Naive Beliefs And Misplaced Fears
Readers suggested a topic on the latest Federal Reserve action. “Another morning but with a fresh dose of QE3. So what do we see from this recent injection and how it will impact our lives?”
One asked, “In addition to how it affects the economy monetarily anf fiscally, I would also like to see a discussion on how Q3 affects how people view the country and the world, both short- and long-term. What I find mind-boggling is the farce that government (i.e. taxpayer) spending is going to preserve the ‘wealth’ of housing. This time in the form of mortgage bond purchasing. The housing market is much beyond being saved through artificial means.”
“The real means of support are being destroyed (for starters, monetary wealth of consumers). I also wonder how this will affect the psyche of a people over the next 40 years. This is insanity. What happens when this doesn’t work?”
Another asked, “Who are they going to buy all these mortgages from? Are they going to take all the cr@p from fannie and freddie? This does nothing to help me or you. Continuous bailout of the big banks. Maybe you can invest in facebook since you cant get a yield anywhere else? 5 dollar gas on its way?”
Finally, “So let me get this straight: The Fed is gonna purchase $40 bn/mo in MBS until the jobs come back. Isn’t this something like the idiot who insists on pounding his head against the wall until the pain stops?”
The Associated Press. “The Federal Reserve wasn’t just trying to drive down interest rates when it announced a third round of bond purchases Thursday. It also wants to make people feel wealthier — and more willing to spend. The idea is for the Fed’s $40 billion-a-month in bond purchases to lower interest rates and cause stock and home prices to rise, creating a ‘wealth effect’ that would boost the economy.”
“And ‘if people feel that their financial situation is better because their 401(k) looks better or for whatever reason — their house is worth more — they’re more willing to go out and spend,’ Chairman Ben Bernanke told reporters. ‘That’s going to provide the demand that firms need in order to be willing to hire and to invest.’”
“Many economists worry that the Fed is reaching a point of diminishing returns after nearly four years of aggressive efforts to help the economy. Bernanke himself urged everyone to keep expectations in check. ‘I personally don’t think that it’s going to solve the problem,’ he said Thursday. ‘But I do think it has enough force to help nudge the economy in the right direction.’”
From CNBC. “The euro zone’s debt crisis is just the center of an ‘adjustment’ which is affecting all advanced economies, former European Central Bank (ECB) President Jean-Claude Trichet told CNBC. All the advanced economies are undergoing their first major adjustment since the Second World War, according to Trichet. ‘When you look with historical credit at what has happened since 2007, it was the start of the adjustment of the advanced economy. We have to understand– it’s our turn. We cannot ask the rest of the world to finance us eternally if we spend more than we earn. As simple as that,; he said. ‘We paid quite a high price for a dominant vision, which was too much benign neglect before the start of the crisis.’”
“He also highlighted several ‘naive beliefs’ from policymakers in the pre-crisis days, including the belief that the developed world’s financial and economic systems were ’stable and resilient’ because they absorbed the dotcom bubble bursting in the early years of the twenty-first century.”
“Central banks across the board in the advanced economies - including the Bank of Japan and the U.S. Federal Reserve, are engaged in ‘non-standard measures’ to protect their economies, he pointed out.”
From Macleans. “Four years after a major banking crisis rocked global finance, the economy seems stuck in a permanent state of pessimism and panic. Investors have taken to stashing their cash in government and corporate bonds, sending their prices skyrocketing and causing some analysts to worry that speculative bubbles are forming in what have traditionally been considered low-risk investments. Even farmland in Iowa has become a safe haven for worried investors, who have sent prices shooting up 24 per cent in the past year despite the worst drought in half a century.”
“‘It may sound odd, but we appear to be witnessing a speculative rush away from rational risks,’ Paul Justice, a director of research at Morningstar, wrote in an April report. ‘We are in a fear bubble.’”
“Granted, investors have plenty to fear these days. The eurozone appears on the verge of collapse. China’s growth is slowing. The U.S. seems incapable of reining in its debts. There’s the LIBOR scandal that saw global banks manipulating a key interest rate, casting fresh doubts on the strength of the financial system. The markets themselves seem hopelessly manipulated: by central bankers who print money like it’s going out of style and then use it to buy back their own debt; by automated trading systems whose software glitches have created and destroyed millions in artificial wealth; by Facebook and its disastrous IPO. But is the fear really justified?”
“The Bank of Canada has held interest rates at one per cent for the last two years—levels once thought reserved only for full-blown economic meltdowns—perpetuating the widespread belief that Canada’s relatively strong economy is perched on the edge of a precarious cliff.”
“So where is all the money going? Since 2007, nearly US$350 billion has left the stock market and nearly US$1 trillion has been stashed in bonds, according to the Investment Company Institute. Yields—the interest paid on the bonds—are at lows not seen since the 1940s. Germany, Denmark, Switzerland, Austria and Belgium have seen negative yields this year as European investors ran from sovereign debt crises in southern Europe.”
“Negative yields are exceedingly rare—with good reason. They essentially mean investors are paying for the privilege of lending money to governments. But they are becoming more common as investors risk everything to pay for the safety of the governments least likely to default on their debts. As the so-called bond bubble grows, it risks setting off a domino effect of other potentially troublesome and equally counter-productive trends. Low yields on government bonds have pushed investors into buying corporate debt, driving interest rates on corporate bonds to historic lows. That is sparking a wave of new issuances as companies jump on the prospect of being able to access cheap debt even as they stockpile huge sums of existing cash.”
“The glut of money piling into bonds and pushing interest rates down has also done nothing to encourage governments to rein in spending, since they can simply issue more cheap debt. Global public debt, according to the Economist’s debt clock, topped $48 trillion and counting this year, up from $29 trillion in 2007.”
“Carleton University economist Nick Rowe blames central banks for creating an atmosphere of uncertainty that has made it difficult for investors to know just how bad things might get before they start getting better. Investors who lock their money away in 10-year government bonds in the belief that the global economy is on the verge of a precipice can actually push the economy further into recession. Uncertainty is creating fear, and fear becomes a self-fulfilling prophecy. Rather than spurring economic growth, low interest rates have the added effect of forcing households to set aside even more cash for their retirement when they’re earning nothing on their investments.”
“But just as the U.S. real estate bubble was predicated on a belief that house prices only go up, bond investors are fooling themselves if they believe that bond prices—in the midst of a 20-year bull run—can never fall. Bond expert Marilyn Cohen warns the fear bubble building today will eventually burst. ‘I’ve lived through a lot of bear markets on bonds and it’s painful and terrifying, and people who thought if they were in bonds they couldn’t lose any money had their Jesus moment that they were wrong,’ she says. ‘When it comes unwound—and it will come unwound—it’s going to be one massive, ugly situation.’”
“So perhaps, after all, there is good reason for fear—it’s just misplaced.”
“It may sound odd, but we appear to be witnessing a speculative rush away from rational risks.”
Driven by:
1. Lots of OPM desperate for a decent return.
2. Lots of out-of-work money managers desperately looking for OPM to manage.
Combine 1 and 2, throw in a spreadsheet and a few colorfull charts and - presto! - you produce still another massive economic distortion.
