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One Fed To Monetize Them All
A few weeks ago we pointed out that the unfortunate but inevitable conclusion of the Fed's embarking on the second round of QE would be that the total treasury purchases between $1.2 and $1.5 trillion, and possible more, would require nothing less than direct purchases from the Treasury. Today, Morgan Stanley's David Greenlaw has confirmed that QE2, launching in less than one month, will mean outright monetization of US debt, even in its gentle and gradual, $100 million a month format: "This pace of buying would be roughly in line with our estimated budget deficit ($1.15 trillion) for fiscal 2011. So, the Fed would be absorbing virtually all of the net new Treasury issuance as long as they maintained this pace of purchases." What is scarier, is that pretty soon the Fed will be the only holder left of Treasuries with a maturity over 10 years: "There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years. So, if the Fed were instead to concentrate their buying in this sector, it could have a powerful impact on long-term yields." The great benefit of monetizing it all, is that the Treasury will be paying all remnant high coupons to the Fed. Which also means that in the future, any retiring individual on fixed income will be forced to buy if not equities in risky companies as a retirement asset, then certainly high yield debt.
But perhaps the scariest thing is that FOMC members are driven more by charts than anything. And during the November 2-3 meeting, the chart that Ben Bernanke will be showing more than any other one will be the following:
Unfortunately, today's news that the Fed has just surpassed Japan as the second top-holder of US debt, will be ignored, and instead the Fed will look at debt holding projections and think that there is capacity not for $1 trillion (which would bring Fed holdings to 20% of total USTs), but for $2 trillion, which would be the previous peak hit back in the mid 1970s. Of course, back then neither China nor Japan were notable holders of USTs, and the other major investor was the US public itself. The problem is that should the Fed indeed venture to purchase $2 or more billion, there is simply not enough debt to satisfy that demand, which we made explicitly clear in a previous post on this topic. Which is why the next step would be a collapse in yields to zero across the entire curve, and the de-reservization of the US dollar, as the Fed's plan to monetize everything in sight become obvious. In other words, the beginning of the end just may begin, perhaps fittingly, on the day the Republicans regain control of the House and Senate.
Full note from David Greenlaw:
We expect the FOMC to restart an asset purchase program at the upcoming FOMC meeting — as highlighted in the US economics note that we published on October 1 (“QE Coming: Slow Rise in Inflation Not Enough to Satisfy the Fed”).
There has been a great deal of Fedspeak in recent days, and the commentary from some of the regional bank presidents regarding asset purchases has been all over the map, highlighting the divergent views that still exist within the FOMC. Importantly, however, three proponents of asset purchases – Dudley, Rosengren and Pianalto – are all currently voting members of the FOMC. Meanwhile, three of the skeptics – Plosser, Fisher and Kocherlakota – do not currently have a vote (but all will in 2011). Obviously, the key decision maker is Chairman Bernanke, and he seems to feel the Fed needs to do something at this point to address deflation tail risk if the incoming data do not show signs of improvement.
So, while it’s not a done deal, it certainly appears that the bar to implementing additional monetary stimulus is quite low. Specifically, to be convinced to stand pat, Bernanke would probably need to see some upside surprises in all three of the key data reports that will be released between now and the November 2-3 FOMC meeting – employment, CPI and GDP. We have scaled back our expectation for the private employment rise in September (to +75,000) in response to today’s disappointing ADP results. Based on a canvass of local media reports, we also remain concerned about the possibility of a sharp decline (50,000 or so) in teaching positions at the start of the new school year. In sum, we believe there is a decent likelihood of another uptick in the unemployment rate (to 9.7%). Moreover, we recently cut our tracking estimate for Q3 GDP by a full percentage point (from +3.1% to +2.1%). This change reflects an accounting quirk in the import category, which we believe will be reversed in Q4, but the Q3 GDP report is especially relevant since it will be released only a few days ahead of the next FOMC meeting. Finally, we do look for a bit of upside in the next CPI figure, but this probably won’t be enough by itself to derail the implementation of an asset purchase campaign at the November FOMC meeting.
What might a new round of asset purchases look like?
Brian Sack, head of the NY Fed's Open Market Desk, delivered an interesting speech earlier this week in which he provided a lot of background information on the structure of the asset purchase programs that have already been implemented and made the case that Fed balance sheet manipulation is a viable policy option. He then moved on to discuss a topic of considerable market importance at present — the design of future asset purchase programs.
