Bankrupt you Bernanke SOLELY caused our Great-Recession

[flow5]

Bankrupt you Bernanke confessed:

"Like most crises, the recent episode had an identifiable trigger--in this case, the growing realization by market participants that subprime mortgages and certain other credits were seriously deficient in their underwriting and disclosures. As the economy slowed and HOUSING PRICES DECLINED, diverse financial institutions, including many of the largest and most internationally active firms, suffered credit losses that were clearly large but also hard for outsiders to assess. Pervasive uncertainty about the size and incidence of losses in turn led to sharp withdrawals of short-term funding from a wide range of institutions; these funding pressures precipitated fire sales, which contributed to sharp declines in asset prices and further losses"

Bankrupt you Bernanke was entirely responsible for the decline in housing prices. Bankrupt you Bernanke was the sole cause of the Great-Recession (regulatory malfeasance notwithstanding). Bankrupt you Bernanke completely destroyed the housing market (by literally draining legal reserves for 29 consecutive months (the rate-of-change in the proxy for inflation in every single month was negative, i.e.,below zero), i.e., from Feb 2006 until July 2008, i.e., required reserves are based on our means-of-payment money supply 30 days prior).

During the last days, from March 2008 until March 2009, Bankrupt you Bernanke drove the dollar up by 24% - thereby decimating the commodity markets (by forcing a contraction in money & safe assets), whereas reflation should have been the appropriate goal. See:Trade Weighted U.S. Dollar Index: Major Currencies 

Then, just as gDp was contracting, Bankrupt you Bernanke introduced the payment of interest on excess reserve balances (which induced dis-intermediation within the non-banks, but left the member banks unaffected - just like the 1966 S&L credit crunch). I.e., with the short-end segment of the yield curve inverted, the non-banks shrunk by 6.2 trillion dollars, which the FOMC tried to offset by expanding the commercial banking system by 3.6 trillion dollars, etc.

I.e., the "administered" price level would not reflect the "asked" prices (esp. housing), was it not “validated” by monetary flows or MVt, i.e., “validated” by Bankrupt you Bernanke.

[Virgil Showlion]

The man (and Mr. Greenspan, a.k.a. Ben Bernanke Sr.) both had significant roles, but there's no such thing as "sole" responsibility for a crisis of that magnitude.

...or for the one the US is facing now, for that matter.

[flow5]

It's like a conspiracy of dummys. The countercyclical increase in bank capital cushions (from Basel III re-orientation), destroys the money stock while further adding to (ie., releasing), a new volume of excess reserves.

[flow5]

The Fed doesn't know a bank (which creates new money whenever it makes loans or invests), from a non-bank (the turnover of existing money), i.e., doesn't know money from liquid assets (Keynesian confusion).

Expanded FDIC insurance coverage induced dis-intermediation within the non-banks (resulting in a de facto tightening of FOMC money policy). What caused M1 money growth to surge was that customers transferred their balances between deposit classifications - from savings/investment type accounts (interest-bearing without reserve requirements), to transactions based accounts (non-interest-bearing with reserve requirements).

M1’s growth rate simply represented both an indifference on the part of depositors/savers given historically low yielding assets, & a preference for reduced risk (saver/holders received 100% unlimited FDIC insurance in the deposit classifications where they moved their money).

Scaling back coverage partially reversed prior trends. Prior reductions in RETAIL sweeps to MMDAs, & reductions in COMMERCIAL sweeps to money market instruments (T-Bills, Euro-Dollars, & institutional MMMFs), contributed to a higher future velocity of money & collateral.

The precise effect is hard to measure as contrary forces were at work. I.e., Operation Twist ended Dec 31st 2012 having re-infused short-dated "safe-assets" into the money market (facilitating shadow-bank lending or money velocity).

But savings that were formally impounded within the CB system will again be released & flow back through the intermediaries (intermediaries between savers & borrowers), where they are "put to work" (matching savings with investment). I.e., savings held within the CB system are "lost to investment" resulting in a leakage in National Income Accounting. Contrary to all economists, CBs do not loan out existing deposits, saved or otherwise.

