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Who will bail out the Fed?
Tom Smith
The credit-worthiness of the Fed is not looking too good.
Here's the crux of the problem: In an effort to fix the current crisis, the Federal Reserve is massively expanding its balance sheet while seriously diluting the quality of the assets on that balance sheet. . . . On Jan. 14, 2009, the Fed's balance sheet showed $2.1 trillion in assets. That supported $881 billion in currency in circulation. . . . That $2.1 trillion was a huge increase from the $868 billion on the Fed's balance sheet on Jan. 16, 2008. At $813 billion, the cash in circulation a year ago wasn't a whole lot less than what's in circulation now. As everybody from then-Treasury Secretary Hank Paulson to a newly inaugurated President Barack Obama has kept telling us, banks aren't lending. They're hoarding currency by keeping it on deposit with Federal Reserve banks. . . . .
What probably happens is that the Fed allows excess monetary balances to exist well after it becomes apparent the economy is recovering, then at some point, you will see significantly higher interest rates. If you have a mortgage, refinancing it now is probably a good idea.
What probably happens is that the Fed allows excess monetary balances to exist well after it becomes apparent the economy is recovering, then at some point, you will see significantly higher interest rates. If you have a mortgage, refinancing it now is probably a good idea.
Shoot, I'd say ANY credit you can qualify for and AFFORD right now with a low interest rate, is worth getting if it's for something you really NEED.
In a time of inflation, debt can be good Kath, because when the money is flowing like wine you can pay off debt just the same with inflated dollars. You lock in a low rate, and eat away at the interest while Dollars are abundant.
Kath, read this thread OP: http://www.usmessageboard.com/economy/68057-current-analysis-of-bank-reserves-money-supply-money-velocity-and-monetization.html
Brian (gonegolfin) comes here periodically and breaks down the Federal Reserve's market activity, and what it means, or COULD mean, for the currency. It is about as detailed as it can get, although it may require SOME understanding of terminology.
Your original article seems a bit off. I'm not quite sure it can be said that this is unprecedented money supply expansion. As it stands right now, there hasn't been that much "new" money created, as liquidity injections are often "sterilized" by counter measures such as the Fed selling Treasuries from its portfolio, which neutralizes the inflationary action of "creating money".
If you want to get down the root of things, read his threads. They're about as informative as they come.
What probably happens is that the Fed allows excess monetary balances to exist well after it becomes apparent the economy is recovering, then at some point, you will see significantly higher interest rates. If you have a mortgage, refinancing it now is probably a good idea.
Shoot, I'd say ANY credit you can qualify for and AFFORD right now with a low interest rate, is worth getting if it's for something you really NEED.
In a time of inflation, debt can be good Kath, because when the money is flowing like wine you can pay off debt just the same with inflated dollars. You lock in a low rate, and eat away at the interest while Dollars are abundant.
Perceptive, Paul.
I borrowed enough money to buy a nice downtown Boston Condo to go to school.
I paid it back, with interest, but the purchasing power of the dollars I paid back amounted to about enough to buy a decent car.
Inflation can be the debtors friend assuming his debts are to be repaid at a fixed rate.
So...if you believe that rampant inflation is in our futures?
Then going into a fixed interest debt might actually be a good idea IF you are doing something truly productive with that money.
Kath, read this thread OP: http://www.usmessageboard.com/economy/68057-current-analysis-of-bank-reserves-money-supply-money-velocity-and-monetization.html
Brian (gonegolfin) comes here periodically and breaks down the Federal Reserve's market activity, and what it means, or COULD mean, for the currency. It is about as detailed as it can get, although it may require SOME understanding of terminology.
Your original article seems a bit off. I'm not quite sure it can be said that this is unprecedented money supply expansion. As it stands right now, there hasn't been that much "new" money created, as liquidity injections are often "sterilized" by counter measures such as the Fed selling Treasuries from its portfolio, which neutralizes the inflationary action of "creating money".
If you want to get down the root of things, read his threads. They're about as informative as they come.
Paul, I really enjoy your posts and I agree with you regarding Brian "gongolfin" and his economic insights. I am not an expert, but I have years of experience and have done very well for myself, starting off with less than nothing and taking calculated risks to get to where I am today. I absorb information from everywhere and anywhere and I appreciate and recognize when someone knows what they're talking about.
One thing that really strikes me right now is that we are in an unprecedented combination of circumstances and I believe that even the most brilliant experts aren't sure what is going to happen next.
One thing I continually fall back on for comfort, is in the study of Fibonacci numbers, the patterns of nature that ALWAYS emerge in all of nature including human nature, which applies to the markets. The idea being that for things to naturally progress, they also have to naturally regress as well, as a part of the growth process. When you study these ideas in relation to the the markets you begin to see the patterns emerge.
Advanced Fibonacci Applications
The Fed is jamming reserves into the banking system to unfreeze credit. Credit spreads - the difference between the cost of borrowing for the US government and the cost of borrowing for everyone else - were at either multi-decade or all-time highs, even higher than the Depression in some markets.
Right now, it tells you that the Fed is deathly worried about deflation and a repeat of the Great Depression. What is portends is inflation. Inflation is not a problem now because credit has contracted and the expansion of Fed credit is merely replacing credit destroyed in the private sector. However, as things get better and private credit creation resumes, that graph is going to have to fall substantially. Otherwise, the economy will experience significant inflation. What probably happens is that the Fed allows excess monetary balances to exist well after it becomes apparent the economy is recovering, then at some point, you will see significantly higher interest rates. If you have a mortgage, refinancing it now is probably a good idea.
