This page has been archived and commenting is disabled.
The Fed is So Predictable
Funny thing is, they aren't supposed to be. Opaqueness is part of what makes a central bank effective. And of course, we didn't actually predict this move by the Fed, but in my blog post on Monday I made made this assertion:
With banks in the EU in dire need of recapitalization, at some point eurobonds and euros will not suffice to prevent them from collapse. Banks and central banks all over the world already rely heavily upon the worlds reserve-currency (the dollar) to act as a capital cushion. When times are tough, we can observe excessive lending activity on behalf of the Federal Reserve, whereby they lend substantial amounts of dollars to banks in need of capital.
Two-days later, dollar swap rates are cut, whereby the Fed becomes the world's lender of last resort. I remember something like this happening in... 2008? Yes, yes that was it. Fed to the rescue, toxic assets withdrawn from the system and are plopped right onto the balance sheet of the Fed, where they still reside. I'm not sure what the Fed is holding as collateral as they "swap" for the dollars, but if it starts with E and ends with O, I have a feeling that the 27 Eurozone nations are making out like bandits from this transaction. When their currency is worthless by December 10th they are going to be quite happy they unloaded those liabilities for the Fed to sit on while they deflate.
I worry a lot about the state of the assets the Fed has on its balance sheet, and how long they can continue to sit on them. Recall that a lot of these assets are MBS's acquired at the peak of the crisis. In case you haven't been following, and if this move by the Fed hasn't indicated it clearly enough, things haven't gotten any better.
»
- advertisements -
the fed is smart... and important government stuff
.
http://www.youtube.com/watch?v=nsdZKCh6RsU&feature=endscreen&NR=1
2 options: print or crash too early. The middle class isnt dead yet, The middle being either the vultures want to pick the small meat of you tired bones or some bottom feeders wants to ambush you for 14 months of quick loot or become your name. sounds like your in the middle always. Its nothing new,not good or bad it just is.
Have a jack and coke zh
Damned if you do damned if you dont
The Fed is becoming a gigantic waste basket of bad assets. Waste baskets do not have infinite capacity
Actualy thiat one does. Fed can print currency and buy every worthless security on the planet at full par ...plus commission to the selling instittution. Fed's balance sheet can be 1 trillion, 10 trillion, 100 trillion, 1,000 trillion, it doesn't matter.
...except for one little detail, the more dollars Fed prints the less each dollar is worth, like a company issuing more stock dilutes the value of existing shares.
If dollar was tracked like stocks it would show large increase in "shares outstanding" and 1/3 drop in share value since '08. Anyone holding that "stock" long term would have suffered 33% loss since '08.
Yes the Fed can buy (worthless) securities till the cows come home and keep right on buying. But there's no free lunch. Currency printing to buy those (worthless) securites (at full par + commission) slowly robs your wealth, my wealth, everybody's wealth.
Actually it is a free lunch for the Fed. We pay the bill.
"The Fed is becoming a gigantic waste basket of bad asset."
I believe the tense should be changed from the progressive indicative present "is becoming" to that of the progressive indicative perfect "has been becoming".
"The Fed has been becoming a gigantic waste basket of bad asset."
(...for quite some time now; a truthful fact that no one at the fed should becoming over.)
Considering the fact that Federal Reserve Notes are never redeemed I would say the FED is in great shape.
Imagine if you could write checks all day long and you knew that they would never be presented for payment? Quite gig they got going.
Maybe the ECB should hire Jon Corzine.....maybe they alraedy had.......
Where is Jon Corzine?
the Fed is utterly predictable ...i said a couple of months back the Fed acts to shore up the crumbling cash flows of bwankers and politicos (nothing to do with the economy, unemployment or business in general)
if you can time either WS bankers or DC wankers running out of money you can predict Benny trotting out another snakeoil symposium of "Saving the little guy" as window dressing
Only this move has caught Ben the Emperor naked with no clothes.. there's been no spike in any indicator like unemployment or GDP to give him cover for QE3 ...it's a blatant in your face bailout of bankrupt banks ...Bennys cover is blown
Ben is the super pooper scooper of the banking and political system, nothing more nothing less ...mandated to pick up the crap of the elite and sugar coat it as being a 'Man of the People' ...this isn't saving the economy, this is propping up drunken stupid bankers
I disagree about the predictability bit. Sure, one can someway safely predict, that they will bail this out and bail that out..... sometime in the future... but timing it accurate enough is near impossible, plus they can see the quantities of which bets have been placed, so for a lot of people to frontrun them, they not only have to predict the precise timing of someone who can choose the precise timing however he wants, but also SURPRISE the marketmaker out of nowhere.
