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This Should End The Semantic Debate Over Whether The Fed Is Monetizing
Steve Liesman with Tim Geithner on June 2: "The Fed is absolutely not monetizing debt" (9 mins, 9 seconds into the clip)
Steve Liesman with Bill Dudley of the New York Fed, "I don't think [the Fed] is monetizing debt to any meaningful degree." (2 mins, 16 seconds into the clip)
At least Steve could could have had the courtesy of telling Bill what the Treasury Secretary said on the topic 3 months prior so the two could have kept the story straight. Either way, this will finally put the semantic debate over monetization to rest.
Bonus material: Dudley admits that the Fed is using excess reserves to buy Treasuries. Bill, duration mismatch is the last thing you will have to worry about come "unwind" time.
"Excess reserves are funding the purchases of Treasuries and Agencies" (3 mins, 10 seconds into the clip)
And there you have it folks. The Fed's pyramid scheme is now confirmed.
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haha well done Mr Durden
i wonder how mr. dudley defines "any meaningful degree" (clearly he must have a different definition than ZH?)
my suspicion is that he would be wont to define it at all. words with definitions may help destabilize the already shaky financial institutions of the world in this most difficult of times. wait, maybe I'm thinking of what geithner would say.
It also depends on what your definition of "is" is...
Should have asked him about AGENCY debt owned by CB's
+1 trillion, good work
It has become difficult to keep a "straight face" when these guys are spewing out their stories.
The Chinese students are way ahead of us on that front...
I would like to use oil at $40 a b
arrel as a stable US dollar.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Now that was a BIG DUH! WE have known this for years. If fact, the Fed has monetized debt for years. They have always held Treasuries on their balance sheet. The big difference is the size of what they hold. No one really believed Geithner then or now.
Exactly.
But isn't Timmy a compulsive lier? Lol
Junker Stock Watch:
Exhibit A we are in a liquidity driven stock market bubble.
Yeah, and Dudley essentially confirmed that we will continue to monetize debt through MBS purchases till the cows come home.
The Fed clearly doesn't care about the value of the dollar, depsite the end of Treasury purchases. What's a little befuddling to me is that keeping mortgage spreads artificially low via these MBS purchases really does very little to stem foreclosures, or create new demand for housing.
All we are really doing is papering over the problem by buying bad assets. Ironically, there actually might be more adverse outcomes if the Fed approaches the bad debt problem differently. At least that's what the Fed wants you to believe...
Oh... and Turbo Timmy has been proven (again) to be a Big Fat Liar.
"Junker Stock Watch"....potential for a regular ZH feature methinx!
here's my prediction for a soon to be player.....KEY. bound...to...happen
I would suggest if the Fed and Treasury do not pull back soon on their creative games we will see a true Black Swan event reflecting the loss of confidence in Govt debt that will make last fall appear as child's play!
That is quite possible.
"even though we have been buying hundreds of billions of dollars of securities"
end of third clip.
...@ 4:10.
Nice catch!
question is whether this is the fed, or funneled through AIG
Have I got it right ? Tax payer money went to the banks, the banks deposited at the FED for 0,25% interest that the FED use the same tax paier's money to buy Tresuries ? Great Shell game!!!!
To put a fine point on it, The Federal Reserve has created "excess reserves" by simply moving a mouse and lining up a few zillion of pixels to create "new cash." They in turn send that money (now called "reserves," which sounds a whole lot more like real money that, say, "play money") "out of the house" to certain well-connected banks who are members of the Fed system. The banks who enjoy this largesse do not loan it out, but instead throw it back into their individual accounts at the Fed, where they now become "excess reserves." This itslef is another great term that sounds like an extra cushion of safety in case you run out of the aforementioned "reserves." Then, they enjoy the .25% interest paid by the Federal Reserve on those very same "excess reserves" whilst the Federal Reserve takes those very same reserves out on the town through variousand sundry overt and covert operations and buys Treasuries or Fannie/Freddies with them. Sometimes they give foreign banks who walk up to the window with their armful of Fannies/Freddies some of the Treasuries they just bought.