I think they will keep the pretend going until after the elections but one thing is for sure it will crash at some point in the near future. When interest rates start to rise I wouldn’t want to be in the bond market, we haven’t seen ugly yet.
Talked to a gentleman last night at the Car show in Monterey who just sold off his building and is liquidating equipment. Another business gone along with workers, another space up for rent (he was able to rent out 30%), more money trying to find a safe harbor.He voted for Obama in 2008 and said we sure got the change and now were are only left with hope.
“When interest rates start to rise I wouldn’t want to be in the bond market, we haven’t seen ugly yet.”
Hasn’t the Fed committed to keeping rates low more-or-less indefinitely?
Yeah- when are these interest rates going up?
When we’re ready to allow the debt to cascade default into depression.
“When we’re ready to allow the debt to cascade default into depression.”
If you plan to continue deluging the HBB with bankster Armageddon propaganda, could you at least fix your grammar? Otherwise we will doubt your claim to a 140 IQ.
“Otherwise we will doubt your claim to a 140 IQ.”
There was never any credibility to this wild claim anyways. Darryl is a bonafide liar and serial misrepresenter.
As the last article pointed out, some buyers of debt are willingly losing in the transaction. That is a scenario that can’t go on. As for the Fed, $40bn a month is chicken feed compared to US govt debt needs. And they say they’ll by MBS. I would guess they are also buying treasuries. No matter; can any currency exist with a money printer buying all of the govt debt?
Then there are the corporate bond yields, the municipal bonds. This policy is creating all sort of distortions. Note that all govts feel free to borrow heavily because it’s ’so cheap.’ Where have we heard that before? The complacency; I noted here a couple weeks ago that what used to be emergency rate cuts/asset purchases have become normal.
I’ve never got that worked up about QE 8, or plan nine from outer space, because I don’t think these entities are really very powerful, market wise. They can cause harm, but not really direct things. So what these big announcements mean more to me is, what do they say about where we are? Given the yet again ‘bold Fed money printing exercise’, I’d say it means the economy is really stuck. The Fed and govt are preventing it from becoming unstuck, IMO.
Like this:
‘Bernanke himself urged everyone to keep expectations in check. ‘I personally don’t think that it’s going to solve the problem,’ he said’
What is the problem, Mr Bernanke?
“What is the problem, Mr Bernanke?”
8-9% of GDP leaks from circulation every year, and therefore, 8-9% of GDP has to be borrowed into existence just to maintain sluggish economic conditions.
Once upon a time, Bernanke mentioned “global imbalances” as a reason for printing. Lower US rates and force exchange rates to adjust so that we buy less of the world’s stuff, and the world buys more of us.
However, since we’re still so dependent on oil, and we’ve off-shored our industrial base, adjusting international exchange rates, for the few nations that do not peg or immediately respond with their own devaluation efforts, adjusting exchange rates increases rather than decreases our trade deficits.
So…. I’m not sure he is still hoping to “fix” our trade imbalances with lower rates, and is now just hoping to get debt increasing again, to create the new money needed to fund those imbalances.
“This policy is creating all sort of distortions. Note that all govts feel free to borrow heavily because it’s ’so cheap.’ Where have we heard that before? The complacency; I noted here a couple weeks ago that what used to be emergency rate cuts/asset purchases have become normal.”
Low-interest rate moral hazard is running amok. The PUSD bond story exemplifies what kind of foolish borrowing these rock-bottom-rate policies inspire.
Most amazingly, the Fed never, ever utters an acknowledgment of the reckless lending their policies inspire. Apparently it’s all propaganda, all the time at the Fed.
ELECTION: 4 of 6 school districts say they won’t use costly Poway-Unified-style bonds
September 15, 2012 6:00 am • By ERIC WOLFF ewolff@nctimes.com
BUDGET: Tax collector blasts Poway Unified bonds, calls for reform
Of the six districts asking for bond approvals in North San Diego and Southwest Riverside counties in November, four promised not to use the style of bonds that caused a firestorm of negative publicity around the Poway Unified School District last month, district representatives said last week.
Poway Unified used 40-year “capital appreciation” bonds, which allowed the district to borrow $105 million for school construction, but avoid making a payment for 20 years. The bonds will ultimately cost the district almost $1 billion.
The public reaction to news of the use of such long-term bonds, along with pressure from a local taxpayers nonprofit, pushed the MiraCosta Community College District, the San Dieguito Union High School District, and the Ramona Unified School District to enact policies to strictly limit or prohibit the use of capital appreciation bonds.
…
From the Macleans piece:
‘Rather than spurring economic growth, low interest rates have the added effect of forcing households to set aside even more cash for their retirement when they’re earning nothing on their investments.’
‘Ratings agency Standard & Poor’s warned this spring that the global “wall” of corporate debt set to mature between 2012 and 2016 had reached $30 trillion. In a sign that the corporate bond rally may be getting out of hand, last month British bond fund pioneer M&G reportedly turned down $1.5 billion worth of business in institutional corporate bond funds over concerns from the British regulator that if investors ever needed to sell en masse there may be no buyers left, triggering a meltdown in the market.’
‘Norway’s state-owned $600-billion oil fund, considered one of the world’s largest sovereign wealth funds, confirmed that it was also reassessing the bond market. “It is extraordinary,” the CEO of the firm that oversees the fund, Yngve Slyngstad, told the Financial Times. “We have to ask the obvious question of why investors are paying for lending money and are not just keeping it in cash.’
Another Bernanke quote:
‘We’re looking for policymakers in other areas to do their part,” Bernanke said at the press conference. “We’ll do our part and we’ll try to make sure unemployment moves in the right direction but we can’t solve this problem by ourselves.”
http://money.cnn.com/2012/09/13/news/economy/federal-reserve-qe3/
I’ve said it before; it’s important when examining central bank policy, to at least consider that these people may be complete idiots.
Anyone see the contradiction?
There is no free lunch. For a short temporary boost to housing and 401ks, obama will have bankrupted our country.
But if he gets reelected - it was ALL worth it.
——————————————–
What I find mind-boggling is the farce that government (i.e. taxpayer) spending is going to preserve the ‘wealth’ of housing. This time in the form of mortgage bond purchasing. The housing market is much beyond being saved through artificial means.”
We have to understand– it’s our turn. We cannot ask the rest of the world to finance us eternally if we spend more than we earn. As simple as that,; he said. ‘We paid quite a high price for a dominant vision, which was too much benign neglect before the start of the crisis.’”
Total debt increase under Reagan, 141% in 8 years.
Total debt increase under Obama, 10% in 3 years (2011, last full year of data)
Federal Reserve Z.1, table d3 tells the story.
“Total debt increase under Obama, 10% in 3 years”
Then I guess $6 trillion isn`t so bad after all. Heck we might as well give Solyndra another $500 billion if the total debt has only gone up 10% in the last 3 years.
Sorry Solyndra tanked. Happy GM came back and, like AIG, might have actually returned a profit from the government that loaned them the money.
Like another poster said, Tesla should have had more support than Solyndra.
