The Banking System Is Sitting On It’s Hands
July 13, 2009
It’s time for another quick look at the United States banking system. Whoops! Nothing happening there. Are they still alive?
Federal Reserve Bank Credit has increased by $1.2 trillion over the past twelve months. What has increased in the banking system? Excess reserves in the commercial banking system have increased by about $800 billion. Tracing this “stuff” a little further, in round figures, the currency in circulation outside of the banking system has increased about $100 billion over the past year, about $100 billion has gone to foreign central banks in liquidity swaps, so there is another $200 or so in funds that the Fed has pumped into the system that is somewhere in Treasury accounts. But who is counting? Read more
A Real Stimulus Plan
June 29, 2009
There’s been a slew of good news lately, including improved consumer sentiment, lower than expected job losses, increasing wages, and a contracting TED spread. The stock market has been up for 12 of the past 14 weeks, and the Dow recently broke even for 2009. Public officials including President Obama and Fed Chairman Bernanke have declared the worst to be over. Read more
Bank of America Dot Gov
June 27, 2009
It is becoming clearer and clearer what it means to have government involved in the affairs of banks and businesses. Where all the initial talk was about the “moral hazard” presented by government bailing out the private sector and how this just means that in the future banks, and other organizations, will just take on more and more risk because they know that if things go bad, the government will be there with a rescue net to save the institution. Read more
What If The Fed’s Isn’t Printing Money Like A Drunken Sailor?
June 26, 2009
What if conventional wisdom about the Fed is wrong and it isn’t printing money like a drunken sailor? Well…that would make most of the media coverage of the bond market and the economy wildly off the mark.
As it turns out while media talking heads were ranting about how the Fed was running their printing presses overtime to push up money supply the facts were very different. M1 has actually declined since the middle of December, 2008. During the same six month period M2 has only risen by a little less than 3%. Read more
Don’t Worry About The Debt Tsunami Part II
June 25, 2009
Recently I wrote that the forward calendar of to-be-issued government and mortgage related debt isn’t going to swamp the economy.
Since I wrote my article Paul Krugman wrote an article citing research done by Brad Setser that supports my thesis. Setser’s analysis predates my article and is really high quality work. Read more
Renouncing The Debt
June 25, 2009
There are three ways to get out of a debt crisis. First, you can work off the debt, but this takes a long time. An impatient public and an impatient government will not have the stomach the wait that would be necessary for individuals, families, and businesses to get their balance sheets in order so that a recovery can get started. Read more
Don’t Worry About The Debt Tsunami
June 24, 2009
It looks like in the next few years newly issued Treasury and agency guaranteed residential mortgage debt may create a debt tsunami that will swamp the economy. Fortunately, looks can be deceiving.
While interest rates are likely to rise for both long maturity Treasury notes and bonds and agency guaranteed residential mortgage debt, rising rates are not because of a lack of investment demand or failing confidence in the U.S. Government. Instead, as I have written for months, the all-in cost of capital for most domestic institutional investors is higher than the net yield on Treasury and agency guaranteed mortgage debt. Read more
Natural Resources, Energy and Precious Metals Update
June 24, 2009
Many investors are somewhat dazed and befuddled as they watch what used to be called “The Natural Resources Sector” bounce up and down as the summer season commences. With the dollar up again, commodities including the precious metals and oil were off sharply yesterday. All in all, it was just a broadly negative day. Little was spared, including equities, which also took a serious hit. Even perennial bull James Moore, of TheBullionDesk.com, was forced to write that, “Short-term the metal [gold] could extend lower as a result of the dollar.” John Reade, of UBS in London, concurred, writing that, “We would not be surprised to see further short-term declines, especially in the absence of any material jewelry, physical-investment or ETF demand.” Read more
What Banks Aren’t Telling Us?
June 24, 2009
I am still worried about what banks aren’t telling us. Why? Total Reserves in the banking system have increased by $857.8 billion over the twelve month period ending in May 2009. Excess reserves in the banking system have increased by $842.1 billion in the same time period. The Federal Reserve System has overseen a 1,900% increase in total reserve in the banking system, year-over-year, for the year ending May 2009, and banks have chosen to sit on the injection almost dollar-for-dollar! Read more
Long Term Bond Yields and the Fed
June 23, 2009
The Federal Reserve is trying to hold down long term interest rates. The reason? To stimulate economic activity and encourage credit flow and especially mortgage lending. But, we have a problem. The Financial Times puts out headlines stating that “Rising bond yields present fresh challenge for the Fed.” Long term bond rates have been rising lately. Yesterday, the 10-year Treasury hit 3.096%, a territory not breached since November 24, 2008. Last time I looked today, this yield was at 3.134%. The same was true for 20-year Treasuries topping 4.00% yesterday and today. Read more
