Ben Benanke's Incompetent

[flow5]

The 5 1/2 percent increase in REG Q ceilings on December 6, 1965 (for just the commercial banks), is analogous to the .25% remuneration rate on excess reserves today (the remuneration rate is higher than the daily Treasury yield curve 2 years out).

It is a tipping point which forces the FED to offset the resulting contractive economic forces.

IOeRs alter the construction of a normal yield curve, they INVERT the short-end segment of the YIELD CURVE –known as the money market.

IOeRs are contractive; inducing debt deflation & dis-intermediation (an outflow of funds from the non-banks/financial intermediaries). IOeRs stop (or retard), the flow of savings into real-investment.

The non-banks are the most important lending sector in our economy — or pre-Great Recession, 82% of the lending market (Z.1 release, sectors, e.g., MMMFs, commercial paper, GSEs, etc.).

Every effort should be made to encourage the flow of monetary savings thru the non-banks (the customers of the commercial banks).

Re-directing monetary savings won’t reduce the size of the CBs , won’t reduce the volume of CB earning assets, & won’t reduce the income received by the system. Money flowing to the non-banks actually never leaves the CB system in the first place. I.e. from a system’s standpoint (& unlike the underpinnings of the DIDMCA), the non-banks are not in competition with the CBs.

[flow5]

seekingalpha.com/article/285477-downgrade-may-not-affect-institutional-treasury-holdings

"Correct Information About The Law

While S&P cut the long-term rating, it reaffirmed the short-term rating for the US at the top A-1+ level. This means money market funds will not be forced to sell US Treasuries.

Most banks in the United States are regulated by the Federal Reserve Bank. The Federal Reserve has issued a crystal clear statement that there is no change in the risk weighting of US Treasuries. This means that the banks will not be forced to sell US Treasuries.

Most insurance companies in the United States are governed by state regulators. It is likely that state regulators will follow the lead of the Federal Reserve, and insurance companies will not be required to sell US Treasuries.

There are three primary credit rating agencies – S&P, Moody’s (MCO), and Fitch. While S&P has downgraded the US debt, both Moody’s and Fitch have reaffirmed AAA rating of the US debt.
Bond issuers, as well as bond holders, are allowed by law to use the highest rating available if there is a conflict between the ratings of the agencies. This means that the United States, as well as holders of US Treasuries, will rely on the ratings of Moody’s and Fitch."

[maui1]

--------------------------------------------------------------------------------
heard over the weekend that the ecu is going to start buying Italian and spain bonds..........

i ask..........

how do they do that with no money? they can't print money, and they don't have 'cash on hand', so how do they buy these bonds?

rumor is....... that we (the fed) is floating the money because we can print it, and the fed does not have to account for the printing.

[flow5]

[smackdown]

QE2 went straight into the pockets of wealth. It had ZERO impact on the overall recovery except to propel us to our Debt Ceiling.

[wyouser]

so what can one anticipate from Ben at his 2:00 pm comment session?

[lifewasgood]

Yup, thus we needed the ceiling raised to accommodate more QE.

[smackdown]

"So in essence you're arguing that Ben is incompetent because he's trying to control something that fundamentally can't be controlled."

Absolutely. His carefully crafted words today caused us to reel way backward into the crisis. He's a TERRORIST.

[flow5]

Failed Monetary Policy Helped Create the Economic Crisis: Stiglitz

finance.yahoo.com/blogs/breakout/failed-monetary-policy-helped-create-economic-crisis-stiglitz-124946107.html%20?sec=topStories&pos=6&asset=&ccode=

[lifewasgood]

Failed Monetary Policy means failed Federal Reserve system. Failures need to be eliminated.

[flow5]

Monetary policy is too tight. The large revisions to the gDp figures (going back to 2003), by the BEA (not just the first qtr real-gDp from 1.9 to .4) is all the evidence required.

Real-gDp peaked in the 3rd qtr of 2007 @ $13,326T. It has failed to reach that level as of this 2nd qtr 2011 (4 years later) - @$13,270.1T

This is the real reason why stocks fell sharply & are still falling (not the S&P ratings downgrades).

The bottom looks to be Oct.

[lifewasgood]

The S&P downgrade and Debt Ceiling fiasco had little to do with the market plunge IMO. Had a lot to do with QE ending. QE stimulated the markets (Not very well I might add) and without it the markets are wondering around in the dark.