Does that affect longterm bets? In the longterm, it isn't hard at all to predict what they will attempt to do (though, if they succeed is not so easy to predict, because that depends on social unrest and a lot of other stuff).
But for the short and midterm? Forget it. Look, their bots control the prices, they see what you do, and they can make stuff temporarily go up or down however they want. There logically is no safe way to trade this shortterm.
I am going to do a rip van winkle; when I wake up will the average American:
1. have a debt of $ 1 Trillion,
2. have already signed over his/her children and property to the State, OR
3. Be able once again to walk free.
???????
A rolling loan gathers no loss.....
Anybody call up and ask you if you wanted to participate in the EU Circlejerk? Me neither. Odds are these geniuses at the Fed (voted 9-1 with Helicopter Ben) are tossing us an anchor as we struggle with our debt (and their balance sheet) issues that take us into the tits up zone....no coming back anytime soon. Purchasing power of your $$$$--get real.
This is complete bullshit, opaqueness is the smoke & mirrors behind which governments hide the biggest credit bubble in human history but
If you are, who else is? Maybe, just maybe, things are gonna change on this planet soon.
The argument actually is that central banks need to be opaque. It is what they rely on to moderate inflation and construct effect policy. One example of a CB becoming too exposed was I think it was Mexico's CB. They could not contain inflation as a result of being too open about policy. While I agree that a CB being too opaque is outrageous, especially with so much public money being sloshed around, theoretically transparency is bad for central banking
Sorry, complete bullshit.
A central bank needs only to redeem its obligations, period. In other words it needs to be completely transparent. A central bank needs to be opaque when it has defaulted on its obligations, like... now.
What the hell are you talking about, Mexico devalued its currency WITH NO WARNING overnight in December of 1994. Too open about their policy my ass, they slammed the devaluation on the country and stole almost half of whatever anyone had saved in cash ( Pesos ) overnight. No warning, nothing but outright theft, savers got screwed.
No way. CBs need only do one thing: Increase or decrease currency to hold the price of gold constant. The rest is BS to increase the wealth of the well connected.
The house always win. Fighting central bankers is a losing game. The timing on this one, after Monday's up move, was clearly designed to flush out every last short. Criminal.
Disagree. President Andrew Jackson fought "the Fed" and won. He understood what was at stake, went around the country educating people, founded a new political party called the Democrats based on fighting the central bankers. He won. People forget that the first three tries at a central bank in the US all collapsed: The Bank of North America; Bank of the United States 1, and Bank of the United States 2. Jackson had his Treasury Secretary move all US Gov't funds out of the CB and into the State banks. The CBs fought back but eventually lost, and the CB went belly up. Peace and prosperity followed.
So yes, we can win this fight. Ron Paul.
Jackson also paid off the national debt entirely. Boy did the Banksters hate him.
http://en.wikipedia.org/wiki/Dahlonega_Mint
I disagree, the "waste" isn't real, hence nothing is being "filled".
These fuckers at the FEDERAL RESERVE need to be KILLED!
Flat out, these people are economic terrorists and are only bailing out financial houses and banking buddies.
Can't wait til someone shoots these pricks in the head.
There's no point in killing the Federal Reserve fuckers. Our fellow sheep will just re-institute a new batch that same evening.
The only way we're going to get change is if we can persuade a significant number of the sheep to wake up and take an interest and research how all this shit works (or doesn't)... at which point, we don't need violence, we'll just vote them out. ie, violence is useless while the system has the support of the majority, and needless once it hasn't.
That is.. as long as we have the vote. If they take that away from us (Diebold, anyone?) then violence is the only way out.
Everyman,
I like your tone.
Everyman for President.
Now, now. I think lowering them into a very, very, very deep well with nothing more than their fiat money printed in small denominations, to be burned as heat and lighting. The ONLY way they can return to the surface is when they've exhausted every last fiat bill into the fire, you know they'll be down there for the next 100 years or more.
A fitting judgment for these slime balls. See, no need for violence, Just a well deserved visit by Karma.
Yes, the Fed is predictable. To borrow a quote, "the Fed is no more Federal than Federal Express, and they have no reserves." When they stop calling debt assets, then the conversation becomes much more realistic.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Georgesblog...