Hey that seems profitable - huh? Buy Treasuries at various interest rates with .25% money, and pockets the difference. What could be easier, right? The thing is, by buying Treasuries with money that has been "swiped" into existence by a few keyboard strokes, you buy something for nothing, especially a something that others, like the Chinese, pay dearly for. That, my friend is "quantitative easing".
If you listen carefully, Geithner is actually saying "absolutely not monetizing death"...
I guess it is what your definition if what meaningful is. A total shell and sham game!!
What revelation will freak out this market enough, to push it to dread?
I mean really, do we really need to explore or examine these semantics...?
Any casual observer can see monetization, it's as obvious as a textured polyester leisure suit.
Best regards,
Econolicious
As one pundit put it, the Fed and Treasury would monitize the wind if they could.
and they can...
Yep, no new information here.
Of course the Fed is monetizing (even if the main thrust is indirect via the Agency & Agency MBS programs).
In my opinion the only questions are (a) how much is enough to sustain a reasonable circular flow in this balance sheet recession, and (b) what will
Mr. Bond think about this.
As regards balance sheet recessions, I recommend taking a look at:
Richard C. Koo,
The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession,
John Wiley & Sons (Asia), 2009.
The Fed Z.1 due Sep 17 should be a very interesting read.
Maybe the Fed governor and Treasury secretary can explain the information in this link.
http://www.chrismartenson.com/martensonreport/shell-game-how-federal-reserve-monetizing-debt
"The Fed's pyramid scheme is now confirmed."
Alongwith the fact that it is nothing but a criminal organization. Reminds me of the time when even mentioning such a thing would trigger loud protests and screams of "conspiracy theory". BTW, this is no surprise at all to those who know how the Fed/US Govt. really operate. This is just the tip of the iceberg folks - there is a lot more where this came from. Stay tuned.
"Reminds me of the time when even mentioning such a thing would trigger loud protests and screams of "conspiracy theory."
If there is one thing I have learned in the last 30 years of my adult life it is that no matter how absurd a theory might be, there is definitely a chance that it can be true. To that end, I no longer make fun of any conspiracy theory/theorist cuz they just may be right.
But deflationists said this could never happen! Prechterized again, eh Mish?
aaaaannndddd DXY getting nuked again. followed by idiot quants employing "DXY weaking = inflation = good for stocks = buy" logic with zero intelligent thought.
captcha seriously hard today....
Good find Tyler... Now some thoughts on these policies...
Interesting how Dudley backs the Fed's paying interest on excess reserves as a useful tool to prevent that money from getting out into the economy. While this -can- be true, when the Fed has to raise Fed Funds rate (and the interest they pay is generally connected to Fed Funds), eventually the banks make a larger profit on excess reserves. If Fed funds were at 5%, they are making meaningful cash by not lending into the economy (multiplying it). Eventually, bank capital is growing in meaningful enough way just from this.
Also, as the rate the Fed pays on interest increases, banks are less incentivized to pour those excess reserves into treasury assets; an inverted yield curve (at least stimulated by bank buying) becomes an impossibility because the banks can make money on risk free overnight loans, and it has no incentive to buy long term debt that pays a lower yield. The only forces to keep yields down are China buying treasuries to maintain its peg, and general deflationary outlook amongst investors.
In the long run, the policy to pay interest on reserves implies bank capital increasing down the road in a relatively risk free manner, also stimulating a relatively healthy yield curve environment for them. I have a feeling the policy will be removed once bank capitalizations are viewed as adequate.
The ability to roll those excess reserves into agency MBS again has the same yield curve implications (banks demanding yields on MBS over that of Fed Funds), but has a different inflation dynamic. That money gets lent by proxy, and multiplied through the system. In fact, same goes for excess reserves used to buy treasuries. The government spends that on wages/projects/etc..
So I think its an overly simplistic and outright false presumption to say that since the Fed can pay interest on reserves, therefore excess reserves are under control. If the Fed doesn't pay high enough yield, those reserves flow into treasuries and agencies. Treasuries and agency MBS are as good as multiplied loans, and therefore will have inflationary consequences.
