What's Another $1.15 Trillion? 56 comments
Tim Iacono
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The Federal Reserve announced today that they will join the central banks of England and Switzerland, printing money out of thin air to buy long-term government debt so as to keep interest rates low and boost lending in their ongoing attempt to revive an economy that is faltering badly due to an orgy of credit and debt a few years ago.
Apparently the gold market and currency markets have heard the news (the chart to the right will be updated as needed over the next hour or so - update #1 from $925 to $932 already complete).
The printing presses will be working 'round the clock to fund purchases of up to $300 billion in long-term Treasuries over the next six months which, in combination with an increase in purchases of mortgage backed securities and agency debt also announced today (an additional $850 billion total), should see the Fed's balance sheet swell to once unthinkable levels.
Lest anyone think that any of this is getting a bit out of control, the central bank also provided assuring words that they will keep an eye on the "size and composition" of their balance sheet in light of economic developments.
In what appeared to be just an afterthought, relegated to the third paragraph after occupying the top spot for years, the Fed also announced that short-term interest rates will be left at the freakishly low level of between zero and 0.25 percent and that they won't be going up anytime soon.
The policy statements from the last two meetings are shown below.
And if this doesn't work, we might just see the Fed's balance sheet hit that $10 trillion level that someone mentioned the other day.
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This article has 56 comments:
is likely to make Chico here look like a genius.
www.youtube.com/watch?...
The bold stroke of the Fed is as important as the actual financial impact. The unexpected move sends a strong message that it is serious and still potent.
It's a matter of balancing risks, as always.
The risk of a continued decline in the present economy is far worse than the risk of inflation, which is currently well in check. The Fed can gradually replace the funds with debt when the economy improves, and markets (primarily housing) improve.
How does one reduce the cost of borrowing by buying their own debt that they issue? Especially with printed money?
It's counter-intuitive, isn't it? This is a totally inflationary move, but bond yields drop??!?!? It's either treasury bond holders believe that the act of printing money and monetizing debt is "deflationary" (which doesn't make sense) or they believe that the act of printing money and monetizing debt somehow improves the long-term credit rating of the U.S. and therefore they are willing to accept lower returns.
DOESN'T MAKE SENSE!
This is insane. I think bond yields are going to come back up once people come to their senses.
In the twisted world of bonds and the bond market, Fed purchases of Treasuries on the open market three times a week raises the value of the bonds, thereby sending yields in the opposite direction.
"This is a totally inflationary ..." Yup, it is ... Except the problem immediately at hand is not inflation, but tumbling housing values and declining economic activity. Despite recent buzz about inflation, the far greater risk is still of further economic deterioration and deflation.
"This is insane." Maybe. I applaud the Fed's bold move, and believe that it will help spur economic activity over the coming months. Just don't look at the stock market's reactions as a measure of gauging sanity or effectiveness -- at least over the short run.
Best,
R
Waste
Inflation
B/w NO country in the World has achieved progress or success by spending more!
May be your 'faith' will do the miracle!
On Mar 18 04:29 PM Raution wrote:
> Fed plays the role of a big daddy and not of a day trader. So they
> have to ensure that all the statements are well calculated and does
> not transmits the wrong signal. Second they do not want to pre-conclude
> any assessment whether it is about declaring its recession or stating
> that we are on recovery. So I am impressed with the Fed moves and
> I think they are doing the right things at the right time. They understand
> that there are some positive sentiments in the market and they need
> to feed this faith till negatives die out of starvation.
www.bestsyndication.co...
It is yet to be seen if any of the Fed's actions will awaken the consumer. The Fed is having a cheap-credit orgy; credit card companies are raising rates and slashing credit lines; is it really going to be easier to get a loan to buy a house or car? I think most people are smart enough to continue to save and not spend.
Have you forgotten about Timmy's wonderful plan to purge the toxic crap from the bank balance sheets. (to be announced ??)
That will be the last harrah.
On Mar 18 05:29 PM Jolly_Rancher wrote:
> This is the last hurrah before we either emerge victorious
> or we perish.