As a liberal, I am encouraged that the House wants to set reasonable limits.
I hope the Senate will agree.
Alternative energy can create new jobs. Given a limit and a competitive plan.
That’s a total fabrication. What “debt” are you talking about? Total domestic spending? Portion of debts financed by government?
You can’t go from a deficit of 11 trillion to 15 trillion and call it “10%”.
Are you referring to borrowing from the FED?
What “debts”???
I guess you are just looking for something to say that OBAMA is a fiscal conservative for all the money he has wasted.
Look for a dumber audience.
Barak HUSSAIN Obama?
But, then, I guess it’s like all “statistics”. You can use them to say whatever you want, and claim they are “Factual”.
I remember a Headline story from Maryville Tenn. when I was passing thru some many years ago.
“MURDER RATE DOUBLES”.
Yes, indeed, it seems it had doubled. The previous year there had been one murder. It seems that there were 2 this year, and they weren’t exactly certain of the second. It may have been accidental; but it made a good headline.
If you increased a debt from 100,000 to 800,000, you can easily claim that the debt increased 800%.
If someone else increases it from 800,000 to 1,600,000, then the debt “only” doubled. But the 2 people increased the debt by the same amount. No difference. The real difference was the starting point.
So, if you want to use statistics, lets look at the REAL NUMBERS….Obama has wasted TRILLIONS, with a T. Comparing with Reagan is a false start.
Total debt is NOT some fabricated fact to prove a political point.
It is a core economic indicator.
Fine, let’s not compare total debt increase to total debt outstanding. How about another statistic, like GDP?
Under 8 years of Reagan, total debt/money creation was (9.4-3.9) $5.5T or $688B a year. With a GDP that started at about $2.8T, that is debt increasing at a rate of 25% of GDP.
Under the first 3 years of Obama, total debt/money creation was (38.2-34.5) was $3.7T, or $1.2T a year. With a starting GDP of about $14T, that is increasing at a rate of 9% pf GDP a year.
Coincidentally (or NOT), that 9% of GDP is almost exactly the rate at which money is leaking out of circulation via trade imbalances….
Create new debt/money faster than it leaks from circulation = economic boom.
Create new debt/money slower than it leaks out, then you get recession and risk cascade debt default into depression.
Create new debt/money at the same rate that it leaks out, and you get a “flat, bouncing along some short-term bottom” as we have had Obama’s entire presidency.
Now, we can try to get back to creating new debt/money at a faster pace again…..
Or perhaps it is time to reexamine our economic policies that have allowed 8-10% of GDP to drain from circulation every year, requiring us to add the debt at an unsustainable pace in the first place?
For awhile I have been thinking that allot of people on this board unnecessarily come down to hard on you…after this comment I now agree with them.
Explain?
Unpopular opinion backed up with data and cogent argument?
“…cascade default into depression.”
Yeah whatever…
“That’s a total fabrication. What “debt” are you talking about? ”
Shouldn’t you first ask what debt I’m talking about, THEN wait for a response before calling me a liar?
The debt I am talking about is Total debt… Federal gov, state and local gov, businesses and households.
You can google the federal reserve z.1 and then look in table D3 to see the exact figures.
Basically, Clinton didn’t need to run huge government deficits, because the tech bubble was allowing businesses and households to generate the greater than 10% of GDP new debt needed to make our trade imbalanced plagued economy function.
Obama is faced with a situation where the private sector is tapped out and is not adding any new net debt, leaving the federal government as the borrower of last resort to create the new debt. And, he’s only creating 8-9% of GDP new debt, which is not enough to create economic boom, just tread water to the outflow of cash from circulation.
“Total domestic spending? Portion of debts financed by government?
You can’t go from a deficit of 11 trillion to 15 trillion and call it “10%”.”
No, total debt, public and private, from $34Tish to $38Tish.
“I guess you are just looking for something to say that OBAMA is a fiscal conservative for all the money he has wasted.
Look for a dumber audience.”
I’m looking for the root cause of our economic problems, rather that looking to select specific data that supports the Neanderthalic “we all good, they all evil” of most political dogma. I, in fact, need to look for a less brainwashed audience than the likes of you.
Darryl
“treading water” Yes. M1 and M2 cumulatively do show this as well.
Low interest rates are helping the gov manage it’s debt and I think that is why QE3 exists.
A great way to avoid the political problems associated with required gov cost cutting efforts.
By now most corporate debt is already rolled over into “free” debt.
“Low interest rates are helping the gov manage it’s debt and I think that is why QE3 exists.”
Either that, or they will help the gov expand it’s debt — moral hazard problem and all that.
What I find mind-boggling is the farce that government (i.e. taxpayer) spending is going to preserve the ‘wealth’ of housing.
Yeah…it is interesting that the house itself is no longer the wealth. The wealth is what you can borrow against the house.
The “wealth” of houses now is a function of the power afforded to governments and government-backed entities.
Housing is the biggest source of accumulated “wealth” the government can safely find (i.e., without causing rebellion). It’s the biggest source of government borrowing, whether that borrowing is monetary in nature, or societal and fiscal power-oriented.
Housing wealth no longer is housed in the marketplace.
And one of the many problems with that is that it brutally punishes young people, who pay through the nose for this kind of perception management. The Fed’s announcement is yet another admission that we’ve given up on wages. The only thing that matters, for purposes of economic policy, is assets.
My thoughts on this are that the U.S. keeps doubling down. Eventually everything will be on the table, democracy too. We will look back on this time with utter revulsion.
“And one of the many problems with that is that it brutally punishes young people, who pay through the nose for this kind of perception management.”
Right. And show me where in the Fed’s mandate it says they are allowed to redistribute wealth from young to old
And really, when you think about it, wealth is being redistributed in favor of those with access to the Fed’s free money. That this is being sold to the general public as “stimulus” is a very sad irony.
This is the part of the game where the wealthy take everything. Enjoy the crumbs, 99%’ers.
There is no need to “look back”. If you have read any of my commentaries, I have been aghast at all this manipulation for the benefit of the Banksters since it’s inception. It is a game by, for and of the Banksters, to benefit the “rich” that Obama always claims to be opposed to.
What a farce.
The Federal Reserve needs to have it’s Charter revoked. The monies paid out need to be clawed back and the Banksters held for trial as enemy combatants that have robbed American Citizens of their livelihoods and their country.
KILL the FED. NOW.
I would put Bernanke on trial as an enemy agent, working to destroy America, using monetary policy as a form of TREASON. Hank Paulsen would be standing next to him, holding hands with Tim Geithner.All the Wallstreet/Bank holding houses would be in the bullpen, awaiting sentencing.
That’s the only solution.
I am not always in agreement with you, but you are spot on here.
The mortgage associated with the house is the prized pearl. The house itself is an afterthought, the oyster’s shell.
Rising interest rates are NOT the end of the world.
It can be a good things. Savers are rewarded. Businesses are more prudent and cautious investing money. Commodities come down in price. Etc.
IF we had a rational economy and a rational national budget.
Rising interest rates are the end of the world when you are so far in debt that even a slight rise in interest rates means you can not even pay the interest on the debt.
