Why the truth now ?
http://www.zerohedge.com/news/2013-11-13/qe-whistleblower-warns-we-are-eerily-similar-2008
Submitted by Tyler Durden on 11/13/2013 21:36 -0500
Submitted by Tyler Durden on 11/13/2013 20:42 -0500
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Submitted by Tyler Durden on 11/13/2013 11:53 -0500
Submitted by Tyler Durden on 11/13/2013 09:51 -0500
http://www.zerohedge.com/news/2013-11-13/qe-whistleblower-warns-we-are-eerily-similar-2008
QE Whistleblower Warns "We Are Eerily Similar To 2008"
Following his inconvenient truthiness yesterday, Andrew Huszar appeared on Bloomberg TV today (having dismissed the comic-book-written discussion he faced in CNBC's Fast Money yesterday). As usual Bloomberg gave him more time to speak, listened, and challenged some of what he said, but we were struck by the man-who-ran-the-Fed's-mortgage-book's points that "we are eerily similar to 2008." Simply out, he implores, "the structure of our economy has not changed," and his apology (on behalf of the Fed), is because the Fed "helped squander an opportunity to see change in America." The fact of the matter, this was folly, "The Fed does not have the tools to help the economy."
What else could Bernanke have done?
QE1 at the time was defensible... but as we progressed, very quickly we began to see it was not working
So why wasn't a decision made then to change course?
That's a very good question and why I felt compelled to write this apology to America...This was a program that was devised to help mortgage lending in America... mortgage lending decreased in that time...Instead what we saw was massive Wall Street earnings
When should the Fed have stopped?
The Fed should have stopped after QE1 - when it was clear it wasn't working - instead it has bought $2.5 trillion more bonds and put itself in a position where the exit is very uncertain......Ultimately the tools [the Fed] has at its disposal don't work, and what it has done instead is enable a "crisis-driven" political system
Must-watch follow-up to his Op-Ed... Ensure you listen to the last 60 seconds... "What the US needs is reform and change - not more easy money."
http://www.zerohedge.com/news/2013-11-13/it-high-time-central-banking-recognized-disease-it
"It Is High Time That Central Banking Is Recognized For The Disease It Is"
Submitted by Pater Tenebrarum of Acting-man blog,
Hans-Werner Sinn On The ECB And TARGET-2
Winners and Losers
In a recent editorial at German newspaper Frankfurter Allgemeine Zeitung (FAZ), Hans-Werner Sinn, president of Germany's IFO Institute and a prominent critic of the ECB and the euro area bailouts, revisits the topic of the euro-systems payment imbalances that are expressed in TARGET-2 claims and liabilities.The reason why Sinn felt compelled to write this editorial is that another economist, Marcel Fratzscher of the DIW in Berlin (another economic research institute), recently asserted that 'Germany is the big winner' in the events surrounding the TARGET system.
The main reason why there is even a debate over the euro-system's payment procedures is in fact that Sinn pointed out two years ago that the system was abused as a 'stealth bailout' mechanism for the euro area periphery and that Germany was exposed to huge risks because of it.
This provoked angry reactions from courtier economists and even the Bundesbank, who tried in vain to put the genie back into the bottle by arguing that it all didn't matter. It was merely an accounting artifact, and no further implications were to be inferred. Naturally, even people who don't understand how exactly the system works were compelled to ask: if it 'doesn't matter', then why does the chart look like this?
TARGET-2 imbalances in the euro-system – click to enlarge.
In view of this chart, which had begun to depict vast and growing imbalances precisely since the beginning of the crisis period, the argument that it 'didn't means anything' and entailed no risks for anyone just didn't sound very credible. People also wondered why a prominent economist like Sinn would risk his reputation by opposing this consensus view dispensed from on high.
What Was Financed?