Flow you call for the bottom in Oct, which will probably coincide with QE 3

[flow5]

"The world economy is slowing, which reduces the Wicksellian equilibrium interest rate. This means that the Fed’s 0.25% IOR program is effectively becoming an increasingly restrictive monetary policy. Just yesterday the 2 year T-note yield fell below 0.25%, meaning the Fed has essentially inverted the yield curve all the way out to 2 years"

www.themoneyillusion.com/?paged=2

Scott Sumner

[flow5]

lifewasgood:

It would make sense that the FED would react then. That's the month inflation begins a downward move.

"WASHINGTON (AP) -- President Barack Obama and Federal Reserve Chairman Ben Bernanke met in the Oval Office on WEDNESDAY to discuss the need for long-term deficit reduction and the European financial crisis"

[flow5]

Fed Up: A Texas Bank Is Calling It Quits
By ROBIN SIDEL

Main Street Bank lends most of its money to small businesses and is earning decent profits. But the Kingwood, Texas, bank is about to get out of the banking business.

In an extreme example of the frustration felt by many bankers as regulators toughen their oversight of the nation's financial institutions, Main Street's chairman, Thomas Depping, is expected to announce Wednesday that the 27-year-old bank will surrender its banking charter and sell its four branches to a nearby bank.
Texas turnaround: Thomas Depping, chairman of Main Street Bank, plans to give up the bank's charter.

Mr. Depping plans to set up a new lender that will operate beyond the reach of banking regulators—and the deposit-insurance safety net. Backed by the private investment firm of Microsoft Corp. co-founder Paul Allen, the company won't be able to call itself a bank, but it will be able to do business the way Mr. Depping wants.

"The regulatory environment makes it very difficult to do what we do," says Mr. Depping, who last summer saw his bank hit with an enforcement order from the Federal Deposit Insurance Corp.
A spokesman for the FDIC declined to comment on Main Street, a unit of closely held MS Financial Inc. Dan Frasier, director of corporate activities for the Texas Department of Banking, confirmed that Main Street is "working on the process of moving out of the state banking system," but declined to provide details.

Bankers have long complained about their overseers, but it is rare for a bank to basically close its doors aside from an acquisition or failure. Mr. Depping blames the move on a tightening regulatory noose.

Regulators came under fire in the financial crisis for lax oversight that allowed financial institutions to dole out too much credit to unworthy borrowers. Some bank executives now complain that federal and state agencies have swung to the other extreme, poring over minute details of virtually every loan, including those to small businesses.

"The No. 1 complaint that we hear from community bankers is that they feel that regulators have gone one step too far and are choking off lending," says Paul Merski, chief economist at the Independent Community Bankers of America, a trade group that represents small banks.

Regulators defend their efforts, saying that intensive oversight is needed to prevent banks from taking too much risk and repeating the behavior that got the industry in trouble.

Mr. Depping has been on a collision course with regulators since 2009, when FDIC examiners began questioning the bank's large concentration of small-business loans. Nearly all of Main Street's $175 million loan portfolio has gone to customers like dentists, owners of fast-food franchises and delivery-truck drivers, who use the loans to purchase equipment. The bank's average loan size is $100,000 to customers who have less than $1 million in annual revenue, Mr. Depping says.

Mr. Depping says that Main Street's focus on small-business lending has sheltered the bank from much of the devastation that has swept the industry, including 385 bank failures since the start of 2008.
Main Street had profits of $1 million in the second quarter and wrote off 1.25% of its loans as uncollectible. That is below the industry's charge-off rate of 1.82% in the FDIC's data for the first quarter, the latest available. The bank has earned nearly $11 million in the past year.

In July 2010, the FDIC slapped Main Street with a 25-page order to boost its capital, strengthen its controls and bring in a new top executive. Regulators also said the bank was putting too many eggs in one basket. Mr. Depping says regulators wanted the bank to shrink its small-business lending to about 25% of the total loan portfolio, down from about 90%.

Mr. Depping says he explained to regulators that Main Street has focused on small-business lending since he bought the bank in 2004 with a group of investors. He says the bank makes credit decisions based on a combination of the borrower's personal-credit and business-credit histories, among other factors.