‘I’ve lived through a lot of bear markets on bonds and it’s painful and terrifying, and people who thought if they were in bonds they couldn’t lose any money had their Jesus moment that they were wrong,’ she says. ‘When it comes unwound—and it will come unwound—it’s going to be one massive, ugly situation.’”
The interest rate is the price of money, based on risk and demand.
The risks today are big. So’s the demand. Combine the two and the rational interest rate should be in the double digits.
That the rates are being held near zero is distorting the market for investment capital so much that it’s essentially destroyed it. That will delay recovery by decades.
“That will delay recovery by decades.”
That’s what I have been thinking.
Many here will not live to see the recovery.
“Rising interest rates are the end of the world when you are so far in debt that even a slight rise in interest rates means you can not even pay the interest on the debt.”
Increasing interest rates are the end of the world when your economy has trade imbalances that drain 8-9% of GDP from circulation every year, and the only way you’ve been keeping the economy growing for the last 30-40 years is by increasing total debt/money at an even faster rate than it is leaking from circulation.
Well Darrell, look at the bright side: When the economy truly collapses beyond the ability of government controls, that leaking will stop. LOL!
Don’t try to tell Darrell that…he thinks that what we are doing now is going to help us avoid that :-).
Reagan put us on the path….
141% increase in total debt, in 8 years, from $3.9T to $9.4T. That is something like 17% a year if you just take the increase and divide by the number of years (ignoring compounding).
Each household’s share of total debt (public and private) was 2.9x median household income when he took office, and was 4x when he left.
Good job Reagan.
Bush Sr entered with $9,4T and left with $11.2T. A paltry 20% increase in 4 years, or 5% a year. He entered with each household’s share of total debt being 4x median income and what did he do? Kind of tried to cap the rate of debt growth… and left with a suck economy and 4x, same as he found it. So much for rejecting voodoo economics.
Clinton entered with 4x and left with 4.1x mostly due to a huge 14% run up in inflation adjusted household income, 40% in nominal, non-inflation adjusted increase in median income. That combined with 15% increase in the number of households combined to overcome the staggering $7T. (60%) increase in total debt. 7.5% per year increase in debt? No Reagan, but better than Bush Sr.
Bush Jr entered with the tech wreck that stalled incomes, and they actually declining on an inflation adjusted basis. He went Reagan on it, and got debt flowing. A HUGE 90% increase in total debt in 8 years, 11.2% a year, massively increased each households share from a piddly 4.1x to a whopping 6x median household income.
And the reason for Obama’s SUCK economy??????
He just can’t get total debt increasing fast enough…
From $34.5T to only $38.2T, in 3 years? That is a paltry 10.7% over 3 years…. 3% a year? Really?
All he has done is increase the multiple of per household debt from 6x median income to 6.4x.
And, that is why the federal reserve has had to step in again, trying to cram down rates, and desperately trying to get people to borrow more money into existence, so we can replace the money in circulation faster than it is leaking out. Because clearly, Obama just isn’t getting it done himself.
The data:
http://www.davemanuel.com/median-household-income.php
http://www.federalreserve.gov/Releases/Z1/Current/z1.pdf
The math:
1980: $3.9T/82M/$16.5K=2.9
1988: $9.4/92.8M/$25.6=4
1992: $11.2T/96.4M/$29.4K=4
2000: $18.2T/108.2M/$41.2K=4.1
2008: $34.5T/117.2M/$49.3K=6
2011: (last full year of data) $38.2T/121.1M/$49.1K=6.42
Or maybe, and I know this is going to sound crazy… but maybe we did thinks in the 60-70-80s that broke out economy and made us dependent on unsustainable debt growth, like maybe embracing trade imbalances through policies like international free trade and a flatter/broader tax code (income and payroll combined).
Money leaks out, it kind-a has to be replaced, and fiat money is created when it is…..
Falling interest rates, excess debt, asset price bubbles…. it is all symptoms people. Look for the root cause! Only by addressing the root cause can we fix the symptoms without killing the patient.
Consider osmosis. Cause and effect you have mixed up.
Yes, yes. money flows out of circulation, then is loaned and spent back in, repeat until each household’s share of total debt goes from 2.8x median income to 6.4x.
However, that is like saying that it is a natural process that we have no tools or power to prevent.
I think it was our actions of embracing free trade and flatter tax that created the “leakage”.
Oh, so now we see what magic numbers we are using: TOTAL DEBT, Public and Private.
So, what does the President have to do with “private debt”??? Hummm????
Well, except for the concept of creating an “environment” where people feel confident of their future and their property and are willing to go further into debt, the answer is NOTHING.
So, Reagan gave people confidence and the spent like drunken sailors and the FED created lots of bankster loans.
Your basic complaint with Obama’s bad economy is that People (private sector) have voted “no confidence” in the Socialist State takeover and are unwilling to borrow and indebt themselves? Is that about it?
But it’s not Obama’s fault. It’s the private sector failing to see the “wisdom” of massive government spending.
The truth is plain to see. We don’t trust Obama’s management of the Ship of State and don’t want to invest in it. I know I am not “buying” the Obama story of the New world economy of “wealth transfer”. I have no desire to pay for more parasites. And most working people don’t, either.
The massive government spending was to prevent the total collapse of our debt-driven economy by slowing the collapse of debt. Or to merely prevent the total collapse of our debt driven economy.
“And ‘if people feel that their financial situation is better because their 401(k) looks better or for whatever reason — their house is worth more — they’re more willing to go out and spend,’ Chairman Ben Bernanke told reporters. ‘That’s going to provide the demand that firms need in order to be willing to hire and to invest.’”
He must be talking about the rich, and people living in certain other countries. Everyone here is broke. Or does he want total debt to start rising again, led by the private-sector component?
More than that… The massive government spending, adding only 8-9% of GDP to total debt, is just enough to fund our current trade imbalances.
Why no boom despite all the spending? Because with 4% of GDP leaking out via international trade imbalances, and another 5% leaking out via corporate profits being distributed to those that already have more money than they spend, 8-9% of GDP new money creation is just treading water. We need more than that to actually create new money in circulation faster than it leaks out.
Reagan was a great president because he took office when debt was at post WWII lows. All he had to do was unleash the beast, and the debt machine was able to go wild creating new debt/money.
Obama is a suck president because he took office when debt was already too high, so no matter what they do to feed the beast, it just can’t crank out the new debt/money needed to replace the debt/money that leaks out via trade imbalances.
Obama is a suck president because he took office when debt was already too high, so no matter what they do to feed the beast, it just can’t crank out the new debt/money needed to replace the debt/money that leaks out via trade imbalances……..
Obama TOOK OFFICE knowing all these things, or supposedly he did. He was going to “save us” from economic catastrophe by SPENDING BIG on his buddies (shovel-ready jobs, which were a few road paving jobs). NONE went to the real world economy.
I agree that Reagan was a moron in terms of deregulation. The Banksters got way more than they should have been allowed, but you must remember that CLinton approved the removal of Glass-steagall, not Bush.
the Banksters were already having a big party.
