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Federal Reserve

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The Business Insider

That AIG is a giant sink-hole for taxpayer dollars is no secret now. But that's not what Washington communicated last year, maintaining that the bailout of AIG was an investment that would be paid back. New documents show, however, that Washington never really believed what it was saying, and that the "this is an investment" rhetoric was just to make the gigantic bailout more palatable. Conservative watchdog group Judicial Watch just dug up some juicy Treasury documents on Washington's bailout of AIG.

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Economic Policy Journal

Possibly the most unequivocal sign that distinguishes a totalitarian system from a relatively free society is the simple right to leave. In totalitarian societies, the "iron curtain" falls, and "citizens" are not free to leave. The people and their assets are effectively property of the state. They, and everything they produce, are "human resources" that belong to the government. The "citizens" are more accurately described as prisoners confined within their national borders.

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Financial Times

Some analysts think the Fed should adopt a flexible approach and extend the terms of the Treasury buying programme until the end of the year.

That way, the Fed could buy fewer mortgages and more Treasuries, should yields rise sharply in the coming months.

“It would make sense for the Fed to give themselves room to buy more Treasuries later this year, if that is required,” said George Goncalves, head of fixed income strategy at Cantor Fitzgerald.

 

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Market Watch

Even though some Federal Reserve officials and market participants want the party to end, the central bank is going to keep the punch bowl full after its two-day meeting this week, analysts said. Former Fed Chairman William McChesney Martin once famously quipped that the Fed's primary role was to take the punch bowl away before a party really starts cooking. But it's important not to take away the spirits too soon. "Although some hawks want to take the punch bowl off the table, I don't think they will convince [Fed chief Ben] Bernanke," said David Jones, a veteran Fed watcher. Bernanke, a student of the Great Depression, knows that the Fed made a mistake of tightening too soon during the late 1930s, thereby prolonging the downturn, Jones said. "That is something Bernanke is going to avoid," Jones said. Even though the market is more and more convinced that growth is just over the horizon and worries about inflation abound, the economic outlook has

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Bloomberg

Ben S. Bernanke deserves another term as Federal Reserve Chairman based on his success in battling the financial crisis, said Princeton University Economist Paul Krugman, a winner of the Nobel Prize. “He’s earned the right to a second term,” Krugman, 56, said yesterday in an interview in Kuala Lumpur. “He turned the Fed into the financial intermediary of last resort. When the banking system failed to deliver capital where it was needed, he put the Fed into the markets.”

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Economic Policy Journal

SJ writes: It’s not clear if Bernanke has become too close to the banking industry or too captured by his staff, but in any case Treasury feels that he is not fully on board. If the administration really wants to put the economy on a path to sustainable bubble-free growth, it looks increasingly likely that it will want to replace Bernanke when his term is up early next year. Secretary Geithner is the most plausible replacement.

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Bloomberg

Political drama over how to regulate the financial industry, replete with an f-bomb-filled rant from Treasury Secretary Timothy Geithner, has obscured a huge unresolved issue: what to do about too-big-to-fail financial institutions. If anything, questions surrounding these institutions -- banks, insurers, brokers, and who knows what else -- have grown. This leaves a big question mark hanging over a vast swath of the financial system. In the meantime, it’s Christmas every day for the too-big- to fail crowd, with taxpayers playing Santa Claus. Just look at interest expenses that have been halved at banks like Citigroup Inc., thanks to loan guarantees and zero-percent interest rates, or the 46 $100-million-plus trading days racked up by Goldman Sachs Group Inc. in the second quarter.

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Zero Hedge

Comment (mine) You know what they say about Socialism it is a great idea until you run out of other peoples moneyl. Foreign holdings of USTs and Agencies increased by $23.5 billion monthly to $2,810 billion from $2,787 billion in the prior month. This is now less than 20% of the comparable increase in Securities Held Outright by the Federal Reserve, implying foreign purchasers are starting to fall far behind in their purchases of US securities relative to the Fed's monetization rate.

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Investment Watch

Good grief! Just last week, when the auction results were announced it was trumpeted to great fanfare that there was “more than sufficient” bid-to-cover, “strong demand” and all the rest. And now it turns out that 47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by the Fed and permanently secreted to its balance sheet. They didn’t even wait a full week! A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using “primary dealers” and “POMOs” and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public. The speed of the shell game is accelerating.”