Mr. Sack discussed five specific criteria related to a new round of asset purchases. First, he addressed the issue of whether the balance sheet should be adjusted in relatively continuous but smaller steps, or in infrequent but large increments (as with the first round of the LSAP’s). Second, how responsive should the balance sheet be to economic conditions? Third, how persistent should movements in the balance sheet be? Fourth, should the FOMC provide guidance regarding the expected future path of the balance sheet? Fifth, how much flexibility should the FOMC have to change direction? He did not
provide clear answers to each of these questions; indeed, his discussion highlighted the conflicting nature of many of the ideal parameters of an asset purchase program. For example, flexibility is almost always a good thing, but a purchase
program will have a more powerful impact if the market perceives that it is likely to continue for a period of time and the
Fed provides such guidance. So there is a trade-off between flexibility and commitment.
Reading between the lines, we sense that Sack would support a program in which the Fed announced a specific amount of purchases that would be conducted prior to the next FOMC meeting, with some indication of the amount of buying that is
expected over a longer timeframe based on the economic outlook. Sack doesn't make policy — he implements it. But his recommendations are likely to carry a lot of weight at the policymaker level, and we suspect that the program designed by the FOMC will have many, if not all, of the characteristics that seem to be favored by Sack.
In addition to the conflicting parameters of an asset purchase program, we see a more fundamental problem with Sack's
message, since it implies a degree of precision in the link between movements in the size of the Fed's balance sheet and
economic outcomes which may or may not exist. Let's just say we are skeptical. Indeed, economists generally agree that the link between the Fed's main policy tool (short-term interest rates) and the real economy is quite loose and that the
transmission mechanism is highly variable. If this is true for short-term rates, it is even more so for the size of the Fed's balance sheet. Indeed, relying on a "portfolio balance" approach as justification for a new round of asset purchases represents uncharted territory in the field of monetary policymaking.
How much will they buy? A wide range of options appear to be on the table, but based on the signals provided by Sack and other officials, it looks like the Fed is converging on a flexible approach that will involve a specified amount of buying (perhaps $100 billion) that would occur prior to the December FOMC meeting, with the amount scaled up or down from there at future meetings depending on economic and financial market conditions. Indeed, even a policymaker as dovish as
Rosengren appears to favor such a gradualist approach. This pace of buying would be roughly in line with our estimated budget deficit ($1.15 trillion) for fiscal 2011. So, the Fed would be absorbing virtually all of the net new Treasury issuance as long as they maintained this pace of purchases.
Will the Fed continue to buy across the curve or will it focus its purchases at the long end of the market? This is
a major source of uncertainty for the markets. We suspect that the Fed will stick with their current strategy of buying across the curve in order to maintain a 6 to 7 year average maturity of purchases. There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years. So, if the Fed were instead to concentrate their buying in this sector, it could have a powerful impact on long-term yields.
What about the 35% rule? The Fed has a self-imposed restriction that prohibits them from owning more than 35% of the outstanding amount of any individual Treasury security. But this rule can be waived at any time and thus does not
represent a significant barrier to concentrated purchases.
Will they buy Treasuries only? Initially, the Fed is likely to stick to buying Treasuries, but over time they could scale into mortgage-backed securities. In particular, we suspect that the Fed may wind up targeting a gross amount of MBS holdings near $1 trillion. When they surpassed this threshold in the first round of asset purchases, it appeared to trigger some significant dislocations in the MBS market.
