Federal Reserve

Stephen Colbert destroys "Dr. Blankcheck von Moneypants." Must watch clip.

Ben "Darth" Bernanke...

This raises the broader—and very contentious—issue of whether monetary policy should seek to lean against potentially dangerous swings in asset prices. The answer is far from clear, because the use of monetary policy for these ends necessarily compromises the attainment of other macroeconomic goals. Because such use of monetary policy is costly, high priority should be assigned to developing regulatory tools to address systemic risk. Even so, the crisis of the past two years has prompted many of us to reexamine the widely held view that monetary policy should respond to asset prices only to the extent that they influence the anticipated trajectories of inflation and unemployment. Further research into the connections among monetary policy, the banking and financial sectors, and systemic risk is needed to help answer this question." - Janet Yellen

Ms. Yellen: we respectfully would like to say that you could not be more wrong. In essence your question of whether the Fed should inflate asset bubbles, defines the Fed's completely perverted and flawed agenda better than any other tongue-in-cheek elaboration for the continued worthless existence of your money printing syndicate.

Goldman Sachs, which lately has been caught in a toxic spiral of potential misrepresentations (courtesy of the SIGTARP report which plainly refuted the firm's claims that it was not on the hook vis-a-vis AIG, and by the way, Ms. Tavakoli, we are waiting for you to retract your apology to the 85 Broad team) and horrendous PR (first Blankfein apologizing for something, then Gasparino telling Lloyd he should step down), may be the final straw that finally breaks open the Fed's "book of death" (for the middle class, f/k/a "book of life" for the banker cartel). Ahead of tomorrow's hearings on various Fed transparency initiatives, Rep. Elijah Cummings is calling for a complete tear down of the existing Fed structure, and demands an overhaul to the "minimal accountability" that the Fed issubject to courtesy of the current Wall Street perpetuated ( and lobbied) status quo.

"The now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve in connection with Maiden Lane III once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counterparties or the details of the payments, warning that disclosure of the names would undermine AIG's stability, the privacy and business interests of the counterparties, and the stability of the markets. After public and Congressional pressure, AIG disclosed the identities. Notwithstanding the Federal Reserve warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market or damaged legitimate interested of the counterparties. The lesson that should be learned - one that has been made apparent time after time in the Government's response to the financial crisis - is that the default position, whenever Government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with Government funds. While SIGTARP acknowledges that there might be circumstances in which the public's right to know what its Government is doing should be circumscribed, those instances should be very few and very far between."

- Neil Barofsky

A fantastic history of the reasons for, and the creation of, the Federal Reserve, courtesy of Murray Rothbard and our friends at Mises Institute, with the article originally appearing in Quarterly Journal of Austrian Economics, Vol. 2, No. 3 (Fall 1999), pp. 3–51. It is also reprinted in A History of Money and Banking in the United States and as a monograph. This is a must read for anyone who is curious why the Federal Reserve (with or without Goldman) is the sole organization responsible for not only perpetuating the interests of a select few of financial oligarchs, but in essence shaping monetary, fiscal, financial and political policy in the entire developed world. If after reading this, one is not convinced that the Fed screams a need for at least some supervision or accountability, one is likely a borderline-corrupt Senator who is on the payroll of Citi, Bank of America and/or Goldman Sachs (or, what may be worse, infinitely naive).

Total Federal Reserve balance sheet assets for the week of November 11 of $2,146 billion ($1 billion lower compared to the prior week's $2,147 billion).

The Federal Reserves is doing what they always do, bailing out their pals on Wall Street. My findings have strengthened my bullish outlook on the stock market even more, and they offer undisputable proof that the Federal Reserve is involved in illiquid CMS excepting activities via TALF. I do not think commercial real estate will be a problem. Remember, the commercial mortgage bond market is only $700 billion. The
residential mortgage bond market is $8.95 trillion.

Even as liquidity swaps and CPFF hit a new all time low since inception at $33 and $32 billion, respectively, the Fed's accelerating purchases of securities, mostly MBS and agencies, keep the Fed's balance sheet flat week over week.

In a surprisingly aggressive piece of prepared testimony before the House Financial Services Committee by AFL-CIO president Richard L. Trumka, the labor union, which represents over 11 million working members, shares some very harsh words with regard to the proposed regulatory reform in general, and the continue functioning of the Federal Reserve in particular. Notable is that many of the concerns voiced by the AFL-CIO are precisely those that should be highlighted by many other presumably much more sophisticated entities which are expected to carefully consider all potential impacts of future regulatory reform, yet which have expressed a surprising interest in perpetuating the status quo except for a few minor cosmetic changes.

Courtesy of the Fed's own disastrous policy of flooding the market with trillions of cheap credit over the past several decades, the resulting massive one-sided trade of buying dollar denominated securities, funded with inappropriately duration matched products, ended up in $6.5 trillion of Fed-funded global Moral Hazard exposure. When the wheels came off the financial system last fall, the Fed had to step in and bail out all foreign Central Banks. From the BIS: "In providing US dollars on a global scale, the Federal Reserve effectively engaged in international lending of last resort...What pushed the system to the brink was not cross-currency funding per se, but rather too many large banks employing funding strategies in the same direction, the funding equivalent of a crowded trade." The imminent question - How long until the next iteration of the Fiat banking system's most crowded trade (long US-denominated securities, courtesy of a cheap carry trade somewhere in the world) pulls the system back to the brink again?

Securities held outright: $1,608 billion
(an increase of $75.3 billion MoM, resulting from $13 billion in new
Treasury purchases, $52 billion increase in MBS and $11 billion in Agency Debt), or $13 billion increase sequentially

Net borrowings: unchanged at $289 billion, as no update in the current week.

Float, liquidity swaps, Maiden Lane and other assets: $231.8 billion, a $4 billion decrease based on a $252 million reduction in CPFF and a $6.2 billion reduction in FX liquidity swaps, bringing these to a fresh 52 week low. At $43 billion in liquidity swaps, there is little room left for the Fed to force foreign CB to keep pressing on the dollar. Keep an eye out on this datapoint as it is probably one of the better leading indicators of when foreign CBs start covering their dollar shorts (and are in need of dollar funding by the Fed).

By using our balance sheet, the Federal Reserve has been able to overcome, at least partially, the constraints on policy posed by dysfunctional credit markets and by the zero lower bound on the federal funds rate target. By improving credit market functioning and adding liquidity to the system, our programs have provided critical support to the financial system and the economy. Moreover, we have carried out these programs responsibly, with minimal credit risk and with close attention to the exit strategy. Our activities have resulted in substantial changes to the size and composition of our balance sheet. When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration. - Chairman (or is that Printman) Ben Bernanke

Total Federal Reserve balance sheet assets for the week of October 7 of $2,119 billion ($1 billion lower compared to the prior week's $2,121 billion).

"Long-term let's change the mission of the Federal Reserve: let's codify something that prevents it from running amok, like it did for the past ten years" - Paolo Pellegrini