Fed Auction Results Show Higher Rates; Good for Weak Dollar Foes

Another Fed auction has gone off and for the third time in a row, banks are paying higher interest rates.

On May 5, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 2.220 percent

Total propositions submitted: $96.618 billion
Total propositions accepted: $75.000 billion
Bid/cover ratio: 1.29

Number of bidders: 71

For weak dollar foes, this is good news, as climbing rates will give strength to the dollar and ought to help with rapidly rising commodity prices.

Comments

[User 143167]

How about a rising oil price with a rebounding dollar?
I think it will be too hard a fact for many to swallow, but it will soon turn out to be the case.

[sivere]

But they took it all, and wanted more!

We need to TakeBackTheFed.com

[gordon]

It looks like the 10-yr might be headed to 4%?
finance.yahoo.com/q/ta...=

Will that catch CNBCs attention? Are the broker-dealers borrowing all these(almost) free money to trade commodities/prop the SPY/DIA futures. Is there any monitoring of how they use this money? Wouldn't it be ironic if they are using this cash motherload to bid up oil futures, further increasing inflation for the average American? After all, the primary dealers have made 70% of their profits by trading, and M&A, and making loans isn't happening, right?

[User 30121]

Your kidding, right? Just keep telling yourself (and other "sheep") that the dollar is going to be a SOLID vehicle, and the commodities...gold and silver are on their way OUT! Kinda like Barack and Hillery will be holding hands in November! NOT.

I have been saying for TWO YEARS now, move out of the way, because you're blocking me from obtaining some more physical gold and silver!

[LouThomas]

Let's see: Investment banks are broke, so they bid for Fed loans offered to them in exchange for their near-worthless MBSes, which are accepted by the Fed as collateral. Because they are desperate, and because the Fed is offering to accept wastepaper that nobody else will accept, and because these loans will never be repaid anyway, but only rolled over, they are willing to pay a somewhat higher interest rate as the price of entry to this near-giveaway of funds.

From this we conclude that "interest rates are rising," in general, which is "good for the dollar," right?

So, by this logic, the more broke and desperate U.S. bankers become, the better it is for the dollar. Oh, and the more liquidity the Fed dumps into the banks, which just eat it and do not lend it out for actual economic activity, the better *that* is for the dollar, too, so long as the Fed gets a good rate of interest for its loans that will never be repaid but only rolled over anyway. Right. Right. Right.

For even more good dollar news, let's not forget that the U.S. government is *also* broke, and will soon have to offer higher interest rates on its Treasuries. Which "raises interest rates." Which is "good for the dollar," right? Yes, right again! And so, the more broke the U.S. government gets, the higher interest rates will go, and the better everything will be then for the dollar.

I can't believe how smart I am! The entire U.S. economy, along with U.S. equities, can collapse, and foreign holders of six trillion dollars can spend them all at once on U.S. grain, or throw them onto the exchanges to buy other currencies when the U.S. exports have all been bought up, but so long as the Fed raises interest rates, the dollar will be A-O-K! Thank you, Mr. Sullivan, for helping me figure this crazy thing out!