What is the probability of an intermeeting move? From our standpoint, such action is unlikely but possible. The most obvious potential trigger is Friday’s employment report. If the report is really bad (say, below 0 for private payrolls, for which I would assign about a 20% probability), then we would put the chance of an intermeeting move at about 33%. Combining these probabilities, we see maybe a 5% to 10% chance overall for an intermeeting move. What will be the impact on the markets and the economy? According to our trading desk, the market has already priced in a scenario close to the one we expect. And as we have highlighted previously, the economic impact associated with this type of monetary stimulus is likely to be quite modest. As evidence, we have cited results from a large-scale macroeconometric model maintained by Former Fed Governor Larry Meyer. For the past several decades, economists have recognized that such models are not particularly accurate when it comes to making short-term forecasts, but they are very useful for playing “What if?” games. Meyer’s model is widely used in private and public policymaking circles for such simulations. Meyer estimated that a $2 trillion asset purchase program would 1) lower Treasury yields by 50 bp, 2) increase GDP growth by 0.3 percentage point in 2011 and 0.4 pp in 2012, 3) lower the unemployment rate by 0.3 pp by the end of 2011 and 0.5 pp by the end of 2012. However, Meyer admits that these may be “high-end estimates” because they don’t take into account the unique nature of the current credit environment and the potential blockage of some of the normal transmission channels. Moreover, a relatively high probability of a resumption of asset purchases is already priced into the market, and thus a full 50 bp response in Treasuries seems unlikely. In sum, there is good reason to believe that the pass-through benefits to the economy associated with a modest decline in Treasury yields will be quite limited.
Finally, what will be the long-run impact on inflation?
There are several channels through which asset purchases could ultimately influence inflation. The most obvious would be if we are wrong about the economic impact and the program ultimately proves to be effective in stimulating growth – either in the US or globally – causing the economy to overheat before the Fed can unwind the stimulus. Also, there could be an impact on inflation arising from a significant elevation in inflation expectations. There has been a meaningful rise in market-based measures of inflation expectations in recent weeks as speculation regarding the resumption of Fed asset purchases has become more widespread (see Exhibit 1). The Fed’s actions could stir up some inflation via a decline in the dollar, but the trade-weighted value of the dollar stands about where it did at the start of the year (see Exhibit 2), and many other countries appear to be engaged in policies aimed at achieving a competitive devaluation (or as former Fed and Treasury senior staffer Ted Truman terms it, “a competitive nonappreciation”). So it is hard to see the dollar moving enough to trigger a meaningful impact on domestic inflation.
The financial markets actually seem to be overly focused on what we consider some of the least likely transmission channels — namely, money supply and debt monetization. To date, the so-called money multiplier (the ratio of a monetary aggregate, such as M-2, to the monetary base) has declined by about the same amount that the monetary base has risen, leaving the money supply little changed by the expansion of the Fed’s balance sheet. This reflects the fact that almost all of the excess bank reserves created by the Fed’s balance sheet expansion have wound up being held in bank reserve accounts at the Fed (earning 25 bp; see Exhibit 3). Even a hard-core monetarist should not fear inflationary consequences from this type of balance sheet expansion until the money multiplier begins to normalize. Similarly, the debt monetization channel seems a little hazy. The Fed always monetizes a share of Treasury borrowing, and the current level of monetization is unusually low. Even $1 trillion of buying over the next year would leave the Fed’s holdings of Treasuries within the historical range (see Exhibit 4).
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The monetizations will continue until morale improves.
All your dollars are belong to us.
Ghost written by the Fed.
The Fed has no choice. It's not an excuse, or even a reason, but they have no choice. Why else would the Fed willfully destroy the dollar? The Dow's at 11k. Employment is at least steady. Not rosy - but we haven't definitely slipped back yet. What do they see? [Even Guy Adami on Fast Money asked this question.]
They see the end of the global fiat fractional reserve ponzi if they do nothing. They see EU bond auctions failing without ECB support. They see Ireland teetering, Greece cheating. Riots could break out at any time. They see munis teetering on BK. CA, IL have billions in unpaid bills. The unfunded liabilities kicking in. Perhaps they see China saying no mas on more Treasuries. They see a Congress that can only pass a nefarious banking/notary law in unison.
There can be no austerity - only cuts GDP and makes the problem worse. There can be no stimulus (unless they buy the debt themselves).
Without more QE, the banking system will implode in months, weeks.
They know the odds of QE IIb failing are overwhelming. But they have no choice. The collapse will happen any way, why not throw that one last Hail Mary pass? Maybe, just maybe, they get lucky. A new technology magically appears that changes productivity.
They know food prices are going up. That millions of people around the world will starve in the coming food panics, riots, and shortages. They know that gas will go to $5+ a gallon. They know corporate profits (see Conagra, SBUX, etc.) will get squeezed. They know savers are getting crushed. That middle class families will be torn apart with the stress and strain of paying their increasing bills with lower wages.