Reagan started by deregulating savings and loans, which I agreed with. They should have been given more leeway and there were strict limits on their portfolios. Like all other control releases, it got out of hand when the prisoners began watching over the guards.
However, It is my contention that the real problems began with the elimination of glasso-steagall that allowed “INVESTMENT BANKS” to be treated the same as commercial banks. It should never have been allowed.
That is where FED lending got out of control with bizarre “investments”, and massive debts. No more moral hazard.
The Federal Reserve has your back. Party on, garth.
What Reagan did was push through significant banking regulation reform, including the lowering of the reserve requirements on most loan types from 10% to 3%, increasing max theoretical leverage fro 10-to-1 to 33-to-1.
Total debt is not a hokum number that I’m using to make some misguided political point. Fiat money is borrowed into existence. And guess what. That money spends and stimulates the economy ALL the same, regardless if it originates from government debt, household debt, or business debt.
The amount of TOTAL debt creation, is a DIRECT measure of the amount of money creation, and it is money creation that has been the primary stimulator in our trade imbalance plagued economy for the last 30+ years.
My basic complaint is that we embraced trade imbalances 30-40 years ago, and it has taken decades for those chickens to come home to roost because we’ve been papering over the massive money drain, with unsustainable debt growth.
I am simply pointing out the different circumstances of the economic situations today than when Reagan took office. Reagan took over when lending was tight and we’d just had a decade of high inflation and high interest rates, so total debt was relatively low.
1980:
$3.9T debt and $2.8T GDP. GDP was 71% of total debt.
2008:
$34T debt and $14T GPD. GDP was only 41% of total debt.
What I am saying is this: Reagan is considered a great president, but his economic success was all based on unsustainable debt growth.
Obama is a suck president, but only because he is trying to do the same things we’ve been doping for 30 years, and it isn’t working, because we are “tapped out”. There is already too much debt, so trying to push more is just “pushing on a string”.
What I’m saying is that we need to reevaluate the Reagan, based on the legacy of unsustainable debt growth that his economic plan has created.
What I’m saying is that we need to take a HUGE step back and look for the underlying root causes of the world’s economic troubles.
What I’m saying is that too many people are focused on the government debt, not total debt.
What I’m saying is that we need to roll back much of the “progress” of the last 50 years, and end free trade and return to a low payroll and a super steep income tax, with lots of deductions for things that put americans to work, to offer a carrot and a stick to teh rich, to get them to spend rather than accumulate mass sums of “other peoples’ debt”.
” Investors who lock their money away in 10-year government bonds in the belief that the global economy is on the verge of a precipice can actually push the economy further into recession.”
So, further government borrowing will result in further loss of economic activity. I can see that, but is it the lender’s fault? Maybe the investors are doing more good if they buy corn futures.
Daryl
The velocity of money has been down since 2007. The banks leverage is around 30 and they appear to be trying for 18. Leakage is being replaced. Those with cash are installing a shelter. Combined, a recipe for a prolonged recession.
I don’t think mere confidence will help. Root cause ?
Over regulation; too many simple servants; too well paid ?
Corporate used technology to decrease costs, improve profits. Gov used it to enhance their pocket picking.
All this discussion of fundamental factors affecting the stock market, such as the U.S. housing situation or the Eurozone debt crisis, seems irrelevant in light of the Fed’s all-in QE3 housing market reflation commitment. We are in a world where bad news and good news alike will be met with the Fed’s hard-wired MBS purchases.
Sounds a little crazy, but I guess desperate times breed extreme policy measures. Never mind how bad the fundamentals must look to justify this unprecedented level of Fed intervention — Happy Days are Here Again!
Sept. 15, 2012, 11:36 a.m. EDT
U.S. stocks poised to move higher on QE3 tailwind
By Sue Chang, MarketWatch
SAN FRANCISCO (MarketWatch) — Four years after the financial crisis claimed Wall Street bank Lehman Brothers, there will be few investors dwelling on bygones next week as U.S. stocks are poised to test higher levels in the wake of the Federal Reserve’s decision to pump more funds into the economy.
But the breadth and the intensity of the gains will hinge on the quality of latest economic data as well as developments in Europe, while the market’s upside potential may also be limited by profit-taking, strategists said.
On Thursday, the Federal Reserve said it would buy $40 billion worth of mortgage-backed securities per month as part of a stimulus plan colloquially known as QE3, or a third round of quantitative easing. Read details on the Fed’s QE3
The announcement triggered a rally in the stock market, with the S&P 500 Index (SPX +0.40%) and the Dow Jones Industrial Average (DJIA +0.40%) both closing at 52-week highs on Friday. Read more about U.S. stocks.
“Clearly there is some continued momentum following the Fed’s announcement,” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. “That said, various sentiment and technical measures show the market to be a little stretched in the near term, so I wouldn’t be surprised to see a little profit-taking at some point soon.”
Next week is shaping up to be relatively light on economic indicators, but some housing-related data will provide a better picture on how the real-estate market is faring.
The most important numbers will come from the NAHB housing-market index and from home sales, according to Sonders. “Housing has now contributed positively to the gross domestic product for five consecutive quarters after a six-year drag, and I think people are still underestimating the benefits of a turn in housing,” she said.
In addition, investors will continue to rubberneck as authorities in Europe attempt to bring their financial house in order. “Europe remains a wild card with the monumental work needing to be done,” said Jeff Savage, regional chief investment officer at Wells Fargo Private Bank. “Most will be looking at Spain to see if they ask for aid. It’s expected, but will still be a big deal.”
…
Maybe with the support of QE3 from the Fed, investors will be emboldened to step up and turn around housing markets where prices were hammered into a pulp.
Just maybe…
Except for what nobody is admitting, so far: Investing in single-family housing is a fool’s game, destined to result in those who play it catching themselves falling knives. It only makes sense if you have on your housing mania beer goggles.
Sept. 15, 2012, 8:16 a.m. EDT
Ten cities that just can’t turn housing around
NEW YORK (24/7 Wall St./MarketWatch) — Since the peak in early 2006, the median price of a U.S. home is down by a third. And though the market has begun to show signs of having bottomed, prices are still down nationally by 1.9% from last year and are expected to fall an additional 1% from the beginning of this year through 2013.
Of the 384 largest housing markets measured by real-estate data company Fiserv, 69 have seen home prices fall more than the national average. 24/7 Wall St. reviewed the markets with the worst home-price declines from their pre-recession peak. Of those metro areas, we identified the markets where the median price did not improve in any of the periods measured by Fiserv as of the first quarter of 2012. The 10 worst are housing markets that have fallen at least 55% and have yet to recover. See full report at 24/7 Wall St.
While the drop in home prices in these markets has slowed, the local economies have been devastated. July unemployment rates in the worst housing markets were all above the national rate of 8.1%. Eight of the 10 have rates of at least 10%, and five are above 12%. Merced, Calif., one of the 10 worst-off cities, had an unemployment rate of 17.8% in July, the fourth-highest in the country.
According Fiserv chief economist David Stiff, the unemployment rates and languishing home prices in these markets are indicative of the underlying problems in these states as a whole. “The reason the job markets are so weak in these metro areas is that during the boom more than half of the growth was generated either directly or indirectly by residential real estate, and so now the reverse has happened,” Stiff explained.
