THE Federal Reserve Thread pt 2 (merged)

[OilFinder2]

I suspect they'll end up going slower than this, but it's a step in the right direction.
LINK

March 25, 2011, 12:38 p.m. EDT
Fed's Plosser: Funds rate should hit 2.5% in year
By Greg Robb

WASHINGTON (MarketWatch) - The Federal Reserve should hike interest rates from current range near zero to 2.5% within a year under a plan unveiled Friday by Charles Plosser, the president of the Philadelphia Federal Reserve Bank. Plosser did not give a specific time when this exit would begin but said it would have to start in the "not-too-distant future." In a speech to economists from the monetarist school on Friday, Plosser laid out an aggressive plan where the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate. A slower approach could last 18 months rather than a year, he said. This would require only $67 billion of conditional sales between meetings but the funds rate would rise to 3.5%. Plosser, a voting FOMC member this year, said he did not think this strategy would disrupt markets.

[Plantagenet]

...the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate. A slower approach could last 18 months rather than a year, he said. This would require only $67 billion of conditional sales between meetings but the funds rate would rise to 3.5%. Plosser, a voting FOMC member this year, said he did not think this strategy would disrupt markets.

What are these hundreds of billions of dollars of "assets" that the Fed is going to sell?

Is the Fed going to sell off its building in Washington DC?

[eXpat]

Is the Fed going to sell off its building in Washington DC?

Maybe they do get a dollar everytime OF spout his bullshit?

[OilFinder2]

Another voting member of the FOMC said early today that him voting for a QE3 is unlikely, though he believes low interest rates will still be justified for a while.

LINK

Fed's Lockhart sees "high bar" for QE3
By Pedro Nicolaci da Costa

FT. MYERS, Florida, March 25 (Reuters) - The U.S. economic recovery is on solid ground, making it unlikely the Federal Reserve will extend its bond-buying stimulus program, Atlanta Federal Reserve Bank President Dennis Lockhart said on Friday.

Still, growth is still weak enough and inflation is sufficiently low -- despite recent increases in food and energy prices -- to allow policymakers to keep interest rates very low.

"I remain satisfied that the current stance of monetary policy is appropriately calibrated to the current and projected state of the economy," Lockhart told the Bonita/Estero Market Pulse Conference.

The remarks suggested Lockhart and his colleagues at the Fed plan to continue their program of $600 billion in government bond purchases through to its June deadline, but have no plans to extend the program beyond that.

Asked about the chances of another round of quantitative easing, often referred to as QE3, Lockhart said: "It's a high bar."

[...]

[bratticus]

QE3 is here now but overseas.

Japan’s Bond Futures Gain a 3rd Week as BOJ Injects Record Cash
By Masaki Kondo / BusinessWeek / March 25, 2011

The Bank of Japan’s 40 trillion yen ($494 billion) of successive one-day cash injections from March 14 to March 22 helped increase lenders’ deposits at the central bank to a record. The BOJ maintained its overnight lending rate last week at a range of between zero and 0.1 percent and doubled the size of its fund that bought assets including government bonds and corporate debt.

So while the US is injecting $600 billion from Nov 2010 to June 2011 Japan is now injecting $494 billion making the worldwide total over a trillion dollars.

[CelticCross]

Perpetual QE

QE has now become a permanent part of the financial landscape of the United States.

The reason is that the size of the Fed’s balance sheet is now so vast that the reinvestment of principal payments from the existing assets will be enough to monetize a large portion of the Federal deficit without having to increase the total size of the balance sheet. The Fed’s balance sheet is to the bond market as Thomas Hobbes’ Leviathan was to society – a monarch beyond the capacity of its subjects to change.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/3/11_Jim_Rickards_-_QE_is_dead%2C_long_live_QE!.html

[dolanbaker]

Maybe it's time the governments removed the power to print money from the banks!
Instead they could spend it into existance, and if the banks want to continue their business they borrow it from the government at interest!

[eXpat]

Foreign Banks Tapped Fed's Lifeline Most as Bernanke Kept Borrowers Secret

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Commercial Paper

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.

Those programs also loaned hundreds of billions of dollars to the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley. (MS)

http://www.bloomberg.com/news/2011-04-01/foreign-banks-tapped-fed-s-lifeline-most-as-bernanke-kept-borrowers-secret.html

[FloridaGirl]

In the 5 months since QE II has started, the Federal Reserve has purchased more Treasuries than were issued. I'm really surprised that no one is talking about this.

Between 11/17/2010 and 4/13/2011, the Federal Reserve has purchased $508.9 Billion in Treasuries (http://www.federalreserve.gov/releases/h41/) and the Treasury has issued $475.7 Billion in debt(http://www.treasurydirect.gov/NP/NPGateway). Keep in mind that QE Light had started before QE II and continues in parallel.

