FED's Policies & Helicopter Ben

Discussion in 'Business & Economics' started by Michael, Apr 29, 2011.

  1. Michael 歌舞伎 Valued Senior Member

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    YouTube: Press Conference with the Chairman of the FOMC, Ben S. Bernanke

    I wasn't quite sure if Helicopter Ben said QE3 was coming (perhaps under a new brand name) -OR- if QE2 would wrap things up.

    The USD was tanking, gold was rising (all while Hillbilly Ben was squawking) and stocks continue to go up and up and up. SO, I'm inclined to think there will be more QE. Much much more....


    ** As a side note: Isn't it odd that the wives of the Billionaire Banking Elite were given $250 MILLION dollars in cheap loans, money that they did NOT have to repay if their investments went sour, and the American Public just stood there and took it in the ***? I don't get it? Where are our politicians?!?! In the past people would hang for this sort of insolence.

    Thank the Gods at least Ron Paul is trying to get some of this information out into the light.
     
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  3. Pinwheel Banned Banned

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    Yes. And then you have Donald Trump...oh dear.
     
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  5. Michael 歌舞伎 Valued Senior Member

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    I find it interesting how Ben says it's the Treasury that is responsible for the value of the dollar, not the Fed.

    Oh, and the IMF just took a crap on the USA. I wonder if this mean's the Banksters want a World Reserve Currency and not the USD. There will probably be a tax on that too.


    I like Ron Paul's idea of internal competitive currency inside the USA that competes with Federal Dollars.
     
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  7. Giambattista sssssssssssssssssssssssss sssss Valued Senior Member

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    How bout a reasonable currency backed by a rebuilt industry and infrastructure and what have you?

    All the fiat money in the Reserve is shit without a strong American economy. The trickle down, buy Chinese Walmart BS isn't going to cut. And neither is 68,000 McDonald's "manufacturing" jobs.

    Infrastructure. Industry. Fair trade, not free trade. Sound money. Arrest Wall Street.



    btw, your user title is offensive. And discriminatory.
     
  8. Giambattista sssssssssssssssssssssssss sssss Valued Senior Member

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    Shalom's Judengeld.
     
  9. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I think most expect that when QE2 printing of money from thin air ends the assets on the FED's books associated with this increase in existing money will not be sold as doing that would remove money from the economy and put the sales price on the FED's books instead of the sold assets. Too much like taking your foot off a fully depressed gas pedal and immediately stomping hard on the breaks.

    Likewise if FED's asset is a maturing bond it will be "rolled" into new Treasury bond instead of collecting the face value of the bond from the treasury. Not rolling it would make the Treasury need to borrow even more to pay off the bonds.

    During QE1 & QE2 the assets on the FED's books approximately doubled, but those assets are mortgages and bonds, not dollars. Their nominal value* in money was created by printing press dollars and mainly paid out into the economy (to the banks actually). Why dollar is losing value - there has been an over production of them. Mainly the banks just bought "safe" Treasury paper, instead of making risky loans, so very little stimulation of the real economy took place, except indirectly by the lower interest rates that this extra artificial (FED made) demand for Treasury paper made.

    At present, the FED thinks that the economy may not need more printing press dollars created and put into the economy by QE3, but they sure don't want to immediately pull dollars out of the economy either and send it back into recession. So for a year or more the FED's books will have essentially constant value.

    The real problem starts after that, when because of the growing debt, foreigners and US bond buyers will not buy Treasury paper at the low interest rates the economy needs to not contract. This becomes exponentially unstable if the FED is essentially the only** buyer of Treasury paper with its printing press dollars. The more it prints the less the value of each and the higher the debt and interest rate climb. The strange mix of hyperinflation as dollar value collapses with depression of economic activity is very possible - highly probably IMHO. In some sense, there is no US government to solve these problems - only two parties trying to gain advantage for the next election and/or shift blame to the other party.

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    * The real value of many items on the FED's books is much less than their nominal book value - things like toxic trash assets from Fanny May etc.

    **There will always be some buying of Treasury paper by life insurance companies and others with fixed dollar obligations to pay in the future. They known quite accurately, for example how may of their $100,000 policy owners will die in 2041. I.e they know how many dollars they must pay out 30 years from now, so they hold that much in "safe" 30-year Treasury bonds. They don't care if in 2041 the $100,000 will only pay for one modest restaurant dinner (or even only a Big Mac). Their obligation is only to pay your widow the $100,000.
     