They don't care about all of that. They just want to see if they can re-start the party one last time. You didn't expect them to go quietly did you? You didn't expect BB to come on TeeVee one night and confess: "We're a private corporation. We create money out of thin air and take your collateral (productive assets and labor) in return. Fractional reserve lending is fundamentally flawed. It didn't have to be this way. The Treasury can issue it's own currency. Without debt. Without interest. But that wouldn't have made us rich and powerful, and that was the point. Sorry about that."
They will thrash about more as the air gets thinner and thinner. They see the likely end-game. They will push it into the future are long as possible. And just before the inevitable happens, they will press the panic button - a false flag, a civil insurrection, a world war. And then they will make their escape and hope to pop back up again when it is safe - as the savior to a devastated and downtrodden citizenry desperate for help.
It's a sociopathic institution that cares nothing for the long-term health of our country, from its very inception to its dying breath.
I hear you, tj.
Welcome to the Federally Reserved States of America.
"Employment is at least steady."
Not really. The BLS measure of unemployment appears more or less steady, because they keep reducing the size of the work force as workers fall off EUC rolls or get discouraged and stop the weekly check-in at the state employment office.
Thus, the unemployment figure around 9.6% is a misleading count of non-participation in a shrinking workforce. The raw number of unemployed and underemployed is steadily growing, every month.
How bad is the distortion? The Dept of Labor's estimation of the workforce is now no larger than the workforce of a decade ago--after ten years of population growth, ten years of nightly dashes across the Rio Grande, ten years of condo-building and apartment-stacking and gated-community proliferation.
The American middle class need not be destroyed, but there is no escaping a serious ratchet-down in the standard of living. How serious? It depends on the extent to which an individual's lifestyle has been built on credit.
If you avoided the credit orgy in the first place and replaced FRN money with hard assets, your pain will likely be minimized. If you've been foolish and built up a Squanderville lifestyle on borrowed money, your best hope is to learn how to live without credit--even if it means abandoning your deeply-underwater McMansion to live in a paid-for travel trailer--and then walk away from your pile of follies.
In the collapse of a House of Indebtedness, the first one to default wins.
Steady does not refer to being stable or flat, but a direction, a slow direction down.
http://www.threeworldwars.com/albert-pike2.htm
"The monetizations will continue until morale improves."
Someone explain to me the actual point of keeping a ledger of accounts...revenue vs. expenditures?...rhetorical ;-)
As a matter of moral clarity, why do we need jobs? Just print the money and give it to me, after witholding taxes of course...LOL...it's the same thing.
Is this a controlled demolition of the bond market? Is the Fed trying to deflate one bubble (bonds) and blow another one at the same time (equities) and keep the investment banks happy by letting them broker the transaction?
We are screwed.
Yes we are.
Welcome to Mordor.
Who is this 'WE" you are referring to? Got gold and silver?
"Got gold and silver?" Yes. But if you don't also have a Romulan cloaking device, I wouldn't revel in any sense of invincibility. Don't forget that Obama raped the senior GM and Chrysler debtholders in plain violation of black-letter law, to reward his UAW constituency.
This is now a government of men, not laws. They can take your gold and silver, and anything else you have, with impunity.
E.O. 6102, bitchez.
"All your wealth is belong to me." - BerSpanky and His Gang
Chart: ES
Not sure the market is buying it; S&P futures look like they're headed lower.
http://99ercharts.blogspot.com/2010/10/es_3131.html
The FED's objective is not to monetize (they could have done it long ago and solved all the problems), the FED is trying to induce the masses to start buying stocks and other assets again spooked by spectre of hyperinflation. They think that the masses don't have enough houses and stocks on their hands, so if they can get them to start buying again the benigh economic cycle will get going. The FED (unless Ben Shalom is really crazy) is not going to destroy its own power = money.
BerSpanky = disconnect = dislocate = imbecile.
I'd bet ByteMe Biden's IQ against Bennie's any day.
Problem with Ben Bernake is he is a moron and will destroy the dollar trying to do something else.
You cannot reason with an extremist like Ben Bernake, he believes the depression of the 1930s could have been prevented, as such he believes the depression of 2000s can be prevented.
and even with those blinkers on, the whip has no effect in the home stretch..
Did he say blinkers on?
http://www.charlierose.com/images_toplevel/content/9/939/clip_9394_460x3...