[flow5]

Higher interest rates are both a cause & an effect of higher rates of money velocity. Higher & firmer interest rates produce a steeper yield curve, higher net interest margins, & lower loss from bad debt. I.e., it stimulates AD.

[flow5]

Do people actually think the Fed doesn't control the price level? Inflation is one mandate that everyone agrees the Fed should control, & is capable of controlling.

And inflation is the most important factor determining interest rates (operating as it does through both the demand for & the supply of loan-funds). Inflation expectations largely determine minimal long-term interest rates. Investors won't accept negative real returns for any length of time (nominal interest rates that are less than the rate of inflation).

If the Fed has to drive interest rates that low ("0 to -2%"), then it has already failed its longstanding mandate (i.e., despite the current suppression of real-rates of interest via the Fed's bloated balance sheet).

Krugman's also flown over the KOO KOO's nest. Japan's Central bank simply bought assets that no one else either wanted or was offered.

But 2 of the world’s largest creditworthy customers (the Fed & the Treasury), still maintain strongly priced bid-to-cover ratios, i.e., Treasury auctions & the new FRAP auctions are always oversubscribed.

Indeed successful indirect & direct buyer-holders take down trillions of dollars in coveted (indeed scarce) “specials” – inside & outside the parameters delimiting the short-term segment of the whole-sale funding money market (i.e., under the umbrella of the remuneration rates’ inverted yield-curve).

Consider too, the new added demand coming out of the Dodd-Frank Tile VII act that legislated centralized clearing of OTC derivatives & new Swap Execution Facilities.

The payment of interest on excess reserve balances (but not required reserves), simply induced dis-intermediation within the NBs & forced slippages in the base's expansion coefficient. Whereas prior to remunerating excess reserves (between 1942 & Oct 2008), the CBs always minimized their excess reserve balances by buying t-bills.

[flow5]

Bankrupt you Bernanke should have seen the recession coming:

1.

POSTED: Dec 13 2007 06:55 PM |
10/1/2007,,,,,,,-0.47,,,,,,, -0.22 * temporary bottom
11/1/2007,,,,,,, 0.14,,,,,,, -0.18
12/1/2007,,,,,,, 0.44,,,,,,,-0.23
1/1/2008,,,,,,, 0.59,,,,,,, 0.06
2/1/2008,,,,,,, 0.45,,,,,,, 0.10
3/1/2008,,,,,,, 0.06,,,,,,, 0.04
4/1/2008,,,,,,, 0.04,,,,,,, 0.02
5/1/2008,,,,,,, 0.09,,,,,,, 0.04
6/1/2008,,,,,,, 0.20,,,,,,, 0.05
7/1/2008,,,,,,, 0.32,,,,,,, 0.10
8/1/2008,,,,,,, 0.15,,,,,,, 0.05
9/1/2008,,,,,,, 0.00,,,,,,, 0.13
10/1/2008,,,,,,, -0.20,,,,,,, 0.10 * possible recession
11/1/2008,,,,,,, -0.10,,,,,,, 0.00 * possible recession
12/1/2008,,,,,,, 0.10,,,,,,, -0.06 * possible recession

[flow5]