    Last edited by a moderator: May 1, 2011
  10. Michael 歌舞伎 Valued Senior Member

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    I was thinking of Quarks when I wrote that

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  11. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Let’s twist again as we did last bumber
    Sell short term notes to someone dumber.
    Some more scared fools will take a flier
    There's no shortage of paper buyers.

    Yea – we can twist again, no QE3
    Or we use new bank deposits fee.
    Thank God for Greece’s distraction
    Although their debt’s a tiny fraction,

    Of what we’ve made in the USA.
    But all know when we go down.
    There’ be more than hell to pay
    So get your gun and play around.
    Practice makes perfect, so they say
    But twist again, as we did last bumber.
     
    Last edited by a moderator: Sep 21, 2011
  12. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    The Idea behind the FED's "twist" (sell short term bonds & buy longer term bond with the funds) is to Twist the normally rising yield curve a little flatter - I.e. make it less costly to get a 30 year mortgage (and it is doing that - less than 4% home mortgages are now available at least to people with good credit and incomes). Some with older 6 or 7% mortgages will also "twist" - get new lower rate mortgage and pay off older one as part of the deal.

    Typically they may even reduce their monthly payment but as it is year 1 of the new mortgage, most of their payment is interest, not principle reduction.

    Before switching mortgage, they had sort of some forced savings (the part of the monthly payment which was principle). Now they have a little more money in their pocket, but most will spend it rather than; for example send it in as extra payment on the new mortgage. (that gets a 4% return - much better than their bank pays for a deposit)

    This re-financed new spending is probably the main stimulus the FED's Twist will make. Mainly because you can lead a horse to water but not make him drink. I.e. What the FED really wants is some renters to buy houses on the market now that they can get cheaper mortgages. But that will rarely happen because:

    "... with more than $13 trillion in household debt outstanding--the ratio of household debt-to-income is currently 114 percent--another borrowing boom is unlikely to develop any time soon. As a result, we’re not terribly optimistic about Operation Twist’s prospects since it’s merely treating the symptoms while ignoring the disease. ..." From: http://www.investingdaily.com/etf/1...gx=d.kac,stid.11916,sid.250664,lid.6,mid.5613

    Billy T comment: US economy is "dead in the water" (but not yet sinking) with huge overhang of unsold and under water homes. Potential buyers see the home prices coming down - better to wait some months more before buying and pay less they (correctly) are thinking, at least in most parts of the country. They are "de-leveraging" instead of spending like they did before 2008. They would like to get their debt down so it is less than 100% of their income for a full year.
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    PS As we do not have thread on FED's Policies, and this one not very active, added to the name.
     
    Last edited by a moderator: Oct 1, 2011
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Japan has so far not invested in Chinese debt. But Beijing stepped up its buying of Japanese government debt in 2010, surprising Japanese officials and drawing calls by some lawmakers for China to allow Japan to buy its debt as well. … "It is true that we've been having discussions that could bring huge advantages to (both Japan and China) if we make it possible for both sides to buy each other's government bonds," {Japanese } Finance Minister Jun Azumi said at a news conference. …

    With the yen near a record-high against the dollar, Japan has unrealized losses of tens of trillions of yen in its foreign-reserve account. …”

    From: 21Dec2011 article at: http://online.wsj.com/article/SB10001424052970204879004577109871393618922.html


    “…The Japanese government is discussing for the first time the purchase of Korean Treasury Bonds (KTBs) with the South Korean government in a bid to diversify Japan's foreign exchange reserves, according to Asahi Simbun newspaper. Asked if the news is true, an official at the Ministry of Strategy and Finance said that "Japan expressed its intention to buy KTBs last year, so we are discussing the basic framework for Japan's KTB purchases. …”

    From today, less than 12 hours ago at: http://english.cri.cn/6966/2012/04/27/1461s695956.htm.

