policy.
Mr. Dudley had been executive vice president of the Markets Group at the New York Fed, where he also managed the System Open Market Account for the FOMC. The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.
Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm’s chief U.S. economist for a decade. Earlier in his career at Goldman Sachs, he had a variety of roles including a period when he was responsible for the firm’s foreign exchange forecasts. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.
He was a member of the Technical Consultants Group to the Congressional Budget Office, 1999 to 2005.
Mr. Dudley received his doctorate in economics from the University of California, Berkeley in 1982 and a bachelor of arts degree from New College, Sarasota, Florida in 1974.
Mr. Dudley serves as chairman of the Committee on Payment and Settlement Systems of the central banks of the G-10 countries hosted at the Bank for International Settlements.
Mr. Dudley and his wife, Ann E. Darby, reside in New Jersey.
Thanks for pointing out his graduation from the Goldman Sachs "On-The-Job Training Program for Government Officials". Bet he was a straight A student.
Thanks for pointing out his graduation from the Goldman Sachs "On-The-Job Training Program for Government Officials". Bet he was a straight A student.
See what I mean about California. The power structure out here is Goth-creepy, really morbid. It's the honchos here who are stocking up on pork and beans and guns--it's just that they're stashing them at the Bohemian Grove. They'll kill us all.
Fascinating! They think the cost of their liabilities are zero, but somewhere those costs will have to be realized. I don't have a printing press at my house.
Maybe John Nash had the title of the game right, "F*ck you buddy!"
Famous last words, "extremely unlikely".
So? Given the Fed's influence on short term interest rates, how likely are they to shoot up and catch the Fed flat-footed?
if necessary, in his bernanke doctrine speech he indicated he would engage bond-price pegging. the fed can corner treasuries.
You know, you should just look at what Schacht did for Hitler, if you want to know what Bernanke is doing for the Federal Government.
By the way, Schumpeter was a bad predictor: he didn't think Hitler would last.
well, he did not...
Could you please point to any reading material on that topic?
Dudley is trying to talk up the economy. Without increase in debt (at the consumer level) or an increase in incomes (not happening) then talking of any statistical quirk in GDP growth is dishonest. Outside of autos (even here I think it's a push) there is no need to increase inventory build as there is no final demand. At some point the discussion needs to be away from percentage increase to where the actual level is. Home sales yesterday is a good example. New SF home sales are still in the bottom 10 percent of all months since January 1963.
Yes, the underlying story is what I have said since June 2006:
ECONOMIC ACTIVITY IS DECLINING.
This fact will lash out in the fall and rip pretty arguments apart.
But still, nothing will happen til BA or + unemployment is 40%. The clerks' stomachs have to growl.
Already thought of that...and I guarantee you, Swine Flu is the scape goat for the end of the end of the recovery. It will go like this...we were seeing green shoots in a fragile recovery, but then swine flu reduced mobility of consumers as they stayed home instead.
I am long the Swine Flu kills the recovery scapegoat story
Smoke and mirrors. Unbelievable. Well done, Dudley. Well done.
*slow and defeatist clap*
How can you post faster than I can read and process all this shit? Are you human? I am beginning to think you are a operative working for the mysterious "cancer man".
Gallup Poll: Americans Turning Against Federal Reserve
As momentum builds for Ron Paul’s efforts to audit the Fed, a new Gallup poll shows that Americans are turning against the Federal Reserve, with just 30 per cent saying the agency is doing a good job.
35 per cent rate the job the Fed is doing as “only fair” and 22 per cent say it is doing a “poor” job.
The contrast compared with when the question was last asked in 2003 is clear. Six years ago, just 5 per cent thought the Fed was doing a “poor” job, while 53% thought it was doing a “good/excellent” job.
http://www.prisonplanet.com/gallup-poll-americans-turning-against-federa...
Get those bastards!
Hopefully Ron Paul's efforts will be able to have Comprehensive Annual Financial Reports (CAFR)audited as well.