2006 jan ,,,,,,, 45496 ,,,,,,, 0.04
,,,,, feb ,,,,,,, 43084 ,,,,,,, 0.01
,,,,, mar ,,,,,,, 41242 ,,,,,,, -0.02
,,,,, apr ,,,,,,, 42920 ,,,,,,, -0.03
,,,,, may ,,,,,,, 43648 ,,,,,,, -0.02
,,,,, jun ,,,,,,, 43278 ,,,,,,, -0.01
,,,,, jul ,,,,,,, 43328 ,,,,,,, -0.03
,,,,, aug ,,,,,,, 41162 ,,,,,,, -0.06
,,,,, sep ,,,,,,, 40865 ,,,,,,, -0.08
,,,,, oct ,,,,,,, 40088 ,,,,,,, -0.08
,,,,, nov ,,,,,,, 40543 ,,,,,,, -0.06
,,,,, dec ,,,,,,, 41461 ,,,,,,, -0.07
2007 jan ,,,,,,, 43113 ,,,,,,, -0.11
,,,,, feb ,,,,,,, 41214 ,,,,,,, -0.09
,,,,, mar ,,,,,,, 39159 ,,,,,,, -0.11
,,,,, apr ,,,,,,, 41072 ,,,,,,, -0.09
,,,,, may ,,,,,,, 42699 ,,,,,,, -0.05
,,,,, jun ,,,,,,, 42034 ,,,,,,, -0.05
,,,,, jul ,,,,,,, 41164 ,,,,,,, -0.08
,,,,, aug ,,,,,,, 39906 ,,,,,,, -0.07
,,,,, sep ,,,,,,, 40460 ,,,,,,, -0.07
,,,,, oct ,,,,,,, 40161 ,,,,,,, -0.04
,,,,, nov ,,,,,,, 40331 ,,,,,,, -0.04
,,,,, dec ,,,,,,, 41048 ,,,,,,, -0.04
2008 jan ,,,,,,, 42398 ,,,,,,, -0.07
,,,,, feb ,,,,,,, 41070 ,,,,,,, -0.05
,,,,, mar ,,,,,,, 39731 ,,,,,,, -0.04
,,,,, apr ,,,,,,, 41642 ,,,,,,, -0.03
,,,,, may ,,,,,,, 43062 ,,,,,,, -0.01
,,,,, jun ,,,,,,, 41616 ,,,,,,, -0.04
,,,,, jul ,,,,,,, 42083 ,,,,,,, -0.03

[flow5]

Everyone says QE's just "an asset swap" (purchases between the Reserve bank & the member CBs prior to O/N Fixed-Rate, Full-Allotment Overnight Reverse Repo Facility).

But the FRB-NY buys zero risk weighted assets (e.g., T-bills) & gives the seller a "deposit credit". And everyone knows "deposit credits" (excess reserves), are unusable as a source of loan-funds for the CBs (i.e., don't change hands outside of the interbank market), & that only the Fed can alter their volume (i.e., buy, sell, or hold them to maturity, or reinvest their proceeds).

Whereas the original holder of these coveted "safe assets" can lend them, sell them, pledge them, & re-pledge them (i.e.,T-bills have money-like properties).

Given that excess reserves are idle, & unused (as the Fed now pays the commercial banks not to lend), & that in contrast, the gov'ts were formally, indeed fungible (but are now bottled up in SOMA); then taking Treasury & MBS securities off the secondary market, will be deflationary (lowering rates as well as Vt), if the seller's proceeds are not reallocated or redistributed.

I.e., the composition of the seller's proceeds (in their form of IBDDs) are contractionary money balances.

[flow5]

con't...this would be my thinking;

Presumably, deposit credits are used to chase "riskier assets", e.g., stocks. And since for every buyer of stocks there is a seller, debits to brokerage accounts are eventually recycled as credits to the ultimate seller's bank accounts in the speculative chain. I.e., the FRB-NY’s "trading desk” deposit credits are cashed, converted, & then the proceeds are returned to the commercial banking system (replenishing excess reserves), thereby leaving the total volume of IBDDs (interbank demand deposits) unchanged.

But as this demonstrates, wealth effect’s foray (via asset swaps), ultimately depends on reserve velocity (the spending of new & existing IBDDs, i.e., unless new money & credit is created thru record margin debt, etc.).

I.e., it's not based on levels, it's based on the simultaneous conversion (netting) of funds over the length of quantitative easing (a series of speculators paying successively higher prices). I.e., it seems that reserve velocity depends on the buyer always being able to convert his holdings, at ever higher prices, at some future date.

[flow5]

Bankrupt you Bernanke was supposed to be a student of the Great-Depression. 
See: "Essays on the Great Depression" by Ben S. Bernanke

But Bernanke repeated its major error (conducted a contractionary monetary policy which resulted in a short-fall in the money stock creating the Great-Recession). 

Even Swartz & Friedman were wrong about the Great-Depression:

Friedman wrote in Free to Choose:

"The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended—or at least sharply reduced—the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money"

But Friedman didn't acknowledge that there was an insufficient volume of gov't debt to prime the pump (so LSAPs were not an option).

