Ben Benanke's Incompetent

[flow5]

www.bloomberg.com/news/2011-06-24/u-s-repo-close-old-3-year-note-at-lowest-rate-minus-0-06-.html
===========
The bid for a security is the price that is quoted and available for immediate sale of an asset. The offer is the price available for immediate purchase of an asset.

Current issues are the most recently issued securities, and old issues are those sold previously with the same maturity.
===========

Specific Treasury securities in the greatest demand are considered to be “on special.” Firms that want to borrow them are willing to lend money overnight at rates below those on general collateral or other Treasuries in exchange for them.

Behind the Numbers

Securities firms use repos to borrow money to finance positions in Treasury, corporate and mortgage-backed securities. They also borrow securities on reverse repos to make deliveries of sales of securities the dealers don’t own, and engage in speculative repo trading based on expectations for the future direction of interest rates.

Current 5- and 10-year notes often trade at the lowest repo rates because they are widely used as hedges against positions in corporate, mortgage and global debt.

General Collateral

Delivery repos: 0.06 percent, unchanged. The collateral is sent to an investor’s bank against receipt of funds.

Triparty repos: 0.09 percent, unchanged. A clearing bank acts as a third party to make sure there’s adequate collateral behind the repo and that it conforms throughout the life of the transaction to the investor’s requirements, providing the customer with an additional layer of safety.

Securities firms are willing to pay higher rates to borrow money through triparty repos because they can allocate leftover collateral remaining at their clearing bank late in the day as backing for the transactions, saving on delivery costs.

Rates on general repos, or those backed by non-specific collateral, are usually set slightly below federal funds levels.

Treasury Bills

The three- and six-month Treasury bills closed at 0.1 percent, unchanged.

Federal Funds

Federal funds, the overnight interbank lending rate, was at 0.1 percent, according to ICAP, within the Federal Reserve’s target range of zero to 0.25 percent.

[flow5]

imarketnews.com/node/32761

NEW YORK (MNI) - U.S. money market funds, fearing indirect risk from Greek debt via the commercial paper of European banks, ARE EXITING SUCH HOLDINGS & PUTTING MONEY INTO TREASURIES, or executing reverse repos in the overnight market, Treasury traders said.

But FINDING TREASURY BILLS TO BUY IS NO EASY TASK, traders said, as so many other accounts also are buying them that yields are at zero interest, if not negative.

"The money funds have cash," one trader said. "If they have excess cash, they can do a reverse repo with a primary broker. They are lending money on a collateralized basis. They can give money to the institutions, who give them back collateral. But they want something safe. So now the money market funds have absorbed all the safe collateral.

"They is why the Treasury repo rate is going to zero percent, and why T-bill rates are going to zero," he added.

Traders said some money market funds are putting money into the overnight market and/or in buying T-bills as they do not want to have inadvertent exposure to the Greek situation through the European banks. And in some cases they want to borrow the bills from a bank through the overnight repo market.

"Some of the banks, with the headline risk of Greece, Italy etc., are doing that," one trader said. "They are seeing a FLIGHT TO QUALITY. That is why you will see some of the overnight repo markets on Treasuries are trading negative" rate as money market funds invest money in such assets.

Another said, "the government is pushing pension funds and mutual funds to shorten up their assets anyway. If you bought a 3-month T-bill, you get 1 basis points. You are not getting rewarded to go out the curve. Plus, the money funds are probably worried about redemptions too, people needing their cash."

Barclays Capital analyst Joseph Abate noted U.S. "money market funds are significant sources of short-term funding for European banks" but as European developments "remain touch and go, money funds are nervously sidelined and allowing some of their exposure to roll off without replacement."

Abate added that "European bank exposure in money funds is nearly 50%" with the "biggest exposures to French, UK, and Dutch banks" as "heavy exposure reflects the scarcity of alternative assets."

Abate said such "foreign banks are primarily WHOLESALE FUNDERS that raise dollars in the brokered deposit, repo and commercial paper markets" but "hold approximately $1 trillion in cash, mostly parked overnight at the Federal Reserve," more than twice cash they held amid Greek and Irish crises last year.

He said "redemptions in institutional money funds so far are modest" with "few signs of a flight to quality into government-only money funds" and while "foreign financial commercial paper outstanding was unchanged in the week ended June 22", that could "change as money funds let some of their paper roll off."

Besides the money market angle, others are borrowing securities in the overnight repo market, such as the Treasury 3-, 5- and 7-year notes, which traded at negative rates amid various shorts.

Treasury general collateral tightened up into the quarter-end as those accounts that had lent out paper during the quarter grabbed it back for themselves heading into quarter-end.

"A lot of people want their balance sheets to be clean and neat going into July," one trader said.

Greek and European peripheral debt worries still have spurred a safe-haven bid in Treasuries, too, as showing up in tight Treasury general collateral, traders said.

The 1-, 3- and six-month T-bills traded tight also amid a quarter-end scramble for safe paper, they said.

[flow5]

www.reuters.com/article/2011/06/24/uk-markets-money-idUSTRE75N4S420110624

(Reuters) - Investors are pulling cash from some U.S. money market funds on WORRIES ABOUT THE FUNDS' INVESTMENTS IN EUROPEAN BANKS in case of a Greek sovereign default that they fear could roil the $2.7 trillion (1.69 trillion pound) industry.

Despite signs of progress on a rescue for Greece, assets of non-Treasury money market funds -- which are perceived as riskier than funds that own only U.S. government securities -- declined by $3.6 billion on Thursday, while assets of Treasury-only funds rose by $5.2 billion, according to Crane Data, a research firm that tracks the money fund industry.

There were reports on Friday that banks and policymakers moved closer to an aid deal for Greece in advance of a parliamentary vote on a drastic deficit reduction next week, but investors remained on edge.

Investors are SCRAMBLING FOR U.S. Treasury bills, a move that pushed T-bill rates into negative territory this week. They also prefer to buy the shortest-dated debt for protection against further market turmoil, analysts said.

NO DISTRESS YET

But there is NO EVIDENCE YET OF STRAIN in the financial system as seen during the 2007-2009 global credit crunch. Analysts said quarter-end cash needs and tight T-bill supply exacerbated this week's money market moves.