Morons dont work for the Rothschilds.
Prove it.
Rothschilds are still in business after 300 years of being in the trade.
Meant, prove they aren't morons. Most morons I've run across can hold a gun and shoot it. They just don't get the concept of 'target'.
+1. Exactly ... very greedy -- and very dangerous -- inbred morons.
Even morons can stay in business if they can buy everyone around them.
You cannot reason with an extremist like Ben Bernake, he believes the depression of the 1930s could have been prevented,...
Well the depression of the 1930's sure could have been shortened. Keeping Keynesians like himself the hell out of Washington would have helped.
It's only called The Great Depression in America.
What happens when people are willing to accept a lower standard of living rather than to place their capital at risk?
Clarify your comment with real life examples.
They turn into Japanese.
+1
"The Masses" never amounted to much in terms of % total ownership of equities, as the palid $5,000 average investment during the "gold rush" days of equities suggests. It was all media hype... and they were the last ones herded into the box before the slaughter.
From my POV the Fed is playing to a larger problem they do not want to admit. Its big enough, and bad enough that they are willing to talk 'Weimar', which should give us a clue how bad they think it is.
they will be forced to print more to keep up the status quo. its too easy to find excuses once you start. the sad part is it will happen and we can make money speculating on it just like their cronies but in no way can we change it.
"Monetizing BerSpanky", premiering 12/01/10.
by BeefaLot films
courtesy of Zombie Studios
distributed by Lent2Much
starring: ah, screw it.
wow ....
because some of the assumptions here, in a report that reads like a eulogy, are soooo rosy
It worked for Japan... oh wait it didn't and they had a suplus... oh well.
The Country can only recover, when all peoples have their thumbs removed ala tying Chinee women's legs.
Short RIMM, AAPL, T, VZ, and the rest of those degenerate companies then.
Also, no texting while voting.
Think this kind of actions will eventully have big inpact when
compounded woldwide and on and on.After this one will come
an other round in spring/early summer with mortage resets but
then 5 or more trillion??
If they monetize the World, but no one is left standing, does it matter?
Funny thing is who here is ready to jump all in on the long side of equities?? It seems like ALL investment banks have turned into de facto Hedge funds, ALL with insider information, and ALL with Guaranteed Credit Default Insurance courtesy of Joe Six Pack. Someone please convince me Mortimer Duke isn't laughing somewhere in a corner saying, "Game. Set. Match."
When did we ALL end up working on the plantation?!??
I'm in long: 50% NBG and TZA.
Ooops, forgot, sold NBG today, sorry.
Finally, someone who grasps the essence of this ridiculous cybernetic system. Nice job Timmay.
Anybody wanna bet twenty FRNs that they ease us quantitatively before November 3?
Define 'ease', ie, no bet.
ringggggg.
Hello?
Jimmay! It's Bennie! Got half a tril? Need a PD to pick up this issue next week....
Thats great! Yes, I was thinking of how to describe all the slimy ways the PPT and the sack could wink and nudge the PD's, beyond the hot potato routine... Those would all be "easing" techniques.
You did not factor in the roll in paper next year. They have to do QE because the roll of paper is huge moving forward since treasury lowered the duration of our debt like a bunch of idiots. Why not roll it into longer debt during ZIRP? Instead they kept it, mostly, below 10 years.
I would gird all 401K and IRA plans against confiscation.
US Gov, Inc. has monetized your future cash flow a long time ago. What's left?
Straight from the horse's mouth:
Monetary Policy Alternatives at the Zero Bound:
An Empirical Assessment by Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack, 2004
A second possible channel for quantitative easing to influence the economy is the fiscal channel. This channel relies on the observation that sufficiently large monetary injections will materially relieve the government’s budget constraint, permitting tax reductions or increases in government spending without increasing public holdings of government debt (Bernanke, 2003; Auerbach and Obstfeld, 2004). Effectively, the fiscal channel is based on the government’s substitution of the inflation tax (a tax with little or no deadweight loss in a deflationary environment) for direct taxes such as income taxes. Auerbach and Obstfeld (2004) provide a detailed analysis of both the macroeconomic and welfare effects of the fiscal channel and find that these effects are potentially quite substantial. These authors also note, however, that the fiscal effect of quantitative easing will be attenuated or absent if the public expects today’s monetary injections to be withdrawn in the future.