Restitution might be our only play.
http://www.youtube.com/watch?v=MPdxqxq0i-I&NR=1
bf36
Asset-liability duration mismatch? Naw, couldn't be.
Worked out well for LTCM/Citi/SIV/conduits.
it was the 100+:1 leverage that killed ltcm. in dudley's "suffice it to say..." comment, in a round about way he's implying low or no leverage.
Umm...I think you're on the wrong side of the leverage argument.
He's implying infinite leverage.
Naw, he's implying low de facto leverage.
Unfortunately, he fails to consider the systemic leverage involved (i.e., printing money to satisfy liabilities has 0 cost to the Fed but instead costs each one of us dearly in various unforeseen ways).
Exactly. What don't people get about the Fed. THEY CAN PRINT MONEY! Their balance sheet is limited only to the extent our creditors don't like them to print money, and so far our creditors are complaining a lot but doing nothing.
Don't worry. Our foreign creditors will never call us on this.
lol Good luck with that. Notice how nice we are being to the Chinese.
"In part, that is due to the fact that the balance-sheet risk associated with the interest-rate mismatch is offset to a large degree by the fact that the cost of much of the Fed’s liabilities—the amount of currency outstanding—is zero. So when short-term rates rise, the cost of a significant portion of the Fed’s liabilities is unaffected."
he's implying that these positions are a fraction of the fed's total liabilities. that's low or no leverage.
Their liability is the currency, which costs them ZERO. No matter what the market charges for money, 1%, 20%, 200%, whatever, their cost is zero. I don't know how else to explain it.
But they are only looking at their situation. As I stated before, the cost to everyone else will be what the market charges. Good for them, bad for everyone else.
Obama is giving a speech right now saying how the recession is ending and that it was his leadership that did it. He also praised the fact that we are losing jobs half as fast as when he took office. I am stunned.
Equities market doesn't seem to be listening.. he has talked too much since March '09... his words no longer have the strength to move the market...
I miss the "Obama short"....i think I hit it 6 or 7 times.
He did inform us that the happy hour meeting he is holding, discussing race relations, will be serving "Bud Light". Nothing like a little free advertising during a teachable moment.
Gotta love it.....or not.
Not to worry. Say's Law is alive and well in the Treasury market.
Say, just like Sraffa, is a constructivist. And didn't you know that constructivism is over? Had a nice 2500 year run, but hey, everything ends.
No, the disturbance won't come from China. Black swans don't come from anywhere--that's why they are black. They are ugliness amidst beauty--that's why they are swans.
I think the Chinese have already shown they will bitch and moan and do absolutely nothing about the debt we are running up then inflating away.
Like the old saying goes, when you owe the bank a little money they own you, when you owe them a lot of money, you own them.
The Chinese are our bitch, they know it and we know it.
I'm glad that you said this ghost....I have been thinking along those same lines as well and feel that i have been alone. I was a banker for many years and the quote of "...when you owe the bank a little money they own you, when you owe them a lot of money, you own them." rings very true from my experience. For those who may doubt it, try being a loan officer with your initials on the deal and it is ready to turn south; it doesn't feel good.
The Chinese are quietly setting up currency swap facilities around the world (for example, with Brazil). I think Jim Willie is correct in that the Chinese are preparing to slowly cut the dollar loose over the next several years... it is not in their interest for it to crater all at once, but remember next year (2010) the IMF is re-weighting its basket and the Chinese want a bigger piece of the SDR.
". The Peoples Bank of China has arranged six bilateral currency swaps in large volume. They currently total 650 billion Yuan (=US$95 billion) since December with Malaysia, Argentina, Hong Kong, and several European nations. The facility acts like an Import-Export Bank. Under the arrangements, a counter-party center can lend the Yuan provided by the PBOC to domestic commercial entities toward pay for imports. Chinese exporters are thus paid in their own currency, eliminating exchange rate risks and reducing the cost of fund transfers. Thus the bypass of the US$ in settlements."