European banks are still raising short-term funds through sales of U.S. commercial paper and certificates of deposits with a MINUSCULE RISE IN BORROWING COSTS.

Benchmark interbank rates and certain risk premiums in money markets have stabilized following last week's increase on jitters that a Greek default could spiral into an event akin to the collapse of Lehman Brothers in September 2008.

"The market is just waiting," said Jim Lee, head of short-term markets and futures strategy at RBS Securities in Stamford, Connecticut. "If there were a situation where there was a restructuring of Greek debt, then the contagion would start."

Corporate treasurers and money managers are withdrawing funds from institutional money market funds that invest in commercial paper and other debt issued by European banks. They are putting some of the cash into bank accounts and less risky money funds that own only U.S. government securities, analysts said.

Assets of institutional Treasury money market funds rose by $5.23 billion to $601.5 billion in the week ended Wednesday, while assets of non-Treasury money funds plunged by $16.62 billion to $1.069 trillion, the Investment Company Institute reported Thursday. [ID:nWNA1826]

The latest asset decline in non-Treasury money funds has not caused any negative impact on the overall commercial paper market, according to Federal Reserve data.

Money funds are the biggest buyers of commercial paper, a vital source of short-term cash for U.S. and foreign companies. At the end of 2010, the industry held 45 percent of the $1 trillion outstanding commercial paper, according to ICI.

Still investors are raising their holdings of commercial paper that matures overnight to one week, which are seen as the safest, while they are paring their exposure to longer-dated commercial paper that matures in one to three months, J.P. Morgan short-term fixed income strategist Alex Roever said.

Weekly commercial paper issuance from top-rated banks including those from Europe averaged $2.86 billion through Thursday, compared with $2.67 billion a week ago.

The weekly supply of bank commercial paper due overnight to four days, the shortest maturity for this type of debt, averaged $1.9 billion through Thursday, up from $1.4 billion last week.

On the other hand, the issuance of bank CP due three months or longer averaged $227 million so far this week, down from $599 million last week.

[marshabar1]

What does it say about the world that the full faith and power of the United States while worth nothing, is still the safest thing in the world?

[flow5]

Harry Truman's idiom comes to mind.

[marshabar1]

Jun 25, 2011 15:52:24 GMT -5 flow5 said:

Harry Truman's idiom comes to mind.

?? ;D

[flow5]

During the Great Recession, dis-savings, asset liquidation, de-leveraging, redemptions, debt reduction, etc., INCREASED the transactions velocity of money (but DECREASED income velocity-contrived figure).

Consumers converted their asset holdings, primarily from interest-bearing accounts, to non-interest bearing accounts (i.e., tapped their savings for the first time in 60 years); from their savings & investments, to transaction based accounts & currency (which changed the composition of the money supply, but not its volume).

This consumer account activity reflects an increase in the transaction velocity of money. I.e., Keynes's liquidity preference curve & the demand for money are both false doctrines.

Theoretically (I haven't constructed a time series): Not seasonally mal-adjusted currency in circulation (outside the CBs), fell in the middle of March right before the April peak in commodity prices. The volume of currency in circulation might be indicative of higher economic activity (transactions velocity), in the Underground Economy (estimated c. 9% of gDp), or too, illegal activity in the Black Market (where record-keeping & taxes are deliberately avoided).

A substantive proportion of currency is constantly re-circulated thru the banking system (e.g., cash is withdrawn by consumers for the payment of goods & services from their banks/ATM networks & is returned to the banks by businesses, etc.) - implying that the volume held by the non-bank public has (relative to other deposit classifications), - a higher turnover ratio.



7/5/2010 ,,,,,,, 888.5 ,,,,,,, 1.88
7/12/2010 ,,,,,,, 886.8 ,,,,,,, 1.89
7/19/2010 ,,,,,,, 885.8 ,,,,,,, 1.91
7/26/2010 ,,,,,,, 885.8 ,,,,,,, 1.95
8/2/2010 ,,,,,,, 887.5 ,,,,,,, 1.92
8/9/2010 ,,,,,,, 890.6 ,,,,,,, 1.9
8/16/2010 ,,,,,,, 890.4 ,,,,,,, 1.9
8/23/2010 ,,,,,,, 890 ,,,,,,, 1.9
8/30/2010 ,,,,,,, 889.4 ,,,,,,, 1.89
9/6/2010 ,,,,,,, 895 ,,,,,,, 1.87
9/13/2010 ,,,,,,, 893.5 ,,,,,,, 1.89
9/20/2010 ,,,,,,, 894 ,,,,,,, 1.91
9/27/2010 ,,,,,,, 895.2 ,,,,,,, 1.93
10/4/2010 ,,,,,,, 899.5 ,,,,,,, 1.89
10/11/2010 ,,,,,,, 903.9 ,,,,,,, 1.89
10/18/2010 ,,,,,,, 904 ,,,,,,, 1.9
10/25/2010 ,,,,,,, 904.9 ,,,,,,, 1.91
11/1/2010 ,,,,,,, 906.8 ,,,,,,, 1.89
11/8/2010 ,,,,,,, 911.8 ,,,,,,, 1.83
11/15/2010 ,,,,,,, 912.9 ,,,,,,, 1.83
11/22/2010 ,,,,,,, 913.4 ,,,,,,, 1.83
11/29/2010 ,,,,,,, 916.8 ,,,,,,, 1.78
12/6/2010 ,,,,,,, 916.2 ,,,,,,, 1.8
12/13/2010 ,,,,,,, 917.7 ,,,,,,, 1.79
12/20/2010 ,,,,,,, 920.6 ,,,,,,, 1.77
12/27/2010 ,,,,,,, 925.6 ,,,,,,, 1.75
1/3/2011 ,,,,,,, 920.7 ,,,,,,, 1.66
1/10/2011 ,,,,,,, 917.7 ,,,,,,, 1.67
1/17/2011 ,,,,,,, 917 ,,,,,,, 1.69
1/24/2011 ,,,,,,, 915.8 ,,,,,,, 1.76
1/31/2011 ,,,,,,, 917.5 ,,,,,,, 1.79
2/7/2011 ,,,,,,, 926.3 ,,,,,,, 1.78
2/14/2011 ,,,,,,, 929 ,,,,,,, 1.79
2/21/2011 ,,,,,,, 933.8 ,,,,,,, 1.78
2/28/2011 ,,,,,,, 934.6 ,,,,,,, 1.78
3/7/2011 ,,,,,,, 940 ,,,,,,, 1.77
3/14/2011 ,,,,,,, 941 ,,,,,,, 1.76
3/21/2011 ,,,,,,, 943.5 ,,,,,,, 1.75
3/28/2011 ,,,,,,, 943.9 ,,,,,,, 1.74
4/4/2011 ,,,,,,, 947.2 ,,,,,,, 1.69
4/11/2011 ,,,,,,, 950.8 ,,,,,,, 1.69
4/18/2011 ,,,,,,, 951.7 ,,,,,,, 1.71
4/25/2011 ,,,,,,, 952.7 ,,,,,,, 1.73
5/2/2011 ,,,,,,, 955 ,,,,,,, 1.71
5/9/2011 ,,,,,,, 959.3 ,,,,,,, 1.7
5/16/2011 ,,,,,,, 958.6 ,,,,,,, 1.7
5/23/2011 ,,,,,,, 958.9 ,,,,,,, 1.7
5/30/2011 ,,,,,,, 961.1 ,,,,,,, 1.69
6/6/2011 ,,,,,,, 963.5 ,,,,,,, 1.66
6/13/2011 ,,,,,,, 963.5 ,,,,,,, 1.67

