After China, the Fed’s Now the Largest Owner of US Treasuries

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Oct 102010

10/09/10 Stockholm, Sweden – Just this week an inevitable milestone came to pass, the Federal Reserve surged ahead of Japan as the second largest owner in the world of US debt… second only to China. Of course, the funds used to generate that massive debt position have only been made possible through the smoke and mirrors of quantitative easing. Zero Hedge notes this, and two other generally under-reported US debt facts, in a recent post.

Here’s the short version:

“#1: The US Fed is now the second largest owner of US Treasuries… Setting aside the fact that this is abject lunacy, this policy is trashing our currency which has fallen 13% since June… as in four months ago…

“#2: ‘There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years.’ [...] the US has entered a debt spiral: a time in which fewer and fewer investors are willing to lend to us for any long period of time… at the exact same time that we must roll over trillions in old debt and issue an additional $100-150 billion in NEW debt per month in order to finance our massive deficit… So we’re talking about TRILLIONS of old debt coming due in the next decade…

“#3: The US will Default on its Debt… either that or experience hyperinflation. There is simply no other option. We can NEVER pay off our debts. To do so would require every US family to pay $31,000 a year for 75 years… Obviously that ain’t going to happen…”

The last point should be no surprise to any regular…Read more…

10/08/10 The Mogambo Golden-Real Estate Project

War leads to prosperity!…Think again.

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Sep 122010

The Nobel Prize committee has never withdrawn a prize. It might want to consider it. In Tuesday’s New York Times, prizewinner in economics, Paul Krugman reveals either that he knows nothing about economics…or that there is nothing worth knowing in it. We’re beginning to think it’s the latter.

“From an economic point of view,” he writes, “World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Deficit spending created an economic boom – and the boom laid the foundation for long-run prosperity….”

In the 1938 US elections, voters showed what they thought of the New Deal; Democrats lost 70 seats in the House. Then as now, the public had lost faith in public spending, says Krugman. Nearly two out of three of those polled said they were opposed to stimulus efforts. Roosevelt buckled under the pressure; he drew back from further spending to fight the slump.

Thank God for WWII! No one opposes military spending in time of war. Krugman made his position clear in 2008 in his New York Times blog.

“The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression.”

According to this line of thinking, the best form of stimulus spending is money spent on the military. It creates consumer demand without creating consumer supply. Consumer prices rise; people spend. The slump is soon over.

But if WWII helped the US economy, think what it must have done for Japan; proportionally, its stimulus efforts dwarfed those of the US…and began much earlier. Just this week, Ichiro Ozawa, running for prime minister of Japan, vowed to take “every measure” to lower the yen and promised a stimulus package more than twice as big as the current program. He was just following in the footsteps of Japan’s leaders from the ’30s. It was “economic security” they said they were after. And they thought they could get it by central planning and government spending. Military spending rose from 31% of the budget in the early ’30s to nearly 50% five years later. By the early ’40s it was around 70% and nearly 100% later on. Deficits and debt soared.

Did that create a boom? You bet it did. Japan was the first nation to get out of the global slump. It boomed…and boomed…and ka-boomed. When it came to warships, planes, and soldiers, Japan was soon among the richest nations in the world. Yes, Americans had more electric fans, automobiles, central heating, aspirin, ice cream, and the rest of the paraphernalia of civilized life at the time. In the mid-’30s, the US produced 40 times as many autos per person as did Japan. Even during the Great Depression, the US out-produced Japan by a factor of 7 and its workers earned 10-times as much money.

Economists can’t even measure real prosperity, let alone fiddle it. So they put on the GDP and employment numbers the way a bald man puts on a cheap wig. It makes him look ridiculous and fraudulent, but it’s the best he can do. Unemployment disappears in a war economy. Japan put a million men in uniform. Two million more were part-time reservists. Those who weren’t in the army were put to work building tanks and planes. By 1941, Japan could produce 10,000 planes a year. If you were a swallow you wouldn’t want to build your nest in Japan’s factory chimneys; they belched smoke night and day.