Further evidence of the economic troubles heaped on these cities, three of the housing markets — the California municipalities of San Bernardino, Vallejo and Stockton — have filed for bankruptcy since the recession began. Stockton’s Chapter 9 filing represents the largest such case in U.S. history.
Continually depressed home prices also have led to unusually high foreclosure rates in these markets. According to foreclosure data from RealtyTrac, a site that tracks housing data, these cities had among the worst foreclosure rates in the country as of the second quarter of 2012. Of the 10 cities, eight are among the 20 with the highest foreclosure rates out of the 212 metro regions with populations of 200,000 or more.
Of the cities with the worst home-price declines, some have begun to recover. In the Detroit metro area, which did not make the list, the median home price has declined by 55.8% from the first quarter of 2006. However, between the first quarter of 2011 and the first quarter of 2012, the median price went up by 8.6%, one of the largest increases in the country.
Like Detroit, many of the 10 worst-off markets appear to be about to recover because buyers see bargains. Home prices in seven of the 10 metro areas were lower than the national median of $159,000. Fiserv projects that of the 10 housing markets on our list, five will increase by more than the national rate of 5% between the first quarter of 2013 and the first quarter of 2014. This includes the Deltona-Daytona Beach-Ormond Beach region, which Fiserv projects will have more than 10% growth in median home value in that time. Stiff confirmed this: “investors, who were part of the problem back in the boom years will be trying to jump into these markets at a low.”
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Political interpretation of QE3 announcement:
1) Romney states publicly that he would not reappoint Bernanke.
2) Bernanke supports stimulus to increase Obama’s prospects of winning the election.
“Romney states publicly that he would not reappoint Bernanke.”
Anyone who believes this should have their head examined.
The bankers are in control. Obama’s appointments well demonstrated that. He didn’t even bother making a concession to the critics of the banker bubble. He just put the principals in even better driving seats. Summers, Geithner and Bernanke lead that list.
Romney is Mister Wall Street and he’ll do the same. Guaranteed. He doesn’t understand the non-Wall Street economy, so why would he bother catering to it? To him, the middle class makes $200K plus… which stats tell us starts at the top 5% or so. If he believes the middle class ranges from the 95% to the 98%, then it’s obviously the case that the bottom 90% are invisible to Romney. The bankers control him as much as they control Obama.
“Anyone who believes this should have their head examined.”
If you are correct, then the utility for Romney to make such statements seems all the more doubtful. He appears to suffer from a similar strain of ‘foot in mouth’ disease to GWB’s affliction.
Etch-a-Sketch.
Lips moving for politician = lying.
Same goes for the Chosen One. Read above.
Romney may not reappoint Bernanke, but I’m pretty sure he would just replace Bernanke with a Bernanke-clone…. maybe Old Bernanke One Kenobi.
Voters: “Your sad devotion to that ancient religion has not helped conjure up the stolen middle class jobs, or given you clairvoyance to find the stashed money suppl…. choke, choke, gurgle”
Obama or Romney, whichever lying idiot wins: “I find your lack of faith disturbing….”
My newspaper predicted that Romney would appoint Columbia University profesor Glenn Hubbard to the position of Fed Chairman. Hubbard otherwise is known as the snotty, condescending, conflict-of-interest-ridden academic from the documentary movie Inside Job.
I remember that interview. The guy’s a 100% corrupt insider. His heart is a vast pit of vile darkness. I wish I could say that’s exaggeration.
Are you suggesting he is well-qualified for a future career as a central banker?
Labor market reflation interpretation of QE3:
1) Technological progress and sticky wages have led to a situation where machines are relatively cheaper than workers.
2) Flooding the financial market with dollars pushes down the value of the dollar, making the real cost of labor cheaper at the current nominal wage.
3) The (nominal) equilibrium price of machines and other capital can be bid up much more quickly than the wage can be bid down (did you catch that stock market rally the past two days?).
4) With a relatively lower nominal wage, employers can afford to hire more workers.
5) Sadly, said workers cannot afford to buy houses whose value was driven skyward by an influx of investors trying to capture the value of the Fed’s latest housing stimulus measure.
“Technological progress and sticky wages have led to a situation where machines are relatively cheaper than workers.”
Industrial automators are feeling the crunch from the economic collapse and can underprice themselves more readily than can the native laborers of the First World. So the trend of replacing workers in the First World with automatons, will accelerate.
If I could have seen all this coming back when I was a teenager, I would have become an electrician.
“Sadly, said workers cannot afford to buy houses whose value was driven skyward by an influx of investors trying to capture the value of the Fed’s latest housing stimulus measure.”
Said investors will be sorely disappointed to find that workers cannot afford wishing prices on rentals to cover mortgages.
AL’S EMPORIUM
September 15, 2012, 9:38 p.m. ET
A Q&A on QE3
By AL LEWIS
Q: Why did Federal Reserve Chairman Ben Bernanke launch a third round of bond buying known as quantitative easing, or QE3, last week?
A: Because the stock market told him to. How else can he keep the Dow Jones Industrial Average above 13000? Companies are warning of slower earnings growth.
Q: How big is QE3? A: $40 billion a month—indefinitely. This is on top of the $45 billion a month the Fed is already spending on another program called “Operation Twist” through the rest of this year.
Q: Phew, is that all? A: Hardly. Since 2008, the Fed has dumped more than $2.3 trillion into the economy, artificially levitating the values of stocks and real estate against the ravages of an economic reckoning.
Q: What will the Fed buy with this QE3 money? A: Mortgage-backed securities. It is betting that the way to fix a deflated housing bubble is to blow another one.
Q: Does the Fed really just print all this money? A: No. That would take eons. The Fed simply adds zeros to its magic spreadsheet, and violà, money!
Q: Isn’t this a Ponzi scheme? A: Of course not. A Ponzi scheme is illegal. This is a Bernanke scheme.
Q: Is it working? A: Every new QE is an admission that the last one didn’t work. Since the first QE in late 2008, America’s economic growth has mostly been described as “anemic.”
Q: So why will QE3 last indefinitely? A: It spares Mr. Bernanke the humility of announcing QE4, QE5, QE6 ….
Q: Will this finally lower unemployment? A: You tell me. The Fed has launched QEs and held interest rates close to zero for nearly four years. The unemployment rate has remained above 8%.
Q: So why call it a “recovery”? A: It’s not as depressing as the term depression. A depression can be defined as a prolonged period of high unemployment.
Q: Why not just call it that? A: Another theory holds that a depression is impossible as long as Mr. Bernanke can keep creating money.
Q: Won’t this cause inflation? A: Only if you eat food, burn gasoline, require medical attention, purchase commodities or pay college tuition. Bottled water is $1.29, and air is still free.
Q: Why haven’t QEs worked? A: It’s a global economy and QEs simply leak out of the bucket. Companies, for instance, may use the cheap money to expand abroad. And consumers may use it to buy more Chinese goods.