============

6/13/2011 is a temporary bottom?

[marshabar1]

Oh sheesh! The buck stops here. Yep, for what its worth.

Nobody believes we'll use nukes, Tough, and we don't look that tough against Islamic terrorism which hides behind women and children and uses children as walking weapons. Barrel of the gun? Seems to have a daisy plugging it in Afghanistan. But that's a subject for a different forum.

[flow5]

Contrary to the pundits, the dollar ceased to be convertiable into gold for one reason only, the Pentagon's far flung military presence overseas. I.e, the Korean War, the Viet Nam War, & our overseas military bases.

In 1949, the U.S. dollar was not only as “good as gold”, but it was also preferred over gold. While the Pentagon was running trade deficits, the private sector ran surpluses in every year except 1957 up until 1976.

I.e., military expenditures are a double edged sword (they simultaneously increase both the trade deficits and the federal deficits.

Wars are won at home, in the corporate world, with developmental defense projects, not in our overseas military bases.

[marshabar1]

Contrary to the pundits, the dollar ceased to be convertiable into gold for one reason only, the Pentagon's far flung military presence overseas. I.e, the Korean War, the Viet Nam War, & our overseas military bases.

Don't get the connection off the bat, flow5.

[bimetalaupt]

Flow5,
It has been understood that the USA was the last major power to pull the plug on the Gold standard.. as much as anything else we had the gold.....the USA still is an exporter of gold.

Most monitories will tell you the gold standard is too tight for money control.. Too much at time and too little.. The Federal reserve system is set up to use free money to buy bonds.. Just like the system in China and ECU. Just look at the amount of $$$ has returned to the Treasury in the form of rent for use of the $$$$...Huge and getter bigger all the time!!!

Just a thought from the Model,

Bi Metal Au Pt

[bimetalaupt]

T.T.,"Guns or butter. "
He is a stretch...From the concepts of the Civil War Museum in Harrisburg,PA. The town General Lee was after..War development increased human development 200% faster then peace. All Wars were financed by bonds and bankers.. Like the 1ST and 2Nt Bank of the United States. During WWI, the saying was now that our boys have been to Paris how do we get them back on the farm.. We did not get 98% back there!!
Banks create money during the wars years to support the system and the system pays them back. This is how the Rothschild and Warburg family got their start in Germany.. Financing the American Revolution.. ( Economic 689-- MBA program in Finance)..

Just a thought,
Bi Metal Au Pt

[bimetalaupt]

Jun 25, 2011 19:01:43 GMT -5 @toughtimes said:

Have you ever seen, "Money Masters?" Don't know how accurate the conclusions were, but the details were historically accurate. If so, scary.

TT,
No ,,, 3.5 hours per Wiki.. Much of the wealth of the USA is recycled via SS system also..The main point I recall being talked about is that the Federal Reserve system ( all 12 banks) rents money from the Treasury Department in that area the Federal Reserve as more like a "Monetary Authority" then a bank.. payments for 2010 were off the chart.. More money this will be returned to the Treasury for the rent of the free Note you hold in your wallet.

Bi
Premise

The film makers posit that the profit from issuing money is currently being used in the United States to benefit a few wealthy individuals. It further argues that this situation should be remedied, so that the profit benefits the public good, as during four periods in the history of the United States. Finally it presents a proposed piece of legislation, the Monetary Reform Act, to implement such a remedy. As support, the film provides many quotations from notable figures including economists, members of the financial system, kings of England and United States presidents.

The film criticises fractional-reserve banking and the control aspects of both modern banking regulation and centralized banking systems such as the Federal Reserve System. It describes the history of money and banking, how central banks came to be and how they operate.

The film describes how the U.S. Congress gave the power of money creation to private banks through the Federal Reserve Act and how the banks accumulate large amounts of interest using this power. It asserts that wealth is slowly being drawn into the( what they are talking about here is M2 or M3 as money expands by capital/reserve requirement) hands of a small banking elite at the expense of the general population. This can be seen through such events as the 1929 stock market crash when a broker's call was issued, triggering the crash which further solidified the power of the Federal Reserve.

The film argues that there is no publicly owned gold left in Fort Knox because the gold belongs to private banks as collateral against the U.S. national debt. The film argues that since the gold was accumulated by prohibiting its possession, the public's gold has been stolen by private banks. The film also asserts that this gold was used as collateral against government loans used to escape the Great Depression and that the majority went to overseas banks who used it to fund Nazi Germany.

The film also asserts that the Federal Reserve System enables private banks to force recessions at will by refusing to offer new loans while simultaneously demanding payment on existing loans. It asserts that this power has been used a number of times since the 1913 creation of the Federal Reserve.