Their short circuiting of the money multiplier will be interesting to watch, because eventually it will no longer be necessary. The problem is this: they won't be able to undo this policy and might find it will backfire on goals for lower long term capital market yields... They can't sell those almost 1T of newly acquired MBS or treasuries and simultaneously reverse this policy, otherwise mortgage market yields get out of control. Same goes for letting the cat out of the bag (and letting money multiply as normal) ...
If they hold the MBS to maturity in a rising yielding environment, the duration on that portfolio will rise from 7 yrs -> 20+ yrs.... That is as good as printing long term money they can't sop up. But it is relatively more benign money (since it won't be as effectively multiplied while paying interest on reserves policy exists). Perhaps the answer is the Fed never stops this policy, and this might be how the Fed solved the problem of being out of control of the money supply... That means a large Fed balance sheet and larger money base and a lower money multiplier, even with same bank leverage requirements.
Increasing the duration from 7 yrs to 20+ years IS the plan and only the FED (not banks) as the capacity to do it. The people MUST beleive the Fed has this capacity and the media will do what it can to make it reality. Fannie and Freddie will be become off balance sheet special purpose entities.
Very well thought out. I agree with much of what you said, especially the part about the Fed holding their MBS position and adding to it over time.
That said, at what point does that become "monetization"?
IMHO, it IS monetization unless and until the Fed sells the debt. But as long as it is held, it has become "monetized" by definition.
If you printed to buy it, you monetized it. It's not "real" cash. It's pure fiat currency, literally created out of thin air and assigned value only by reason of a tacit agreement in the marketpalce to do so.
the banks are not making "risk free" overnight
loans because they are deemed to be highly
risky....in fact that is why no one is using
the discount window and why talf and other
anonymous lending facilities materialized...
it is also why sound businesses cannot get loans -
the banks simply are afraid to loan so they
take the measly .25% interest as a consolation
prize....
many banks are so undercapitalized that they
cannot loan...
Interesting comment, scriabinop23.
I have a question/observation. Say the Fed starts paying interest on excess reserves. Where does the money to pay that interest come from? Is that newly created money? If so, to a first approximation, the rate of interest must be greater than the rate of inflation so as to give the banks incentive to leave their reserves with the Fed. But that implies that the monetary base must also increase.
As of this week, excess reserves held at the Fed are about $800 billion; monetary base is about $1,700 billion (according to http://www.federalreserve.gov/releases/h3/current/h3.htm). So when the program begins, the rate of increase of the monetary base will be about half that of the interest paid on the reserves, though that will increase at the (compounded) excess reserves grow.
Does this lead to a positive feedback, meaning that the Fed, if it were to continue this process, would have no choice but to keep increasing the monetary base?
It seems the obvious follow up question would have been "if the Fed is not monetizing debt to any meaningful degree, why is the Fed doing it at all? Why do something that has no meaningful effect? Clearly it has some effect or the Fed wouldn't do it." But Liesman would have to get Bernanke's scrotum out of his mouth before he could ask any questions.
I believe that most of investors had good returns at least in the first couple of years........
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Here's my personal response to Mr. Geithner. (first 30 seconds will do it). Wish someone in Congress would deliver this message, with this voice... OMG that get a million youtube hits.
http://www.youtube.com/watch?v=qTYheKB6axw
I am absolutely certain now that these people never intend to actually engage in any sort of "unwind". At least not in the traditional sense.
The Treasury prints money,
The Fed prints money,
The Treasury issues T-bills (debt)
The Fed uses "excess" money to purchase debt.
Have I got the formula correct?
not quite...the fed issues federal reserve
notes when it purchases t-bills and bonds...
the money is created ex-nihilo....
watch hyperinflation Nation on youtube.
http://www.youtube.com/watch?v=SzmYI_4XCbM
http://www.youtube.com/watch?v=vQCCDttLhA4&feature=related
http://www.youtube.com/watch?v=rVcyM2Z4Ego&feature=related
One hundred percent of the Fed’s power rests in the hands of the NY Fed, utilizing the unbelievable banking and political volume of the Empire State. Who is the NY Fed? Goldman Sachs.
