patrick.net

smaulgld says

today prices are as the Fed dictates them

that has been the case since the FED controls interest rates. Does that make the graph less prescient?

indigenous says

smaulgld says

today prices are as the Fed dictates them

that has been the case since the FED controls interest rates. Does that make the graph less prescient?

yes, before QE, the Fed controlled the fed funds rate which set the tone for market driven interest rates.
Since they have poured into the bond market buying MBS's and T-Bonds by the trillions they have become in effect THE market for those securities and therefore are setting and ensuring the rates they set rather than influencing interest rates.

Are China and Russia the fabled bond vigilantes? I don't think China can run a massive trade surplus with the USA and not hold Treasuries.

The Professor says

Heraclitusstudent says

This is not the government going bankrupt, this is in fact cleaning the gov balance sheet.

Interesting analysis.

Does the bankruptcy of the Federal Reserve mean all of our, and the worlds', Federal Reserve Notes will be worthless?

What is needed is to open the Fed up to competition. Right now, we have a corrupt monopoly.

Blurtman says

I don't think China can run a massive trade surplus with the USA and not hold Treasuries.

China also needs to protect the value of the $1.2 trillion T-bonds they own as well as their trading relationship with the US.

They are moving to increase their gold reserves at the lower prices now I suppose to offset any drop in the value of their T bonds should the dollar plummet.

They are also trying to trade more with Europe and Asia and even to consumer more of their production at home to lessen the blow of reduced exports to the US as the demand for T-bonds drops taking with it a portion of the dollar's value making imports from China for the US too expensive.

Blurtman says

What is needed is to open the Fed up to competition. Right now, we have a corrupt monopoly.

no one with a monopoly gives it up voluntarily, indeed they try to protect it any way they can and expand it

The Professor says

Heraclitusstudent says

This is not the government going bankrupt, this is in fact cleaning the gov balance sheet.

Interesting analysis.

Does the bankruptcy of the Federal Reserve mean all of our, and the worlds', Federal Reserve Notes will be worthless?

Yes. Totally worthless. The $17 trillion debt would also be worthless.
Ha ha ha - take that you rich Asians.

Strategist says

Yes. Totally worthless. The $17 trillion debt would also be worthless.

Ha ha ha - take that you rich Asians.

If you look at the charts in the original post china has 1.2 trillion and the fed itself $2.4 trillion. Stiffing the Fed would be interesting.

smaulgld says

used to be you could look at bond prices, the price of gold and make assessments, today prices are as the Fed dictates them

The simplicity of it is that when bond rates go up business has to pay more for money. This means business investment slows to some degree. This shows up in less economic activity. Irregardless of FED meddling.

indigenous says

The simplicity of it is that when bond rates go up business has to pay more for money. This means business investment slows to some degree. This shows up in less economic activity. Irregardless of FED meddling.

yes but when bonds yeilds are artificially low, business investment becomes less "investment" and more speculation because if the underlying economy can't support a business, there is less incentive to invest in it irrespective of how low rates may be as there is less chance of a return

Ok maybe, im betting a mild recession at the end of this year.

So China and Russia sell US treasuries, slow down buying them, and the Fed does as well. Rates go up until a new equilibrium is reached, e.g., a 7% 30 year or a 5% 10 year. One reason to be in UST's is for US trading partners to store dollars, and for purposes of commerce conducted with the reserve currency.

What does China care if they lose a bit of money on UST's as long as Americans keep buying Chinese goods and the Chinese people are employed and enjoying a rising standard of living?

Blurtman says

So China and Russia sell US treasuries, slow down buying them, and the Fed does as well. Rates go up until a new equilibrium is reached, e.g., a 7% 30 year or a 5% 10 year. One reason to be in UST's is for US trading partners to store dollars, and for purposes of commerce conducted with the reserve currency.

What does China care if they lose a bit of money on UST's as long as Americans keep buying Chinese goods and the Chinese people are employed and enjoying a rising standard of living?

The problem with rates going up is the US government can't afford higher interest rates and the economy and stock markets would crash. The us has not cut spending so it will need to continue to issue treasuries at low interest rates to continue to operate.

Since the Fed has been the primary buyer the past few years they may have to continue buying us debt and also to find a way to keep rates low which will mean printing more money to buy not just t bonds but mortgage backed securities

If the dollar drops china won't be able to sell much to the us as imports from china would be too expensive.
So china is also in a bind

While everyone who holds UST's would demand to be paid, why would the Fed? Can't the Fed disappear the UST's like it is likely doing with toxic MBS'? Profits from the Fed, after their members get their share of the grift, go to Treasury. BFD if they don't.

