Many of us have been waiting for the market for US debt to collapse, but the demand seems to be increasing? What is going on?
In short, the banks need somewhere to park all the excess reserve money they have on hand. The last thing they want to do is invest it in the real economy during a deflation. They are just riding it out, holding cash, as the real economy crashes. At some point, they will swoop back in, picking up dollars for dimes.
Why do they have so much reserve money now? Government bailouts! Lovely pattern isn't it? A pattern sometimes known as the clusterfuck...
Government bails out banks, banks use the money to buy government debt. Economy continues to grind down and future prospects continue to darken.
Welcome to Screw-ville, baby, population: YOU!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEZxetP0Q2Zw
Treasury Bond Auctions Show Insatiable Debt Demand
Sept. 11 (Bloomberg) -- The U.S. Treasury Department’s auctions this week of $70 billion in notes and bonds shows the unprecedented amount of debt being sold to finance the record budget deficit is failing to curb investor demand.
Fixed-income investors can’t see a recovery strong enough to spur central banks to raise interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. -- the world’s largest economy -- will rise above 10 percent in the first quarter.
“The auction shows investors are not afraid of inflation going forward,” said Ira Jersey, an interest-rate strategist in New York at primary dealer RBC Capital Markets. “There was a lot of cash on the sidelines that needed to go to work.”
Showing posts with label treasuries. Show all posts
Showing posts with label treasuries. Show all posts
Friday, September 11, 2009
Tuesday, August 4, 2009
Excess Reserves, the Federal Deficit and Fed Manipulation
Amazing statistic: excess reserves in our banking system are up to $744 billion. This is from an average of $1.7 billion from 2002-2007. That is an increase of 43,645 percent! Excess reserves are defined as cash kept by banks on deposit with the Fed, above the minimum reserve requirements.
So, there is a ton of money sloshing around in our banking system. Where did the excess reserves come from? An increase in the personal savings rate, combined with all the federal stimulus money given to banks.
But the banks aren't putting it out in loans! What are they doing with it? Investing in paper securities, esp. government bonds. “Government financing needs are extraordinary right now,” said Tony Crescenzi of Pacific Investment Management Co., which oversees the world’s biggest bond fund. “At some point banks will shift from investing in securities toward making loans, but we haven’t seen that yet.” [quote from Bloomberg here]
Do you see the circularity in this? Banks are bailed out by the Fed. The banks then use that money to purchase government debt. You increase your savings rate, which the banks then use to fund the expansion of the federal deficit. Federal spending is sucking in capital.
Meanwhile, our economy is continuing to grind down from deflation. Commercial and industrial loan growth is decreasing at an anual rate of 4.5%, mirroring the collapse in economic output. Consumer prices fell 1.4% in June from a year earlier, the biggest drop since 1950.
And here is the Fed's role in this scam: the steepness of the yield curve, or the difference between short- and long-term rates, is giving banks incentive to borrow for almost nothing in the overnight lending markets and invest the proceeds in Treasuries.
Keep in mind, while the long-term rate is somewhat market driven, the Fed directly controls the short term rate. In other words, the Fed is intentionally manufacturing the financial flow into government debt.
Listen to this quote from William Dudley, the president of the New York Federal Reserve Bank: a recovery “will be considerably slower than usual,” and “credit availability will be constrained for some time to come.”
Ok, explain me this: with a massive amount of excess cash sitting in bank vaults, why is credit availability constrained???
Do you see what is going on here? Banks are simply hoarding the cash, watching the real economy collapse in a deflation, as they stay liquid and highly profitable by recycling government debt.
Banks love the guaranteed results of government debt during an economic collapse when real investments are liquidating. Cash is king during a deflation, so banks want to be as liquid as possible, to be able to scoop up cheap assets when the markets bottom out. So they are hoarding cash! It is that simple.
The Fed, the federal government, and the banks in general, are sucking the lifeblood out of the real economy, engineering an economic collapse, while guaranteeing banking profits through government debt which is paid by the citizens. The citizens' real economy is royally screwed, and the citizens get to pay for the destruction.
At this point, I am forced to agree with Obama's racist pastor Jeremiah Wright: "God damn America!" This is the devil's work, nothing less.
So, there is a ton of money sloshing around in our banking system. Where did the excess reserves come from? An increase in the personal savings rate, combined with all the federal stimulus money given to banks.
But the banks aren't putting it out in loans! What are they doing with it? Investing in paper securities, esp. government bonds. “Government financing needs are extraordinary right now,” said Tony Crescenzi of Pacific Investment Management Co., which oversees the world’s biggest bond fund. “At some point banks will shift from investing in securities toward making loans, but we haven’t seen that yet.” [quote from Bloomberg here]
Do you see the circularity in this? Banks are bailed out by the Fed. The banks then use that money to purchase government debt. You increase your savings rate, which the banks then use to fund the expansion of the federal deficit. Federal spending is sucking in capital.
Meanwhile, our economy is continuing to grind down from deflation. Commercial and industrial loan growth is decreasing at an anual rate of 4.5%, mirroring the collapse in economic output. Consumer prices fell 1.4% in June from a year earlier, the biggest drop since 1950.
And here is the Fed's role in this scam: the steepness of the yield curve, or the difference between short- and long-term rates, is giving banks incentive to borrow for almost nothing in the overnight lending markets and invest the proceeds in Treasuries.
Keep in mind, while the long-term rate is somewhat market driven, the Fed directly controls the short term rate. In other words, the Fed is intentionally manufacturing the financial flow into government debt.
Listen to this quote from William Dudley, the president of the New York Federal Reserve Bank: a recovery “will be considerably slower than usual,” and “credit availability will be constrained for some time to come.”
Ok, explain me this: with a massive amount of excess cash sitting in bank vaults, why is credit availability constrained???
Do you see what is going on here? Banks are simply hoarding the cash, watching the real economy collapse in a deflation, as they stay liquid and highly profitable by recycling government debt.
Banks love the guaranteed results of government debt during an economic collapse when real investments are liquidating. Cash is king during a deflation, so banks want to be as liquid as possible, to be able to scoop up cheap assets when the markets bottom out. So they are hoarding cash! It is that simple.
The Fed, the federal government, and the banks in general, are sucking the lifeblood out of the real economy, engineering an economic collapse, while guaranteeing banking profits through government debt which is paid by the citizens. The citizens' real economy is royally screwed, and the citizens get to pay for the destruction.
At this point, I am forced to agree with Obama's racist pastor Jeremiah Wright: "God damn America!" This is the devil's work, nothing less.
Subscribe to:
Posts (Atom)
