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  • Euro Rescue Funds To Buy Sovereign Debt - Will It Work? [View article]
    Mr Kramer, you have offered the most lucid argument for euro bonds I have read to date.

    Of course there is concern about moral hazard, but it seems to that extent the common good should prevail. To what extend do you see risk free bonds eliminating the financial market discipline the Euro Zone admires?
    Jun 21, 2012. 10:58 AM | Likes Like |Link to Comment
  • The Fed's Risky And Reckless Tight Money Policy [View article]
    "I’m here to tell you that 5% NGDP growth is the known. What we have today is the unknown."

    I can buy that, seems nGDP results from the known when risk is appealing and even productive. Today, liquidity just sloshes from risk to safety. So, even targeting 5% inflation would require the coup de grace for the confidence fairy to achieve that much inflation.

    Monetary policy, per se, is very loose but the "flow" is tight. (No offence intended, Flow. :) ) I'm not convinced even the Fed has the supernatural ability to fix that one through asset buying.

    Besides, I am not so sure extraordinary asset buying has as much to do about spurring lending or setting inflation expectations as much as fighting asset deflation. And there is a lot of that to be had on both sides of the pond. But not all assets float on the sea of liquidity and rise with the incoming tide - home prices come to mind. So, the Fed target's home prices...good on them for thinking of our Wal Mart shoppers.
    Jun 21, 2012. 09:33 AM | Likes Like |Link to Comment
  • The Most Pragmatic Good Advice We Could Give The Fed [View article]
    The Fed is ascribed with too many magical powers to rule the universe. It is just one player among many in the financial system. The problem is it is the only player at the moment. As long as the Euro perfect storm brewing, there is just not gonna be much risk appetite.

    Similar to Rokjok's idea above, I'd say if the banks are not going to put excess reserves to good use transfer them to private demand deposits. That might spur some aggregate demand, especially for Chinese goods. And maybe some European exports at EUR $1.20 or less.
    Jun 21, 2012. 09:00 AM | Likes Like |Link to Comment
  • Euro Rescue Funds To Buy Sovereign Debt - Will It Work? [View article]
    "...why not also Spanish securitized mortgages?" You mean like the Fed might have done? Reserves are not inflationary, necessarily.

    I think what we want is a banking union with the ECB as a real lender of last resort. But, that seems to require a political union and a fiscal union before that. It's not encouraging to think any monetary union can really grow it's way out of this crisis, much less a very dysfunctional one that is dependent on very real, and accumulating, debt in a currency it cannot print and spiraling into depression. Until then, it seems even Germany may be bowing before the Troika for a loan.
    Jun 21, 2012. 08:21 AM | Likes Like |Link to Comment
  • Why Operation Twist Could Damage Our Stressed Banks [View article]
    Loans are boring, derivatives are where it's at. All you have to do is avoid the pandering from the senate.
    Jun 21, 2012. 06:08 AM | Likes Like |Link to Comment
  • Why No More Quantitative Easing Is A Good Thing [View article]
    "The one thing the Fed could do to help would be to more forcefully explain to the world that monetary policy cannot stimulate growth."

    They may have, already, as Tim Duy points out, "Sounds like the Fed intentionally wants to take the focus off the balance sheet."

    "...upon reflection, the market has decided that the Fed did the right thing. We don't need more QE to get the economy going. The Fed has done just about all it needs to do in order to accommodate the world's massive appetite for dollar liquidity..."

    Absolutely correct, it does what the Fed is supposed to do. It's the lack of players that are not utilizing the transmission mechanism. Why, well because it's not risk on often enough due to uncertainty in Europe...or the nebulous derivative exposures.

    "...reducing the burden of government would unleash powerful private sector forces that would almost surely boost economic growth." This may have been true after WWII, but not anymore. Government "borrowing" no longer crowds out investment funds, not in the current banking system. After WWII, surely there was a lot of money in circulation and business thrives on such conditions. Ask Greece.

    "That's mainly because reserves are now functionally equivalent to 3-month T-bills..." Yep.
    Jun 21, 2012. 06:01 AM | Likes Like |Link to Comment
  • Federal Reserve: Twist It Is [View article]
    "Sounds like the Fed intentionally wants to take the focus off the balance sheet." Probably so, maybe they are trying to break the koolaid addiction.
    Jun 21, 2012. 05:41 AM | Likes Like |Link to Comment
  • Stocks And Operation Twist: Buyers Beware [View article]
    "But by acting today, they have proven themselves completely subservient to the stock market."

    Surely the Fed could do better if it actually targeted euphoria. The Fed has set the stage, for better or worse, with low rates. What we need is growth and some action from congress in an election year. (Great timing!) Better yet, maybe some movement in Europe would be nice. If we can can hold our breath that long.
    Jun 21, 2012. 05:32 AM | 4 Likes Like |Link to Comment
  • Bernanke Plays It Safe - No QE [View article]
    " recommend holding more cash and fixed income at the current time and wait for a better buying opportunity in the future." The transmission mechanism is broke, you say? Understandably so. Fed policy is short term, or very much should be. Our politicians need to stop playing brinkmanship with our economy (and that's putting it nicely.)

    There is that weird lull again, as if no one knows what to make of the coordinated central bank action (twist-lite, BoE and PBoC easing, ECB inaction, BoJ readiness to defend the yen) coupled with the crisis in Europe. Can't say I blame anyone, just saying...this weird lull, flat trading. Even though we all pretty much knew what to expect, it's almost as if we took a collective breath and said, "now what?"