Nobody gets nominated for US president without the approval of one specific bank—Goldman Sachs. It is obvious why the presidents choose Goldman Sachs people or Sachs’ approved people for the U.S. Treasury, either former or future Goldman Sachs people. Robert Rubin, economic advisor to Obama’s election and transition team and a former secretary of the Treasury, spent 26 years at Goldman Sachs.
When Bernanke has to make big decisions, his records show he calls Goldman Sachs.
NY Fed President William Dudley, who replaced Timothy Geithner, spent two decades at Goldman Sachs.
US Treasury Secretary Timothy Geithner, known as a “Rubin protégé,” was Under Secretary of the Treasury under former Treasury Secretary Rubin (GS), replacing Hank Paulson who was GS.
Robert B. Zoellick, president of the World Bank headquartered in New York as well as the IFC and the Bank’s affiliates, is Goldman Sachs. Zoellick also is former executive vice president of Fannie Mae. (Former head of the World Bank’s anti-corruption department, Steve Berkman , says, “the Bank enriches the government elites of the Third World while creating massive amounts of debt which cannot be repaid… Ten percent of the $20 billion disbursed by the Bank each year is lost to corruption and it is estimated that 25 to 35% of total lending is lost to corruption…”)
New York Stock Exchange CEO Duncan Niederauer is Goldman Sachs.
Citigroup’s retiring chairman, Robert Rubin, was GS. Bank of Israel Governor Stanley Fischer is of Citigroup.
Bank of Italy Governor Mario Draghi is Goldman Sachs.
John A. Thain’s trail through the New York Stock Exchange and Merrill Lynch and Bank of America begins at Goldman Sachs. (And don’t forget the machinations of Stephen Friedman until he resigned his role in May as New York Fed chair while he sat on the board of The Goldman Sachs Group.)
John S. Corzine, New Jersey’s governor, led Goldman for several years.
As the New York Times said in November of 2007, “Goldman’s Shadow Extends Far Past Wall St.” These are just a few of the Goldman people who decide who gets what and control policy decisions.
It should be noted what control of the New York Federal Reserve Bank means. The NY Fed has a permanent seat on the Federal Open Market Committee (FOMC)—the top monetary policy-making group of the Federal Reserve. The New York Fed conducts open market operations on behalf of the Fed. The New York Fed handles the foreign exchange operations on behalf of the U.S. Treasury and the Fed, as well as for some foreign central banks and international institutions. The New York Fed stores the monetary gold for dozens of countries—now totaling more than $200 billion.
As has been said: It is well to be aware that the new insider dealing powers in a single authority can be applied selectively to erode markets and undermine market participants who threaten those who wield the real power.
http://www.newyorkfed.org/aboutthefed/fedpoint/fed13.html (2008)
http://www.newyorkfed.org/aboutthefed/introtothefed.html (2009)
Dr. Brett Steenbarger seems to be suggesting direct interventions into the stock market to buoy up stocks here:
http://www.ritholtz.com/blog/2009/08/the-recent-concentration-of-volume-...
Tyler, you also implied this in your earlier post.
The implications of this are mind-blowing! The government is now directly interfering with the financial markets on multiple fronts simultaneously!
Thanks for the “the big picture.” Steenbarger's post was mind boggling. Hope you don’t mind if I repeat this part of it:
…I took C, FNM, and FRE and expressed their *composite* volumes (e.g., the volumes transacted all exchanges) as a fraction of NYSE volume. What we see is that, early in 2007, those three stocks accounted for only 1-3% of NYSE volume. During the financial crisis of late 2008 and again as the market was bottoming in early 2009, that ratio skyrocked to well over 50%.
Recently, however, the volume in these three stocks has hit astronomical levels relative to total NYSE trading, as all three have made phenomenal percentage gains during August. Indeed, the composite volume of these three stocks alone has recently doubled total NYSE volume. If we look at just the NYSE trading of these firms, they are accounting for about 40% of NYSE volume…
My best guess? We’re seeing a massive infusion of capital into very troubled financial institutions, no doubt aided by short covering and the participation of program traders and proprietary daytrading firms. Where is the capital coming from? Why has it poured in so suddenly (the really large infusions began in early August)? Why is it coming in at such a pace that it is dominating NYSE volume? Zero Hedge rightly wonders why this hasn’t triggered alarms at the exchange. And why is it happening with only the weakest financial institutions? ...
