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Cashin: Excess bank reserves are a worrying 1930s parallel
CNBC.com ^ | August 26, 2013 | Paul Toscano

Posted on 08/26/2013 8:18:41 PM PDT by upbeat5

Inflation has been notably absent from the economy this summer, despite bullish moves in gold and a continued debate over the tapering of asset purchases by the Federal Reserve.

According to Art Cashin, director of floor operations at UBS Financial Services, the central bank's effect on the financial system has worrying parallels to the period leading up to the Great Depression.

"The weak data that we've gotten, particularly the housing on Friday, hints that tapering may be held back or may not be a factor, " Cashin told "Squawk on the Street" on Monday. "Many of the proponents of gold are looking for inflationary pressure and part of that is soft money, and that's kind of what they're hoping for."

The problem for many hedge funds, Cashin said, is that a number of them bet that inflation would hit the markets after continued easing from the Federal Reserve, but the expected move hasn't materialized. "They've looked and said, 'Gee the Fed is printing money like crazy, that's got to be inflationary,' and ordinarily it has been."

However, Cashin said, much of the Fed's new money hasn't found its way to the economy, as financial institutions—the major recipients of easy money—are too nervous to put the capital to work. This nervousness is reflected in nearly $2 trillion of excess free capital reserves, he explained.

(Excerpt) Read more at cnbc.com ...


TOPICS: Business/Economy; Government; News/Current Events
KEYWORDS: artcashin; bernanke; cashin; depression; fed; greatdepression; inflation

1 posted on 08/26/2013 8:18:41 PM PDT by upbeat5
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To: upbeat5

Dow at 15,000 now that’s inflation. It is a huge financial bubble.


2 posted on 08/26/2013 8:24:04 PM PDT by FlyingEagle
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To: upbeat5

Bernanke has engineered his very own liquidity trap.

Now we’re into competitive devaluations of national currencies for trade advantage. In the last week, the Brazilians have indicated that they’re going to go “all in” to pump up their exports by whatever means necessary. Japan has abandoned any pretense of keeping the yen up.

This is what “free trade” has wrought: round-robin currency devaluations.


3 posted on 08/26/2013 8:25:37 PM PDT by NVDave
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To: FlyingEagle
Dow at 15,000 now that’s inflation. It is a huge financial bubble.

And a few missiles in Syria will be all it takes to make it pop.

4 posted on 08/26/2013 8:26:08 PM PDT by dfwgator
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To: FlyingEagle

Equities aren’t absurdly bid up.

Treasuries, on the other hand, are in the Godzilla-like monster of all bubbles. Anyone holding Treasury paper, especially from the belly of the curve outwards, it going to start catching hammer blows between the eyes.


5 posted on 08/26/2013 8:26:48 PM PDT by NVDave
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To: upbeat5
$2 Trillion? Is that all the banks have? Good thing we bailed 'em out, or they'd really be hurtin'. (/s)
6 posted on 08/26/2013 8:27:59 PM PDT by ZOOKER (Until further notice the /s is implied...)
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To: upbeat5

I don’t have a lot of excess cash laying around in a savings account, perhaps $4 or $5k, for a quick source of cash but I’m seriously considering taking it out and hiding it under a mattress.

I might just have to suffer the loss of the whopping 0.17% interest it’s earning.


7 posted on 08/26/2013 8:30:47 PM PDT by Graybeard58 (_.. ._. .. _. _._ __ ___ ._. . ___ ..._ ._ ._.. _ .. _. .)
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To: ZOOKER
$2 Trillion? Is that all the banks have?

Yes, banks are holding tons of cash for people who want to be liquid.

Banks don't have the capital to lend it out, so no hyper-inflation.

8 posted on 08/26/2013 8:35:07 PM PDT by Toddsterpatriot (Science is hard. Harder if you're stupid.)
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To: upbeat5
Inflation has been notably absent from the economy this summer, despite bullish moves in gold

That is the most ridiculous double-wrong statememt I've seen in years. High inflation surrounds us in every possible way thanks to trillions of dollars being printed, on and on and on. And Gold is priced far below it's REAL value, thanks (in my opinion) to blatant manipulation of the gold market by the US Government to give the appearance of gold being a bad investment.

9 posted on 08/26/2013 8:35:38 PM PDT by OldNavyVet
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To: upbeat5

Obama has said we’re going to run out of money in October unless the debt ceiling is raised. Let’s assume the Republicans actually stand their ground.
Does this mean deflation because government spending drops, or inflation because all the money on the side lines rushes in?


10 posted on 08/26/2013 8:58:28 PM PDT by tbw2
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To: upbeat5

And the “tapering” chatter continues, timed right in line with the intended Extortion-Care.

The pass off the bad MBS Bank buying fraud paper, to “Work-Camp-Care” depends on those marked, targeted, and tagged like collared animals, cattle not Exempt.

The housing symptom, just like the employment data is what was being counted on for the cattle.


11 posted on 08/26/2013 8:59:17 PM PDT by Varsity Flight (Extortion-Care is the Government Work-Camp: Arbeitsziehungslager)
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To: upbeat5
Inflation has been notably absent from the economy this summer...