Q: So why do it? A: The money flows into banks to strengthen their balance sheets. Corporations use it to lower borrowing costs and launch stock-repurchase programs. The ensuing boost in corporate performance helps executives collect “performance pay.”
Q: Won’t the Fed eventually have to sell the trillions in bonds it is buying? How will it be able to find enough buyers?
A: Don’t ask. Nobody knows.
Q: How do QEs contribute to our national debt? A: The Fed’s purchases of U.S. Treasurys lower the interest rate our government pays to issue them. This can only encourage more borrowing. Since 2008, our national debt has risen more than 60% to more than $16 trillion.
Q: Isn’t that astronomical?
A: Yes. But we can now measure the national debt in lightyears. A lightyear equals nearly six trillion miles. At $1 a mile, our national debt is only 2.6 lightyears.
Q: Why lightyears? A: Because our economic woes are indefinite, and that’s why QE3 is indefinite. Mr. Bernanke should change his name to Buzz Lightyear: “To infinity and beyond!”
Quantitative Easing Revisited
“Since 2008, the Fed has dumped more than $2.3 trillion into the economy,”
Technically, the money is created when it is loaned into existence. The Fed is just buying up the offsetting debt to create demand for the debt, pushing up prices and down rates.
” The Fed simply adds zeros to its magic spreadsheet, and violà, money!”
Again, the money is created when the loans are made, not when the Fed buys the offsetting debt. What does this person think money is? Hint, it is the UOMe that offsets the IOU of debt.
” The Fed has launched QEs and held interest rates close to zero for nearly four years. The unemployment rate has remained above 8%.”
Why is 8% some magical cut off? Why not say that unemployment peaked above 10% before people started giving up looking and just dropped out of the workforce?
But, hey… +100K jobs a month is better than -600K jobs a month, isn’t it?
“A depression can be defined as a prolonged period of high unemployment.”
Except that a depression is actually defined as a prolonged period of rapidly falling GDP in nominal terms, and is usually the result of deflation triggered by net money poofage.
“It’s a global economy and QEs simply leak out of the bucket. Companies, for instance, may use the cheap money to expand abroad. And consumers may use it to buy more Chinese goods.”
Somewhat true, except the order of cause and effect. Money doesn’t leak because we QE. Money has been leaking since we embraced free trade with nations that have a labor wage an order of magnitude below ours.
QR is the result of attempting to replace the money that leaked via unsustainable money/debt creation.
“The Fed’s purchases of U.S. Treasurys lower the interest rate our government pays to issue them. This can only encourage more borrowing. Since 2008, our national debt has risen more than 60% to more than $16 trillion.”
Well, ignoring the money the government owes itself, as every other nation in the world does, it is actually $11T. The $38T of TOTAL debt is actually far, far more important than the $11T the government owes.
“At $1 a mile”
How freaking ignorant is that? Why pick that arbitrary exchange rate? We could have measure the national debt in lightyears 100 years ago had we picked a penny a mile instead of a dollar a mile.
Why not measure the debt as a multiple of households and median household income? You know… some actual non-arbitrary measure that relates to our ability to support that debt?
Or, maybe even GDP?
And why is government debt SOOOOOOOOO much worse than private sector debt? If the private sector doesn’t repay, and it leads to cascade bank default, then a huge chunk of that private sector debt becomes national debt via FDIC, FHA and GSE guarantee. (not to mention the likelihood of additional direct bailouts like TARP)
“A: Mortgage-backed securities.”
Right, and so these $45 billion/mo. or securities at some trace back to actual houses, right? So those can just sit unoccupied, or occupied and not paying, for as… long… as… who knows?
OFS = Occupy Foreclosure Homes
One interpretation of the Fed’s MBS-focused QE3: It continues the Bernanke Fed’s pattern of stepping up to address political issues the broken political system seems incapable of handling. In this case, there is a widespread perception among economic pundits that the solutions to the Nation’s housing crisis are within reach, but neither of the two main parties are willing to act to address them.
Enter SuperBen to the rescue, again!
For their part, the Republicans seem perfectly content to play armchair quarterback to Bernanke, without uttering a peep about how they would act differently or better.
Whether or not you agree with Obama’s housing remedy, at least he has tried something. Of course, these measures, which have generally failed to deliver as advertised, have provided more ammunition for the armchair quarterback party.
The Nation’s Housing: Housing AWOL on campaign trail
By: Kenneth R. Harney | Times-Dispatch
Published: September 15, 2012
WASHINGTON –
Call it the political elephant in the room: 1.2 million families across the country are now at some stage of foreclosure, 3.8 million homeowners have been foreclosed upon since September 2008 and 11.4 million are underwater on their mortgages.
About $6.5 trillion in home equity also has been lost by owners since 2005 and home building and sales are intimately linked with job creation. Yet, the subject of housing policy was virtually a no-show in either party’s conventions or platforms.
Given the huge impact that the housing and mortgage crashes have had on millions of voters and workers, you would think housing would have been high on both parties’ priority lists.
They’d say: OK, here’s how we’re going turn this crucially important situation around — getting builders building again to pre-boom levels, helping out the good folks who paid their loans on time even when underwater, plus making sure banks lend to creditworthy buyers who want a mortgage rather than penalizing them for the banks’ own mistakes.
But Mitt Romney didn’t mention housing policy at all in his speech to the Tampa convention. President Obama barely touched it, saying, “I’ve shared the pain of families who’ve lost their homes.”
The Republican platform panned the Obama administration’s response to the housing crisis as having “done little to improve, and much to worsen, the situation.”
The GOP solution: privatize pretty much the whole mortgage finance system, kill Fannie Mae and Freddie Mac — which currently fund about two-thirds of all new home lending — and cut the role of the Federal Housing Administration, which is the primary source of financing for first-time and minority purchasers who have moderate incomes but less than 20 percent down payment cash.
The Democratic platform claimed credit for assisting 5 million struggling homeowners to “restructure their loans to help them stay in their homes” — a total far beyond most analysts’ estimates for the Home Affordable Modification Program (HAMP) and related federal efforts.
Last month, an independent study by federal and academic economists reported that rather than the 3 million to 4 million families projected by the White House to be assisted with modifications by HAMP, the actual number will be barely one-third that target.
In The Nation, commentator George Zornick ridiculed the Democratic platform’s boasting of a “crackdown” on the fraudulent lenders who helped create the subprime crisis, noting that “no high-ranking Wall Street officials or firms have been held responsible” for the catastrophe — one that they facilitated by buying and securitizing poorly underwritten, toxic mortgages.
The Republican platform, meanwhile, blamed the whole subprime mess and housing collapse on Fannie Mae and Freddie Mac, even though private investment banks played far larger roles.
…
Why is the issue AWOL on the campaign trail? Because both candidates have the exact same plan. Extend and pretend, delay and pray, while hoping for reinflation…. or at least a floor under deflation.
Expert panel votes:
YES = 1
NO = 7
The naysayers have it by a landslide!
U-T ECONOMETER
WILL THE FED’S LATEST MOVES TO KEEP INTEREST RATES LOW AND EXPAND THE MONEY SUPPLY STIMULATE THE ECONOMY ENOUGH TO PRODUCE MORE JOB CREATION?