To begin with, Sinn was perfectly correct. He has not once misrepresented the risks posed by the system. Curiously, even Fratzscher admits in his editorial that yes, it is indeed a stealth bailout. He argues however that the potential costs are outweighed by the benefits, since in his opinion, the imbalances mostly reflect 'capital flight by German investors from the periphery', which the TARGET system enabled. Moreover, he argues that it is a good thing that credit that was previously extended by private investors is now de factoextended by the central bank, as it keeps all sorts of companies in the periphery in business. These would have been cut off from credit otherwise.
Sinn counters that first of all, it cannot be determined with certainty just whose capital flight was financed. The TARGET balances themselves cannot tell us anything about that. Sinn points out, that 'in effect, the North's printing press was lent to the South' and notes that this fact – and the attendant risks for the holders of TARGET claims – is obviously no longer in contention. The only bone of contention is 'just what was financed with it'.
Sinn concedes that German capital flight was in part financed by the TARGET system, but notes that the DIW calculations (which are actually based on IFO's numbers) are wrong. For one thing, DIW confuses gross with net amounts, as there were flows in the opposite direction as well. In fact, from 2008 to 2012, Germany has altogether exported a net €170 billion in capital! Instead of €400 billion as assumed by DIW, Sinn contends that at most€200 billion were recalled by German investors from the periphery. And even so, argues Sinn, it was not the business of the central bank to protect German banks:
“[Capital flight] does not explain the build-up of Germany's TARGET claims, and even if it did, it wouldn't have been the ECB's job to protect German banks and financial institutions from losses. Such fiscal aid measures are the responsibility of finance ministers, and not the ECB board.”
Sinn then explains that TARGET was for the most part used as a kind of vendor financing system – Germany's export surplus was partly financed by the TARGET system, partly by Germany's private sector capital exports and partly by aid packages granted in the course of the bailout. In short, it is mainly Germany's trade surplus that is reflected in the BuBa's TARGET claims. He argues furthermore that there are a number of complex business structures at work, and the TARGET liabilities of the crisis countries cannot be fully explained by the balance of payment deficits of these countries. He notes that in some countries like Portugal and Greece, TARGET liabilities and current account deficits are very closely linked, while in others like Spain and Italy, capital flight is the main factor. However, it is not necessarily capital flight to Germany. Other foreign investors such as British investors were enabled to recall their investments due to the TARGET mechanism as well (for instance, there may be a circular flow such as this one: UK investors remove capital from the EU periphery, then lend money to US buyers of cars, who in turn use the funds to import cars from Germany).
Perpetuating Imbalances and Robbing Savers
Sinn then points out that the ECB, via its lowering of credit rating standards for central bank refinancing, enabled the national central banks in the periphery to undercut capital markets. Much higher interest rates were demanded in the capital markets, reflecting the higher risks in the crisis countries.
The conditions offered by the ECB in terms of refinancing were such that banks in the still healthy countries could no longer compete with it. In short, the ECB has driven away private sector competition in the capital markets of the periphery. This has contributed to the further fragmentation of European capital markets, since without the lure of higher interest rates, private investors have no good reason to take the risk of investing in the crisis countries. Higher interest rates would however have forced these countries to save more and enact sweeping structural reforms of their labor markets and government finances, which would ultimately have made them more competitive and lowered their ingrained balance of payment deficits. Sinn points out that most of the crisis countries are still far from having regained competitiveness, which can be largely deemed an unintended consequence of the ECB's interventions.
Since private capital markets have been undercut via the printing press, Germany's banks and insurers are no longer able to earn interest rates that adequately reflect risk. Insurers have been forced to recall the return guarantees that have traditionally extended to their policyholders.
Sinn stresses that the advantages accruing to German debtors via low interest rates must be seen in the context of the fact that Germany is actually a net creditor to the world, not a debtor. Creditors are losing out when interest rates are artificially lowered. It is as though “the ECB were acting as a purchasing agent of German savings, which it then services and distributes to the crisis countries at whatever conditions it deems appropriate”. Sinn estimates that the crisis countries have enjoyed €205 billion in interest savings due to the ECB's interventions, interest that exporters of capital such as Germany would otherwise have earned.