[flow5]

Virgil Sentinel:

Bernanke was solely directly responsible. Between 1942 & up to the introduction of the payment of interest on excess reserve balances, the CBs responded immediately to any injection of new excess reserves (e.g., via open market operations of the buying type).  I.e., the CBs always minimized their non-earning balances during this period. 

A spectacular example of this mechanical modus operandi occurred when Paul Volcker was Chairman:

(1)  when he drained legal reserves (instantly lowering both short & long-term rates - T-bills fell from 16.00% on 3/25/1980 to 6.18% on 6/13/1980), &

(2) then as he reversing policy - dramatically injecting reserves (instantly raising both short & long-term rates - T-bills rose back to 17.01% on 5/13/1981).

But for those who need a reminder, the equation of exchange (MVt=PT) is an algebraic way of stating a truism; that the product of the unit prices, and quantities of goods and services exchanged, is equal (for the same time period), to the product of the volume, and transactions velocity of money. It is self-evident from the equation that an increase in the volume, and or velocity of money, will cause a rise in unit prices, if the volume of transactions increases less, and vice versa.

These variables can be estimated with a high degree of accuracy, and the rate-of-change in real-gDp serves as a proxy for rates-of-change in total physical transactions (PT), both goods & services. The FED can project with a high degree of reliability the probable rate of increase of monetary flows in the economy (MVt), relative to the probable rate of increase in real-gDp. Because of the widespread existence of monopolistic and other elements in the structure of our economy the first rate (monetary flows) should exceed the latter. How much? That is a policy judgment involving trade offs, but perhaps by no more than 2-3%.

Reserves (prudential/liquidity or legal/required), are distributed based on transaction accounts 30 days prior. Greater than 96% of all debits clear thru these transaction based accounts (representing our means-of-payment money in Irving Fisher’s “equation of exchange”). Thus aggregate monetary purchasing power (MVt) can be accurately estimated & its trajectory can be accurately forecast.

I.e., rates-of-change (roc’s) in MVt [using required reserves (RRs) as a surrogate] approximate roc’s in gDp (24 months for the deflator & 10 months for real-output). The lags or (roc’s) for RRs have been mathematical constants for the last 100 years.  RR's lags mirror those of bank debits.

Bankrupt you Bernanke simply repeated the same error he said was responsible for the Great-Depression:

"I have already mentioned the sharp deflation of the price level that occurred during the contraction phase of the Depression, by far the most severe episode of deflation experienced in the United States before or since. Deflation, like inflation, tends to be closely linked to changes in the national money supply, defined as the sum of currency and bank deposits outstanding, and such was the case in the Depression. Like real output and prices, the U.S. money supply fell about one-third between 1929 and 1933, rising in subsequent years as output and prices rose."

[flow5]

See also:

To counter what Greenspan described as “irrational exuberance (at the height of the Doc.com stock market bubble), Greenspan initiated a "tight" monetary policy (for 31 out of 34 months). A “tight” money policy is defined as one where the rate-of-change in monetary flows (our means-of-payment money times its transactions rate of turnover) is no greater than 2-3% above the rate-of-change in the real output of goods & services.

Greenspan then wildly reversed his “tight” money policy (at that point Greenspan was well behind the employment curve), and reverted to a very "easy" monetary policy -- for 41 consecutive months (i.e., despite 17 raises in the FFR, -every single rate increase was “behind the curve”). I.e., Greenspan NEVER tightened monetary policy.

Then, as soon as Bernanke was appointed to the Chairman of the Federal Reserve, he initiated a "tight" money policy (ending the housing bubble in Feb 2006), for 29 consecutive months, or at first, sufficient to wring inflation out of the economy, but persisting until the economy plunged into a depression).

The FOMC continued to drain liquidity despite its 7 reductions in the FFR (which began on 9/18/07). I.e., despite Bear Sterns two hedge funds that collapsed on July 16, 2007, & immediately thereafter filed for bankruptcy protection on July 31, 2007 -- as they had lost nearly all of their value), the FED maintained its “tight” money policy (i.e., credit easing, not quantitative easing).