The film asserts or implies that bankers have intentionally caused a number of significant events, including John F. Kennedy's assassination, Abraham Lincoln's assassination, the War of 1812, the Battle of Waterloo, the American Civil War, the Russian Revolution, the Great Depression, and the crucifixion of Jesus (who drove out the "money changers" in all four Gospels).

The film asserts that by the end of World War I, private banks owned and controlled much of the United States' newspaper, news magazine, and film outlets and that they achieved this using consolidated wealth generated by fractional-reserve banking. It argues that these banks have influence over the mainstream media through their ownership and that this influence is used to prevent criticism of the financial monopoly from entering the general public's consciousness.

The film argues that placing our economy back on a gold standard will not solve the economic crisis. The scarcity of gold means it is one of the easiest commodities to manipulate. Attempts have been made to outlaw silver, such as the Coinage Act of 1873, which caused outrage and was termed the crime of 1873.

By way of conclusion, the film advocates a Monetary Reform Act and suggests that fractional-reserve banking and the Federal Reserve System be abolished in favor of 100% reserve banking, also known as warehouse banking. These reserves would come from the U.S. Treasury, which would issue non-interest generating money to repay the public debt to the banks. This would happen over a period of one year. As the government repaid its debt, the banks would be required to hold the government's new money as reserves and the reserve rate would slowly be increased to 100%. It is claimed that thus, there would be no inflation or imbalance in the amount of money in circulation. The issuing of new money would then be controlled. In order to prevent inflation, issuance would be according to population statistics. After the public debt was repaid, money that would previously have been interest on the debt would be distributed by the government as a tax refund, leading to the abolition of the Federal income tax.
[edit] Distribution, reception, and longevity

According to the producer, 50,000 units of The Money Masters were sold between 1995 and 2001.[5] An article containing the basic ideas presented in the documentary has appeared in Nexus magazine in several languages.[6] Even 15 years after its release, the film still has considerable popularity, gaining interest from an audience first introduce to this subject through other documentaries such as Zeitgeist. The film was aired in its entirety by PBS affiliate stations in 2002 and 2008.

In a 2004 review, a VUE Weekly editor wrote: "The fruit of Carmack and Still’s labour is The Money Masters, their notoriously lengthy but captivating 1995 documentary about the history of money and the people who have sought to control it over the past 300 years."[7] In a 2006 critique, G. Edward Griffin stated that he found the film worthwhile, but called William's Still's approach to monetary reform "naive."[8] In a 2009 review, Nomi Prins writing in Cineaste magazine described the documentary as : "...[doing] a superb job of revealing the truth behind the Fed and the powerful global financiers whose self-interest has dictated our banking system from the beginning. One gets the feeling that, had there been a larger budget for this film, the rather drab and grainy production values might have been improved. But if you can get past the low-budget style, you’ll find the content extremely compelling."[9] (Prins has been very critical of the banking establishment and the Federal Reserve.)[10] In 2008, the film was profiled in a review at the conservative WorldNetDaily news site.[11] As of February, 2010, the film is ranked #15 in the "Top 50 Documentaries" listed at the Movies Found Online web site.[12] As recently as 2009, a review of the film was presented at an international monetary conference.[citation needed] The film has also been cited by conservative commentators including Patrick J. Buchanan.[13][dead link]
[edit] The Secret of Oz
en.wikipedia.org/wiki/The_Money_Masters

[bimetalaupt]

T.T.,
On the other hand .. Banks with added Tier1 capital and T-Bond ( only AAA or A++ rated large Fund asset have lost of A++ by FGIT and AGI) so they are now as exciting as Electric Firms.. Where Citi group made about 35% return on Capital now earn about 6%.. Could go up to 8% with 19% required Tier1 like Swiss are going to put on UBS.

Risk in bank stock will be less but the excitement will be about ZERO. That is what we had in the 1960's with a good return being 10% ROE...Not too exciting for a wild eye MBA from one of the best .. Like London School ...etc Over use of debt is not going to work.. After Civil war the average capital for banks was about 60% vs 10% now. In Germany some of the Banks during 2007 had about 2% Tier1.. They made it up with debt called COCO debt and insurance.

Just an additional thought,
Bi Metal Au Pt

[marshabar1]

Well certainly the WWII was a strain on the GDP. Good thing the population was engaged in the effort by their free and good will. Many who lived through that time of working together in the war effort felt it was the best time of their lives. My mother remembers as a teenager knitting and sewing for the soldiers. Everybody was glad and proud if they could buy war bonds. I love the newspapers from that era.

Here are the report's estimated costs of major wars, in 2008 dollars, and their costs as a percentage of GDP in each of their peak years:

—American Revolution: $1.8 billion; GDP figure not available

—War of 1812: $1.2 billion; 2.2 percent

—Civil War, Union: $45.2 billion; 11.3 percent

—Civil War, Confederacy: $15.2 billion; GDP figure not available

—World War I: $253 billion; 13.6 percent

—World War II: $4.1 trillion; 35.8 percent

—Korean War: $320 billion; 4.2 percent

—Vietnam War: $686 billion; 2.3 percent

—Gulf War: $96 billion; 0.3 percent

—Iraq war: $648 billion; 1 percent

—Afghanstian/Global war on terror: $171 billion; 0.3 percent

—Post 9/11 domestic security: $33 billion; 0.1 percent

—Post 9/11 operations: $859 billion; 1.2 percent

74.125.93.132/search?q=cache:TNkX…

[marshabar1]

Bingo BiMetal, #107. The Bank Cartel likes war alright. $$$$

[bimetalaupt]

Marsha,
Great Post.. Thank-you for the information.. Looks like my dad was correct.. If we used our asset to push the system President Wilson had tried to get passed. Just look at the lives that would have been saved if we took out Hitler before he was strong..

Great Post!!

Bi Metal Au Pt

[Aman A.K.A. Ahamburger]

Looks like my dad was correct.. If we used our asset to push the system President Wilson had tried to get passed. Just look at the lives that would have been saved if we took out Hitler before he was strong..

Yep. Instead there was almost nothing again.. All because Max had it under control...