Sinn concludes that “it is not entirely wrong in this context to talk about the expropriation of German savers by means of low interest competition via the printing press.”
Indeed, central banks are ultimately robbing savers everywhere these days. The prudent are forced to pay for the mistakes of those who have been irresponsible and have squandered their capital.
Are Lower TAREGT Imbalances A Sign of Improvement?
Over the past few years, investors have rearranged their portfolios, causing among other things a construction boom in Germany. Meanwhile, the EU and the ECB have organized a giant flow of public funds into the crisis countries to replace private capital flows. All of this will only perpetuate the misallocation of saved capital. Capital will continue to be consumed.
Sinn then points out that Germany and other Northern countries have been regularly outvoted at the ECB board since May of 2010.In his opinion, the ECB board's actions are in conflict with article 125 of the EU treaty, as they have created a giant volume of public credit and public guarantees in favor of the Southern countries, which could eventually get the ECB itself into trouble. In a worst case scenario, the write-offs may well exceed the ECB's capital of €500 billion.
Even though the central bank could continue to function even if its capital base were wiped out, it would be a devastating signal to the capital markets if part or all of its capital were lost. We agree with this assessment, for one thing because write-offs of a part of a central bank's assets mean that its flexibility with regard to lowering the extant money supply is curtailed. Secondly, in the minds of investors and users of the euro, it would look as though some of the 'backing' of the central bank's liabilities was gone. Although fiat money is irredeemable anyway, this would likely have a psychological impact that could severely damage the euro.
The most interesting part of Sinn's editorial however concerns the recent decline in the TAREGT-2 imbalances (see the chart above). This will probably be regarded as controversial and we expect it will ignite further debate. Sinn writes:
“If one adds up the purchases of government bonds by the central banks of the still healthy countries in the euro area and the TARGET credits in favor of the six crisis countries (Greece, Ireland, Portugal, Spain, Italy and Cyprus) for which the ECB board is responsible and deducts the claims of the crisis countries arising from a slightly under-proportional issuance of banknotes, then one gets a total of € 747 billion in ECB financed rescue loans. That is about two times the sum of the already granted fiscal rescue measures of the community of € 385 billion, for which the national parliaments are responsible.The loans of the community are economically indistinguishable from ECB credit, but they arrived on the scene much later and are basically follow-on loans designed to relieve the ECB. In view of the advance payments made by the ECB, parliaments are essentially forced to push through a fiscal rescue architecture in the form of the European Stability Mechanism ESM and other measures, since if they were to deny the ECB such follow-up financing, the entire euro-system may well collapse. The strong insistence on a recapitalization of banks with ESM funds, which ECB president Draghi has recently expressed in a letter to the EU commission, is also explained by his panic-like fear of the ECB's own losses.Since the TARGET liabilities of the crisis countries have been a great deal higher at one point than the € 681 billion remaining today, some observers feel that there is no longer cause for alarm. They have perhaps not yet understood that the fiscal rescue loans extended by the community replace the TARGET liabilities of the crisis countries directly and fully. This is an automatic process resulting from the TARGET system's very nature. Without the fiscal rescue measures on the part of the community, the TARGET liabilities of the crisis countries would ceteris paribus not be at € 681 billion today, but at € 1,066 billion.In the construction of the rescue architecture, Europe's parliaments are confronted with decisions without alternatives, which have been prepared years ago already by the ECB board. They have been degraded to rubber-stamping agents. To me it is questionable whether the fiscal regional policy that has been decided behind closed doors by the ECB and for which there are no parallels in the US Federal Reserve system, is still compatible with the rules of parliamentary democracy and the German constitution”
Obviously, Sinn isn't prepared to shut up and let them get away with this unchallenged.
Conclusion:
The notion that the euro area crisis is over has recently been heavily propagated by EU politicians and the mainstream media. However, it is way too early for such victory laps. The fat lady is still waiting in the wings.