Note: Nominal gDp's 2 year rate-of-change (which equals what the FED can control -- i.e., MVt), peaked in the 2nd qtr of 2006 @ 12%. Bernanke let it fall to 8% by the 4th qtr of 2007 (or by 33%). It fell to 6% in the 3rd qtr of 2008 (another 25%). It then plummeted to a -2% in the 2nd qtr of 2009 (another [gasp] - 133%).

I.e., Bernanke didn’t initiate an “easy” money policy until Lehman Brothers later filed for bankruptcy protection (& it was one the Federal Reserve Bank of New York’s primary dealers in the Treasury Market), on September 15, 2008. The next day AIG’s stock dropped 60%.

By waiting to inject liquidity, risk aversion was amplified, haircuts were increased, additional and/or a higher quality of collateral was required, liquidity mismatches grew, funding sources dried up, long-term illiquid assets went on fire-sale, a counterparties’ creditworthiness was examined more carefully -- all of which lead to runs on financial companies.

I.e., Greenspan didn't start "easing" on January 3, 2000, when the FFR was first lowered by 1/2, to 6%. Greenspan didn't change from a "tight" monetary policy, to an "easier" monetary policy, until after 11 reductions in the FFR, ending just before the reduction on November 6, 2002 @ 1 & 1/4% (approximately coinciding with the bottom in equity prices).

I.e., Greenspan was responsible for both high employment (June 2003, @ 6.3%), & high inflation (rampant real-estate speculation, followed by widespread commodity speculation – peaking in July 2008 – Greenspan’s inflection point).

Bernanke then relentlessly drove the economy into the ground, creating a protracted un-employment, & under-employment rate, nightmare

[flow5]

QE is about the churn. When the churn stops, so will any price support.

[flow5]

Dec 6, 1965 & Oct 3, 2008 are both days of infamy. The unthinking chose to provide the commercial bankers the wherewithal to outbid the non-banks (NBs) for wholesale funding - thereby destroying NB lending & investing (the non-inflationary matching of savings with investments) .

The irony is that the NBs do not compete with the commerical banks (CBs) for funding. The NBs are the CB's customers. This is the biggest mistake in money & central banking.

The 1966 S&L credit crunch represents the saving-investment paradigm. In the borrow short, to lend long, business model, the 5th successive rise in Reg Q ceilings on Dec. 6,1965 (for the CBs only), was sufficient to induce dis-intermediation - but just within the NBs (just as the .25% remuneration rate induced dis-intermediation within the Shadow Banking system).

I.e., the Fed's technical staff doesn't know the difference between money & liquid assets, between financial intermediaries (conduits between savers & borrowers), & commercial banks (money & credit creators).

And the Fed, recognizing their earlier mistake (shortage of the NB's "safe assets"), sold or swapped (via Operation Twists 1 & 2), virtually all of it's treasuries with less than a 1 year maturity.

See:
econ.st/19hzPL5

See:
bit.ly/18maEbM

And QE's no asset swap (there's no "functional equivalence" between 2-30 year bonds & the .25% remuneration rate).

Purchasing long-duration assets artificially suppresses long-term rates today, but will in turn, force a sharply steeper yield curve at some later juncture.

Also, consider that safe assets are a source of loan-funds for the NBs (& are a part of prudential reserves of the E-D market), but that domestic IBDDs are simply IMPOUNDED within the framework of Federal Reserve System's interbank market.

Trading "specials" for idle & unusable "deposit credits" is deflationary. And anticipating that the music to stop will reverse QE's "churn". Reserve velocity will decline. But if "specials" are released, then rates could soften (ceteris paribus).

[flow5]

Between Dec. 1990 & April 1992 the BOG reduced reserve requirements by 1/3, etc. Today, 85% of legal reserves are satisfied using their applied vault cash (i.e., by using their prudential or liquidity reserves as defined prior to 1959). I.e., CBs aren't reserve bound.

"when the Fed last officially changed reserve requirements, in 1992, it was attempting to ease the credit crunch of that time and improve the profitability of depository institutions without expanding the money supply or lowering interest rates"

I.e., the Fed opted not to use their "Open Market Power".   I.e., the Fed abdicated both its employment & inflation mandates to appease the commercial bankers (i.e., the CBs excess reserve balances were already below normal).