Broadly, if the public expects quantitative easing to be reversed at the first sign that deflation has ended, they will likewise expect that their money financed tax cuts will be replaced by future tax increases as money is withdrawn, an expectation that will blunt the initial impact of the policy. Thus, it is crucial that the central bank’s promises to maintain some part of its quantitative easing as the economy recovers be perceived as credible by the public. Auerbach and Obstfeld show that, if the central bank is known to be willing to tolerate even a very small amount of inflation, the promise to maintain quantitative easing will be credible. A similar result would likely obtain if the central bank associates even a relatively small cost with publicly reneging on its promises. Thus, it seems reasonable to expect that the fiscal channel of quantitative easing would work if pursued sufficiently aggressively.
At this point, there is no turning back for them. They beefed up the banks through POMO, now its the goverments turn tthrough QE.
You would think it was science the way they move ahead with their oligarchial plans. Feed the bank, the military and the gov. workers, and see what happens to the rest.
They plan QE II but they are not considering CDO II - the return of a fat tail accompanied by a fat finger- the middle one.
The greatest story never told is the fact that Bernanke and company, for years, postulated solutions to a theoretical crisis that eventually reflected the one that did occur.
So either it was divine intervention that the so-called foremost expert on the Great Depression was tapped as Fed Head "moments" before of the worst recession since the great depression -- one where his previous works would be implemented and deemed successful -- or a calculated conspiracy. That is, the game plan was put in plain sight (i.e. "if we do this then they do this") and certain elements gamed it.
Unless that means paying everyone's taxes for the next five years, the speaker has gone round the twist!!
If these insane actions do not reaffirm to the world the shear corruption and extend to which the Federal Reserve will go to protect the assets of the elite than what does?
Never question again whether or bonthe Fed forced Lewis to absorb Bankrupt Merill, or wether the news leaks are purposeful, wether the Fed pressured FASB, wether PIMCO and the PDs have access to inside information, wether the NY Fed with Bens blessing covered up AIG payouts, wethere the Fed pressured the President to keep his hands out of Finreg, wether the Fed and Pres have a secret deal with GE/ CNBC to keep the koolaid flowing, wether they are engaged in financial world war to prevent an audit because they are buying stocks or if they caused the flash crash purposely to prevent an audit.
These are treasonous acts. This is exactly th influeneced we were warned against and we have the ultimate monopoly operating between our borders with governmental protection at every avenue.
The Fed now owns every equity on earth. They are purposely deatroying the middle class in order to usher in more globalist government and an eventual global currency attempt. This I happening by design.
Ben Bernanke at this moment in time is operating as a dictator of the United States. Remember the constitution only means that in order for the evil to do what they do best more stealth like Fabian Society gradualism chess moves are required.
I said when I was a child Presidents have become figureheads.
The media is pushing Romney/ Palin/ Clinton VP ticket is all you need know.
The one true modern day American founder in spirit is ignored purposefully. If the American people knew who Ron Paul was he would win 65% of the vote.
He is kept hidden. It is upto us to edcuate people. Zero Hedge you must become more political and begin to endorse the leaders we need publicly.
Shear = sheer? Or you referring to Sheeple?
ron's kid blew his cover.
http://www.infowars.com/rand-paul-and-the-special-relationship-with-israel/
they both hang out with pro israel shill alex "arabs control hollywood" jones.
nuff said.
Proof ... citations ... links ... please. I have found him to be (sort of) religious, but not pro (or anti) any particular religion ... so convince me.
You know it'll be time to run when big fed contracts go out to metal detector companies.
They've already ordered more mobile x-ray vans! (They've got over 500 already).
Don't plan on hiding your gold in the plasterboard. They'll sweep your street door-to-door with a van, a drone, a humvee and a crack team of Iraq-trained marines.
All your gold and guns are belong to us.
That's okay. I'm diversified, cuz I'm a planner, and stuff.
Well done! I just hope everyone else who reads this takes the appropriate steps too.
This disgusting gnome Bernanke goes about his tinkering, oblivious to what always happens when the ignorant try to control complex systems. A small group of filthy bankers, who exist solely for the purpose of benefiting other bankers are sitting in an echo chamber listening to their self-congratulatory "group think". Ideological inertia coupled with absolute power, blind to the obvious. These pigs can't be gutted soon enough.
