Posted on 03/18/2009 2:37:05 PM PDT by An Old Man
Helicopter Ben is no longer the appropriate appellation for the Chairman of the Federal Reserve System. Under the tutelage of this former economics professor, Chairman Bernanke launched an ICBM into the market today and I will dub him ICBM Ben.
The Committee voted to expand the balance sheet of the Fed by a whopping $1.150 trillion. The Fed will buy an additional $750 billion mortgages, an additional $100 billion agencies, and for the first time they have added $300 billion longer dated Treasuries to the list.
The move in the market is huge, historical and hellacious.
I do not have Bloomberg and I am operating from a WSJ page with about a two minute lag, so treat this cautiously (and see update below).
The 30 year bond is getting smoked. It is underperforming dramatically. This morning as I wrote my opening post the 10 year/30 year spread was 82 basis points (3 percent and 3.82 percent). The spread is currently 100 basis points.
The 2year/5 year/30 year spread opened this morning at 90 basis points. It stands now at about 130 basis points.
The 2year/5 year spread opened today at 96 basis points. It is now 73 basis points. The 5 year has flattened 23 basis points against the 2 year note.
The 5 year/30 year spread began the day at 186 basis points and is now 207 basis points. That spread has steepened by 21 basis points.
Update: The Fed just announced that it will concentrate its purchases in the 2 year sector and the 10 year sector. That is why the bond is lagging so significantly.
It's almost over now. Is hyperinflation just around the corner?
It’s not as if it was real money or something of lasting value.
This is another way of saying that they're printing money. The Fed is buying a trillion dollars worth of securities because there are no private buyers for it, not at the high prices (and low yields) the Fed is paying. So why is the Fed doing this? To keep interest rates low. In so doing, it will drive the dollar lower, thus feeding a higher inflation rate. When private buyers stop buying the low-yield trash* the Treasury department calls Treasury debt, the Fed will have to buy up all $11T (and rapidly expanding as I write) of the debt. At that point, we will start seeing hyper-inflation.
* Low-yield only because the Fed is buying more and more of it to make up for lack of private buyer interest.
That would be the simple case, but reality will prove to not be so simple, imo.
I prefer the comparison of Helicopter Ben becoming a B2 Bomber
Gold futures rose from $883 to $954 (+$71; +8%) in a period of 4.5 hours today. Most of that rise occurred after the announcement.
$11T just types so easily. That's $11,000,000,000,000. I totally agree with your points. When we passed the October porkulus, we went over the edge of ever being able to pay off the debt. This meant there were two options: default or monetize. I always thought monetizing the debt was the way we'd go, as it's the most spineless approach.
This is My Lai...destroying the economy in order to save it.
Today the credit limit on my Costco Amex card was cut by 60%.
I have had the card for almost a year, made every payment on time and paid in full every month.
I’m supposed to get a letter explaining why. Someone has said it may be zip code related.
Good call amigo....I agree with you. They just pulled out the last big gun they have. When this fizzles out, I wonder what they will do then?
Seize 401(k) and IRA accounts, and tie them up in treasuries. It's the last real money left.
Count on it. It's coming.
Just think, you will be able to pay off your mortgage in just an afternoon at the office! Too bad your savings will be toast too ... and you might not have a job ... and a loaf of bread cost $271,921.99 ....
Like in 1920’s in Germany this will entail the largest transfer of wealth from lenders to debtors in history.
schu
Easy. Print more money.
Wiemar Republic, here we come! Got your money totin' wheelbarrows ready?
I have thought for a long time that we'll wind up monetizing the debt. So all the money we've put in IRA's for retirement will be up in smoke.
Were the Epicureans right? Eat, drink and be merry for tomorrow our money fizzles? Comforting thought, though. We can always burn the money for fuel to keep warm in the upcoming ice age.
The bad news today is stunning. The rats have a hat trick today: huge monetization of the debt, trade war with China over global warming, and energy war with Canadian oil over global warming. These items are just on top of all of the other bad policies already enacted and other future policies (amnesty with open borders, union nation with card check, energy development restrictions, CO2 restristry and regulations, health care nationalization, ...). My head is spinning with the implications of these policies.
That’s a scary thought! How long before they take our retirement money?
Borrow money now.
Plenty available at low fixed rates if you have good credit.
I’ll pay for my house with highly inflated Obamabucks.
But it's not "real" money...most of it is tied up in stocks (including mutual funds). So to actually get money out of it the government would have to cash in the stocks, which would destroy the market and the value of the stocks that were seized. Just doesn't seem like it would work...
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