Hans-Werner Sinn is perfectly correct in pointing out that the ECB's attempts to restore the 'monetary policy transmission mechanism' by suppressing interest rates in the periphery is going to perpetuate capital malinvestment and delay the necessary reforms. He is also correct when he states that these interventions have actually scared private capital away, as investors require adequate compensation for the risks they are taking. Meanwhile, savers are ultimately paying for this ongoing waste of scarce capital.
It is high time that central banking is recognized for the disease it is. Without central banks aiding and abetting credit expansion, this situation would never have arisen. Even a free banking system practicing fractional reserve banking could not possibly have created such a gigantic boom-bust scenario. Money needs to be fully privatized – the State cannot be trusted with it.
http://www.zerohedge.com/news/2013-11-13/ny-fed-compares-current-reach-yield-south-sea-bubble-1720
NY Fed Compares The Current Reach-For-Yield To South Sea Bubble Of 1720
When a tin-foil-hat-wearing digital dickweed points to record volumes of cov-lite loans, insatiable demand for Ugandan bonds, and the disconcerting disconnect between record-high median leverage and almost-record-low credit spreads, the mainstream can scoff at their obsessions... but when the NY Fed - once again - highlights the potential froth in credit markets and compares it to the South Sea Bubble of 1720... maybe it's time to get the hint...
In 1720, the South Sea Company offered to pay the British government for the right to buy the national debt from debtholders in exchange for shares backed by dividends to be paid from the company’s debt holdings and South Sea trade profits. The Bank of England countered the proposal and the two then competed for the right to buy the debt, with South Sea ultimately winning through bribes to the government. Later that year, the government moved to divert more capital to South Sea shares by hampering investment opportunities for rival companies in what became known as the Bubble Act, and public confidence was shaken. In this edition of the Crisis Chronicles, we explore the rise and fall of the South Sea Company and offer a cautionary look at the current reach for yield.
A Rogue’s Guide to Repackaging Debt: Start with Insider Trading . . .
Two key events predate the South Sea Bubble. First, around 1710, the Sword Blade Bank offered to exchange unsecured government debt issued by army paymasters for Sword Blade shares. But it did so only after having secretly amassed large holdings of the debt, which traded at a deep discount given investor uncertainty that Britain could pay its debts. Knowing the price of the debt would rise with the announcement of the debt-to-shares exchange, the Sword Blade Bank made a significant profit on its debt holdings in what would today be called insider trading.
Two key events predate the South Sea Bubble. First, around 1710, the Sword Blade Bank offered to exchange unsecured government debt issued by army paymasters for Sword Blade shares. But it did so only after having secretly amassed large holdings of the debt, which traded at a deep discount given investor uncertainty that Britain could pay its debts. Knowing the price of the debt would rise with the announcement of the debt-to-shares exchange, the Sword Blade Bank made a significant profit on its debt holdings in what would today be called insider trading.
The second key event was the formation of the South Sea Company in 1711, for the purpose of rivaling the East India Company in trade. But a unique feature included in the formation of the company was the exchange of shares for government debt, no doubt influenced by the prior Sword Blade Bank deal; five of the directors of the South Sea Company were from the Sword Blade Bank. By 1713, the peace treaty at Utrecht brought an end to war with Spain, but the British gained only limited access to trading stations in the Americas. Consequently, the trading operations never proved profitable and the South Sea Company became a financial enterprise by default. In 1715, and then again in 1719, the South Sea Company was allowed to convert additional government debt into shares. In April 1720, South Sea won approval to buy the remaining government debt and to issue stock in exchange. The once-burdensome debt had been cleverly repackaged into a valuable commodity.
Then Pay Bribes . . .