Rather than Wilson's proposed "peace without victory,"[3] The Treaty of Versailles sought harsh punishment of Germany both financially and territorially. "France reclaimed Alsace and Lorraine, lost in 1871, despite the fact that barely one in ten of the population were French-speakers."[4] The resulting bitterness in Germany, impoverishment of the German people, the release from military service of thousands of unemployed soldiers, together with competing political parties, notably the Communists, and the economic depression of the 1920s in Germany (which the Versailles Treaty helped create)[citation needed] all conspired to lay the seeds for the rise of Nazism in the 1930s. Financial loans from the United States to Germany helped lift the German economy out of depression, but it was not a source of the rise Nazism, which was more the result of the above factors and the unequal "guilty party" treatment of Germany.
Both financially and territorially under the Treaty of Versailles, Germany became a subservient, essentially non-sovereign state[5]) [6] Germany was also stripped of its right to vindicate itself by trying its own war criminals, [7] Such emasculation of the once proud Prussian people primed their ears for Hitler's Fascist answers to perceived injustices

en.wikipedia.org/wiki/Fourteen_Points


War was the great expander before industry. Consumer based economies trump any kind of war driven model.

Why?

BTI said:

Banks create money during the wars years to support the system and the system pays them back.

Banks now creat money to support consumers, which is 70% of GDP.

Love not war makes more.

[smackdown]

"Every depression has been caused by crazy impossible unsustainable banking practices. And every time it is their domestic herd of tax payers who bails them out or suffers great deprivation or population reduction through starvation or war. What could be more monstrous and evil than the bank cartel?"

A reminder that We the People bailed JPMorganChaseManhattanBankOne out FIVE TIMES from 1905 to 1999 and in 2008. The modus operandi for this scum oligarchy is to send agents into unstable countries and have them fund both the sitting government and a rebel opposition under the auspice of economic advancement. The nation goes to war and is destroyed without gaining any economic advantage until... the bank's Board cries wolf to the US Government to offset their losses or face an indigenous melt-down here, while simultaneously funding the reconstruction from the war they caused.

We don't need banks. We don't need a Federal Reserve. We don't need clever ruses that replay every 20 years like clockwork and cost us a fortune. Time to dissolve, divest, arrest and get us out of this mess. Hey Jamie Dimon... I read the same book! I chose NOT to be a crook! Too bad you couldn't resist.

[marshabar1]

Banks now creat money to support consumers, which is 70% of GDP.

Love not war makes more.

Somebody else is going to have to take over as world pig though. I guess they're trying to tune Chinese up. Those fools keep buying gold instead of plastic though.

[Aman A.K.A. Ahamburger]

It's not about tuning anyone up. It's about protecting our way of life. Almost everyone wants to ignore that we are the only people in this world that really have free will. We have 6 billion+ people fighting for free will, and yet we act like we are so hard done by. You see that's the idea though. We win!

[flow5]

bimetalaupt:

We had to pull the plug. In 1950, the U.S. began having deficits in its balance of payments and, with the exception of 1957, they have continued every year since. These deficits, combined with our inflationary war-financing practices, soon created a situation in which gold was under priced at $35 per ounce, and foreigners had the dollar balances to buy gold.

In 1950, we held about two-thirds of the world’s monetary gold stocks. By March, 1968, this stock had been reduced by about 60% - so we suspended the free convertibility of dollar obligations into gold, except to certain central banks.

[flow5]

The Federal Reserve will REMAIN THE BIGGEST BUYER OF TREASURIES, even after the second round of quantitative easing ends this week, as the central bank uses its $2.86 trillion balance sheet to keep interest rates low.
While the $600 billion purchase program, known as QE2, winds down, the Fed said June 22 that it will continue to buy Treasuries with proceeds from the maturing debt it currently owns. That could mean purchases of as much as $300 billion of government debt over the next 12 months WITHOUT ADDING MONEY TO THE FINANCIAL SYSTEM.
The central bank, which injected $2.3 trillion into the financial system after the collapse of Lehman Brothers Holdings Inc. in September 2008, will continue buying Treasuries to keep market rates down as the economy slows. The purchases are supporting demand at bond auctions while President Barack Obama and Republicans in Congress struggle to close the gap between federal spending and income by between $2 trillion and $4 trillion.
“I don’t think the Fed wants to remove accommodation in any way, shape or form,” said Matt Toms, the head of U.S. public fixed-income investments at Atlanta-based ING Investment Management, which oversees more than $500 billion. “It’s quite natural for them to REINVEST CASH,” he said. “That effectively maintains the accommodative stance.”
Mortgage Debt
A total of $112.1 billion of the Fed’s government bond holdings will mature in the next 12 months, 7 percent of the $1.59 trillion in Treasuries held in its system open market account, known to traders as SOMA. Replacing those securities will require the Fed to buy an average of $9.4 billion of Treasuries a month through June 2012.
The Fed also held $914.4 billion of MORTGAGE-BACKED DEBT and $118.4 billion of DEBENTURES, the debt of government sponsored enterprises Fannie Mae and Freddie Mac, as of June 22. UBS AG, Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and Royal Bank of Canada say $10 billion to $16 billion will mature each month, depending on the PACE OF PREPAYMENTS.
In a Bloomberg survey of 58 economists June 14-17, 79 percent said Fed Chairman Ben S. Bernanke will sustain the central bank’s balance sheet at CURRENT LEVELS until the fourth quarter, compared with 52 percent in April. The Fed said June 22 its goal is to hold assets at $2.654 trillion.
Treasury 10-year yields fell to the lowest since Dec. 1 today, down from this year’s high of 3.77 percent on Feb. 9. On June 24, the two-year yield came within one basis point of the record low, set November 2010, reaching 0.32 percent.
While the Fed didn’t start a third round of quantitative easing, as some traders speculated was needed, Treasuries could gain on weakening of the economy or the European sovereign debt crisis.
The conflict between Obama’s administration and Congress over increasing the government’s borrowing limit could lead to higher yields, as Moody’s Investors Service and Standard & Poor’s said they may consider cutting the nation’s AAA credit rating unless progress is made next month.
Investors have bid a record $3.01 for every dollar of debt sold by the Treasury this year, compared with $2.99 last year and $2.50 in 2009. The average 10-year yield this year of 3.32 percent compares with a 20-year average of 5.17 percent.
The Fed began its first round of quantitative easing in November 2008 after the collapse of Lehman and the central bank’s $85 billion bailout of insurer American International Group Inc. with a program to buy $500 billion of mortgage securities and $100 billion of agency debentures. In March 2009 it boosted planned purchases to include $300 billion of Treasuries and raised its target for mortgage debt to $1.25 trillion and $200 billion of government agency bonds.