Just as in Weimar Germany, anyone remember what happened to those Banksters?
"There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years. So, if the Fed were instead to concentrate their buying in this sector, it could have a powerful impact on long-term yields."
I'm sure congress would find some reason to issue more if the supply ran out.
Screw the 35% rule, to boot.
"Cassandra cried, and curs'd th' unhappy hour;Foretold our fate; but, by the god's decree,
All heard, and none believ'd the prophecy." - Virgil: Aeneid
Cassandra - The Cruxshadows (with lyrics)
http://www.youtube.com/watch?v=8UpWDiRxu18
We're getting our m's and b's switched here. I'm fairly sure that Tyler intended to write "$100 BILLION per month" rather than "$100 million per month" in the first few sentences. Please, guys, let's keep our millions and billions clear, okay?
I'd be eternally grateful if the Fed was monetizing a mere $100 million per month! I could return to sleeping nights again!
When the Goobermint goes lawless, what is the use of law?
Defend thyself.
Equal protection clause. Knock them out before they knock you out.
From this mornings 'Benny and the Inkjets', to this evenings: 'One Fed to monetize it all'...!
ZH continues to roll like a hopped up Interstate trucker! "I LOVE the smell of a Mack truck in the morning!"
One Fed to Monetize them all... and in the darkness bind them.
I must say this is quickly becoming the most anticipated move in recent history. Funny thing is, just when the market takes something as a done deal the game changes again... or perhaps in this case, the anticipated result.
BTW- The Fed has nothing on Mordor!
So who is wormtongue? Timmy?
Why, if everyone devalues then everyone can have inflation and higher prices.
Okay, so all the major industrialized economies are in the same boat - elderly population, too much sovereign debt. So they monetize ten or twenty trillion in debt.
Okay, so what?
Dollar, Euro and Yen lose relative to the currencies of the emerging/natural resources economies, with the dollar losing the most.
And?
The Wallstreet Jerkoff's chime in
Geithner's 'Cooperation' Dollar devaluation is not economic leadership.http://online.wsj.com/article/SB10001424052748703735804575536453177817206.html
Timothy Geithner Open To New Global Currency
http://www.youtube.com/watch?v=ds_qGXbxK-4
Meyer estimated that a $2 trillion asset purchase program would 1) lower Treasury yields by 50 bp, 2) increase GDP growth by 0.3 percentage point in 2011 and 0.4 pp in 2012, 3) lower the unemployment rate by 0.3 pp by the end of 2011 and 0.5 pp by the end of 2012. However, Meyer admits that these may be “high-end estimates”
OMFG. Can somebody please hand me my sunglasses? The future is so bright it's blocking my view of the 42 million people on food stamps. So, let me get this straight. We get trivial improvements in the key metrics for the low, low price of only $2 trillion?
Gotta love this stuff, people. The effects of monetary policy apparently follow a power law. To achieve roughly linear improvements in the key metrics, you have to spend exponentially increasing wads of money. Would anyone have expected it to be different?
War!
What is it good for!
Absolutely SOMETHING.
(Time to turn the blender on because the game will be permanently rigged otherwise).
Better a few years of terror than a certain prospect of centuries of TYRANNY.
What is important is the world capacity for sovereign debt relative to the peak in the 70s. Without the proper magnitude of buyers, the FED will be unable to tighten without Treasury cash flow problems.
FED QE from now until austerity is to fund government. It is about cash flow. Not about rates. If you control the buy, you control the rates. Beyond the offset for trade, the FED will be the majority buyer.
What will crisis look like? Simple FED monetization. The quit killer.
Interesting are the remarks about how QE2 will help the economy. It may boost equities, but it will only induce prolonged declines in growth.
Mark Beck
Call me ignorant.
If the Fed can monetize the Federal debt, what are we worrying for the national debt? Why not the Fed just give the credit to the Treasury, then we all live a happy live?
Then the Fed can just cancel the debt by simply erasing it from the balance sheet. Isn't this the quickest way for American prosperity?
"prosperity" is not part of the plan, if you are not in the "club"....did you NOT get the memo?
You see, we are using new TPS (The Propsperity Swindle) cover sheets now, I'll get you another copy of the memo....
yeaaah, a little more that way, yeaaah, thats it....
ok, thanks a bunch!