Investors in South Sea shares now anticipated both a 5 percent annual dividend payment in addition to the hope of lucrative profits from trade with the Americas. But on the announcement of approval to buy the remaining government debt on April 7, 1720, the South Sea share price fell from £310 to £290 overnight. South Sea directors were eager to pump up the stock price and spread rumors of even greater riches to be earned from South Sea trade. Later that month, South Sea offered to new investors its First Money Subscription of £2 million in stock at £300 a share with 20 percent down and the remaining payments to be made every two months. So successful was the first offer that a Second Money Subscription followed later that same April with equally generous terms that allowed participants to borrow up to £3,000 each. Nearly 200 new ventures were launched that year under similar schemes, increasing the competition for investor capital. In the short term, shares soared across most companies. But South Sea stock sale proceeds were needed to pay dividends and bribes to the government for favorable treatment, as well as to buy its own shares to support its stock price. Consequently, a Third Money Subscription was launched later that year with even more generous terms at just 10 percent down with installment payments over four years and the second payment not due for a year.
Investors in South Sea shares now anticipated both a 5 percent annual dividend payment in addition to the hope of lucrative profits from trade with the Americas. But on the announcement of approval to buy the remaining government debt on April 7, 1720, the South Sea share price fell from £310 to £290 overnight. South Sea directors were eager to pump up the stock price and spread rumors of even greater riches to be earned from South Sea trade. Later that month, South Sea offered to new investors its First Money Subscription of £2 million in stock at £300 a share with 20 percent down and the remaining payments to be made every two months. So successful was the first offer that a Second Money Subscription followed later that same April with equally generous terms that allowed participants to borrow up to £3,000 each. Nearly 200 new ventures were launched that year under similar schemes, increasing the competition for investor capital. In the short term, shares soared across most companies. But South Sea stock sale proceeds were needed to pay dividends and bribes to the government for favorable treatment, as well as to buy its own shares to support its stock price. Consequently, a Third Money Subscription was launched later that year with even more generous terms at just 10 percent down with installment payments over four years and the second payment not due for a year.
. . . And Ban Rivals
Later that summer, the government moved to ban the new ventures—South Sea’s rivals for investor capital—in passing the “so-called” Bubble Act, which jolted public confidence. Companies impacted by the ban saw their stock prices plummet and leveraged investors were forced to sell South Sea shares to pay off debts, which put downward pressure on South Sea’s stock price as well. To prop up the company, South Sea launched the Fourth Money Subscription in August with a promise of a 30 percent year-end dividend and an annual dividend of 50 percent for ten years. But the market didn’t view the offer as credible and the South Sea share price continued to fall through mid-September. Liquidity constraints in London were further compounded by the concurrent Mississippi Bubble and bust in Paris, which we’ll cover in our next post. The South Sea Company was forced to turn to the Bank of England for help with the Bank ultimately agreeing to support the company but not its banker, the Sword Blade Bank.
Later that summer, the government moved to ban the new ventures—South Sea’s rivals for investor capital—in passing the “so-called” Bubble Act, which jolted public confidence. Companies impacted by the ban saw their stock prices plummet and leveraged investors were forced to sell South Sea shares to pay off debts, which put downward pressure on South Sea’s stock price as well. To prop up the company, South Sea launched the Fourth Money Subscription in August with a promise of a 30 percent year-end dividend and an annual dividend of 50 percent for ten years. But the market didn’t view the offer as credible and the South Sea share price continued to fall through mid-September. Liquidity constraints in London were further compounded by the concurrent Mississippi Bubble and bust in Paris, which we’ll cover in our next post. The South Sea Company was forced to turn to the Bank of England for help with the Bank ultimately agreeing to support the company but not its banker, the Sword Blade Bank.
Recall from our last post on the “not so great” re-coinage of 1696 that after the re-coinage, silver continued to flow out of Britain to Amsterdam, where bankers and merchants exchanged the silver coin in the commodity markets, issuing promissory notes in return. The promissory notes in effect served as a form of paper currency and paved the way for banknotes to circulate widely in Britain. So when panicked depositors flocked to exchange banknotes for gold coin from the Sword Blade Bank (the South Sea Company’s bank), the bank was unable to meet demand and closed its doors on September 24. The panic turned to contagion and spread to other banks, many of which also failed.