You know, a year ago when all of this started happening, I read an article about the US going into hyperinflation mode. I kind of scoffed at the article. Think I'm going to break it out again for a re-read.
But I still wonder why all the C-level geniuses (and their captive boards) who created this mess are keeping their jobs. Is this how capitalism is supposed to work?
“I’m mostly worried about the economy,” Bernanke said. “We do think inflation will be quite low over the next couple of years. At the same time, we have to be very careful to make sure we are prepared to withdraw monetary stimulus at the appropriate time to make sure that down the road we don’t have inflation.”
In fact, I think this debases not just the currency, but the reputation of the United States as a fiscally responsible country (along with Obama's plans).
On Mar 18 04:48 PM Respirate wrote:
I applaud the Fed's bold move, and believe
> that it will help spur economic activity over the coming months.
> Just don't look at the stock market's reactions as a measure of gauging
> sanity or effectiveness -- at least over the short run.
>
> Best,
> R
March 19 2008 (Bloomberg) -- Fannie Mae and Freddie Mac agreed to expand their purchases of U.S. mortgages and related securities after the Bush administration reduced the amount of capital the companies are required to hold as a cushion against losses.
March 24th, 2008: (Thomson Financial) - The Federal Housing Finance Board said Monday it has authorized federal home loan banks to increase their purchase of agency mortgage-backed securities (MBS), effective immediately.
Sep 7, 2008: WASHINGTON (Reuters) - The U.S. government on Sunday seized control of mortgage finance companies Fannie Mae and Freddie Mac... Treasury also set up a program under which it would buy mortgage-backed securities currently held by Fannie Mae and Freddie Mac to pump fresh funds into the mortgage market. It said it would begin buying MBS later this month, and it would have authority to make such purchases through December 31, 2009.
Nov. 25, 2008 (Bloomberg) -- Yields on Fannie Mae and Freddie Mac debt fell by the most on record relative to benchmarks, leading gains in credit markets after the Federal Reserve committed $800 billion to help Americans obtain mortgages and consumer loans.
I agree with you that "making things" is what we need to do. Like you, I'm not a big believer in the financial service economy that we've been so enamored with in recent years.
The theoretical "risk-free" rate (theoretical because a true risk free rate never has and never will exist) was only affected indirectly today. The Fed funds rate was left unchanged. Also, lowering rates is not directly or necessarily inflationary. There is no 1:1 cause/effect.
You asked: How does lowering the rate today help spur economic activity?
Business and consumer credit rates will follow Treasury rates incrementally lower. Debt capital availability is not the problem. Borrowing for purchases and capital expansion (the "making things" that we agree on) will be more favorable.
That applies to home mortgage rates as well. Expect to see many refinancings to occur, lowering monthly payments and giving individuals additional purchasing power. Additionally, lower mortgage rates won't hurt, and should help sagging home sales.
Banks will benefit from a wider spread. Bank profitability could improve, definitely a good thing for our damaged financial sector.
There are many other examples, but you get the idea.
Respectfully,
-- R
Last week the Chinese premier fired the first public salvo that he's worried about the value of their treasuries and now we go and print $1 trillion more USD to buy our own treasuries? Have the Chinese had their fill?
Nik
Applaud the move? You've just been ROBBED
On Mar 18 04:48 PM Respirate wrote:
>
> "This is insane." Maybe. I applaud the Fed's bold move, and believe
> that it will help spur economic activity over the coming months.
"We have made a huge amount of loans to the United States."... "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets."
Now, just 5 days later our treasury responds by flooding the world with dollars but buying treasuries. Hmmm, I wonder whose in charge?
Look for the global trade scenario to change very quickly -where IS dollars are shunned for regional currencies. The Ponzi scheme has been revealed -and the US and Euro land have continue to pretend they are rich.
Look for continued housing price falls -as 'finally' the American public realize that chaining them to debt was an insidious way to rob a hard working population of amenities such as retirement, healthcare, etc.