From a fascist mainstream outlet......
Currency intervention to cope with volatile market moves cannot be ruled out, but Japan faces a losing battle trying to go against the tide and weaken the yen, a senior International Monetary Fund official said.
Naoyuki Shinohara, deputy managing director of the IMF, said "This is not something that Japan can control. If Japan tries to adjust this, it will distort markets," Shinohara told Reuters in an interview on Wednesday.
"I see little point in Japan trying to guide the yen lower," he said, adding that Tokyo should instead focus on structural reforms and monetary easing to beat deflation.
Exchange rates and Japan's currency intervention may be among the topics discussed at a Group of Seven dinner gathering to be held on the sidelines of the IMF meetings, said Shinohara, who was Japan's currency czar before assuming the IMF post.
I actually don't think that the Fed will do anymore QE. The thing that will block them is the price of oil. It is now above $83 in the danger zone where the cost of imports exceed 4% of GDP where it pushes back on growth of the GDP. More QE will push the price up more and will cause the GDP to shrink. The FED knows this and they know they are out of bullets unless Obama is willing to tap into the strategic oil reserve and that won't go very far.
Naturally. There really hasen't been a question of this eventuality for some time.
The scary thing is the "independent" Fed can't be stopped. Even if the vast majority of Americans beg Bernanke not to do QE2, or the entire Congress and the White House beg him not to do it, it doesn't matter. The Fed can and will do whatever it wants, eh, whatever it takes to "help" the economy, independent of fiscal consideration.
Worse than BOJ, which is half owned by the government.
Exactly.
As congress debates raising taxes, the Fed confiscates the money anyway with QE II when they decide it's their feeding time. As TD has said, this is declaring war on the American middle class.
Rich can hide their assets and the poor don't have any. The middle class will pay as their savings get wiped out through debasement.
The Fed remains purposefully unaccountable to congress or executive branch. End the Fed -- Jim Rogers.
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(Er, I think it meant $100 billion per month, not million per month...)
Anyway... this is also what I read is going global by each country, not just the USA.
They'll all do it to themselves. Countries will monetize their own debts, just buy their own, to avoid an interest rate war, preventing interest rates from going up to ridiculous levels if they all competed to attract foreign capital.
So, maybe not in a tough currency war, but a coordinated scheme so that no country goes rogue with high rates to jack-knife the plan.
Clever or dumb, it's thinking out of the box and new waters. Extremely Bullish for gold, because there is no end in sight to any of this as has been said before here at ZH & "no place for fiat to go except gold" A.G. agrees.
Anybody heard of an (academic) end to any of this? They just gonna stop when it either works, or a third eye grows out of the back of Bernanke's head so he can see where he's going?
After the mortgage paper fiasco, what could do wrong?
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I wonder when morgan stanley will recant this?
Anyway, I would think there will be some massive volatility as we get closer to D-Day.
Brilliant title for this post. Hat's off to Tyler!
The chart headlined "Monetizing the Debt?" is misleading. To be meaningful, it should be scaled to % of GDP, not % of debt outstanding.
I don't see why the Fed can't buy $100b a month worth of Treasuries indirectly. Here's an example: Treasury issues $100b worth to the market on Tuesday, Fed buys $100b worth from the market on Wednesday, at a slight premium. Easy peasy.
The point is, there's a law against direct Fed purchases from Treasury. The aim of the law was to prevent debt monetization, but it's a weak obstacle. Because, after all, debt monetization can be easily achieved through Fed purchases of Treasuries from the market. The only difference is the added side effect that indirect purchases also monetize intermediation costs and profits.
As we've been over a million times here on ZH, this guy like a lot of professional blind leaders of the blind assumes that the only drivers of inflation are growth and overheating. QE2 will drive inflation through other channels, namely excess liquidity bidding up commodity prices and dollar devaluation driving up import prices.
http://keynesianfailure.wordpress.com/2010/09/24/why-this-time-qe-really-will-spur-inflation/
Well said. As a commodities trader myself, more QE can't help but find its way into the commodities markets. We've already seen it this year, with many commodities rising steadily throughout the year. The Fed wanted inflation, and it's coming!
Updated FTSE weekly chart:
http://stockmarket618.wordpress.com