    Maybe equities now realize the Fed punch bowl is no longer full of spiked koolaid and to expect something only in case of contagion or a downturn as we approach the fiscal cliff. Until then, and as the US election is known, Europe banking and sovereign debt crisis should drive markets.
    Jun 21, 2012. 05:19 AM | Likes Like |Link to Comment
  • Spain Facing A Banking Crisis And A Sovereign Crisis At The Same Time [View article]
    The G20 cavalry will ride to Little Bighorn for Lagarde's last stand
    Jun 20, 2012. 11:52 AM | 1 Like Like |Link to Comment
  • Why The Senate Won't Touch Jamie Dimon: JPM Derivatives Prop Up U.S. Debt [View article]
    Jun 20, 2012. 10:55 AM | Likes Like |Link to Comment
  • What Will Replace The Dollar? [View article]
    PIMCO CEO El-Erian did a piece recently on the collapse of the euro leaving the USD the only currency standing. Gold is an asset, not money.

    And how does a nation acquire reserves? Through trade surplus, usually. That's how China holds both dollars and euros, by selling to us. You gotta have deep pockets for such a currency, unless you want to borrow SDR's from the IMF. I would not.

    "...when China looked at our intentions to invade Iraq, stay in Afghanistan, not implement a war tax, and even maintain tax reductions." China is not concerned we cannot make good on debt denominated in the very currency we can print, that are angry the yield is so low.
    Jun 20, 2012. 10:34 AM | Likes Like |Link to Comment
  • Fed Preview: How Big A Bazooka Does Ben Need? [View article]
    Mark, totally agree. We could have spent without "borrowing" (or taxing) a dime from China or our grand kids. Still, taxes destroy net financial assets (dollar for dollar, the $7 deficit in the simple example.)

    I see what you're saying, the Treasury could print money and redeem all its outstanding bonds. Bonds are just another form of cash. But, that cash is still a net financial asset, a liability to the government. Reducing that liability to zero would require collecting every (net financial asset) dollar in the system (minus bank money creation), as I understand it. Bonds are simply savings accounts. Redeem them and you have cash, you would pay taxes with thereby reducing the deficit.

    I cannot find the piece I was looking for, it might have been Bill Mitchel that spoke to that more clearly. There was a difficult discussion on whether bank money can be used to pay taxes. But, I think we're on the same wavelength.

    Flow, yea, overspending in both public and private sectors is a problem. But far more menacing is the deregulation and the "fox" eating the "chickens" through deregulation creating a huge buildup in financial assets, including MBS and over the counter derivatives.
    Jun 20, 2012. 09:56 AM | 1 Like Like |Link to Comment
  • Why The Senate Won't Touch Jamie Dimon: JPM Derivatives Prop Up U.S. Debt [View article]
    Man, this stuff just aggravates me to no end. Col. Jessup was right, I can't handle the truth!

    The truth of this is, well, interesting and fairly consistent with books on the subject. Thoughts such as the crash was sparked by Bernanke hiking rates and the real reason for the gradual erosion of the dollar... absolutely immense volume of dollar denominated liquidity (in Europe and the US.) Also, the idea the Fed is supporting risk free asset prices to fend off asset deflation (not just home prices) while supporting this huge volume of USD assets dwarfing Fed power money.

    Really, I do not know what to make of it other than, if even close to being true, this is some scary "brown stuff." Seems fears of the greatest depression since the great depression are pretty real. The casino gambling has to end.
    Jun 20, 2012. 09:35 AM | Likes Like |Link to Comment
  • Fed Preview: How Big A Bazooka Does Ben Need? [View article]
    Mark, sure. When they mature, you get cash or roll it over. If the government wanted to retire it's debt, you would remit that cash to the government. "China would have funds deposited into their account at the Fed..." Exactly, China could choose to hold cash or buy dollar denominated assets.

    Simple off the cuff example: say the government spent $10 and taxed back $3. The deficit is 7$ as is the currency you hold. Say you bought a $7 security because you chose to save. Now, if the government wanted to pay down it's $7 debt, you would be forced to sell the security (or let it mature) for cash then remit that cash to pay that $7 tax obligation. Once this is done, the US debt is no more. I am looking for Mosler's article where he explains this explicitly.

    In real life its a bit more complicated, but that's the idea. When the Treasury spends, it issues securities or taxes to drain currency to give it some fiscal space to spend without creating too much inflation. The Fed and the Treasury have a combined balance sheet. Currency and securities are the joint liability of both. The simple way I understand it, the Treasury issues securities and the Fed manages them.

    Security issues are monetary - not fiscal - policy. Likewise, taxes do not fund a government with the monopoly power to "print" it's own currency. There is no bifurcation of fiscal and monetary policy, not in the US. (This is not true in Europe, hence they are susceptible to bond vigilantes while the US enjoys low safe haven yields.) The government does not need your dollars to spend, it can do so with a simple nod from congress.

    Again, this explains nicely how a welfare state with a service sector economy can afford to spend on two wars and numerous bank bail outs and still have low yields with tax cuts in place. The dollars China "lends" to the US came from the US. China does not issue dollars, the US does.

    Talk about a bazooka, talk US fiscal policy. Helicopter drops are fiscal - not monetary - policy.
    Jun 20, 2012. 05:42 AM | 1 Like Like |Link to Comment