"We felt that servicing small business is something the country needs and that we're really good at it. I thought the model was working just fine," Mr. Depping says.

Main Street also was required to increase its capital cushion and prohibited from substantially expanding its balance sheet.
FDIC officials told the bank to file financial reports that "accurately reflect the financial condition of the Bank as of the reporting date," particularly regarding the money it set aside to cover loan losses.
The FDIC also ordered Main Street to shore up its lending guidelines so that loans are "supported by current credit information and collateral documentation, including lien searches and the perfection of security interests; have a defined and stated purpose; and have a predetermined and realistic repayment source and schedule," according to the order.

Main Street bolstered its capital levels by getting smaller. It sold a business and shrank its loan portfolio, actions that boosted its Tier 1 leverage ratio—a measure of capital as a proportion of assets—to 17.3% at June 30 from 9.5% a year earlier. It also brought in a new president.

Even so, soon after last July's order, Mr. Depping began exploring a transaction that would include the unusual step of surrendering his banking charter.

Mr. Depping's new company, called Ascentium Capital, will be backed by Vulcan and a group of investors led by an investment arm of Luther King Capital Management, based in Fort Worth, Texas.
The new entity won't be regulated and won't be able to offer federal deposit insurance—but doesn't want to attract deposits, Mr. Depping says. The new firm is being capitalized with $75 million of equity and a $250 million financing facility led by UBS. Mr. Depping says he wants to ultimately increase the loan portfolio to $500 million.

The deal also calls for Green Bank, a unit of Houston-based Green Bancorp Inc., to acquire Main Street's four branches. Ascentium will acquire $150 million of Main Street's loans, with the rest going to Green.

Mr. Depping hopes the deal will close by October after receiving regulatory approvals and completing Main Street Bank's unwinding.
"It's a lot easier to become a bank than to get rid of your bank charter," he says

[flow5]

Larry Meyer Sees Another Round of Quantitative Easing in November"Sterilized" purchases of long-term assets are like "standard" quantitative easing in that they take duration risk off of private balance sheets and load it onto the Federal Reserve's balance sheet.

They are unlike "standard" quantitative easing in that they do not raise the money stock--and do not raise those with monetarist models long-term expectations of the price level by whatever they calculate to be the permanent component of the money stock increase from "standard" quantitative easing.

Why do "sterilized" purchases of long-term assets? Because it allows the Fed to claim that it is not increasing the size of its balance sheet. Why should anybody care about the size of the Fed's balance sheet rather than, say, about the amount of duration and default risk the Federal Reserve is holding? No rational reason--only confused people would care.

And why delay the program until November? Once again, no rational reason--it makes it less effective.

Nevertheless, Larry Meyer believes that the Fed is going to undertake QE III starting in November:

On Deck: Sterilized LSAPs: WE HAVE CHANGED OUR MONETARY POLICY ASSUMPTIONS TO INCORPORATE THE ANNOUNCEMENT OF "STERILIZED LSAPs" AT THE NOVEMBER 2011 FOMC MEETING.

We view such a policy decision as consistent with our revised forecast, which incorporates yesterday's calendar-based rate commitment. We believe that a cost-benefit analysis favors sterilized LSAPs as the next easing step over (unsterilized) LSAPs.

What exactly are sterilized LSAPs?

•First note that this is the name we use for operations that change the composition of the portfolio (in this case, to increase its duration) without changing its size. The Committee will come up with its own name.

•Like LSAPs (a.k.a. QE), sterilized LSAPs (SLSAPs) involve buying longer-term assets. Unlike LSAPs, SLSAPs do not expand the Fed's balance sheet because the purchases are funded through sales of shorter-duration assets, as opposed to the creation of reserves.

•In effect, sterilized LSAPs are akin to a cash-neutral duration extension trade....

Sterilized LSAPs are the new player in town, but this option has been signaled by references to changing the composition of the portfolio in recent speeches and statements.

•The Chairman included SLSAPs as an option in his recent monetary policy testimony before Congress.

•SOMA Manager Brian Sack spoke at some length about the importance of the duration, not just the size, of the SOMA portfolio in a recent speech and listed SLSAPs as a potential policy option.

A cost-benefit analysis favors sterilized LSAPs as the next easing action over LSAPs.

•The FOMC has played the communication card, and aggressively.