Blurtman says

While everyone who holds UST's would demand to be paid, why would the Fed? Can't the Fed disappear the UST's like it is likely doing with toxic MBS'? Profits from the Fed, after their members get their share of the grift, go to Treasury. BFD if they don't.

That could be a proposal- stiff the fed and not pay the fed as the fed can treat the $2 trillion plus as a gift - they printed the money out of thin air anyway to buy them

smaulgld says

Blurtman says

While everyone who holds UST's would demand to be paid, why would the Fed? Can't the Fed disappear the UST's like it is likely doing with toxic MBS'? Profits from the Fed, after their members get their share of the grift, go to Treasury. BFD if they don't.

That could be a proposal- stiff the fed and not pay the fed as the fed can treat the $2 trillion plus as a gift - they printed the money out of thin air anyway to buy them

The Fed can go along with getting stiffed. What does it care, it's not like it earned the money. No one audits the Fed really, and it is all make believe anyway. The Fed's accumulation of Treasuries is not being done for investment purposes, but for the purpose of interest rate control.

The whole system is absolute bullshit, and yet the little people are made to dance on the hot griddle while others have access to the bogus mainline, free money conjured from thin air.

smaulgld says

a good way of looking at it. But it is a non productive dilutive process.

What does it mean a "non-productive" process?
More is produced under this process than otherwise.

Staying stuck with a non-functional monetary system would be extremely non-productive.

smaulgld says

Since there is no GDP growth so far this year the debt to GDP is a meaningless measure. Over the past five years the gdp growth has been about a trillion and the QE 4 Trillion so GDP growth unfortunately has been paid for with printing money

Paid with printing money means no debt was added.
Why do you persist in seeing printed money as debt? No one is going to pay back that money.

smaulgld says

That could be a proposal- stiff the fed and not pay the fed as the fed can treat the $2 trillion plus as a gift - they printed the money out of thin air anyway to buy them

It is effectively what they have done.

This money is 'accounted' for as debt but it doesn't work as debt. This is the base money. It is not paid back, it is rolled over. It gathers no interests, interests are returned to the treasury.

Why can't the Fed buy excess auto inventory?

They were able to jack it up adequately thought the bailout of GM and Chrysler.

Their more concerned with the banking industry and the farming industry.

Blurtman says

The Fed can go along with getting stiffed. What does it care, it's not like it earned the money. No one audits the Fed really, and it is all make believe anyway. The Fed's accumulation of Treasuries is not being done for investment purposes, but for the purpose of interest rate control.

The whole system is absolute bullshit, and yet the little people are made to dance on the hot griddle while others have access to the bogus mainline, free money conjured from thin air.

That is a good argument because they ALREADY printed the money so would the other bond holders care if the Fed didn't get paid? It would however high light the absolute BS that the system is but haven't they already shown that?

Heraclitusstudent says

This money is 'accounted' for as debt but it doesn't work as debt. This is the base money. It is not paid back, it is rolled over. It gathers no interests, interests are returned to the treasury.

True- QE is even bigger than they say it is as they have rolled over every last penny of interest back into more bonds-Operation twist accomplished this and they made sure they reinvested the interest in longer term bonds to push the can further down the road

Blurtman says

Why can't the Fed buy excess auto inventory?

They can buy what ever they like- How about student loans that aren't getting repaid?

smaulgld says

Blurtman says

The Fed can go along with getting stiffed. What does it care, it's not like it earned the money. No one audits the Fed really, and it is all make believe anyway. The Fed's accumulation of Treasuries is not being done for investment purposes, but for the purpose of interest rate control.

The whole system is absolute bullshit, and yet the little people are made to dance on the hot griddle while others have access to the bogus mainline, free money conjured from thin air.

That is a good argument because they ALREADY printed the money so would the other bond holders care if the Fed didn't get paid? It would however high light the absolute BS that the system is but haven't they already shown that?

No. As long as I get paid nominally, what do I care if the Fed eats the Treasuries? As long as you get paid, and the US dollar is still worth something, all is well.

The system is total BS. I move over digital dollars to the US government ledger, and I record digital unit payments back. As long as that keeps happening, all is well.

Some folks have access to unearned digital dollar units given to them by the Fed. These folks can use these free digital credits to invest, buy things, and pay themselves huge amounts of money. These folks can also commit fraud and will not go to jail. And when out of control fraud again crashes the economy, real people lose their jobs and homes. The criminals keep their money and even receive bonuses from the company they bankrupted.