Look for surreptious taxes -no idling your car, consumptioon taxes (alcohol/cigarretes, a pole tax (strip joints-seriously being discussed in NY). Don't forget municipal and state taxes and of course suspending all rebates and having a lot of working joes -being adited by the IRS -and being asked to fork out a few grand.
Welcome to the beginning of the end. Seems like 2012 by Mayans -may not just be a cultural belief.
They keep a watchful eye on inflation, which is very subdued NOW.
Once the economy starts growing at the normal rate of 3-4% GDP, then Fed will hike up the interest rate to contain inflation.
Today I worry more about deflation and economic deterioration, NOT inflation. Fed's hyperactivity is required at this point in time.
Jai Ho.
Spiked higher on FED announcement, because the action is likely to stop inflation.
US Dolar:
Fell, because pumping money into the market makes the dollar less valuable, but the dollar is holding well due to the perception that we are on a recovery while the rest of the world is just entering a global recession.
Also investors are worried the government’s actions would eventually lead to inflation.
Gold:
Gold prices also slid as demand for safe haven holdings fell
The rate policy:
It is exhausted, and FED is making extraordinary efforts to pump up credit in order to boost the economy this is a more aggressive for getting financial markets moving .
Will the market go down?
Bernanke, suggested that a recovery is in sight, and the additional money in the financial system sparked a market recovery.
Treasury bond yields showed an immediate drop after the announcement, and that this would translate into lower rates for home, consumer and business loans.
But the economy continues to contract, some market watchers belive that the euphoria of the announcement might not last long, and the dollar will fall sharply with the rising national debt (due to tarp money)
Begun, the trade wars have.
The Fed purchased $300 billion in bonds today..where did that money come from? It came from the existing money in your pocket and bank account.
the U.S is BROKE, it is a bankrupt country. We do not have a viable Economy. We do not have the ability to cover our obligations without increasing our money supply. We can not cover our Foreign Debts without inflating our money supply. When you increase the money supply you ROB the people. When you increase taxes to pay for the bailouts you are ROBBING the people.
It does not take a Genius to see that we're being taken to the cleaners.
Wake up
and if Lawson Heals up I'm picking the Tar Heels to take it
On Mar 18 11:00 PM CJJ wrote:
> You haven't been robbed. Please back up your silly statements. <br/>
>
> When the banks pay back the TARP money and the US(Thats YOU Abag)
> makes 5-10% on money when you can't get that yield on money anywhere
> these days...Are you going to be back on here telling us how bad
> that is.
>
> Why don't you add up all the money the US has proposed in the past
> 12 months, shout out a lofty number like 10-14Trillion and feel satisfied
> with yourself. But please be prepared to start subtracting that when
> it is paid back.
>
> I forgot, 12345 and everyone here are geniouses. They could step
> into the fray and solve the worlds ills in about 5 minutes and still
> have time to get home for dinner.
>
> Do you want to tell me your NCAA picks, since you obviously know
> it all.
>
> On Mar 18 08:43 PM 12345 wrote:
So is this good for you and me and the market? You tell me. According to the Fed it's good. Your assets will become worth less (not worthless yet), the Fed's balance sheet will be about 20-30% of GDP, and they can now loan you money when you go broke or can't make ends meet because it now costs $20 for a McDonalds value meal.
I own the railroads but am getting a few bars of silver and gold for a "get out of jail" card just in case.
Government does nothing well.
Your faith in words will be your undoing.
On Mar 18 11:00 PM CJJ wrote:
> You haven't been robbed. Please back up your silly statements. <br/>
>
> When the banks pay back the TARP money and the US(Thats YOU Abag)
> makes 5-10% on money when you can't get that yield on money anywhere
> these days...Are you going to be back on here telling us how bad
> that is.
>
> Why don't you add up all the money the US has proposed in the past
> 12 months, shout out a lofty number like 10-14Trillion and feel satisfied
> with yourself. But please be prepared to start subtracting that when
> it is paid back.