•Should the Committee want to up the ante, it could move out the rate commitment. But we expect that the next move would be to directly intervene to lower long-term rates.

•Sterilized LSAPs should be as effective in providing stimulus as LSAPs. That is the case because we and, we expect, the Chairman and the Board staff believe that the degree of stimulus is not affected by the level of reserves or the size of the balance sheet, but by what the Committee buys (composition of the portfolio).

•Sterilized LSAPs, unlike conventional LSAPs, do not expand the balance sheet and the Committee, broadly speaking, is reluctant to do so. As a result, SLSAPs may not raise the same degree of inflation fear as QE.

That the FOMC thinks that the degree of stimulus is "is not affected by the level of reserves or the size of the balance sheet" but only by the composition of the portfolio does not make it true.

And at this point it's not inflation fear that is to be feared, but deflation fear in the lower tail--thus regular QE is more effective as a weapon.

Making your tools weaker than they have to be? Delaying action to November? Can't anybody play this game?

02myecon-01.soup.io/

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

ONE MONTH LATE

[bubblyandblue]

These larger asset purchases - could they be trying to anticipate the commercial real estate problems that have been hovering about?
These manipulations seem to only benefit the speculators, TGTFs, Monopolists and thenon-wealth producing sector. It seams the treats go to the ones who are driving the exodus from a wealth producing nation to the wealth draining sectors - really seems to shoot the country in the foot.

[flow5]

Speculators are taxed at the short-term (ordinary income) tax rate:

"Capital gains are taxed differently depending on whether your investment is considered a long-term or a short-term investment.

The short-term holding period is one year or less. Short-term capital gains are taxed at ordinary income tax rates.


The long-term holding period is more than one year. Long-term capital gains are taxed at discounted long-term capital gains rates. The long-term tax rate will be either 5% or 15%, depending on your marginal tax bracket"

taxes.about.com/od/capitalgains/a/CapitalGainsTax_2.htm

[wyouser]

there are a few comments and articles out today sugessting watching for a "surprise" from Ben at the end of the month at Jackson Hole. Last year he used 600B but initially wanted 2 T ...thought may be he will try to do 1.4T ...so QE3 maybe?? just comments and thoughts out there

[bubblyandblue]

"The short-term holding period is one year or less. Short-term capital gains are taxed at ordinary income tax rates."
What would be the harm of taxing short term at 90%?
How about a transaction tax for ultra short term holdings (high speed trading)?

[flow5]

Bright idea. Generally, financial transactions don't contribute to gDp. I think any destablizing speculation should be discouraged, not encouraged.

Taxing speculation in the U.S. should dampen inflation but might move the trading elsewhere. And I don't buy the concept that for example, futures trading, makes those markets more efficient.

[bubblyandblue]

Yes, I have thought about trading moving elsewhere and realize that international laws may need change to keep it penned in. Then again, I look at what speculation, quasi monopolism, derivatives, CDOs etc. - those items that are not pegged to the wealth producing activities (labor+capital=wealth). I also see a lot of trading going on that bet on the market zigzag instead of the underlying company. Beyond the initial offering and buy into a stock - what are short term trades really trading - are they contributing to the wealth producing activity of the company or, are they just trading preception to gain money through money itself.

[flow5]

Even if short-term trading (esp. short-sales), doesn't siphon off long-term profits, it will scare away investors. If traders exacerbate swings in the market (creating oversold & overbought conditions), long-term investors will postpone purchases.

And computer scalping (high frequency trading), can create illiquidity, precipitate flash crashes, and cause others to panic.

[flow5]

ftalphaville.ft.com/blog/2011/08/12/652166/the-feds-secret-qe-equivalent/

The Fed’s secret QE equivalent
Posted by Izabella Kaminska on Aug 12 17:52.
Anyone catch this from the New York Fed on Friday? It’s hugely important:

Beginning Monday, August 15, the New York Fed intends to conduct another series of small-scale reverse repurchase (repo) transactions using all eligible collateral types. The first operation will be conducted using only the expanded reverse repo counterparties announced on July 27, 2011. Subsequent operations in this series will be open to all eligible reverse repo counterparties.

Going forward, the Federal Reserve plans to conduct a series of small-scale reverse repurchase transactions about every two months, which will bring the frequency of these operational exercises in line with that of the Term Deposit Facility exercises.

