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The Fed is monetizing debt, colloquially known as 'printing money.'
At this point you either understand this or you do not, and if not it is probably because you will not to do so.
But it is the reality we have, and presents fairly volatile conditions for the world financial system. And the limit to the monetization are the value of the US bonds, and the American dollar which are notes of zero duration.
The monetization cannot revitalize the economy because most of the problems that led to the financial crisis remain as they were. The government of both parties is caught in a credibility trap, and under obligations to the monied interests for campaign funds and compromised by past favors granted.
Adding liquidity and stimulus at this point is like pouring enormous quantities of gasoline into a car that has just been towed out of a ditch, with four flat tires, a seized transmission, and a crushed radiator, and saying, "We'll be back on the road anytime now once we fill 'er up." And austerity is like making the passengers get out and push. The Congress, who failed to properly maintain the vehicle by taking kickbacks from dishonest mechanics, the Banks, sits in the front seat eating doughnuts, urging the middle class to stop whining and push harder. And Bernanke is bouncing up and down on his seat saying 'vrooom, vrooom,' and the corporate media and economists marvel at his accomplishments. It is less a recovery than a tragedy.
The Fed has tried this twice now. First in response to the Asian/Russian currency crisis and Y2k panic, with the resulting tech bubble. And then in response to the tech bubble collapse and 911, with the resulting housing bubble and a bloated and virulently fraudulent financial sector. And we expect the result to be different this time because....?
All that is required is a stray spark, and you will see the results. If you enjoyed the Russian currency crisis, you will love the US currency crisis. Just be sure to wear sunglasses and watch from a distance, and higher ground. Unfortunately the taxis in this area only take hard currencies.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery. And reform does not mean selectively defaulting, a nice form of stealing, from the old and the weak.
Bloomberg
Fed Treasury Purchases `Monetizing Debt,' May Spur Inflation, Hoenig Says
By Steve Matthews and Caroline Salas
Mar 2, 2011 9:56 AM ET
Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank is “monetizing debt” with its purchases of U.S. Treasuries, a program that he says may spur inflation.
“Yes, we are monetizing debt,” Hoenig said today in a speech in New York. “You buy bonds and you monetize debt. Right now, a lot of that is going into excess reserves so it is not having an immediate effect on inflation. It will initiate inflationary impulses. It takes time.”
Hoenig, the lone dissenter from every Fed meeting last year, warned that the central bank’s near-zero interest rates and record monetary stimulus could lead to asset price bubbles and increase inflation in a few years. He voted against the Fed’s plan to purchase $600 billion in U.S. Treasury securities through June during the final two meetings of 2010.
Hoenig told the Council on Foreign Relations the Fed needs to explain how it plans to reduce its record $2.54 trillion balance sheet. While he would avoid “shock therapy” of selling assets all at once, “we want to begin to show how we will withdraw that.”
Policy makers were divided over whether further evidence of a strengthening recovery would warrant slowing or reducing the $600 billion of purchases, according to minutes of their January meeting...."
Non-Farm Payrolls tomorrow.
This will end badly, but it is hard to say when.
Le Market c'est moi, says Zimbabwe Ben. And we believe it.
Reform, American Style
"A JPMorgan Chase & Co. unit took delivery of almost 1 million metric tons of raw sugar, the most for the commodity since 2009, to settle the expiring March futures contract in New York. JPMorgan Futures accepted delivery on 18,748 sugar contracts, or the equivalent of 952,398 tons, ICE Futures U.S. said yesterday on its website. That represents 9.2 percent of the current year’s U.S. consumption as estimated by the government. Prices climbed to the highest level in almost three weeks in New York trading today."
J. P. Morgan Takes Delivery of Almost 1 Million Tons of Sugar
I said cream, no sugar, Blythe. And use the silver service next time please. Oh sorry, I forgot you have sold it, and several times over.
Seriously, is this one of those trading positions one occasionally has that turns into an investment? Or is JPM just doing the buying for Krispy Kreme, Coca-Cola, et al. It could have been a legitimate hedging outcome as agent. I would hope it is not hoarding in times of shortage, or even worse, to promote food shortages.
Not so with silver I think, where they sell what they do not have, unless some of the miners have lost their minds, and are likely to be lynched by their shareholders.
Gold and silver were spiking higher today, but managed to get pushed down into the close for modest gains. I think they might be coiling for a move through the overhead resistance that is holding them back a little here.
For as low as the VIX remains, these markets seem to be on a knife edge. Seems like only Benny is holding the line, casting his paper upon troubled waters.
Watch for the action on Friday with Non Farm Payrolls and a potentially shaky weekend in the Middle East, and maybe even in the Midwest.
I was wondering if the some of the commentators on Bloomberg TV today snorting some of that JPM sugar for lunch. Certainly enjoying the high life.
I could be wrong, but this summer looks like it might be shaping up for another rough time in the markets.
Excuse me, I am still trying to regain my composure. A fund manager on Bloomberg named Matt just said that high oil prices will be no problem, because the US economy is booming, and everyone will just go out and buy new, more fuel efficient, cars. He said he went to the mall in Chicago and it was packed, and the best deal there was the $6 valet parking at Nordstrom's.
I wonder how many moons revolve around his planet. Maybe he is right. How does that track with your experience? Perhaps I should run a poll for the Yanks.
See, no problem. Buy stocks. Get them while they're hot.
I am a little more of the camp that thinks that unless the Fed can trigger a self-sustaining inflation, as soon as Benny and his Merry Pranksters stop buying through QEn, stocks and bonds will take a dive, because they and their cronies are the only ones buying this market.
But that's just my opinion and I could be wrong. Let's see if Benny can blow another bubble. Judging by some of the internet wunderkinds' valuations, he might be on his way. Tweet your magic twanger, Ben.
I am getting a few more emails taking me to task for being 'negative' and 'bitter' and being a spoilsport for the new good times.
I don't get around much anymore. Maybe everything is coming up roses in the US and I just don't see it. But it doesn't appear yet in any metrics that I watch closely and in which I have any confidence.
I have to admit that Benny shook me up a bit today in his lame testimony before the Congress. The less likely outcomes of deflation and hyperinflation just went up several notches in my book, especially on the inflationary side. He seems in denial to me, and kind of nervy.