Another fact to keep in mind is that Geithner's wife is Chinese, he speaks fluent Chinese, he grew up in Asia and worked for Kissinger and Associates, etc. The global elites will back stab each other when convenient, but when it comes to their mutual interests they will cooperate as much as possible.
http://financialsense.com/fsu/editorials/willie/2009/0723.html
Geithner's wife Chinese? Nah. Good Jewish girl, Carole Sonnenfeld.
its only a trillion! that is nothing to them. the BRIC countries are all working together to minimize the damage when we fail. we are their bitches
Black swans come from Perth.
In summary; "We're toast if inflation kicks in"
15 years of abuse to the Treasury's ladder and schedule of long term maturities and its' Primary Dealer infrastructure will break the Fed.
8 years of the "Greenspan put" are coming home to roost .
Equities are a hedge against inflation or debasement .
Obama will soon add trillions more to our debt with his healthcare bill, so that should help us LOL:( It really isnt funny, its sad and scary.
If we are fucked is only a matter of perspective. We are fucked.
Bill Dudley Blows Smoke and Bubbles
I don't know why Dudley thinks he pull the wool over our eyes, but he's way off base in his argument that the Fed has the tools to control inflation and that there will be economic growth in the second half of 2009. Where are these mythical tools? Where would this "growth" come from? He doesn't answer either of those questions so his assertions are useless:
http://truthingold.blogspot.com/2009/07/william-dudley-blows-smoke-and-b...
In summary; "We're toast if inflation kicks in"
15 years of abuse to the Treasury's ladder and schedule of long term maturities and its' Primary Dealer infrastructure will break the Fed.
8 years of the "Greenspan put" are coming home to roost .
Equities are a hedge against inflation or debasement .
Can't the Fed simply hedge their risk by buying some interest rate swaps from JPM or GS?
I think they already are. JPM, GS, Treasury, and Fed all work together. Have a look at this image.
http://www.financialsense.com/Market/kirby/2009/images/0309_clip_image00...
the chart asks "if there is no private demand ....etc"
the answer lies in who is the REAL counterparty to these TBTF's. that, of course is us taxpayers. we're the 'Heads they win, Tails we lose" counterparty.
"Can't the Fed simply hedge their risk by buying some interest rate swaps from JPM or GS?"
Brilliant, as long as the taxpayer holds the bag, why not? Why did you leave out AIG? They are still in business and paying retention bonuses plus they have an established track record of paying their counterparties at 100 cents on the dollar.
This is a very important document. What Dudley is saying that the new tool the Fed will use to control the money supply is the Interest On Excess Reserves (IOER) instead of the target Fed Funds Rate. As the demand for credit falls (causing a rise in interest rates), the Fed will raise the IOER rate to cause banks to keep reserves at the Fed. If the demand for credit increase (causing the interest rate to fall) the Fed will lower the IOER to get banks to loan more out. But the insanity of this whole process is that in order for the Fed to prevent banks from loaning out reserves, they must print money in order to pay IOER. Said again: they must print money to prevent monetary inflation.
What's more is that the target (they don't actually set it) Fed Funds rate is essentially meaningless from now on. It must always be greater then the IOER. If not, then banks would simply attempt to borrow money from each to leave it in reserve at the Fed. Banks will loan each other money at a rate +IOER. And even the Prime Rate should be set off IOER. They've made a fundamental change in operations.
Banks aren't lending much because they are incentivized to keep it in reserve and earn risk free interest, that's why velocity is dropping. This is exactly what happened (credit liquidity freeze) to start the first great depression, and it was planned by the bankers in advance then and now.
The survivors can pick up assets for pennies on the dollar just before hyper-inflation kicks in and they own the world. ...And, it's gone - into their pockets.
It's too difficult to negotiate or lead thousands of small businesses, if those people go bankrupt they are powerless and can't threaten. When CIT goes under, all those small business loans will be under their thumb - and I guess despite the fact that all jobs creation has been from small and medium sized businesses, that's not too big to fail?