Like the earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding reverse repo transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future.

Why so important?

Well. Weren’t we all conditioned to think that reverse-repo operations were meant to be an exit strategy? Weren’t they supposed to be deployed as a way to soak up all those excess reserves?

Why on earth would the Fed be choosing to soak up excess reserves at a time when the panic in the markets has reached highs not seen since 2008, and at a time when most of the market is calling for more liquidity and quantitative easing?

Well, we would argue it’s because the Fed believs the financial system may have crashed through a critically important juncture. Actually perhaps a rabbit hole or a looking glass are more accurate.

QE is no longer the cure. It has now become a poison.

Which would explain why the Fed did not announce more QE at the last FOMC meeting, despite rampant calls for the opposite.

It’s now very possible that the majority of the FOMC voting committee believes more QE could plunge the system into a desperate capital preservation frenzy, resulting in nothing else than self-imposed and voluntary capital destruction.

That the system is so broken, it doesn’t matter how much liquidity the Fed creates because it won’t be able to get any further than the immediate banking community. And that’s because banks still can’t find enough credit worthy people to lend to. That the majority of loans still have a greater default risk than the banks are prepared to weather. That loans equal capital deterioration. And only loans to the most credit worthy people (of which there are not enough) are worthwhile.

If banks do indeed perceive that capital deterioration risk from lending is much greater than a self-imposed haircut on the most liquid and safe security, they’re prepared to take that haircut — especially in a world with no alternative — because it guarantees some sort of remaining capital preservation. The haircut, of course, is the negative interest rate.

If that is the case, the worse thing the Fed could do is more asset purchases. It would only take out more supply of quality collateral out of the market, heightening the pressure to take a self-imposed haircut just in order to get your hands on the security. A fact echoed by the number of above par bids at this week’s 30-year Treasury auction.

As we’ve already noted, Ben Bernanke discussed that the Great Depression was arguably catlaysed by a move towards voluntary capital destruction via a frenzied fight for the remaining quality collateral.

Back then, the Fed also deployed so-called quantitative easing to flood the system with liquidity. It only made the situation worse.

That is why this time round Bernanke’s liquidity injection came alongside two very important new measures. Interest on excess reserves — designed to keep a floor on rates and stop them plunging into negative territory — and SOMA limits. So that the Fed could never fully wipe out Treasury supply in the market.

Of course, two of those key anti-deflationary measures were partly compromised this year. The first was interest on excess reserves, via the April INTRODUCTION OF A FDIC FEE. This negated much of the incentive to keep your deposits at a nominal interest rate at the Fed. It actually made it costly.

The second was the debt ceiling debacle, which clearly made the subject of adding additional supply via fresh issuance from the Treasury a more than taboo subject.

Faced with no incentive to hold cash on reserve at the Fed, and more cash than God to invest, MONEY FLOODED INTO THE MONEY MARKETS AND SHORT-TERM BILLS. This caused PRESSURE ON REPO RATES, WHICH CAUSED PRESSURE ON MONEY MARKET FUNDS. Money market funds opted to hold demand deposits at a zero rate than risk breaking the buck through bill investments.

It was this that was RESPONSIBLE FOR THE SECOND BIGGEST US M2 RISE IN HISTORY:

But this was always arguably unlikely to be inflationary. The buck stopped with money market funds. What’s more, the banks were back at point A. Holding large excess reserves at the Fed that weren’t making them any money.

Bank of New York Mellon’s decision to CHARGE FOR DEPOSITS thus reflected a critcially important development. It meant money market funds would have to either suffer capital destruction or move elsewhere.

Elsewhere was back into the bill and money markets. A move which only intensified the free fall of short-term yields and once again posed the threat of negative yields and repo rates. It was a no-escape scenario from capital destruction. Or what we dubbed the 2011 deposit crisis.

So the Fed’s decision to start reverse repo specifically to money market funds is specifically about giving them somewhere to invest their cash at a positive interest rate.

And that, to end this sorry story, is why the decision to increase reverse-repos is not a tightening measure but actually a very clear move to put back some sort of floor on rates, or as the New York Fed put it “The operations have been designed to have no material impact on the availability of reserves or on market rates.”