I extrapolated these numbers to an annual basis and got $1.264 Trillion for the Federal Reserve Treasury purchase rate and $1.181 Trillion for the US debt rate. The US debt rate seemed lower than what I heard it was, so I looked a little closer. I noticed that, during this same time period, the US Treasury deposits with the Federal Reserve dropped by $190 Billion and the Treasury printed $36 Billion physical dollars (these were also from the H.4.1 referenced above). Adding these two to the debt and extrapolating I get that our annual deficit is running at $1.74 Trillion over that last 5 months.

There might be other accounts that affect this number, so if someone else knows, then please post it.

What I believe this means, is that there aren't enough buyers in the world that are willing or can afford to buy $1.7 Trillion per year to fund the US deficit. That means that the Fed can't stop printing for any length of time. I expect that will lead to higher and higher inflation and at some point, the collapse of the dollar.

[Plantagenet]

... that will lead to higher and higher inflation and at some point, the collapse of the dollar.

I think you're right.

[tex123]

This just doesn't make any sense to me. How can we keep going at this rate? How is it that any country would buy our bonds at all? It boggles the mind how our financial system and dollar hasn't collapsed already.

[Daniel_Plainview]

What I believe this means, is that there aren't enough buyers in the world that are willing or can afford to buy $1.7 Trillion per year to fund the US deficit. That means that the Fed can't stop printing for any length of time. I expect that will lead to higher and higher inflation and at some point, the collapse of the dollar.

This is probably true: the Fed is forced to monetize the debt because there simply are not enough buyers for $1.7T of US debt every year.

My question is whether this is a temporary phenomenon, or whether it will become a permanent, systemic fixture? If this is permanent, then it is a very dire development. Every previous society that has done this has collapsed. It's hard to imagine how this can be merely temporary given that the national debt is increasing exponentially, and that govt spending is becoming a larger and larger component of GDP (govt is now 45% of GDP).

It boggles the mind how our financial system and dollar hasn't collapsed already.

The dollar hasn't collapsed yet because: (1) it is the global reserve currency and nothing has yet emerged to replace it; (2) the Euro and other currencies are also dysfunctional; (3) people are only slowly realizing how fucked the US is because the govt is a pathological liar; (4) people are only slowly realizing that precious metals and commodities are the only cure for a dying fiat currency. Once collapse happens, it could be swift and merciless.

[FloridaGirl]

Daniel_Plainview wrote:
My question is whether this is a temporary phenomenon, or whether it will become a permanent, systemic fixture? If this is permanent, then it is a very dire development.

One way to make this temporary is for our government to eliminate the deficit. I've watched in frustration at the government debates on the budget where even the Republicans' proposal fall way, way short of doing what is needed to save us. They are so intent on not reducing the Department of Defence budget, we have no chance of balancing the budget and avoiding collapse.

What they are not considering is that the collapse of the dollar is a MUCH WORSE fate that what would happen if we reduced the Department of Defence budget. Consider that a collapse will cause our trade deficit to go to zero and that means the loss of a lot of imported oil. That will be a terribly disruptive event.

See http://www.federalbudget.com/ for a nice graph of where the US money is going. We really have to address the big ones, but at this point I have no hope that they will.

I feel like I have written the Pelican Brief.

[Plantagenet]

One way to make this temporary is for our government to eliminate the deficit. I've watched in frustration at the government debates on the budget where even the Republicans' proposal fall way, way short of doing what is needed to save us.

Obama's huge deficits aren't going to be eliminated in one day with one continuing resolution.

Cutting this years spending was a step in the right direction. Using the debt limit legislation to put limits on future spending will be another step. Cutting Obama's 2012 budget request calling for another 1.65 TRILLION deficit next year will be another step.

[vision-master]

Next will be removing the 'bush tax cuts' for the wealthy. What do ya think Planted, good idea?

[Sixstrings]

Between 11/17/2010 and 4/13/2011, the Federal Reserve has purchased $508.9 Billion in Treasuries (http://www.federalreserve.gov/releases/h41/) and the Treasury has issued $475.7 Billion in debt(http://www.treasurydirect.gov/NP/NPGateway).

Interesting, sounds like the Fed bought more t-bills than Treasury auctioned. So what's that mean.. basically the old buyers of treasuries are now just servicing sellers of old t-bills. There must be a shortfall here, more sellers than buyers, so seems like not only is the Fed funding 100% of the deficit but they're also stepping in to support existing sales.

Problem is, when the Fed does all this it's just printing press money. Back when I was a Liberterian, I used to go to party meetings and folks were worried worried worried about the debt. This was around the Perot years. What a laugh now, the debt and deficits were nothin' compared to this. So anyhow, it's funny now.. it never occurred to me back then that we'd just print the money.

I think central banks have a lot of tricks up their sleeves we can't quite understand or imagine now. Sometimes I wonder if they really can keep these plates spinning for who knows, another twenty or thirty years even. So many things central banks can do.. they can whittle away the debt with inflationary policy, devaluations, and debt restructuring. Restructuring is akin to default though, so they'll go the inflation route.