The Return of Repackaged Debt
As we’ll see in upcoming posts, financial innovation—in this case the repackaging of debt—is a recurring theme in our review of historic crises. In this case, the South Sea Company structured the national debt in a way that was initially attractive to investors, but the scheme to finance the debt-for-equity swap ultimately proved to be noncredible and the market collapsed. Now fast-forward to 2013 and the five-year anniversary in September of Lehman Brothers’ failure. As Fed Governor Jeremy Stein pointed out in a recent speech, a combination of factors such as financial innovation, regulation, and a change in the economic environment, can sometimes contribute to an overheating of credit markets. Asset-backed securitization and collateralized debt obligations have returned with a bang—or perhaps a boom—and are on pace to exceed pre-crisis levels, perhaps fueled by investors’ reach for yield. And remember from our introduction to the Crisis Chronicles series that “lessons learned often last only a lifetime and are easily forgotten.” So, will the current reach for yield lead to ever more complex, leveraged investments and the next credit market bubble? Or will the lessons from the Great Recession last at least a lifetime?
As we’ll see in upcoming posts, financial innovation—in this case the repackaging of debt—is a recurring theme in our review of historic crises. In this case, the South Sea Company structured the national debt in a way that was initially attractive to investors, but the scheme to finance the debt-for-equity swap ultimately proved to be noncredible and the market collapsed. Now fast-forward to 2013 and the five-year anniversary in September of Lehman Brothers’ failure. As Fed Governor Jeremy Stein pointed out in a recent speech, a combination of factors such as financial innovation, regulation, and a change in the economic environment, can sometimes contribute to an overheating of credit markets. Asset-backed securitization and collateralized debt obligations have returned with a bang—or perhaps a boom—and are on pace to exceed pre-crisis levels, perhaps fueled by investors’ reach for yield. And remember from our introduction to the Crisis Chronicles series that “lessons learned often last only a lifetime and are easily forgotten.” So, will the current reach for yield lead to ever more complex, leveraged investments and the next credit market bubble? Or will the lessons from the Great Recession last at least a lifetime?
http://www.zerohedge.com/node/481389
Yellen's Remarks Released Early, Says "Fed has More Work To Do' Assuring More Dovishness
Just as the market was expecting, and may have been leaked once again, Janet didn't let anyone down. Today's exuberance in stocks matched only by confirmation that Janet Yellen has gained her helicopter pilot's license and is ready to take over the reigns of printer-in-chief from Bernanke.
- YELLEN SAYS ECONOMY, JOBS `PERFORMING FAR SHORT' OF POTENTIAL
- YELLEN: SUPPORTING RECOVERY IS PATH TOWARD MORE NORMAL POLICY
The word cloud of the 914 words in her prepared remarks.
Key extracts, including Credit Suisse's take:
- Support demand /lower for longer -"supporting the recovery today is the surest path to returning to a more normal approach to monetary policy"
- No hurry to taper - "A strong recovery will ultimately enable the Fed to reduce ... reliance on unconventional policy tools such as asset purchases"
- More transparency (think consensus FOMC projections) - "have strongly supported this commitment to openness and transparency, and will continue to do so"
- Sup and Reg for bubbles not tighter policy " I am committed to using the Fed's supervisory and regulatory role to reduce the threat of another financial crisis"
- And of course, status quo continues: I believe the Federal Reserve has made significant progress toward its goals but has more work to do
In short: Get to work Mr. Chairwoman, and allow Congress to keep doing more of what they have been doing under the Fed's central planning: nothing.
* * *
Full testimony:
Vice Chair Janet L. Yellen
Confirmation hearing
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.
November 14, 2013
Chairman Johnson, Senator Crapo, and members of the Committee, thank you for this opportunity to appear before you today. It has been a privilege for me to serve the Federal Reserve at different times and in different roles over the past 36 years, and an honor to be nominated by the President to lead the Fed as Chair of the Board of Governors.