And talk about fiscal stimulus! Krugman would have loved it – stimulus unfettered by real money or even a casual regard for real prosperity. Takahashi Korekiyo was known as the “Japanese Keynes.” Gillian Tett notes in The Financial Times that he was assassinated in 1936 after he came to his senses and tried to bring state finances under control. He was done in by army officers who did not want the stimulus to stop. Not that we’re being judgmental about it. As far as we know, the quality of central banking could probably be improved by an occasional assassination.

Takahashi wasn’t the first. Before him Junnosuke Inoue had held out for the gold standard and balanced budgets. He was out of office by 1931 and out of luck in 1932, when he was murdered. The gold-backed yen was abolished the day he left office. Then, public spending, deficits, central planning, debt, and inflation ran wild. By 1939, the Japanese were spending $5 million a day on their war with China – a huge sum for the Japanese at the time.

Was the economy improved by all this spending? No, it was perverted…hammered into a grotesque imposter – a parody of a real economy. Most of the nation’s resources were put to work building things almost no one wanted. Then, after the attack on Pearl Harbor, the stimulus efforts were redoubled. Rations were reduced further. Working hours were extended. What few consumer items were available were three times as expensive at the end of the war as they had been when it began. Men were conscripted into factories and the army. Women were expected not only to make the tanks, but to join the home-guard and prepare themselves to repulse the American invaders with sharpened bamboo sticks. What a marvelous economy – operating at full capacity and full employment until General MacArthur finally put it out of its misery.

You say Obama; I say Ozawa! You say boom; I say ka-boom!

By Bill Bonner

Let Them Eat Credit

A Growing List Of One Term Presidents, A Moral Question - Not A Political One, A State of Distress, AIG and all that....., Audit the auditors?, “the Greenspan doctrine”, Bilderbergers 1 USA 0, Catholic Social Teaching, China and the Treasuries - A Dependency Relationship, Collateral Damage, Coming Social Unrest, Constitutional Questions, Consumption Ran the Old Economy, Coup d'etat in America, Death of the Dollar, Deficit Death Spiral, Deflation-Inflation-Stagflation, Derivatives Reform, Did they ever hear of GAAP?, Dismal Science-Ignorant Scientists?, Economic Analysis Isn't Science, Federal Reserve-Discussion, Greenspan is kind of stupid, It Is Nice To Be Part of the Elite!, It Is Supposed to be a Republic!, Let's Call What It Is - DEPRESSION, Monetary Policy - Discussion, Moral Hazard, No Bank Is Indispensable, Obama Bingo, Obama's Hypocrisy, Our phony middle class, Patience is a virtue...Delusion is a vice, Political Chaos, Political Implications, Regulatory Failures, Subsidiarity, TARP fruit loops, The American Financial Oligarchy, The Consequences of Greed, The End of American Capitalism As We Know It? - Discuss, The excellent adventures of Ben Bernanke, The Financial Elite, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, The New American Socialism, The Obama OMG magic factory, The Sorry State Of American Manufacturing, The Suffering Poor, Unemployment Catastrophe, Unintended Consequences, We Have Become Beggars To The World No Responses »

Aug 292010

By most counts, the U.S. economy started growing in the middle of last year. For many Americans, though, it does not feel as if the Great Recession has ended—unemployment and underemployment are still alarmingly high, and job growth is weak. Many causes have been suggested for both the economic collapse and mediocre recovery, but one that is hardly ever mentioned is income inequality. This is a mistake. Growing income inequality in the United States and the policy responses it has spawned have done tremendous damage to our economy. And because we continue to ignore this underlying problem, the risks of our policies leading to another calamity will not go away, no matter what we do to reform the financial sector.

Since 1968, income inequality has been steadily increasing in the United States. I am not referring to the Croesus-like income of a John Paulsen, the hedge fund manager who in 2008 netted over $3 billion, about 75,000 times the average household income. I refer to a more worrying everyday phenomenon that confronts most Americans, the disparity in income growth rates between a manager at the local supermarket and the typical factory worker or office assistant. Since the 1970s, the wages of the former, typically workers at the 90th percentile of the wage distribution in the United States, have grown much faster than the wages of the latter, the typical median worker. Or consider the table below, which shows that the wages of occupation groups that are paid more than the national average in 2002 have grown much faster since then than the wages of occupation groups below the average:

The Inequality Gap Is Ruining the American Economy—and Bernanke Is Just Making it Worse Raghuram G. Rajan

This forecaster is saying something that I thought was just common sense and I mentioned a year ago or more. That is to say, without a vibrant middle class to effect the necessary 70 % consumption that represented the bulk of activity supporting the “old economy”, how is the revival supposed to occur? What we need is a very focused new industrial policy that puts the USA back in the saddle and in the front of the parade. Please forgive my mixed metaphors!