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Investment Watch

Cutting out the competition? Federal Deposit Insurance Corp. Chairman Sheila Bair believes up to 500 more banks could fail this year, a U.S. senator said Bair told him in a recent meeting. “She told us that unless something dramatic happens, we could lose up to 500 more banks,” Sen. Jim Bunning, R-Ky., said Thursday at a hearing of the Senate Banking Committee on the foreclosure crisis. Bunning said Bair made the remarks in a recent meeting. “That means that people who make mortgages in local places …. people that could really help in a foreclosure will not be there,” Bunning said.

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The Market Ticker

This was apparently first broken by Brian Benton, not Chris Martenson; the original link was to a Financial Sense article (of which I was unaware.) All the previous comments in my other post, however, still apply - here it is in video.... There is also evidence showing up that this was not the first purchase of essentially "as-issued" bonds, especially in the 7-year duration. I am looking into this and will attempt to quantify the percentage of "support" that is in fact monetization, irrespective of what Bernanke said in front of Congress.

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The Market Ticker/Zero Hedge/Chris Martenson

Remember the Dallas Fed's Fisher saying that "The Fed will not become the handmaiden of Treasury"? He was lying (The Fed already has), and now there is proof. Mad props to both Zerohedge and Chris Martenson for noticing this; I missed the facts buried in the CUSIP list. The upshot: The Fed bought nearly half of LAST WEEK'S 7 year Treasury Issuance TODAY. Huh? Remember, after the 5 year auction that went badly (and which I wrote about) the 7yr auction went "well." Rick Santelli (and a lot of other people) agreed - demand was strong. That made no sense to me at the time, coming one day after a near-failure in the 5 year. Well now we know what happened: The Fed pretty clearly pre-arranged, either explicitly or by "suggestion", that the Primary Dealers take up the auction with the promise that The Fed would immediately monetize half what the Primary Dealer's took! Folks, this is beyond bad - it is pernicious and outrageous conduct by The F

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Market Watch

Be wary of what you read in the main stream news what good job news? Treasury prices turned lower Wednesday, pushing yields to the highest level since June in volatile trading, after one of the biggest bond-trading firms raised its outlook for U.S. growth and economic reports showed improvements in employment and factories. Goldman Sachs (GS 168.19, -0.45, -0.27%) raised its forecast for economic growth in the second half of 2009 to an annual rate of 3% from 1%. The firm, one of the 18 primary U.S. government security dealers, expects a return to below-trend growth in 2010. "That could be taking steam out of Treasurys," said Thomas Di Galoma, head of U.S. rates trading at brokerage Guggenheim Capital Markets.

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Bloomberg

Treasuries declined for a third day after the U.S. announced it will sell a record $75 billion of notes and bonds at next week’s auctions and indicated plans to expand issuance of inflation-indexed securities. Thirty-year bond yields touched their highest levels in a week as the government signaled it’s considering the introduction of 30-year Treasury Inflation Protected Securities and ending 20-year TIPS as it finances unprecedented budget deficits. U.S. service industries contracted at a faster pace in July, suggesting recovery from the deepest slump since the Great Depression may be slow. “The curve is steepening as a lot of people want to stay away from the belly and the long end,”

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Safe Haven

As we all know, the Federal Deposit Insurance Corporation (FDIC) guarantees depositors that they'll get their money back if a bank fails, at least up to a certain amount. To fund its operations, the FDIC collects small fees from the banks that are held in reserve for the purpose of taking over troubled banks and paying off depositors. Since the Great Depression, a period marked by widespread runs on banks, the FDIC has done a good job of fulfilling its mandate. So how are they doing in this crisis? In a nutshell, they are in trouble. The FDIC insures 8,246 institutions, with $13.5 trillion in assets. Not all of them are going bankrupt, of course. Yet as of late July, a disturbing 64 banks had gone belly up this year - the most since 1992 - costing the FDIC $12.5 billion. At the end of Q1, the agency was already asking for emergency funding. And worse, much worse, is likely yet to come. The following chart shows the total assets on the books of the FDIC's list of 305 trouble