I approach this task with a clear understanding that the Congress has entrusted the Federal Reserve with great responsibilities. Its decisions affect the well-being of every American and the strength and prosperity of our nation. That prosperity depends most, of course, on the productiveness and enterprise of the American people, but the Federal Reserve plays a role too, promoting conditions that foster maximum employment, low and stable inflation, and a safe and sound financial system.
The past six years have been challenging for our nation and difficult for many Americans. We endured the worst financial crisis and deepest recession since the Great Depression. The effects were severe, but they could have been far worse. Working together, government leaders confronted these challenges and successfully contained the crisis. Under the wise and skillful leadership of Chairman Bernanke, the Fed helped stabilize the financial system, arrest the steep fall in the economy, and restart growth.
Today the economy is significantly stronger and continues to improve. The private sector has created 7.8 million jobs since the post-crisis low for employment in 2010. Housing, which was at the center of the crisis, seems to have turned a corner--construction, home prices, and sales are up significantly. The auto industry has made an impressive comeback, with domestic production and sales back to near their pre-crisis levels.
We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.
For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.
In the past two decades, and especially under Chairman Bernanke, the Federal Reserve has provided more and clearer information about its goals. Like the Chairman, I strongly believe that monetary policy is most effective when the public understands what the Fed is trying to do and how it plans to do it. At the request of Chairman Bernanke, I led the effort to adopt a statement of the Federal Open Market Committee's (FOMC) longer-run objectives, including a 2 percent goal for inflation. I believe this statement has sent a clear and powerful message about the FOMC's commitment to its goals and has helped anchor the public's expectations that inflation will remain low and stable in the future. In this and many other ways, the Federal Reserve has become a more open and transparent institution. I have strongly supported this commitment to openness and transparency, and will continue to do so if I am confirmed and serve as Chair.
The crisis revealed weaknesses in our financial system. I believe that financial institutions, the Federal Reserve, and our fellow regulators have made considerable progress in addressing those weaknesses. Banks are stronger today, regulatory gaps are being closed, and the financial system is more stable and more resilient. Safeguarding the United States in a global financial system requires higher standards both here and abroad, so the Federal Reserve and other regulators have worked with our counterparts around the globe to secure improved capital requirements and other reforms internationally. Today, banks hold more and higher-quality capital and liquid assets that leave them much better prepared to withstand financial turmoil. Large banks are now subject to annual "stress tests" designed to ensure that they will have enough capital to continue the vital role they play in the economy, even under highly adverse circumstances.
We have made progress in promoting a strong and stable financial system, but here, too, important work lies ahead. I am committed to using the Fed's supervisory and regulatory role to reduce the threat of another financial crisis. I believe that capital and liquidity rules and strong supervision are important tools for addressing the problem of financial institutions that are regarded as "too big to fail." In writing new rules, however, the Fed should continue to limit the regulatory burden for community banks and smaller institutions, taking into account their distinct role and contributions. Overall, the Federal Reserve has sharpened its focus on financial stability and is taking that goal into consideration when carrying out its responsibilities for monetary policy. I support these developments and pledge, if confirmed, to continue them.
Our country has come a long way since the dark days of the financial crisis, but we have farther to go. Likewise, I believe the Federal Reserve has made significant progress toward its goals but has more work to do.
Thank you for the opportunity to appear before you today. I would be happy to respond to your questions.
http://www.zerohedge.com/news/2013-11-13/rbs-fed-now-responsible-monetizing-record-70-all-net-bond-supply
RBS: "The Fed Is Now Responsible For Monetizing A Record 70% Of All Net Bond Supply"
The following statement and chart from the RBS' Drew Brick pretty much explains it all: "QE has seen the Fed extend its dominion on the US curve away from the short-end and into longer duration paper is patent, too. On a rolling six-month average, in fact, the Fed is now responsible for monetizing a record 70% of all net supply measured in 10y equivalents. This represents a reliance on the Fed that is greater than ever before in history!"
http://www.zerohedge.com/news/2013-11-13/definition-insanity
The Definition Of Insanity
... Is shown on the chart below, which compares indexed growth, or lack thereof, in G-5 GDP and compares it to consolidated central bank balance sheets. We bring this up because following this morning's announcement by the ECB's Praet that the European central bank may launch a round of QE (of questionable legality) it is only a matter of time before the red linereally takes off and insanity hits truly unseen levels.