It truly is time for an armed revolution.

Blurtman says

No. As long as I get paid nominally, what do I care if the Fed eats the Treasuries? As long as you get paid, and the US dollar is still worth something, all is well.

Nope they wouldn't care at all

smaulgld says

Nope they wouldn't care at all

Understand this is a 100 year old tradition of entitlement. It has become a part of the water we swim in, most people never question or notice it.

indigenous says

Understand this is a 100 year old tradition of entitlement. It has become a part of the water we swim in, most people never question or notice it.

and many defend it!

smaulgld says

and many defend it!

Ah the Hubris of it all, it is palpable. Pride goeth before a fall.

indigenous says

Ah the Hubris of it all, it is palpable. Pride goeth before a fall.

Bernanke once said on 60 minutes that if there was price inflation he was 100% confident he could stop it

smaulgld says

Bernanke once said on 60 minutes that if there was price inflation he was 100% confident he could stop it

Yes akin to a redneck's last words, which are hey earl watch this.

smaulgld says

indigenous says

Ah the Hubris of it all, it is palpable. Pride goeth before a fall.

Bernanke once said on 60 minutes that if there was price inflation he was 100% confident he could stop it

Price inflation of what exactly? Equities? RE?

Blurtman says

Price inflation of what exactly? Equities? RE?

i'll have to dig up the you tube- he was talking about price inflation of consumer goods- he has already created price inflation for RE and the stock market- he stated that was an objective of QE

smaulgld says

Blurtman says

Price inflation of what exactly? Equities? RE?

i'll have to dig up the you tube- he was talking about price inflation of consumer goods- he has already created price inflation for RE and the stock market- he stated that was an objective of QE

Yes, quite true. But the helicopter cash is not making it into the hands of the consumers, and so from that perspective, will not cause a classic too much cash chasing too few goods inflation. Wages are not rising and fewer and fewer people are working. StagAssFlation. You heard it here first.

Bubbabear says

Strategist says

smaulgld says

Strategist says

The country just hits an all time high in the S&P 500, and you guys think the country is collapsing.

Sick sick sick.

the "country" hit an all time high-that is like saying casino profits are up so the country is doing well- there is a severe disconnect between the health of the economy and the stock market

The stock market is forward thinking. It generally precedes the state of the economy 9 months in advance. What the stock market is telling us today is that good times are ahead.

Corporation buybacks, Ya Boy we're really cooking!

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter! Each quarter since 2008 companies within their same index bought back their own stocks.... Yet they call that business sense.

Bubbabear says

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter!

and that prevents companies from hiring employees as they get a greater return on investment from buying their own shares back either with their cash on hand or by borrowing it at the artificially low interest rates
http://smaulgld.com/the-dark-side-of-artificially-low-interest-rates/

smaulgld says

Bubbabear says

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter!

and that prevents companies from hiring employees as they get a greater return on investment from buying their own shares back either with their cash on hand or by borrowing it at the artificially low interest rates

http://smaulgld.com/the-dark-side-of-artificially-low-interest-rates/

Only one problem , it creates a set point to keep innovation at all time lows

Bubbabear says

the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock

A lot of this is cash they earned. See Apple.

In other words, unused cash that was stuck in accumulation points, is returning to share-holders, from where it can start again circulating again in the economy (as these share-holders spend it or invest it).

This process by-itself means accumulation points are diminishing, cash is flowing again, and the economy is healing.

Bubbabear says

The stock market is forward thinking. It generally precedes the state of the economy 9 months in advance. What the stock market is telling us today is that good times are ahead.

Corporation buybacks, Ya Boy we're really cooking!

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter! Each quarter since 2008 companies within their same index bought back their own stocks.... Yet they call that business sense.

When companies start buying their own shares it indicates their stock is undervalued. When they all start doing it, it indicates the market is undervalued.

Heraclitusstudent says

from where it can start again circulating again in the economy (as these share-holders spend it or invest it).

Cash used to buy back shares does not reenter the economy. All it does is remove shares from the public float raising the stock price so that the executives' stock options are worth more and they get bigger bonuses. The performance of the company, however lags the performance of the stock price as dollars are invested in the stock price rather than the company.

Stock buybacks are a sign that the company does not have more productive uses of its cash or worse when they borrow money to buy back their own shares to drive the price higher.