This couldn't possibly be exactly like the first great depression. This IOER structure didn't exist then and there was at least somewhat of a restriction on money supply a false gold standard. The Fed in the first depression did not attempt to print its way into recapitalization of the banks. The Fed simply attempted to print money to aid the Bank of England to prevent gold from flowing into the US. They failed and paper assets were wiped out in Europe and England. When paper assets in Europe were wiped, US banks (who had been loaning an incredible amount of money to Europe) went belly-up in the same manner they are now.
This is a totally different type of depression. This will be an inflationary depression. You will see a lower production of goods with ever more money chasing those goods which will lead to massive price inflation. There's nothing to stop this insanity unless the dollar collapses.
"Suffice it to say, it is conceivable that the Federal Reserve’s net-interest margin could be pinched in certain evironments—say if the economic recovery turned out to be very robust."
Guess I see it differently, but isn't he saying that The Fed foresees a long protracted recovery or if they really expect the current economy to recover at all? Why else would they be allowing the balance sheet to hog wild like a dying cancer patient?
the ioer is already above eff fed funds...0.25% versus 0.16%..they pay interest on reserves so the fed can still control s-term rates..once they expanded their balance sheet and flooded banks with excess reserves the fed funds rate would have dropped to zero anyway..brilliant move by bernanke..gives him control again over monetary policy...im a fan of bernanke..i think a HUGE risk is if he doesnt get reappointed..if we get some joker that wants to fight (non exsistent) inflation by raising rates then sell every risky asset u have cause we are headed into a depression - assuming we arent in one already...
everything done to this point has been to kick the can down the street. We will repeat Japan at best...
Yeah, fucking brillant, control monetary policy by printing more money.
So a bank has $1 in reserves, but the Fed doesn't want it to lend that $1, so they pay theym 2%. At the end of the year, the bank now has 1.02, with fractional reserving they have another 20cents in lending capacity.
The Fed doesn't want them to lend, so they increase the rate to 5%. End of the year, the bank now has 1.071 in reserves.
Fed STILL doesn't want them to lend, so they increase the rate...
Yeah, fucking brilliant.
well they want them to lend - the problem is there arent enough credit worthy borrowers...so there are all these excess reserves just sitting there...if the fed wants them to lend less they will increase the rate..theoretically, if they really wanted them to lend they could charge interest on excess reserves...they would have to go back to congress to get this authority but it is possible...they wont do it for the obvious reason - more bad debt isnt the answer to a mountain of bad debt...thats why we will have slow growth for a decade..it will take atleast that long to slowly write down all the toxic assets. If the banks wrote them all done today then they would all be insolvant and bankrupt. That is why we did away with mark to market..the banks are hiding their losses in level 3 assets...the fed knows this so they will keep short rates very low to help the banks earn their way out of this situation. It will happen but it will take a very long time. this is why inflation is NOT the problem - deflation is!!!
ghost - actually if they have 1.02 in excess reserves they can lend out much more..its called the money multiplier...the money multiplier = 1/required reserve ratio..1/.1 = 10..the money multiplier is approx 10..so if there is $800bn in excess reserves then there is $8trn in potential lending...or less because required reserves will go up as they lend money...this is why people are worried about inflation - not because of the 800bn but because of the $8trn...im not worried about inflation because there is no chance in hell that there is 1trn let alone 8trn in credit worthy loans to be made...corporations and consumers are saving and delevering, not looking to borrow. Deleverging will take many years (consumer debt to gdp is somehting like 375%)..especially with unemployment (U3) headed to 11% and U6 already 16.5% and total unemployment(SS) over 20%...everyone except the federal government is trying to delever - and at the same time..this is a deflationary spiral....the dollar will strengthen since everyone is short dollars..stocks, commodities (oil etc..) and other risky assets will fall significantly before its all over...cash, and high quality bonds will outperform...
ofcourse - ive been wrong before...but rosey said it best "deflation is the fact, inflation is the opinion"