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JOHN MASON

"DEMAND DEPOSITS in particular rose at a very rapid pace. From the second quarter of 2010 when demand deposits at commercial banks increased at a 6.3 percent rate year-over-year, these accounts rose by 8.5 percent in the third quarter and 14.3 percent in the fourth quarter. But this rate of acceleration jumped to 20.4 percent year-over-year in the first quarter of 2011 and in the month of May was showing a rate of increase of almost 27 percent"

==============

higher growth rates are due both to deleveraging, & to the lower interest returns on savings available with interest-bearing accounts.

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JOHN MASON:

"People are putting their money into accounts from which they can transact. They are moving their money into these accounts because they need to stay liquid in order to pay for their daily needs."

"The other indicator of this behavior is the rapid increases that have been made in the demand for coin and CURRENCY. In the second quarter of 2010, the currency in circulation was rising by only about 3.5 percent, year-over-year. This steadily increased through 2010 until it reached a total of over 7.0 percent in the first quarter of 2011. That is, the coin and currency in circulation more than doubled its growth rate over this time period. In May 2011, the year-over-year rate of increase in the currency component of the money stock was rising at almost 9.0 percent year-over-year"

============

Low returns on savings accounts are the principle reason for the change in the money stock's composition.

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Cookie jar needs restocked.

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Christopher Whalen (Reuters):


Back in April 2011, Jim Bianco penned a commentary, “Why The Federal Reserve May Have A Hard Time Raising Rates.” He argued that the increase in the FDIC insurance assessment rate for large banks adds to bank funding costs, and thus offsets the impact of Fed ease. Bianco and others infer a roughly 15bp tax or “wedge” on money market assets is created by the FDIC assessment rule. By way of reference, the Fed’s target band for fed funds is 0 to 25bp but has been at low end of this range for months.

David Kotok of Cumberland Advisors subsequently wrote that the FDIC tax is offsetting the 25 bp paid to banks on Fed reserves and is effectively forcing U.S. banks out of the market. (See my paper published by Networks Financial Institute at ISU, “What is a Core Deposit and Why Does It Matter?”, which goes into the changes to the deposit insurance made by the Dodd-Frank legislation.)

Let’s agree with the central contention of the “Bianco-Kotok Hypothesis” (or BKH), namely that the new FDIC assessment is affecting the money markets. But is this change the most compelling explanation for the alarming exodus of banks from the institutional credit markets? Bianco’s research illustrates the collapse of yields in the securities repurchase (or repo) market since April, when the FDIC implemented the new deposit insurance assessment rules. He talks about the task the Fed faces to raise rates given the FDIC assessment:

“If the Federal Reserve attempts to overcome this FDIC fee by raising [interest earned on excess reserves] IOER from 025% to 0.75% or to 1.00%, will the market understand? More than likely such a move would be seen as an extreme tightening.” Indeed, but would we even be talking about the FDIC assessment if Fed funds were trading at 1%?

The new FDIC assessment regime does not raise much more money than the old rule, but the burden is now carried more proportionately by the big banks. This pound of flesh was extracted from Congress by the community bankers to win approval of Dodd-Frank. The other was a future “special assessment” by FDIC on the largest banks to push the insurance fund well above pre-crisis levels. Stay tuned on that count.

The new FDIC premium assessment regime actually reduces the maximum levy for the weakest banks from 75bp to 45bp, roughly reflecting the proportional increase in the size of the insurance assessment base to include tangible bank assets less capital. Low risk core domestic deposits of all banks, large and small, are taxed in single digits and not more than before Dodd-Frank. But the large banks now must also pay insurance premiums on debt liabilities.

Debt, repo assets and foreign deposits are all now part of the FDIC assessment base, so the broad BKH observation that FDIC is a tax on repo transactions is correct. Banks can reduce the assessment by up to 5bp based on the amount of non-deposit funding, but the assessment is a tax on all liabilities less capital. In the case of repo there is clearly an increased tax vs. nothing before the crisis, but the increase in cost for a top-rated bank is less than 15bp, probably high single digits. Or as one banker told me, the leverage ratio is the constraint — not the cost of the funding.

Does the change in the FDIC assessment premium explain the antipathy of U.S. banks for the repo market? One large bank treasurer told me that the FDIC premium increase is not so much a price issue as it forces counterparties to look very hard at risk and reward for the entire balance sheet. So my answer today is that the BKH seems a partial but not sufficient explanation of the “run from money.” Here’s the list of other factors:

First and foremost, the state of the money markets is due to the Fed’s zero interest rate policy. Large U.S. banks are literally forcing deposits out of the system as interest rates fall. In the Fed’s zero rate world, cash has no value. Steven Hanke, Professor of Applied Economics at Johns Hopkins University, argues the Fed should raise interest rates to get the economy moving. Ditto.

Second is the impact of Basel III and other regulatory efforts. The additional friction added to the money markets due to these efforts to “strengthen” the financial system is actually causing the markets to shut down. Regulators are terrorizing banks that use brokered funds or FHLB advances. The BKH thesis that large U.S. banks are disadvantaged vs. foreign institutions seems supported by a broader regulatory issue than merely higher FDIC premiums.

Third is the growing uncertainty in the markets regarding Greece, Ireland and even the U.S. debt ceiling situation. Such is the risk of democracy. With mid-August looking to be the next date for the end-of-the-world-as-we-know-it, bankers are cutting exposure and limiting risk with other banks before fleeing the markets for family vacation — perhaps for the very last time.

Fourth is pricing. Given that repo is taxed in the same bucket as core deposits and has up to 5 bp of mitigation from FDIC, we ought to question whether the effect of this change by the FDIC is all or even mostly felt on the short end of the interest rate curve. The FDIC tax on brokered deposits is far larger, totaling an additional 10bp for brokered deposits above 10% of core deposits. The average bank pays less than 10bp on total liabilities besides brokered funds.