>
> I forgot, 12345 and everyone here are geniouses. They could step
> into the fray and solve the worlds ills in about 5 minutes and still
> have time to get home for dinner.
>
> Do you want to tell me your NCAA picks, since you obviously know
> it all.
>
> On Mar 18 08:43 PM 12345 wrote:
On Mar 18 08:25 PM Nik Kondratieff wrote:
> This is just insane policy and an even more insane reaction in the
> stock market. People really think we're going to solve this by the
> Fed bloating its balance sheet with Treasuries and printing more
> money? You have to assume the Fed knows things are worse than they
> are publicly saying and has no other option at this point.
>
> Last week the Chinese premier fired the first public salvo that he's
> worried about the value of their treasuries and now we go and print
> $1 trillion more USD to buy our own treasuries? Have the Chinese
> had their fill?
>
> Nik
40% Canned Food
15% Bottled Water
40% Guns and Munition
5% Pitchforks and Torches
i shorted treasuries today and i'm worried that they actually may go up from here...wild, i may be better just buying a one way ticket out of this place.
waiting for the crazy equity market to realize what's happend -- credit markets always tell a better story...and being ready to short many of these financials once they turn and roll over is probably the wisest decision...cost of borrowing on these financials has increased this week and along w/ the 100% bounces makes covering common place....for now.
On Mar 18 06:53 PM Fitz919 wrote:
> China has 1 Trillion in US debt, that they say they are worried about.
> Why didn't we just buy it back. At least we'd be printing money for
> a good reason.
On Mar 18 06:53 PM Fitz919 wrote:
> China has 1 Trillion in US debt, that they say they are worried about.
> Why didn't we just buy it back. At least we'd be printing money for
> a good reason.
On Mar 18 06:53 PM Fitz919 wrote:
> China has 1 Trillion in US debt, that they say they are worried about.
> Why didn't we just buy it back. At least we'd be printing money for
> a good reason.
On Mar 18 07:59 PM Respirate wrote:
> wiking, unfortunately the United States lost some of its reputation
> in many areas long, long before today.
>
> I agree with you that "making things" is what we need to do. Like
> you, I'm not a big believer in the financial service economy that
> we've been so enamored with in recent years.
>
> The theoretical "risk-free" rate (theoretical because a true risk
> free rate never has and never will exist) was only affected indirectly
> today. The Fed funds rate was left unchanged. Also, lowering rates
> is not directly or necessarily inflationary. There is no 1:1 cause/effect.
>
>
> You asked: How does lowering the rate today help spur economic activity?
>
>
> Business and consumer credit rates will follow Treasury rates incrementally
> lower. Debt capital availability is not the problem. Borrowing for
> purchases and capital expansion (the "making things" that we agree
> on) will be more favorable.
>
> That applies to home mortgage rates as well. Expect to see many refinancings
> to occur, lowering monthly payments and giving individuals additional
> purchasing power. Additionally, lower mortgage rates won't hurt,
> and should help sagging home sales.
>
> Banks will benefit from a wider spread. Bank profitability could
> improve, definitely a good thing for our damaged financial sector.
>
>
> There are many other examples, but you get the idea.
>
> Respectfully,
>
> -- R
More fuel for the fire.
theburningplatform.com...
SOB.
On Mar 18 04:11 PM Respirate wrote:
> That rates have been kept "freakishly low" speaks for the Fed's perception
> of the unprecedented circumstances that make this more than a run-of-the-mill
> recession. No one is better qualified than Mr Bernanke to recognize
> that.
>
> The bold stroke of the Fed is as important as the actual financial
> impact. The unexpected move sends a strong message that it is serious
> and still potent.
>
> It's a matter of balancing risks, as always.
>
> The risk of a continued decline in the present economy is far worse
> than the risk of inflation, which is currently well in check. The
> Fed can gradually replace the funds with debt when the economy improves,
> and markets (primarily housing) improve.
You will bear witness to the most retarded economic manuevers in history. All downhill from here, folks.