Only if one ignores reality, as our government and media establishment is doing!

12 posted on 08/26/2013 9:00:55 PM PDT by DakotaGator (Weep for the lost Republic! And keep your powder dry!!)
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To: Graybeard58

I’ve got some put away in a fireproof box. And very well hidden.


13 posted on 08/26/2013 9:03:31 PM PDT by VerySadAmerican (When you vote for evil because you can't see evil, you ARE evil.)
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To: Toddsterpatriot

But/and there’s the other half of the liquidity trap going on here:

If you were a banker, would you want to lock your balance sheet into pitiful yields on your loan portfolio at today’s lending rates? You know, deep in your guts, that today’s low yields cannot last forever. You’re thinking “If we can just hold out long enough for rates to go back up, so we’re not committing ourselves to making a couple pennies on the dollar of lending for 5 to 30 years... we could conceivably double our returns if we just wait for rates to go back up to 5% on consumer/home lending.”

This is the other half of the problem the Fed has created: banks don’t have lots of uncommitted capital, but what they do have they want to sink into something with a better cash flow.


14 posted on 08/26/2013 9:58:31 PM PDT by NVDave
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To: All

It’s my understanding that you won’t normally have inflation until you full employment, as something like 60% of inflation pressure comes from higher wage demands.

I think the only recent exception was in the 70’s when we had “stagflation”.


15 posted on 08/26/2013 11:56:52 PM PDT by OhhTee5
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To: upbeat5

“Inflation has been noticeably absent. . .”

Consumers are now being notified their health care insurance premiums will rise double digits in 2014.

The price of a gallon of gasoline was about $1.85 when Obama was elected. Today nearly double.

Has this author not looked at the cost of food, particularly beef? Has the author not observed prices of packaged products going up while at the same time the quantity inside the package shrinking?

What about electricity and cable TV costs?

The government inflation statistics are lies, just like the unemployment statistics on unemployment. The real rate of inflation on the products most Americans buy everyday (food, fuel, medical care, utilities) is rising about 8% per year.


16 posted on 08/27/2013 1:54:34 AM PDT by Soul of the South (Yesterday is gone. Today will be what we make of it.)
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To: Toddsterpatriot

Not to worry. Can the call to “Start those printing presses!” be far away?


17 posted on 08/27/2013 2:12:52 AM PDT by jamaksin
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To: FlyingEagle; All
Dow at 15,000 now that’s inflation. It is a huge financial bubble.

As usual, the devil is in the details.

The DJIA is not a true index. When a stock performs poorly over time, it is removed and replaced by a faster growing company with better prospects. The same cannot be said for a company in the DJIA which is outperforming the market. That company is never removed and replaced until it underperforms. As such, the DJIA clearly has an upward bias built in.

In addition, it will ALWAYS go up because of the facts presented already....namely, when a stock performs poorly over time, it is removed and replaced by a faster growing company with better prospects. If this is the case, why is anyone surprised when the index sets records?
18 posted on 08/27/2013 4:14:54 AM PDT by Red in Blue PA (When Injustice becomes Law, Resistance Becomes Duty.-Thomas Jefferson)
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To: FlyingEagle

Actually inflation and a stock market bubble are two completely different things. They might happen simultaneously, but evidence of an inflation does not come from a price or prices in one sector and prices going up in all sectors is not evidence of a bubble.

Additionally, the worry about excess bank reserves was not an issue in the run up to the start of the 1930s. Rather the worry about excess reserves then as apparently now was a wrong headed worry well into the contraction. In the 1930s it was 1937-38 and this caused the FED to make a policy error that led to the 1937-38 follow on recession.

Hopefully we have learned and will not worry about inflation because of excess reserves now and cause a follow on recession this time around. And keep in mind that in the 1937, the FED was not paying interest on reserves at the FED.


19 posted on 08/27/2013 6:14:32 AM PDT by JLS
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To: upbeat5
"Unfortunately some of the history is shown in the period in the early 1930s. The Fed did some of the same things we're talking about now: They got pushed by the White House, they pumped money into the system; money backed up and stayed in the banking system," he said. "They then interpreted that incorrectly and said 'money must be very easy.' "

We need to bypass the banks and put the money directly into consumers hand via tax cuts.....duh


20 posted on 08/27/2013 6:40:47 AM PDT by Donald Rumsfeld Fan (The)
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To: NVDave
If you were a banker, would you want to lock your balance sheet into pitiful yields on your loan portfolio at today’s lending rates?

You're right. There is a small local bank that hasn't made 30 year mortgage loans for the last few years, at least.

21 posted on 08/27/2013 6:41:55 AM PDT by Toddsterpatriot (Science is hard. Harder if you're stupid.)
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To: NVDave

It’s a cash crunch. There isn’t enough capital being put into the marketplace. People want to borrow, good deals exist, but they can’t. Bernanke is pushing on a string.


22 posted on 08/27/2013 9:25:24 PM PDT by 1010RD (First, Do No Harm)
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