The BKH illustrates some important issues, but is not, in my opinion, sufficient to explain the growing surplus of funding in the markets today. The point made by Bianco and Kotok about behavior in the short end of the markets highlights a more profound structural problem in the financial system, a problem ultimately created by the continued manipulation of the markets by the Fed. Let interest rates rise so that financial assets and risk once again have value and the FDIC “wedge” problem goes away.

The real problem, in my view, is that banks are increasingly shy of doing business with one another, especially across national borders, because of Fed low rate policies and credit concerns. Zero rates by the Fed means no incentive for taking risk, thus repo is moot.What Hanke calls the “zero interest rate trap,” created by the Fed, is the root of the problem, not the insurance levies by the FDIC.

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JOHN MASON:

...“The ‘net’ increase in securities held outright by the Federal Reserve has been $589 billion, pretty close to the $600 billion ‘net’ increase promised.

RESERVE BALANCES at Federal Reserve banks, a PROXY FOR EXCESS RESERVES in the banking system, have increased by $584 billion to $1,594 billion over this time period. Actual excess reserves in the banking system averaged $1,610 billion for the two-week period ending June 15, 2011.”

CASH ASSETS (excess reserves) at commercial banks in the United States rose by about $800 billion from December 29, 2010 to June 15, 2011 and closed slightly below $1,870 billion on the latter date.
Basically the Federal Reserve pumped all these reserves into the banking system and there they seemingly sit. Yet, the amazing thing is that of the almost $800 billion increase in cash assets in American banks, almost 85 percent of the increase, or about $670 billion, ended up ON THE BALANCE SHEETS OF FOREIGN-RELATED INSTITUTIONS in the United States.

And, what increased on the other side of the balance sheet?
NET DEPOSITS DUE TO RELATED FOREIGN OFFICES. These balances rose by almost $500 billion since the end of last year.
In essence, it appears as if much of the monetary stimulus generated by the Federal Reserve System went into the EURO-DOLLAR MARKET.

This is all part of the “Carry Trade” as foreign branches of an American bank could borrow dollars from the “home” bank creating a Eurodollar deposit. This Eurodollar deposit could be lent to foreign banks or investors and this WOULD NOT CHANGE THE IMMEDIATE DOLLAR HOLDINGS of the American bank. This lending and borrowing in Eurodollar deposits could then MULTIPLY throughout the world. And, the American bank might be the ‘foreign-related” institution mentioned above and included in the statistical reports.

Note that the original dollar deposit created by the Fed is STILL RECORDED AS A DEPOSIT AT ONE FEDERAL RESERVE BANK no matter how much shifting around the borrowing and lending in the Eurodollar market occurs.

Thus, it appears as if the Federal Reserve PUMPED ONE-HALF TRILLION DOLLARS OFF-SHORE since the end of 2010!

seekingalpha.com/article/276909-federal-reserve-money-continues-to-go-offshore

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Larry D. Wall (IOeRs, FFRs, & Freddie & Fannie)
frbATL - May/June 2011

•The Federal Reserve now pays interest on reserves held by banks, but cannot by law pay interest on reserves held by the government sponsored enterprises (GSEs).

•GSEs earn some interest on reserves by selling the reserves to banks, but the rates earned by the GSEs are far below rates received by the banks.

•The result is that banks earn risk-free profits at the expense both of the GSEs and of the U.S Treasury, given the Treasury's relationship with Fannie Mae and Freddie Mac, the two largest GSEs.

•A solution would be to allow the Federal Reserve to pay interest on reserves to GSEs so long as Treasury effectively owns the GSEs' marginal profits and losses.

The combination of three reasonable policy decisions is having the unintended consequence of incenting banks to earn risk-free profits at the EXPENSE OF THE U.S. TREASURY. The three policies are:

1) the decision to allow the Federal Reserve to PAY INTEREST ON RESERVES (IOR) held by banks, which has the effect of reducing Federal Reserve payments to the Treasury;

2) the simultaneous decision to FORBID the Federal Reserve from paying interest on reserves held by the government sponsored enterprises (GSEs), and

3) the subsequent decision to put Fannie Mae and Freddie Mac (F&F) into Federal Housing Finance Agency CONSERVATORSHIP, with the U.S. Treasury promising to pay whatever it takes to keep F&F from having negative capital.

While each of these policies can be justified, the unintended consequence is certainly not good public policy. F&F are SELLING FUNDS to banks at the federal funds rate of approximately 0.10 percent per year (10 basis points), WHICH THE BANKS THEN HOLD as reserves at the Federal Reserve while receiving the current interest on reserves (IOR) rate of 25 basis points per year.

Given that the U.S. Treasury effectively owns the marginal profits of the Federal Reserve and the marginal losses of the GSEs, the net result is that banks' ARBITRAGE PROFIT COMES AT THE EXPENSE OF THE TREASURY. A recent announcement by the Federal Reserve Bank of New York allowing F&F to REDUCE their excess reserves via REVERSE REPOS provides at least a partial remedy. A complete remedy would be to allow the Federal Reserve to pay interest on F&F reserves so long as the U.S. Treasury effectively owns the marginal profits of these GSEs.

Each one of the three decisions leading to the situation with the Treasury providing banks with arbitrage profits was well-justified on its individual merits. The Federal Reserve was long prohibited from paying interest on bank reserves, which had the effect of boosting Federal Reserve net income. Because the Federal Reserve PAYS ALMOST ALL ITS PROFITS to the U.S. Treasury as interest on Federal Reserve notes, the Treasury was the ultimate beneficiary.

However, economists for a long time argued that the inability of the Federal Reserve to pay IOR effectively acted as a TAX ON BANK DEPOSITS that distorted financial markets. In part due to these criticisms, the Financial Services Regulatory Relief Act of 2006 authorized IOR starting in 2011. Then the Emergency Economic Stabilization Act of 2008 moved the starting date for IOR up to October 1, 2008, to give the Federal Reserve another monetary policy tool. IOR has figured prominently in Federal Reserve discussions of the tools that will be used to prevent the recent expansion of reserves from turning into a huge increase in the money supply (M1 and M2) and the rate of price inflation.