Brian J. Schuettler

Collapse of middle class means there’s no fuel for recovery, Gerald Celente argues

The US economic recovery in recent quarters is little more than a “cover-up” and the world is headed for a “Greatest Depression,” complete with social unrest and class warfare, says a renowned economic forecaster.

Gerald Celente, head of the Trends Research Institute, told Yahoo!News’ Tech Ticker that there’s no risk of a “double-dip recession” because the first “dip” never ended.

“We’re saying there’s no double dip, it never ended,” Celente said. “We’re looking at the Greatest Depression. There’s no way out of this without [rebuilding] productive capacity. You can’t print [money to get] out of it.”

Celente, who has been credited with predicting the 1987 stock market crash, the collapse of the Soviet Union and the subprime mortgage crisis of recent years, said the US and other developed countries can expect to see the sort of social unrest the world witnessed in Greece this year once government attempts to shore up the economy fail and lawmakers turn to “austerity measures” to plug gaping budget holes.

Collapse?

A Shareholder-Not Just a "Stakeholder", A State of Distress, Bond Market, Coup d'etat in America, Creditors Caveat, Deflation-Inflation-Stagflation, The American Financial Oligarchy, The Bear Facts, The Democrats Blew It Again, The Intrusion of UNLAWFUL Authority, The Obama OMG magic factory, The Suffering Poor No Responses »

Aug 152010

Taleb Says Government Bonds to Collapse, Avoid Stocks – Bloomberg

Nassim Nicholas Taleb, who warned that unforeseen events can roil markets in “The Black Swan,” said he is “betting on the collapse of government bonds” and that investors should avoid stocks.

“I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”

Treasuries have rallied amid speculation the global economic recovery is faltering, driving yields on two-year notes to a record low of 0.4892 percent today. The Federal Reserve yesterday reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated. The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest slump during the bull market.

The financial system is riskier than it was before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said.

Senate Leaves Credit-Starved Small Biz Hanging – Los Angeles Times

Small businesses desperate for government help getting loans will have to wait at least until September before Congress moves on long-awaited legislation to pay for higher loan guarantees, lower fees and other breaks.

As the Senate adjourned for its summer recess this week, a key bill to spur lending to small businesses remained stuck in a partisan stalemate.

As a result, the next month or more may be angst-ridden for many business owners. Nationwide, 995 government-backed small business loans that have been given initial approval since last spring are now stuck in limbo until Congress acts.

The Committee to Defraud the World

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Aug 012010

To say now that ‘No one knew’ or ‘I was mistaken’ or ‘I was just doing as I was told’ is another in a series of lies and deceptions that have supported one of the greatest frauds in the history of the world.

But this is not history. This episode of fraud is still playing itself out now. And to fail to understand the depth and breadth of this madness is to place oneself in peril, and in the power of those who are twisting the Western economic and political system even now to satisfy their lust for wealth and power. You are only successful if you can keep what you kill.

Glass-Steagall fell after a decade long campaign involving hundreds of millions in lobbyist money spread lavishly around the Congress, led by Sanford Weil of Citibank, supported by key banking and political figures in the Congress and at the Fed. It involved Senator Phil Gramm, who helped to put a stake in the heart of the financial regulatory process under the Reagan free markets banner, and who recently said the problem is that the middle class were a bunch of whiners. As did his wife Wendy, who as the chairperson of the CFTC had exempted Enron from regulatory oversight, and then left to take a position there on its board of directors.

Like the Mortgage Backed Securities scandal it involved surprisingly few principal players, like Alan Greenspan and Robert Rubin, who used their power and influence to silence and ostracize critics, and promote a climate of reckless disregard for the public trust under the meme of ‘efficient markets’ and deregulation. This might have been an innocent policy error if it did not involve premeditated theft on a massive scale, followed by cover ups, denials, and a control fraud that exists even today.