There is little to add to this except for the punchline from reformed QEaser Andrew Huszar, which was the following: "We were working feverishly to preserve the impression that the Fed knew what it was doing."
Pretty much says it all.
h/t @not_jim_cramer
http://www.zerohedge.com/news/2013-11-13/euro-tumbles-after-ecb-hints-qe-contemplated
Euro Tumbles After ECB Hints At QE
Despite the ECB's recent "stunning" rate cut, which sent the EUR modestly lower by a few hundred pips, the resultant resurge in the European currency has left the European Central Bank even more stunned: just what does it have to do to force its currency lower and boost Europe's peripheral economies, especially in a world in which every other major central banks is printing boatloads of money each and every month?
We hinted at precisely what the next steps will be two days ago when in "Next From The ECB: Here Comes QE, According To BNP" we said "BNP is ultimately correct as the European experiment will require every weapon in the ECB's arsenal, and sooner or later the ECB, too, will succumb to the same monetary lunacy that has gripped the rest of the developed world in the ongoing "all in" bet to reflate or bust. All logical arguments that outright monetization of bonds are prohibited by various European charters will be ignored: after all, there is "political capital" at stake, and as Mario Draghi has made it clear there is no "Plan B." Which means the only question is when will Europe join the lunaprint asylum: for the sake of the systemic reset we hope the answer is sooner rather than later."
Two days later the answer just appeared when moments ago the WSJ reported that the ECB's Praet hinted more QE is, just as we predicted, on the table.
The European Central Bank could adopt negative interest rates or purchase assets from banks if needed to lift inflation closer to its target, a top ECB official said, rebutting concerns that the central bank is running out of tools or is unwilling to use them."If our mandate is at risk we are going to take all the measures that we think we should take to fulfill that mandate. That's a very clear signal," ECB executive board member Peter Praet said in an interview Tuesday with The Wall Street Journal. Annual inflation in the euro zone slowed to 0.7% in October, far below the central bank's target of just below 2% over the medium term.He didn't rule out what some analysts see as the strongest, and most controversial, option:purchases of assets from banks to reduce borrowing costs in the private sector. "The balance-sheet capacity of the central bank can also be used," said Mr. Praet, whose views carry added weight as he also heads the ECB's powerful economics division. "This includes outright purchases that any central bank can do."The ECB could do more if necessary, Mr. Praet said. "On standard measures, interest rates, we still have room and that would also include the deposit facility," he said. The central bank's deposit rate has been set at zero for several months. Making it negative would effectively levy a fee on commercial banks that park funds at the ECB.The ECB purchased safe bank bonds and government bonds at the height of the global financial crisis and the euro debt crisis, but in small amounts compared with other major central banks.
Of course, there are some legal hurdles:
The ECB's charter forbids it from financing governments.
But, wily as always, the ECB appears to have found a loophole:
The ECB must respect its legal constraints, Mr. Praet said, however its rules "do not exclude that you intervene in the markets outright."
And sure enough, the Euro tumbles just as mandated by the ECB's talking head: let's see if it actually stays lower this time.
And now check to the Germans, who will be positively giddy that first Europe accused it of unfair export-led growth, and now the ECB is openly contemplating tearing off the Weimar scab.
Looks like things in Europe are about to get exciting all over again.
Huge amount of updates Fred. That TPP secret agreement sounds really bad. None of the other articles were that uplifting :) Tepco lying? As usual.
ReplyDeleteToo much to comment on, I hope you have a great day, stay warm and keep up the good work.
Enjoy your day , should get warmer by the weekend !
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