One way to make this temporary is for our government to eliminate the deficit.

That will never happen, and the reason is still a mystery to me. It must have to do with the Fed's monetary policy.. they don't want a balanced budget. And the government's current policy is a weak dollar. The Fed's mission at the moment is ramping up inflation. Which could be the ultimate budget fix -- inflate the dollar and therefore eat away Social Security obligations. That trick won't work with Medicare since providers will raise their fees along with inflation. So that's why they want to change Medicare to a partial voucher, the amount of which will be set to decrease over time. Nasty business here.. inflation eating away Social Security checks, and outright cuts to Medicare.

The one thing the Fed has been VERY consistent about over the years is squashing wage growth. I read an article one time about Greenspan.. he used to carry a notebook and jot down construction wages. If the Joe Sixpacks started making too much, he knew there was a problem. So while inflation is now the plan, don't expect wages to rise.

I feel like I have written the Pelican Brief.

It's amazing how little the public knows about central banking, even though these banks have such incredible power over the country.

[Sixstrings]

This just doesn't make any sense to me. How can we keep going at this rate?

That's the quadrillion zillion dollar question, isn't it?

I think they can keep this up longer than you might expect because most dollars are actually held outside the US. So as we inflate the dollar, we're spreading that inflation out all over the world.

[FloridaGirl]

Sixstrings wrote:
I think they can keep this up longer than you might expect because most dollars are actually held outside the US. So as we inflate the dollar, we're spreading that inflation out all over the world.

But the BRICS (Brazil, Russia, India, China and South Africa) have noticed and are doing something about it now. See the article: http://www.cnbc.com/id/42584565

What was needed, they said in a statement, was "a broad-based international reserve currency system providing stability and certainty" -- thinly veiled criticism of what the BRICS see as Washington's neglect of its global monetary responsibilities.

The BRICS are worried that America's large trade and budget deficits will eventually debase the dollar. They also begrudge the financial and political privileges that come with being the leading reserve currency.

[Sixstrings]

But the BRICS (Brazil, Russia, India, China and South Africa) have noticed and are doing something about it now. See the article: http://www.cnbc.com/id/42584565

Yes, I read about that but I've posted so much on this issue I'm just worn out. Thanks for taking up the banner here, and fantastic post by the way -- actually breaking down the numbers. I don't know why more people on this forum aren't interested.

About the BRICS.. it used to be the BRIC but South Africa just joined. I read that's because of their gold, but not sure if that's just a goldbug talking point. Makes sense though, why else let South Africa join up with the world's premier emerging economies if not because of gold?

So yes, they "have noticed and are doing something about it" BUT it will take time. Ten, twenty years maybe to transition away from the dollar. That's assuming they can get along. Anyhow, getting away from the dollar as global reserve / trade currency is a massive task. From Wikipedia:

The U.S. dollar is the world's foremost reserve currency. In addition to holdings by central banks and other institutions, there are many private holdings, which are believed[by whom?] to be mostly in one-hundred-dollar banknotes (indeed, most American banknotes actually are held outside the United States).

All holdings of U.S.-dollar bank deposits held by non-residents of the United States are known as "eurodollars" (not to be confused with the euro), regardless of the location of the bank holding the deposit (which may be inside or outside the U.S.).

Economist Paul Samuelson and others (including, at his death, Milton Friedman) have maintained that the overseas demand for dollars allows the United States to maintain persistent trade deficits without causing the value of the currency to depreciate or the flow of trade to readjust. But Samuelson stated in 2005 that at some uncertain future period these pressures would precipitate a run against the U.S. dollar with serious global financial consequences.
http://en.wikipedia.org/wiki/United_States_dollar#International_use

So far the BRICS have agreed to exchange their own currencies in deals with each other. But that's a far cry from becoming a global reserve currency -- to the contrary, so far they're acting like an exclusive club. Europe, the US, and Japan will all have to crash and burn before the BRIC could set its basket of currencies up as a global reserve.

The US allied bloc is weakened and withering, but not dead yet. Rather than BRICS currency as global reserve, what's more likely is that they'll keep pressuring to expand use of something like the IMF special drawing rights. But that will require approval from the US allied bloc.

The more I read the less I know on this stuff.. every time something looks bad for the US, things look grimmer in Europe. Finland just voted against bailing out Portugal or some such. So with the future of the Euro uncertain, nobody is going to abandon the dollar. I guess it all comes down to a waiting game.. the BRICS are the future, but for now they are still emerging and not the dominant power bloc quite yet.

One thing is for sure.. precisely because there are SO MANY dollars held overseas, when the dollar does collapse it's going to be brutal on Americans.

[dsula]

One thing is for sure.. precisely because there are SO MANY dollars held overseas, when the dollar does collapse it's going to be brutal on Americans.

what do you mean "when"? The $$ is collapsing as we speak. Check out dollar vs swiss franc exchange rate for the last 50 years.