Written by Roger Showley
12:01 a.m., Sept. 16, 2012
Updated 5:23 p.m. , Sept. 14, 2012
Tell us what you think: Go to utsandiego.com/qe3 to indicate your answer
UT-San Diego readership votes:
Yes = 3
No = 4
What a bunch of honiaks!
Sept. 16, 2012, 8:51 p.m. EDT
Beware China’s quantitative tightening
Watch the People’s Bank of China, not the Federal Reserve
By Craig Stephen
HONG KONG (MarketWatch) — The idea of an all-powerful Federal Reserve, as custodian of the world’s reserve currency creating new money that cascades to all corners of the globe, is a popular one.
Last week, confirmation of a fresh round of quantitative easing by Fed chairman Ben Bernanke, lifted equity markets all the way to Asia.
But given the shift eastwards in the growth dynamics of the world economy, perhaps it’s the actions People’s Banks of China (PBOC), we should be more focused on.
After all, in the aftermath of the Lehman financial crisis, it was China — not the U.S. — that deployed a mega stimulus that helped lift not just its own economy, but everything from commodities and luxury goods to properties from Hong Kong to Vancouver.
Perhaps unsurprisingly, it has also been China that created the majority of new money globally in the past five years supported by its bulging trade surpluses.
Now, however, some analysts warn China’s money tap is running dry and this could trigger the next major deflationary shock.
According to CLSA strategist Russell Napier speaking in Hong Kong last week, since 2007 China has accounted for 40%-45% of broad money growth across the world’s 16 largest economies. Its broad money growth now stands at $14.49 trillion, having jumped from $5.47 trillion in 2007.
In the U.S. by contrast, despite all Ben Bernanke’s various rounds of quantitative easing, in the same period, M3 accounted for just 10.4% of the total growth.
China’s prodigious money supply growth has been the counterpart to its bulging trade surplus. In fact, China has been consistently running both a capital and current account surplus, where, in order to keep it currency value suppressed, it accumulated its $3 trillion plus foreign reserve mountain. This led to vast quantities of new money being created as the central bank printed yuan as it exchanged foreign currency.
The change is now China’s surpluses no longer look as if they can be taken for granted, nor indeed the expectation of continued strength in the yuan.
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Gold hovers near highest in almost seven months after Fed
By Lewa Pardomuan
SINGAPORE | Sun Sep 16, 2012 11:22pm EDT
(Reuters) - Gold firmed on Monday, holding near an almost seven-month high, as the U.S. Federal Reserve’s latest stimulus move to spur the economy led to a rush for bullion — a traditional hedge against inflation.
Gold, which has risen for the last four weeks, could breach this year’s peak around $1,790 an ounce as the United States prints more money to buy assets, driving up the outlook for inflation and weighing on the dollar.
Gold added $5.33 an ounce to $1,774.79 after rising as high as $1,777.51 on Friday, its highest since late February when it hit this year’s peak.
“Gold is still pretty bullish this week. I think gold prices will remain firm and probably test the high set in February,” Lynette Tan, an analyst at Phillip Futures in Singapore.
“Buyers are still buying gold, but it seems that profit taking may occur later.”
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Where’s Bill in LA with his gold report?
Been noticing him missing for the last three weeks. Maybe as an over-50 (or was it over 60) contract worker he got suddenly outsourced? And/Or moved back to AZ. Or is still doing laps in the Redondo pool.
But I sense he’s got a medical or sister issue that was hinted at a month or so back. Bila, if you’re out there, could you please check in? Just to let us know?
I think his eff you’s were a brash farewell. He did encourage me to kick my retirement planning up a notch.
QE3 Hit by Mortgage Processing Delays
Published: Sunday, 16 Sep 2012 | 7:36 PM ET
By: Tom Braithwaite and Tracy Alloway in New York and Robin Harding in Washington
The Federal Reserve’s attempt to push aid into the heart of the US economy is being blunted by banks struggling to process mortgage applications fast enough, keeping rates on home loans elevated, according to the largest lenders.
The Fed announced last week that it would buy mortgage-backed securities in another round of quantitative easing – nicknamed QE3.
This was partly designed to ease further the cost of mortgages, but bankers say the impact will be limited by a dearth of loan officers with banks reluctant to cut mortgage rates without the staff to process any increase in business.
“In the very near term [QE3] has virtually no transfer mechanism whatsoever to the customer,” said one executive at a leading lender, who requested anonymity. “Originators are massively backlogged in terms of origination volumes.”
Steven Abrahams, MBS analyst at Deutsche Bank, noted that the yield on mortgage-backed securities fell more than 30 basis points after the Fed announcement.
“Very little of that is likely to make it through immediately to consumers,” he said. “There’s nothing that will force mortgage originators themselves to lower the rates that they’re offering to consumers. Right now they have their hands pretty full in terms of the pipeline and managing paperwork and making loans. These folks are busy. There’s not a bunch of people on long cigarette breaks.”
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ANALYSIS
AIR DATE: Sept. 14, 2012
Four Years After Bailouts, Banks Have Bounced Back, Still Making Risky Bets
SUMMARY
After the fall of Lehman Brothers in 2008, Congress passed the Troubled Asset Relief Program, disbursing money to hundreds of banks, including AIG. Ray Suarez talks to University of Michigan’s Michael Barr and Better Markets’ Dennis Kelleher on whether the bailouts resulted in financial reform or banks are still too big to fail.
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The QE3 announcement doesn’t seem to have spread much cheer to Asian stock traders. Are markets finally decoupled now?
Sept. 17, 2012, 1:11 a.m. EDT
Asia stocks retreat as property firms weigh
By Virginia Harrison and Sarah Turner, MarketWatch
SYDNEY (MarketWatch) — Asia markets mostly fell on Monday, with property firms pressured in Chinese trading in the wake of recent measures to cool real estate prices, while exporters declined in South Korea amid a stronger won.
China’s Shanghai Composite (CN:000001 -0.98%) sank 1.3%, South Korea’s Kospi (KR:SEU -0.15%) fell 0.4% and Hong Kong’s Hang Seng Index (HK:HSI +0.27%) was little changed.
Australia’s S&P/ASX 200 Index (AU:XJO +0.49%) managed a 0.3% gain.
Japanese markets were closed for a holiday.
Property plays were among the worst performers in mainland China. Gemdale Corp. (CN:600383 -3.55%) tumbled 3.6%, China Vanke Co. traded down 3.8%, and Poly Real Estate Group Co. (CN:600048 -6.15%) slumped 5.8%.
In Hong Kong, Sino Land Co. (HK:83 -2.37%) fell 1.8% while New World Development Co. (HK:17 -0.92% NDVLY +5.30%) declined 1.3%.
The falls came after the Hong Kong Monetary Authority took fresh steps to cool home prices by tightening mortgage lending on Friday.
Automobile stocks also suffered, as Guangzhou Automobile Group Co. (HK:2238 -4.72%) sank 5.1% and Dongfeng Motor Group Co. (HK:489 -4.74%) took a 4.9% dive.
…