Looks like one of the fed members read your comment,and junked you.
But you betcha.....
NOT FEDERAL.
NO reserves..
No brainer.......
End da Non Fed No Reserve scam.....
The FED doesn't go bankrupt. They can keep the junk in their pocket forever.
The Fed will not hold on to junk for long. They can always sell it to George Soros for a nickel on the dollar.
yeswekhan. and they will and nobody is going to stop them now. it's now obvious - qe to infinity. and as some of us may lose everything because we were savers - they are cashing in and then out. it doesn't matter what the dollar is or isn't worth - they'll have plenty.
good thing the nba season starts soon. soon enough. nobody going to do anything about it.
Deleted.
A thought - since the fed creates the paper for next to no cost, does it matter what the fed has as assets? As long as he has the thug (us gov) to "persuade" the rest of the world that the dollar rules, it does not matter, me thinks.
Love the quote from Mises - “Government is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink.”
You#re on the right track. It does not matter AT ALL. A fiat currency is by definition irredeemable - it is 'backed' by nothing.
It's redeemable in anything it will buy i.e. whatever some sucker will give for it.
your money is their special power, "bend over". no lube, no time for that little luxury.
It's all predicated on the status of the Dollar as Reserve Currency. When that goes, it all goes. IranWar should do it.
trash is overflowing, time to take it out
This is all fear mongering... Mark Thoma explains clearly that :If the Fed makes a loan to the European Central Bank, and the ECB lends the money to a bank that later fails, it is the ECB that is on the hook for losses, not the U.S. The European Central Bank would still be obligated to pay back the U.S. in full.
See, nothing to worry about...
And if they don't have the money what then, we attack France or Belgium. Or do we take the payment in Euro's.
Pay back in what? Euros? No problem.
How do you cover currency swap with euros if ECB already swapped its euros for USD to fund european banks dollar shortage? That is a rhetoric question though. The answer of course is you make another swap and paper over old problem with a new one. And when ECB blows the second portion of dollars into worthless paper, the Fed can start lending to american banks in euros, this way when american banks blow all the euros the resulting liquidity squeeze will cause euros shortage. The Fed and ECB will sit down and write-off mutual obligations. Problem solved. Wait, what?
Maybe that's when we take Germany's gold.
If you give me a Hamburger, I'll gladly pay you Tuesday.
Hemmm... You guys have by now realized that it's about EuroDollars, don't you? Lots and lots of EuroDollars that could avalanche... EuroDollar positions which are Not To Be Closed, Or Else, and here some sugar so that the medicine goes down...
Doesn't the Fed have some kind of special powers of being immune to depreciating assets on their balance sheet?
A Ponzi Scheme ends when everyone tries to take their money at once. It happened to Madoff.
It happened to MF Global.
It will happen to the USA.
In my opinion, it will begin with a big down move in bonds. 10x today's move lower. Today the 30 year moved from 143'24 to 140'24. 3 Handles is a big move. At some point confidence in the US will be shaken and bonds will move 10x or 20x - 20 Handles in a day.
That will result in further selling and a panic will develop in the bond market.
I wonder if today's liquidity drop will be reflected by SP in the ratings..... LOL ! ; The rating agencies are completely useless and part of the scheme.
If Europes problems are not fixed when this happens, then China and Japan may be the only ones available to throw us a line, otherwise Gold will spike - equities will plummett and the realization will be squarely on the American public that the Ponzi scheme, as we've grown to know it since 2008 is OVER.
RIP USA.
But.....short of that day - BTFD ! and keep your stops tight.
In a way, yes!
When the fed purchases credit instruments with newly printed money, it can later withdraw the money it has printed from circulation simply by selling the credit instrument back into the securities market and retiring the money.
However, to the extent that if the credit instruments on the Fed's balance sheet depreciate or default, the Fed loses the power to sop up the money previously printed to purchase those securities, and thus loses its power to tighten policy by decreasing its balance sheet and thus shrinking the money supply, the market already having done that for them.
In other words, losses on Fed assets make the money printing permanent to the extent of those losses.
A collateral effect of Fed losses on purchased securities is that the Treasury loses interest income.
You are correct, sir, but I believe the poster was referring to the fact that the FED is able to move any accounting losses onto the Treasury's balance sheet. I believe there was a ruling about this within the past year or so.
Yes, your right and its called printed money.
Yes they do. Rectally, they can insert it onto ours.