When Congress authorized IOR, it explicitly EXCLUDED GSEs such as F&F. One argument for this decision was that F&F do not take deposits. Another argument why IOR should not be paid is that F&F are privately owned companies that already benefit from a variety of government privileges and SUBSIDIES not available to other nondepository private corporations, including their ability to have any deposits at the Federal Reserve. The payment of interest on GSE reserves at the Federal Reserve would only expand the subsidy provided to these private corporations.

However, F&F's status as private corporations changed in September 2008 when the two GSEs were put into conservatorship and the U.S. Treasury AGREED TO PURCHASE SENIOR PREFERRED STOCK in an amount sufficient to keep F&F's capital from becoming negative. As a result of these purchase agreements, the U.S. Treasury has bought $154 billion in F&F preferred stock since 2008. In effect, the U.S. Treasury currently owns the losses and will own any of the future profits or losses of F&F for the indefinite future.

The combination of Fed remittances to the Treasury on Fed profits and de facto government ownership of F&F profits and losses implies that Treasury should be largely indifferent as to whether the Fed pays IOR to F&F per se. On the one hand, the fact that the Fed currently does not pay interest to F&F boosts Fed profits and raises payments to the Treasury, but at the cost of increasing F&F losses and thereby increasing the cost of Treasury support to the two GSEs. On the other hand, if the Federal Reserve were paying interest to F&F, the Fed would pay less to the Treasury, but then F&F would report lower losses and request less Treasury support.

What does matter to Treasury is the fact that F&F responds to the Fed's not paying them IOR by selling their reserves at interest rates well below IOR, and those reserves are held by banks that do earn IOR. Treasury's losses when F&F sell their reserves at rates below IOR is most easily illustrated in those cases in which the two sell reserves in the federal funds market to banks that are earning IOR. This exercise lets the participating banks, including branches of foreign banks, earn risk-free profits because there is no credit risk on reserve holdings and no liquidity risk on matched overnight funding and investment. The transaction boosts F&F profits by the rate paid on fed funds but lowers Fed profits by the rate paid on reserves, so the entire profit comes at the expense of the U.S. Treasury. The story becomes more complicated when F&F engage in other transactions to earn interest on their short-term liquidity portfolio, such as investing in very short term Treasurys. However, Treasury still takes a loss to the extent that F&F are earning a rate below the IOR paid to the banks that ultimately hold the reserves.

An estimate of the current cost to the U.S. Treasury is approximately $96 million (see the table), but this amount could increase as the Federal Reserve tightens monetary policy by raising IOR. Assuming that F&F continue to sell the same amount of funds, the cost could be as high as $160 million for every 25-basis-point increase in rates, under the extreme assumption that the federal funds rate received by F&F does not increase.

Financially astute readers may ask why the spread is so large. Shouldn't competition between banks force up the rate bid on F&F federal funds sold until it reached the point where banks profits were almost zero? The answer to that question is that F&F face credit risk in selling funds, so they limit both the set of banks to whom they will sell funds and the amount they sell to any individual bank. The result has been that F&F have had more funds to sell than the sum of the bank credit lines. Thus, the banks can bid for the funds at rates far below the interest rate they earn without fear that another bank will bid the funds away at a higher rate.

The decision that Congress made in 2006 to exclude the GSEs from IOR is now having the unanticipated effect of subsidizing some banks at the Treasury's expense. The Federal Reserve Bank of New York recently took a step that may help reduce this subsidy, by allowing GSEs to participate in reverse repurchase transactions with the New York Fed. Such transactions provide another way for the Federal Reserve to prevent the large volume of existing reserves from turning into rapid growth of money supply (M1 or M2). In effect, F&F could receive interest on their reserves by entering into a reverse repurchase transaction with the New York Fed. The operational mechanics of the reverse repurchase transactions program are currently being tested on a small scale, but under the right circumstances, this program could largely eliminate the unintended subsidy of banks by reducing F&F's sales to the banks.

An alternative proposal that would eliminate the entire subsidy would be for Congress to allow the Federal Reserve to pay IOR to F&F so long as the Treasury effectively owns the profits and losses of the GSEs. This approach would eliminate the incentive for F&F to sell reserves. Such a decision may have other unintended consequences that should be identified and evaluated. But at least in the short run, paying interest on reserves to Fannie Mae and Freddie Mac looks like a winner for the U.S. Treasury.

============

The solution is to eliminate payment of interest on IORs. Reserves are not a tax. And F&F are not commercial banks.

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Paul Craig Roberts:

If the Fed stops QE, confidence in the US dollar would rise. Money would flow into US investments, both supporting the US stock market and helping to finance the large US budget deficit. Gold and silver prices would decline. Negative dollar expectations would be squeezed out of oil and grain prices, although drought, flood, and supply factors would continue to impact grain prices and the administration’s wars can impact oil prices.

If a halt to QE coincided with more European sovereign debt problems, the dollar might REGAIN a lot of the ground that it has lost.

Looked at from this perspective, the Fed should halt its bond purchases, and people should bail out of their bullion investments and commodity speculations.

But there are other factors in play--the economy and continuing solvency worries about financial institutions. At a June 22 news conference, Federal Reserve chairman Ben Bernanke said: “Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought.”

Despite the fiscal stimulus of the large federal budget deficit and Obama’s $700 billion stimulus program, the economy’s growth and employment performance is not up to expectations. Indeed, as John Williams says, IF INFLATION WERE FULLY MEASURED, THE ECONOMY'S GROWTH COULD BE NEGATIVE, and if unemployment were correctly reported, the current rate would be over 22%.

An economy this weak offers no support to US-derived corporate profits or to the outlook for financial organizations. US corporations have made large investments abroad in the production of goods and services to sell to US consumers who have neither the income nor borrowing capacity to purchase. People without jobs and those with the low paid jobs provided by domestic service, such as hospital orderlies, bartenders, and waitresses, cannot afford to buy a house even at the depressed current prices. To the extent that financial institutions’ books remain filled with real estate paper, the financial crisis is not over.

Moreover, it is unlikely that the Dow Jones average can be sustained WITHOUT GROWTH IN EMPLOYMENT AND GDP

www.globalresearch.ca/index.php?context=va&aid=25412