    Billy T comment: Japan is clearly starting to follow China´s example and reduce it holding of US treasury paper. Losing “tens of trillions of yen" on the dollars in its reserves has taught the Japanese a lesion. - Not to hold so much US Treasury paper. {BT: Note blue curve of graph peaked in November 2011.}

    Also Japan and China a few months ago agreed to no longer use the dollar in their mutual trade. When dollars are not needed to settle trade imbalance or to buy oil, as is already true in at least two OPECs, then Japan will become a significant net seller of the Treasury paper as China has already become. China and India have also agreed to not use dollars for their mutual trade, almost a year ago. They will have a balanced trade at dollar value of $100 billion annually which means China must buy more from India; but China needs to import ever more low-value added components for it higher value exports as Chinese labor to now too expensive to produce them in China.

    By the end of 2012 or mid 2013, very probably essentially only insurance companies (whose future payout obligations are expressed in dollars)* and the FED will be buying US Treasury paper. About 1.5 trillion per year to cover US fiscal year deficit PLUS another 0.5 trillion to pay off the maturing bonds that the current owners will not “roll.” – The FED would need to get higher speed presses if the fiat money it creates were printed paper.

    * For example in 2020, when her husband dies and widow collects his $100,000 life insurance proceeds, it may only buy one pair of dress shoes, but the insurance company did what the policy called for. Thus they will still be buying Treasury paper with face value equal to their statically quite well known future pay out obligations – They don´t give a damn if $20,000 only buys a dinner at McDonalds.
     
    Last edited by a moderator: Apr 27, 2012
  14. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    "... Bernanke's various "quantitative easing" policies have benefited primarily Wall Street; the mechanism by which they have fed through to the real economy is at best very indirect.

    Currently for example, the Fed is now set to buy a total of $85 billion a month in long-term bonds, through the new mortgage bond purchases as well as the remains of his "Operation Twist" strategy. This is supposed to lower interest rates, which in turn is supposed to support the housing market and produce jobs. However the principal effect of all this Fed activity is to support stock prices, commodity prices and other asset prices. That's why gold prices went on a tear after QE3 was announced, while interest rates have actually risen.*

    Traders have seen the limit of what the Fed can do to support the bond market* and have begun to wonder whether the Fed's activities will bring inflation. The question is what will happen to the bond market once Fed purchases slow. If the Fed's efforts burst the bond bubble, $85 billion a month is nowhere near enough to begin to reflate it.

    Meanwhile, in the real economy-the one where you and I live-- not much changes.

    Even if Fed purchases pushed down mortgage interest rates, we learned yesterday that mortgage originating banks, which must check all the documentation much more carefully than usual, cannot originate significantly more mortgages. Indeed, borrowers are unlikely to see much benefit from a decline in mortgage bond yields; instead additional profits will go to - guess who? - the banks!

    Even if lower mortgage rates increased housing sales, there would not be much effect on jobs. Maybe the new homeowners would buy some new furniture - mostly made in China, probably. But housing construction would not suddenly surge - why should it? Not when there is still a vast inventory of unsold homes, homes held on banks' books after foreclosures, and homes in mortgage arrears that are awaiting foreclosure. ..."
    By Martin Hutchinson, of MoneyMorning.com 18Sept12 BTW, this was his 536 published economics article!

    * Billy T comment: Fact (assuming it true) that interest rates have risen, not fallen, after FED´s announcement of twist extension and 40 Billion / month of new bond buying is scary. - It means than non-FED buyers are dropping out, or decreasing the volume of their buying. (Or as article states, in text I made bold: "Traders have seen the FED´s limits.") From this I can only conclude they are beginning to recognize that buying US treasury bonds, now that Ben will run the dollar printing press "for ever" if need be to drive unemployment below 8%, is worst investment they can make now. Buying gold, stocks, or farm land are viewed as better investments.

    As one can see in graph of post 10, China, the largest non-FED holder of these bonds is slowly decreasing its holding even though it, via trade with US last year got a net influx of of 300 billion dollars (as I recall the trade data 400 -100 = 300). If China had bought US bond and not sold (or collected on maturing bonds) any that would be a jump up in post 10 graph of three lines! China is, as I have long predicted, trying its best to spend dollars buying real assets (not hold paper promises, that our children can never pay off.) They are doing this dollar reduction slowly now (as seen in post 10 graph) to not start the run on the dollar while the still hold 1.1 trillion dollars in reserves.

    When they get their dollar holding below 1 trillion, then it will begin to look like a long term benefit to dump the rest and drive US and EU into deep depression as then every year, they get to import oil, etc. much more cheaply than if the US and EU could afford to be buying too.