Thanks for the plug. BTW, I think it is best if folks start with my essay from December ...Kath, read this thread OP: http://www.usmessageboard.com/economy/68057-current-analysis-of-bank-reserves-money-supply-money-velocity-and-monetization.html
Brian (gonegolfin) comes here periodically and breaks down the Federal Reserve's market activity, and what it means, or COULD mean, for the currency. It is about as detailed as it can get, although it may require SOME understanding of terminology.
Paulie is certainly correct that there has not been unprecedented money supply expansion. However, the reasoning is not correct.Your original article seems a bit off. I'm not quite sure it can be said that this is unprecedented money supply expansion. As it stands right now, there hasn't been that much "new" money created, as liquidity injections are often "sterilized" by counter measures such as the Fed selling Treasuries from its portfolio, which neutralizes the inflationary action of "creating money".
If you want to get down the root of things, read his threads. They're about as informative as they come.
Thanks for the plug. BTW, I think it is best if folks start with my essay from December ...Kath, read this thread OP: http://www.usmessageboard.com/economy/68057-current-analysis-of-bank-reserves-money-supply-money-velocity-and-monetization.html
Brian (gonegolfin) comes here periodically and breaks down the Federal Reserve's market activity, and what it means, or COULD mean, for the currency. It is about as detailed as it can get, although it may require SOME understanding of terminology.
http://www.usmessageboard.com/economy/66033-interpreting-fed-policy.html#post947243
... and then follow with the most recent essay you cited.
Paulie is certainly correct that there has not been unprecedented money supply expansion. However, the reasoning is not correct.Your original article seems a bit off. I'm not quite sure it can be said that this is unprecedented money supply expansion. As it stands right now, there hasn't been that much "new" money created, as liquidity injections are often "sterilized" by counter measures such as the Fed selling Treasuries from its portfolio, which neutralizes the inflationary action of "creating money".
If you want to get down the root of things, read his threads. They're about as informative as they come.
The sterilization I speak of is simply the draining of bank reserves (which decreases the monetary base) to counteract some other increase in bank reserves. The monetary base is composed of currency in circulation plus bank reserves (this is not equivalent to money supply). This sterilization neutralizes the effect of creating bank reserves by some other action (such as Term Auction Facility (TAF) lending). Sterilization stopped in September when the Fed changed course and commenced its program of quantitative easing. IOW, this is when bank reserves began to increase because the Fed was injecting reserves into the banking system (which is creating money) without draining them via some other operation (selling treasuries from its portfolio) as they had been. But this does not affect the money supply directly, only the monetary base. I outline several reasons why the money supply has only increased marginally despite massive increases in the monetary base (due to the addition of substantial bank reserves) in these essays.
Brian
No. The draining of bank reserves (treasury sales) was also offset by the reserves being credited by the various Fed lending programs. Inversely, all the sale of treasuries did was neutralize the bank reserves being created. As such, the level of reserves in the system was being held constant, except for there being enough reserves being added such that the declining federal funds rate target is met.Thanks for the plug. BTW, I think it is best if folks start with my essay from December ...Kath, read this thread OP: http://www.usmessageboard.com/economy/68057-current-analysis-of-bank-reserves-money-supply-money-velocity-and-monetization.html
Brian (gonegolfin) comes here periodically and breaks down the Federal Reserve's market activity, and what it means, or COULD mean, for the currency. It is about as detailed as it can get, although it may require SOME understanding of terminology.
http://www.usmessageboard.com/economy/66033-interpreting-fed-policy.html#post947243
... and then follow with the most recent essay you cited.
Paulie is certainly correct that there has not been unprecedented money supply expansion. However, the reasoning is not correct.Your original article seems a bit off. I'm not quite sure it can be said that this is unprecedented money supply expansion. As it stands right now, there hasn't been that much "new" money created, as liquidity injections are often "sterilized" by counter measures such as the Fed selling Treasuries from its portfolio, which neutralizes the inflationary action of "creating money".
If you want to get down the root of things, read his threads. They're about as informative as they come.
The sterilization I speak of is simply the draining of bank reserves (which decreases the monetary base) to counteract some other increase in bank reserves. The monetary base is composed of currency in circulation plus bank reserves (this is not equivalent to money supply). This sterilization neutralizes the effect of creating bank reserves by some other action (such as Term Auction Facility (TAF) lending). Sterilization stopped in September when the Fed changed course and commenced its program of quantitative easing. IOW, this is when bank reserves began to increase because the Fed was injecting reserves into the banking system (which is creating money) without draining them via some other operation (selling treasuries from its portfolio) as they had been. But this does not affect the money supply directly, only the monetary base. I outline several reasons why the money supply has only increased marginally despite massive increases in the monetary base (due to the addition of substantial bank reserves) in these essays.
Brian
But wouldn't the sale of treasuries still ultimately have an affect on the money supply down the road, when less reserves are eventually hitting the street BECAUSE of the prior sterlization methods? It might not IMMEDIATELY affect the money supply, but it would certainly mitigate the ultimate impact on the money supply when the reserves are eventually lent or invested, right?