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WSJ

Federal Reserve Chairman Ben Bernanke assured readers of this page (“The Fed’s Exit Strategy,” July 21) that he has the tools to prevent the huge reserves he’s pumped into the banks from generating an inflation that would abort an economic recovery. But does the Fed have the guts to use those tools? Will it risk censure from Congress and the Obama administration if it tightens money at the crucial juncture when inflationary omens accompany a reviving economy? Mr. Bernanke signaled the probable choice by writing that “economic conditions are not likely to warrant tighter monetary policy for an extended period.” The Fed’s past record of judging when and how to use its tools for regulating the money supply is not impressive, particularly in times of economic distress. Its financing of large federal deficits in the mid-1970s sent inflation up to an annual rate approaching 15% before Jimmy Carter repented in October 1979 and installed Paul Volcker at the Fed with orders to kill the mo

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Fox

The Federal Reserve Bank of New York bought $7.248 billion in Treasurys on Wednesday, the first of two operations this week. Dealers submitted $17.913 billion in debt maturing between 2013 and 2016 to the Fed. The central bank is more than two-thirds of the way through the $300 billion in U.S. debt it promised in March to buy in an effort to keep borrowing costs, particularly for companies and homebuyers, affordable. When the Fed bought from this maturity range a month ago, it purchased $7 billion. Treasury prices remained higher, pushing yields on the 10-year note down 3 basis points to 3.65%.

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Washington Post

Congress will be forced to raise the legal limit on the nation's credit card sometime later this year, Treasury officials reported Wednesday, focusing additional attention on the expanding national debt just as lawmakers expect to be putting the finishing touches on President Obama's trillion-dollar overhaul of the nation's health care system. The amount the government may borrow from the public, including foreign creditors, is limited by law to $12.1 trillion, a cap that has been raised several times since the nation slipped into recession in December 2007. Treasury officials predicted this week that they expect to borrow an additional $892 billion through the end of the year, driving the overall debt past the cap sometime in the fourth quarter. "Given the uncertainty surrounding potential borrowing needs, Treasury will continue to keep Congress and financial market participants apprised of developments as the debt outstanding approaches the statutory limit," T

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WSJ

BO's boy Timmy sure wants the Fed to RULE THE WORLD! Top U.S. regulators rebuked Treasury Secretary Timothy Geithner on Tuesday and continued criticizing the administration's proposed revamp of financial regulation, signaling that turf battles will continue over one of the White House's top domestic agenda items. During a Senate hearing, federal banking regulators took aim at central aspects of the administration's proposal, questioning the creation of an agency to protect consumers and the concentration of regulatory power in the Federal Reserve. Comptroller of the Currency John Dugan said parts of the proposal to overhaul bank rules were "not consistent with its own stated objective." Federal Deposit Insurance Corp. Chairman Sheila Bair said the plan was focused on the wrong solutions. "It is difficult to see why so much effort should be expended to create a single regulator when political capital could be better spent on more important and fundamen

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washingtonsblog.com/

 But what the Fed is really struggling to keep hidden is the fact that the entire financial system is based on massive manipulation and fraud by the Fed and its primary dealers. Specifically, the Fed is desperately trying to hide that many trillions of the government's bailouts have gone to inflating the stock market, buying up the U.S. government's own treasuries, and gaming the currency and gold markets. Of course, when the New York Federal Reserve's "primary dealers" (the dealers through which the Fed carries out its open market operations in general, and its PPT, ESF, and other schemes through) get the huge sums of cash from the Fed, they place bets based on inside knowledge of where the money flows are going (they also, supposedly, skim off part of the cash, but that's for another essay).

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Investment Watch

To meet its borrowing needs, the U.S. Treasury Wednesday announced its largest quarterly debt-sales program as well as plans to gradually boost sales of inflation-protected bonds in fiscal year 2010. The refunding will comprise: - $37.0 billion of three-year notes maturing Aug. 15, 2012, to be sold Tuesday, Aug. 11. - $23.0 billion of 10-year notes maturing Aug. 15, 2019, to be sold Wednesday, Aug. 12. - $15.0 billion of 30-year bonds maturing Aug. 15, 2039, to be sold Thursday, Aug. 13. With the government’s financing needs rising amid a weak economy, Treasury plans to sell a record $75.0 billion of securities in its quarterly refunding next week to refund about $60.9 billion in maturing issues and raise about $14.0 billion of the federal debt.

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