[flow5]

US Default Scare Leads To Biggest Weekly Surge In Non-Seasonally Adjusted M2 In History

Submitted by Tyler Durden on 08/12/2011 00:23 -0400

About a month ago we penned a post to refute some misconceptions about a material spike in M2, which led such luminaries as Andy Lees and Art Cashin to get confused that this may be an indication that either the government was forcing money into the population with the end of QE2, or that this was actually a confirmation that QE was working. It was neither. As we explained it was a combination of the Treasury general account on the Fed's balance sheet soaring (from a balance sheet standpoint), and due to the repeal of Regulation Q (from an actual flow perspective), that led to the move. Sure enough, in the 3 weeks following, M2 dropped to very much unremarkable weekly change levels. Until the week of August 1, or the week in which the specter of a US bankruptcy came to life, and in which the market took its first notable leg down.

In that week, the broadest publicly released monetary aggregated - the M2 - soared to an all time high $9.5 trillion, or a $159 billion weekly change. This make it the third largest weekly spike in history After the Lehman bankruptcy and September 11. Then again, this data includes the traditional seasonal fudge adjustments by the Fed. A look at the non-seasonally adjusted time series indicates that last week's spike in M2, primarily in demand and savings deposits at commercial banks, was the highest on record! Sure enough, the bulk of this cash ended up in America's largest depository institution, Bank of America.

And yes, this was in the week prior to the massive market rout. Yet as the charts show, following every massive inflow of money into demand deposits and savings accounts, it goes right back out the next week. Which is why we wonder: is Bank of America, so flush with cash a week ago courtesy of the debt ceiling fiasco, suddenly cashless, as investors follow up with the kneejerk withdrawal of capital from the depositor bank due to worries of bank runs and other less quantifiable reasons? Does this explain why, in addition to the fact that the bank's sale of its China Construction Bank stake is not going well, BAC may soon be forced to enter the capital markets to raise equity capital, just as we have been predicting all along?
First, observe the three highest spikes in seasonally adjusted M2 in history:

The same chart with a focus on more recent data, and broken down by core M2 components:

Although this is the kicker: a chart showing the non-seasonally adjusted weekly change in M2, to eliminate any adjustment noise. The data speaks for itself (and if it doesn't, at $177.5 billion, the weekly spike in NSA M2 is the largest ever).

What are the implications: well for one, we know this week's move had nothing to do with the Treasury's cash balance or with Regulation Q: those have since normalized. What the data does show is that in the week ended August 1, everyone and their dog took their money and put it away in non-interest bearing accounts. Why they would do so is not precisely clear. And that will be revealed next week when the inevitable outflow from M2 reappears.

Whether this occurs in real life due to follow on concerns of a bank run in adverse conditions, or simply due to a need to access the deposited cash is unknown. And irrelevant. What it does, however mean, is that in one week, assuming BAC got a sizable chunk of this deposit flow (and let's further assume about $30 billion or 20%, roughly its size in the depositor TBTF pyramid), that Moynihan had absolutely no need to raise capital as early as the last week of July due to the surge in cash coming in via the deposit window.

What, however comes next? As is all too obvious above, every action of a near record surge of capital into deposit and savings accounts is almost universally met with an equal and opposite reaction. This is double true when bank run risk starts to be envisioned, like happened with Bank of America last week.

Which means only one thing: BAC may well have seen a deposit capital outflow of $30 billion in the current week... and then some. Needless to say, $30 billion is not an amount the bank can live without, and should this be confirmed, expect to see the bank trading at a modest fraction of its current price.

We hope to bring you the answer next Thursday, when the latest H.6 is released. In the meantime, is Bank of America's latest logo: "generate a crash to feed us some cash..." And what happens if BAC's stock has still not recovered by the time the crash is over?

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

Durden's right.

[flow5]

COMING YOUR WAY:

City National Bank, effective October 1, 2011, reserves the right to charge its checking, savings, and money market account customers for the Bank's FDIC insurance coverage, with a charge that can vary monthly. This is in addition to all other applicable fees.

CNB can just do this, after October 1, 2011, without any advance notice.

CNB says in its disclosure document that the charge, if assessed, "will be determined by CNB based upon the ratio of the total amount of CNB's FDIC assessment for insurance coverage to the amount of your total funds on deposit during the assessment period....".