You mean zombie bear sterns. llc holdings being reanimated?
Ah that's nothing to worry about. He just needs to eat everyones brain who can figure out dead assets are running around pretending to be alive. Don't audit the FED or our magical economy will go away.
I think the Chinese have figured this out, and are purposely letting their market fall, thus bringing down our market. When our stocks start to sell off, and go into the dollar, the dollar will strengthen in value. This is when the Chinese will sell off what they have left in the US, and will leave us with a broken market, and no way to fund it.
The scam that this administration is trying to do will backfire big time, and we will be ruined for years, if not decades to come!
"We have tools to manage our balance sheet."
Basically means we have schemes, frauds, scams to make our balance sheet look legit on the outside but can't ever be audited.
This is a beautiful example to how those who have the most interest in a policy that makes money for their friends control the policy. this means too early to stop the tax payer money from the fed to the banks via non monitored programs. to early to ends the asset bubble. these people always say the same thing. they want more. they also benfit from the program. they aren't lending out the money, they are using it to buy assets and inflat anothe bubble, 40% of profits go into their bonus. it is sickening and so easy to spot. We want more of your money for our worthless assets that we can invest in the market. we want you to be holding the bag if things don't work out the way we want. that is what these people are saying. You just have to understand their language.
"It's too early for me to cut my freindss from goldamn scahs off from the pot of gold. we/they stil have too much exposre to crappy assets, so I have to use federal programs to steal from you" . the sahme is the press treats these clear crooks like some rock stars when most of what they have to say is clearly suspenct and riddled with conflicts of interest. Note there is no examination of Mr. Dudley's backgrould or who is benefiting from the program the amounts to each counterparty. If goldman is making recrd profits should they be getting money? I already know godlamn's about goldmans real estate exposure. this is a goldman alum heading a program that will diporportionally benefit goldman sachs under the cover of a government official, when he is running operations for a private bank consortium. Another fucking AIG folks. If we don't get the money it will be bad for you. Always the same story. they get the money we the tax payer are left holding the
debt (this time vai the FED). Always the same story!!!!, and almost nobody (esp in the press) questions the validity of the statements.
The Fed shouoldn't even be called the FED. If we just called it: the United States huge private banking consortium maybe people would actually get it.
Fed's Dudley: early to mull curbing security purchases
Mon Aug 31, 2009 8:08am EDT Email | Print | Share| Reprints | Single Page[-] Text [+]
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Fed can avoid inflation: NY Fed's Dudley
31 Aug 2009WASHINGTON (Reuters) - New York Federal Reserve President William Dudley said on Monday it is too early to talk about curtailing the central bank's long-term security purchases while the economic recovery is fragile.
"As financial conditions improve, which seems to be the trajectory, it's a legitimate point to consider what you want to do in terms of your purchase programs," Dudley told CNBC in an interview.
"My own personal view is I think it's a little premature to be so confident that you want to pull all these things back right now because the economy still isn't growing very fast and we do have a very high unemployment rate."
Dudley's comments show a divergence of views on the Fed's interest-rate setting Federal Open Market Committee. Richmond Fed President Jeffrey Lacker said last week the Fed should consider foregoing the full extent of its long-term securities- buying pledge, which includes the plan to purchase $1.45 trillion of mortgage agency debt by the end of the year.
The Fed cut rates to zero in December and has pumped hundreds of billions into the financial system to spur economic growth in the worst recession in 70 years. With signs of recovery in housing and factory activity, the Fed has said the downturn appears to be leveling out, but with the caveat that any recovery is likely to be sluggish with unemployment painfully high for a while.
Dudley said on Monday he is confident the U.S. central bank can withdraw its massive economic stimulus measures without allowing dangerous inflation to take hold.
"We have tools to manage our balance sheet so that we're not going to have an inflation outcome, bad inflation outcome," Dudley told CNBC in an interview.
(Reporting by Mark Felsenthal; editing by Stephen Nisbet)
"We will fix the problem by giving banks more money"