In light of this evening's entertainment from Paul Krugman, we thought QBAMCO's Paul Brodsky's view of the present debt-ceiling policy-through-the-looking-glass extremely apropos. Speaking of monetary abstractionism, there has been recent talk of a fiscal gimmick called “The Trillion Dollar Coin,” in which a platinum coin valued at $1 trillion would be created by the U.S. Mint for the Treasury Department. Treasury would then rid itself of its pesky fiscal deficit in one fell swoop by simply keeping the coin on deposit at the Fed. The TDC idea is a marvel of political imagination and public ignorance. Obviously, the TDC idea is a political ploy with a targeted mission: to rid the US Treasury of its debt ceiling, which is an increasingly frequent and embarrassing public reminder of government ineptitude. Everyone knows government-led de-levering is not a serious threat. However, the irony of the scheme and its MMT (Modern Money Theory, is espoused by imaginative economists technically proficient in double-entry bookkeeping and deficient in confidence that free marketplaces can provide accurate valuations) / liberal Keynesian promoters could not be more delicious. The scheme exposes the forty year-old charade, otherwise known as the global monetary system, better than any mind-exercise we have been able to come up with.
As reported previously, when Bloomberg broke the news two days ago, it now appears that the official appointment of Jack Lew as the new SecTres will take place tomorrow. From Bloomberg: "President Obama will announce tomorrow that White House Chief of Staff Jack Lew is his pick for Treasury secretary, person familiar with the matter tells Bloomberg’s Han Nichols." In other words - goodbye Timmah: best of luck writing your new book, which in the tradition of every ex-public servant who departs the government where they kept their mouths firmly shut, we assume will be all about bashing Tim Geithner.
It is widely recognized that the agreement to mitigate the fiscal cliff neither puts the US on a sustainable fiscal path nor lifts much policy uncertainty. At the same time, minutes from the latest FOMC meeting showed that several members anticipate ending QE3+ before the end of the year, seemed to cloud the outlook. Seeking to avoid partisanship of the heated debates, we offer the following overview of the outlook for US policy, free of hyperbole.
Bloomberg is out after hours with news that was expected by many, but which was yet to be formalized, until now: namely that following today's flurry of contntious nomination by Obama, the latest and greatest is about to be unveiled - Jack Lew, Obama's current chief of staff, is likely days away from being announced as Tim Geithner's replacement as the new Treasury Secretary of the United States. In other words, Jack will be the point person whom the people who truly run the Treasury, the Treasury Borrowing Advisory Committee, chaired by JPM's Matt Zames (who just happens to also now run the notorious JPM Chief Investment Office which uses excess deposits to gamble - yes, you really can't make this up) and Goldman's Ashok Varadhan, global head of dollar-rate products and FX trading for North America (recently buying a $16 million pad at 15 CPW) will demand action from.
Central Planners are trying with all their might to force people into behaviors and financial assets that are in direct contrast to their logic as well as long term financial well being. This is the height of immorality, not to mention hubris.
“In general [traders/economists] are trained to analyze the economic data, balance sheets and so on. They’re not trained to predict political decisions. These factors have ruled the lives of fund managers in a more significant manner than what used to be over the past 20 or 30 years.”
The paragraph above pretty much sums it up. There are no markets, there are manipulations.
On May 10, 2000 a GATA delegation consisting of Reg Howe, Frank Veneroso, Chris Powell and Bill Murphy met with Denny Hastert, The Speaker of the House in the United States Congress; Spencer Bachus, the Chairman of the House Subcommittee on Domestic and International Monetary Policy; and Dr. John Silvia, the Chief Economist of the Senate Banking Committee. We presented each of them our 100 page "Gold Derivative Banking Crisis" document and personally delivered it to the staff of every House and Senate Banking Committee member.
The US Fed is playing a very dangerous game by purchasing as many Treasuries as it is. But that game can last much longer than anticipated.
We know its not Paulson, Ackman, or SAC; is it Dalio's Bridgewater? No, the world's most profitable private entity that is in business to generate profits via speculation in financial markets is, drum roll please, the Federal Reserve. Stone & McCarthy (SMRA) estimates the Fed will make around $90bn profits in 2012. Of this around $87.5bn will be remitted to the US Treasury - a new record high (quite helpful when one is trying to avoid a debt ceiling using 'extraordinary measures' though we assume this is already penciled in due to its consistency). Since 1947 the Federal Reserve has paid the Treasury roundly $975 bln, about 1/3 of which has been paid over the past 6 years. In other words, the cumulative Federal deficit since 1947 has been reduced by nearly $1 trillion since 1947 due to the repatriation of Fed earnings to the Treasury Department. SMRA estimates that this profitability, thanks to the spread between SOMA coupon income and IOER will likely lift the Fed's profitability to around $120bn in 2013, but a 1% rise in yields would translate into a $275bn loss.