But it also involved literally thousands of collaborators and enablers, from mainstream media people, economists, analysts, and other thought leaders to politicians and regulators who saw that it was to their advantage to at least passively support this scheme which they knew very well was a fairy tale, a fraud, class warfare by a new name, but were able to hide their own guilty consciences behind self-serving rationalization and the shield of plausible deniability.

History, and hopefully the justice system, will sort this all out. It is difficult, even now, to get one’s mind around the enormity of it. This is its most powerful weapon. Who could be such monsters, so amoral, so destructively sociopathic? Future generations will regard it as an episode of madness, driven by a few people in a tight circle of self-reinforcing thought, people with remarkably similar cultural and educational backgrounds, driven by a consuming lust for power, that were able to dupe and delude an entire nation made vulnerable by propaganda, a co-opted press, and apathy.

In the meanwhile all the great mass of people can do is to watch, and wait, and seek to protect themselves from these ravening wolves grown increasingly desperate, as their arrogance comes to a tragic fall. They can vote out incumbents, but the parties choose the candidates, and too often they resemble competing crime families of special interests more than pillars of a representative government, saying one thing to get elected and doing another thing once in office.

This is the approach of trouble when hubris is at its height, and the few feel they have everything to gain and nothing to lose, if only they can gain more power, and necessarily become more ruthless. They are trapped in a cycle of fear and greed. The fear provokes the lies and the cover ups, but the greed promotes the extension of the fraud and the theft, requiring even more lies and cover ups. The operative word is ‘over reach,’ in a classic late stage Ponzi scheme. This will undoubtedly add to the confusion as the truth is assaulted by the big lie.

The last vestiges of polite society are often shed as the downfall reaches it final conclusion, at the end, when all is revealed, at last. And so there will be great danger.

Jesse’ s Cafe http://jessescrossroadscafe.blogspot.com/2010/07/committee-to-defraud-world.html

Jun 052010

I’ve seen some eye-poppin’, credulity-stretchin’ accounts in my time. The report “The Budgetary Impact and Subsidy Costs of the Federal Reserve’s Actions During the Financial Crisis,” just released by the Congressional Budget Office, ranks with the most extreme. It claims that the budgetary cost (which corresponds roughly to expected losses) of the Fed rescue facilities launched during the financial crisis is approximately $21 billion. Moreover, its peculiar formulation (”fair value subsidies”) conveys the misleading impression that this was the extent of the central bank’s support to the financial services industry.

In a (weak) defense to the CBO, my understanding (and readers are welcome to correct me) is that the office is tasked to execute analyses as they are framed. In other words, if the CBO is asked to opine on a particular matter, it has to deal with only the questions posed to it. It is not permitted to tweak the inquiry or broaden the focus to provide more insight.

The closest thing to a statement of scope and objectives comes in the Preface and it is remarkably thin. The most important remark:

The report also presents estimates of the risk-adjusted (or fair-value) subsidies that the Federal Reserve provided to financial institutions through its emergency programs.

CBO Issues Fed-Flattering Propaganda

carl_levin.bl.top.jpg Interview by Paul Smalera, senior editorApril 30, 2010: 3:21 PM ET

(Fortune) — At Tuesday’s epic Goldman Sachs hearing, Senator Carl Levin of Michigan led a public grilling of Wall Street not seen by a government panel since the Depression-investigating Pecora Commission. Fortune wanted to know what Levin thought of the answers he got from executives, including CEO Lloyd Blankfein, whether Goldman can save its reputation, and what his committee has learned from its hearings on the financial crisis.

It was surprising how much the Goldman Sachs (GS, Fortune 500) executives talked. How did you get them to reveal what they did?

By confronting them with their own documents. A lot of time and work goes into getting huge amounts, literally millions, of documents … I think when people are confronted by their own documents by someone who’s really studied those documents; it’s easier to force them to respond.

They obviously were trying to delay and evade answering. We had a willingness to take them on and not let them talk forever, telling them, “Hey we’ll stay here all night if we have to, but we’re going to get the information we want.”

And when they did answer?