[flow5]

Accelerated monthly growth rates in ....... M1 ....... M2

3 Months from Apr. 2011--July 2011....... 22.7....... 15.6
6 Months from Jan. 2011--July 2011....... 16.8....... 10.7
12 Months from July 2010--July 2011....... 16.2....... 8.2

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

Don't fight the FED

[flow5]

The FED can add enough liquidity to the markets to reverse their direction. The future is not predestined.

[flow5]

maseportfolio.blogspot.com/
JOHN MASON:

Let’s start with another interesting fact from the commercial banking industry: 92 percent of the banks in the country hold 10 percent of the total banking assets as of March 31, 2011 (FDIC banking statistics), but this total ($1,181.0 billion in total assets) is only 60% of the cash assets in the whole banking system on August 3, 2011 (Federal Reserve H.8 release), 72 percent of the Reserves at Federal Reserve Banks on August 3, 2011 (Federal Reserve H.4.1 release), and 74 percent of the Excess Reserves in the banking system for the two-week average ending August 10, 2011 (Federal Reserve H.3 release).

In other words, the total assets residing in 92 percent of the commercial banks in the United States is substantially less than the amount of excess reserves pumped into the banking system by the Federal Reserve since August 2008. (For more comparisons see here.)

Now let’s look at the recent behavior of the money stock measures. Both measures of the money stock (M1 and M2) experienced accelerating rates of growth over the past year, with the acceleration increasing over the past several months.

The M1 money stock measure was growing at a year-over-year rate of 16.1 percent in July, up from 10.0 percent in January 2011 and 5.4 percent in the summer of 2010. The M2 money stock measure is growing year-over-year in July 2011 at 8.3 percent, up from 4.3 percent in January and around 2.5 percent in the summer of 2010.
Is this a sign that the Fed’s quantitative easing (QE2) is working or is it a result of something else going on in the economy?

Generally when the money stock measures are growing, commercial bank lending is fueling the growth. Banks loans are put into demand deposits to spend and this spending spurs the economy.

It is hard to find much loan growth in the commercial banking sector at this time. (See here.) Thus, it is hard to conclude that the increase in the growth rates of the two money stock measures results from the Fed’s injection of reserves into the banking system.

The path that I have been following over the past two years is that the extremely weak condition of the economy and the extremely low interest rates are causing a “DIS-INTERMEDIATION” of sorts as people move their funds from interest bearing assets into transaction-related accounts. They do so to either be able to pay for necessities because cash flows are low due to unemployment or other situations of financial distress, or because interest rates are so low on savings or money market accounts that it is doesn’t pay for wealth-holders to keep money in these latter types of accounts.

What we see is that demand deposit accounts at commercial banks have exploded. In July, the year-over-year rate of growth of this component of the money stock has increased dramatically to over 37 percent, up from just 21 percent in March of this year. Other checkable deposits at depository institutions have also increased, but not at such a rapid pace.

Along with this we still see substantial drops in “savings” categories. Small-denomination time deposits have fallen at a 20 percent rate, year-over-year. Retail money funds have dropped by over 6 percent, year-over-year, and institutional money funds are still declining at a more than 4 percent, year-over-year rate.

Funds are still moving from (formerly) interest-earning accounts to transaction-type accounts.

One further indication that some of this is due to “economic stress” is that the amount of currency in circulation is increasing. In July, currency in circulation was more than 9.0 percent higher than it was a year ago. This is up from around 7.0 percent earlier this year.

My basic point here is that although the growth rate of both money stock measures is increasing, this information does not indicate that Federal Reserve monetary policy is working or that economic growth will benefit from this expansion.

The money stock measures are experiencing increasing rates of growth due to the fact that the economy is extremely weak and that interest rates are extremely low. People and businesses are just reallocating their funds so that their money is easier to get for spending purposes (distress) or that other assets are earning so little it doesn’t pay to keep funds in those accounts - or both.
In my view, there is no cause for hope for an economic recovery in the current monetary statistics.

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FIRST TIME HE'S USED THAT WORD -- dis-intermediation

[decoy409]

"The FED can add enough liquidity to the markets to reverse their direction. The future is not predestined."

Flow, I would say it is 'predestined' as the trail is becoming clearer and clearer as to 'reverse direction.' Only one way I can think of to reverse direction at this point.