However, the money multiplier (total CB credit, i.e., bank credit proxy, divided by required reserves) has fallen dramatically since Oct. 2008 (representing a de facto tightening of FOMC policy).

Whereas 1 dollar of legal (required), reserves supported 204 dollars of CB credit in July 2008, now 1 dollar of legal reserves supports only 76 dollars of CB credit.

The shift from savings/investment type of deposit classifications to transaction based deposit classifications (M2 vs. M1) does not explain this discrepancy.

And even if you add back the Fed's balance sheet expansion (Reserve Bank credit), to commercial bank credit you only bring the multiplier back to 1 dollar of reserves supporting 101 dollars of CB assets.

Your absolutely right. QE's contractionary.

The BOG's remuneration rate @ .25% on excess reserves (IBDDs), now exceeds the "Daily Treasury Yield Curve Rates" almost 2 years out. I.e., it exceeds all money market returns (the money market is differentiated by its position on the yield curve (i.e., short-term borrowing & lending with original maturities within a one year period).

I.e., the payment of interest on excess reserve balances alters the construction of a normal yield curve, it INVERTS the short-end segment of the YIELD CURVE –known as the money market.

[Aman A.K.A. Ahamburger]

I just want to make a couple quick points then I will let you get back to your man crush flow.

Since you refuse to accept that personal responsibility played a role in the financial crisis.....

If Ben B is solely responsive for the recession, then he is solely responsible for the recovery. It means that the excess reserve policy, which you don't agree with, is a huge success. It means that the FED would already be exiting QE if it wasn't for these moronic politicians. Again, this flies in the face of another thread you have on here that states the FED has no exit strategy. In other words, as much as it seems that you like to swing both ways, in economics it doesn't work like that. In mathematics there is always one right answer.

[bimetalaupt]

Dec 5, 2013 18:52:20 GMT -5 flow5 said:

Bankrupt you Bernanke was supposed to be a student of the Great-Depression. 
See: "Essays on the Great Depression" by Ben S. Bernanke

But Bernanke repeated its major error (conducted a contractionary monetary policy which resulted in a short-fall in the money stock creating the Great-Recession). 

Even Swartz & Friedman were wrong about the Great-Depression:

Friedman wrote in Free to Choose:

"The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended—or at least sharply reduced—the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money"

But Friedman didn't acknowledge that there was an insufficient volume of gov't debt to prime the pump (so LSAPs were not an option).

Flow5,
Great point...end of QE3 might increase M3...
BiMetalAuPt

[flow5]

"It means that the excess reserve policy, which you don't agree with, is a huge success"

Ahamburger:

Those who do not learn the lessons of history are condemned to repeat them - George Santayana (he also wrote my favorite poem).

[flow5]

"Of course, Ben Bernanke does not shy from criticizing himself. He admits to making one major error during his eight years at the head of the Fed. That error lay in underestimating the role that declining housing prices would play in propagating a larger downturn."

He did it all by himself.

[Aman A.K.A. Ahamburger]

Just wait until those excess reserves are used to stimulate the US economy Flow. Ben B will be regarded as a genius!

[flow5]

Excess reserves (half are now held by FBOs), have created a visible overhang, a flight to another reserve currency, risk.  As soon as the exchange value of the U.S. dollar turns around (and our protracted trade deficits assure this), these foreign short-term claims against the dollar could be converted from FRB-IBDDs held by foreign branch banks, back onto their parent's (home bank's), balance sheets, or become foreign central bank deposits.

With these highly liquid excess interbank balances, the foreign currency trading divisions at these international banking facilities will surely exacerbate the exisitng cross-border (speculative), inflows & outflows. And as these IBDDs are disproportionately distriubuted, they will give the FBOs a competitive lending advantage over U.S. member banks.

[grits]

If anyone is to blame for this, it is the American public. Nobody makes us elect fools to office. Nobody makes us buy imports. Nobody makes us not contact our government, and oppose trade agreements that are harmful to our nation. Nobody makes us spend more money than we can afford to spend. Nobody forces us to buy things we cannot afford.

[tyfighter3]

Greenspan created the housing bubble and Bernanke just didn't know how to get it under control. JMO

[Aman A.K.A. Ahamburger]

I agree Ty, in this case the egg came before the chicken, if you know what I mean? Lol...