    China is growing its trade with other Asian and African nations 25+ or - 5% each year. In 2.5 years the increase in Asian trade will exceed the total trade with the US. So fact that "broke US" will not be buying Chinese goods is rapidly becoming relataively unimportant compared to the EVERY YEAR saving on imports. I.e. there is long term net economic benefit to China to take even a 1 trillion ONE TIME loss on its dollar holdings. I bet they will get their Asian / S. American / African trade significantly larger than their shrinking trade with EU+US before the decide to dump dollars and drive US & EU into world´s worst, longest lasting depression- in about 3 years; However, Ben´s continuous running of dollar printing presses (or other of many possible causes) will probably kill confidence in the dollar by Halloween 2014 first and send US & EU into GWB´s depression before China does.
     
    Last edited by a moderator: Sep 18, 2012
  15. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Billy T comment:When the run on the dollar hits, rates will be well above 12% and still only the FED will be buying Treasury bonds but at least with near worthless dollars US can pay off the maturing bonds (assuming the printing presses don´t break under the 24/7 high speed loading).
     
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Just filing this here to show recesson are less frequent now - Fed is not all bad.

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    "great depression" & earlier US was in recession 48% of the time!

    I can´help but wonder it the long term average is about to be recovered, in large part because of low interest rates doing more harm long term than the temporary good.
     
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    but even flat section 2012to2030 is false if US is in deep depression.

    What that section of curve should look like, IMHO, is first a rapid turn up then a falling down cliff as debt is paid down in dollars worth less than 5% of their current value. There is no way a steady climb to 200% of GDP will happen. Here from another source is why:

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    Fed´s new thin air QEx money is not getting into the real economy - just make bank profits.
     
    Last edited by a moderator: Oct 18, 2012
  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Comments on probable effects of Ben´s historically lowest ever interest rates & QE-infinity from 268 years ago:

    I did not find this one in 22 listed quotes, but they made me want to take a renewed look at Mills.

    And I thought I was going far into the future with my predictions of 7+ years ago!

    Ben Bernanke, an expert on the great depression, said a few years ago that:
    He would not repeat the "sound money" mistakes of government response back then, paused and jokingly added, he would make his own mistakes.

    IMHO truer words were never spoken. Ben (along with a lot of help from GWB) will cause rather than cure a depression!
     
    Last edited by a moderator: Oct 21, 2012
  19. brucep Valued Senior Member

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    That's nonsense. He saved our collective posterior when he convinced a 'posturing legislative branch' to approve TARP. Appointing him FED Chairman was the only smart thing Bush ever did. Every thing that 'pushed the world to the brink of financial collapse' is at the foot of irresponsible money grubbing wall street investment bankers and a legislature who never seems to work for the American people. A bunch of self serving intellectually dishonest money grubbing posers.
     
  20. joepistole Deacon Blues Valued Senior Member

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    I think you nailed it Bruce. It is a lot of nonsense that gets repeated ad nauseum in this forum.
     
  21. brucep Valued Senior Member

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    The good part is this forum has some very bright and informative posters such as yourself and others.
     
  22. Michael 歌舞伎 Valued Senior Member

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    Unless you're one of the top 1% of Americans it wasn't 'our' collective asses that was saved. We've been sold out down the river to save the richest Americans.

    What we should have done is let the banks that made bad loans fail. But "The Sky is Failing" crowd won the day and they bailed out the rich. Which isn't surprising, it's not like GW Bush ever had any backbone or moral character. He was a clown. Obama's no different and neither is Mittens.

    If not already clear, I think it's going to becoming clearer in the coming years as the standard of living in the USA continues to drop and, if Ben has his way, eventually plummets. With lots and lots of unemployed youth - traditionally this is a good time to start a war.

    Let's see what 2013-2014 brings to the good ole' USSA.

    From: Striking it Richer: The Evolution of Top Incomes in the United States (UC Berkeley)
    Sorry to pop your bubble, but it wasn't you who were bailed out. But don't worry, things have a way of working themselves out.
     
  23. brucep Valued Senior Member

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    You couldn't pop my bubble because your perspective is pretty illiterate. You think you got sold out but I'd like to hear what you would have to say if we let the world financial system collapse. The fact you can't figure that out is pretty disturbing.
     

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