When they did answer, some people have asked me, “Were they telling you the truth?” The answer is yeah, and that’s what’s even more troubling than the evasions — they are defending what most people would say are indefensible actions. They shouldn’t be betting against what they’re selling at the same time they’re telling you: “Here, these are our securities, our names are on the prospectus.”

I think people think that someone selling something believes their product needs to succeed in some general way; that they want it to succeed. But [Goldman Sachs] are betting against [their product] and basically say they are going to profit from its failure. At that point, in most people’s minds, clearly in mine, there’s a conflict of interest. You’re betting against a product that you’re holding out to the public, by fair assumption, as a good product.

They were trying to turn this into, “We can’t guarantee that people are making money,” but that’s not the point. The point is that at the same time you’re holding this thing out as something that presumably you’d like to see provide something good for your customer, you’re betting against it and making a heck of a lot of money by its failure. And you’re not disclosing that.

To add insult to injury, in those emails that call it “junk” that they’re selling, “crap,” and I won’t get into the “shitty” word but anyway, that adds insult to injury. When you’re putting together a product, hold that out and then are betting against that same product, I think it’s a conflict and at minimum you have to tell people, not some boilerplate that you might be on the other side, but in clear language that you’re betting against [the security].

Regulators have taken a lot of blame for the crisis but doesn’t part of this come from the laws — or lack of laws — surrounding these activities? Goldman seemed to testify that its actions were unseemly but not illegal.

The reaction of one guy when I asked about his reaction to his emails was, “That shouldn’t have been in an email.” There are two different worlds here. My reaction was, “You shouldn’t believe that, you shouldn’t feel that.”

I could have understood the reaction [by Goldman] that they should not be selling stuff that they’re betting against and think is junk, but they don’t say that because they don’t believe it. They think they can do anything they want, that it’s a dog-eat-dog market and all these sophisticated buyers know they disagree. The sophisticated buyers see an AAA rating on something: they’re not then going to go into the 500 mortgages referred to in a synthetic CDO. There’s no way they can. They’re not the underwriter, they haven’t put it together Of course with Abacus, when you have the fact that [John Paulson]., who was betting against it, helped put the referenced mortgages together, that’s just a second insult.

It’s not just Wall Street, it’s upstream: We spent a long time getting into the Washington Mutual issue as an example of lenders putting together shoddy mortgages, securitizing them and getting them off their books. These are mortgages, which never should’ve been issued where the regulator failed to enforce the laws in this case.

The regulators pointed out things in emails and visits to the bank … but they never enforced it. There’s a failure to stop the abuses. Then you have credit rating agencies susceptible to pressure, acknowledge it in emails, and are involved in an inherent conflict of interest. They’re being pressured to put higher ratings on financial documents by the people who will benefit from those ratings and they’re being paid by those people. You have the problem of the person who pays the fiddler calling the tune.

Then you get down to Wall Street with their vacuuming up these securities and getting the risk off their books without disclosing it. It’s not limited to Wall Street’s unbridled greed, it comes all the way from upstream.

How Carl Levin Got Goldman Sachs’s Goat – Paul Smalera, Fortune

Coup d’etat in America

The American Financial Oligarchy, The Financial Elite No Responses »

Apr 242010

From Jesse: http://jessescrossroadscafe.blogspot.com/2010/04/financial-oligarchy-in-us.html

If you do nothing else this week, read the transcript or watch this video.

I have a serious difference of opinion with the speakers with regard to Robert Rubin and his role, but they make up for it with their description of Jamie Dimon as close to the White House and one of the most dangerous men in America today.

And I thought it was interesting that Simon Johnson would say openly that the ONLY Senator who is speaking the truth plainly is Ted Kaufman from Delaware.

Other than that they are substantially putting out a very sound and realistic view of the root of the problems that created the financial crisis, and what requires to be done to rebalance the system and create a sustainable recovery.

BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what’s the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it’s not your problem. When it blows up, it’s the taxpayer and it’s the government that has to sort it out.

BILL MOYERS: So, you’re not kidding when you say it’s an oligarchy?

JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they’ve behaved in Washington. For example, they’ve been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that’s for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we’ve seen the gloves come off. They are fighting as hard as they can to stop reform.