Feb 15, 2014 19:59:44 GMT -5 grits said:

If anyone is to blame for this, it is the American public. Nobody makes us elect fools to office. Nobody makes us buy imports. Nobody makes us not contact our government, and oppose trade agreements that are harmful to our nation. Nobody makes us spend more money than we can afford to spend. Nobody forces us to buy things we cannot afford.

Couldn't agree more grits. Personal responsibility needs to be reintroduced. Blaming others for ones problems will always lead to financial hardship.

[Aman A.K.A. Ahamburger]

Feb 15, 2014 15:42:56 GMT -5 flow5 said:

Excess reserves (half are now held by FBOs), have created a visible overhang, a flight to another reserve currency, risk.  As soon as the exchange value of the U.S. dollar turns around (and our protracted trade deficits assure this), these foreign short-term claims against the dollar could be converted from FRB-IBDDs held by foreign branch banks, back onto their parent's (home bank's), balance sheets, or become foreign central bank deposits.

With these highly liquid excess interbank balances, the foreign currency trading divisions at these international banking facilities will surely exacerbate the exisitng cross-border (speculative), inflows & outflows. And as these IBDDs are disproportionately distriubuted, they will give the FBOs a competitive lending advantage over U.S. member banks.

Unless of course the FED develops rules that make it so forieng banks have to hold more capital. Which will give American banks more flexablity in the marketply comparatively.

Fed Adopts Foreign-Bank Capital Rules as World Finance Fragments

[flow5]

Good update. Yes, the FBO's competitive funding advantage in our domestic market should be removed.  But, the E-D banking market is the problem & it is unregulated (so our trading partner's Central banks are forced to intervener during currency crises).  The Fed only backstops cross-border imbalances with dollar liquidity swap lines and foreign-currency liquidity lines after the fact.  These liquidity problems are primarily created by the FOMC's tight money policies.  They wouldn't exist (like all recessions since the Great-Depression), if the FRB-NY could hit money flows targets.

[flow5]

See: Z.1 release:

International banking facilities (IBFs) are now being treated as
domestic entities rather than foreign entities, consistent with the
“residency” criteria described in the System of National
Accounts (SNA 2008) and their treatment in the U.S Balance of
Payments statistics. IBFs have been moved from the rest of the
world sector (tables F.106 and L.106) to the U.S.-chartered
depository institutions (tables F.110 and L.110) and foreign
banking offices in U.S. (tables F.111 and L.111) sectors.
Instrument categories that were most affected by this shift
include time and savings deposits (tables F.205 and L.205),
depository instution loans n.e.c. (tables F.215 and L.215), and
net interbank transactions (tables F.203 and L.203). Generally,
IBFs take deposits from and make loans to foreign customers.
Under the previous treatment, these transactions were not
included in the Financial Accounts because IBFs were
considered a foreign entity. With this change, IBFs are now
included with domestic depositories, and therefore their
transactions with foreign customers are shown as transactions
with the rest of the world sector. Transactions of IBFs with their
domestic parents are now netted out of the Financial Accounts;
previously these were shown as transactions vis-à-vis foreign
affiliates.

[pappyjohn99]

When Bush tried to reign in the housing market didn't that fat fool Barrny Frank howl that Bush was "Declaring War on home ownership in America"? The Purple Dinosuar is more responcable for what happen in this country than anyone else IMO.

[bimetalaupt]

Feb 22, 2014 18:34:34 GMT -5 pappyjohn99 said:

When Bush tried to reign in the housing market didn't that fat fool Barrny Frank howl that Bush was "Declaring War on home ownership in America"? The Purple Dinosuar is more responcable for what happen in this country than anyone else IMO.

GOLDMAN SACHS DID A GREAT JOB OF SELLING JUNK QUALITY PAPER AS AAA WITH INSURED BACKING. WHEN THE HOUSE OF CARDS FELL EVERYONE LOST. WITH A CAP RATE OF 1:100 THE GERMAN "LANDIUS" BANKS HAD TO ASK FOR MONEY AS DID BAXIA BANK..BEN B. TO THE RESCUE!!

Just a thought,

Bruce