- U.S. Family of Mao’s General Assimilates, Votes for Obama (Bloomberg)
- Iron ore prices hit eight-month high (FT)... four months after plunging and crushing iron ore miners
- Obama seeks 60 Senate votes for cliff deal (MarketWatch)
- Need. Moar. InfinitQEeee: Japan PM adviser urges unlimited BOJ easing, higher price goal (Reuters)
- Yen Touches 16-Month Low Versus Euro Before Japan CPI (BBG)
- China consumers driving economic rebound (Reuters) - ot just year end window dressing to accompany the new Politburo
- Rajaratnam agrees to pay $1.5 million disgorgement in SEC case (Reuters)
- France should review 2013 deficit target with EU partners (Reuters)
- Monti-led poll alliance takes shape (FT)
- Bersani wants growth-oriented Europe (FT)
While the market will look with some last trace of hope to Obama's return from Hawaii to D.C. today, the reality is that even the mainstream media, which had so far gotten everything about the cliff spectacularly wrong (proving that sample polling and actual "predicting" are two very different things), is waking up and smelling the coffee. As Politico reports, "nearly all the major players in the fiscal cliff negotiations are starting to agree on one thing: A deal is virtually impossible before the New Year. Unlike the bank bailout in 2008, the tax deal in 2010 and the debt ceiling in 2011, the Senate almost certainly won’t swoop in and help sidestep a potential economic calamity, senior officials in both parties predicted on Wednesday. Hopes of a grand-bargain — to shave trillions of dollars off the deficit by cutting entitlement programs and raising revenue — are shattered. House Republicans already failed to pass their “Plan B” proposal. And now aides and senators say the White House’s smaller, fall-back plan floated last week is a non-starter among Republicans in Senate — much less the House. On top of that, the Treasury Department announced Wednesday that the nation would hit the debt limit on Dec. 31, and would then have to take “extraordinary measures” to avoid exhausting the government’s borrowing limit in the New Year."
The main feature in the foreign exchange market continues to be the yen’s weakness. This weakness, based on expectations that the new Japanese government will succeed in driving the dollar to JPY90 with a combination of more aggressive monetary and fiscal policy (“Abenomics), is offering support to the other currencies. The yen sales are a combination of momentum and carry strategies. There are two other forces in the market as well. First, the market is anticipating a further reduction in tail risks in Europe. Of course the large moves away from the abyss this year are clearly the doing of the ECB with its long-term repos and offer of (conditional) outright purchases.
It’s Not a Tax or Spending Problem … It’s a Devolution Into Lawlessness
- IMF Demands Partial Default for Cyprus (Spiegel)
- Boehner's 'Plan B' Gets Pushback (WSJ)
- Beijing criticises US ‘political checks’ (FT)
- White House Said to Tell Business Groups Talks Stall (BBG)
- NYSE tries to get hitched again: IntercontinentalExchange in talks to buy NYSE (Reuters) -> N-Ice coming?
- Greece faces ‘make or break’ year (FT)
- Fed rejects idea of consensus forecasts, "maybe forever": Fisher (Reuters)
- Rajoy Drives Spanish Revolution With Low-Cost Manufacture (BBG)
- Italian Senate Set for Budget Vote Before Monti Resigns (BBG)
- BOJ Loosens With Pledge to Review Inflation Objectives (BBG)
- Bowing To Abe, BOJ To Review Price Goal (WSJ)
“The Government Has Bought Into the Notion that Too Big to Fail Is Too Big to Jail”
- Here come the low margin products: Apple Tests Designs for TV (WSJ)
- Obama and Republicans Trade Offers to Avert Fiscal Crisis (BBG)
- Carney broaches dumping inflation target (FT)
- Bernanke Critics Can’t Fight Bonds Showing No Inflation (BBG)
- Corporate Taxes on Table in Cliff Talks (WSJ)
- US business chiefs back tax rise (FT)
- Greece Confident Bond Buyback Needed for Aid Succeeded (BBG)
- New Faith in Europe's Banks (WSJ)
- European Bank Sees Little Room for Rate Cuts (WSJ)
- North Korea Claims Success in Rocket Launch (WSJ)