Posted on 08/21/2009 8:57:43 AM PDT by Kartographer
If you mean just the fact that the overall debt is increasing rapidly, sure, it is. Borrowed at low rates and at a time we do need it, but it is a lot of money. The private sector is reducing its debts and deleveraging, and the government is borrowing for the lot of us.
Long run, the only way that rebalances is renewed growth. It is no time for giant tax increases. But additional unnecessary spending is surely not wanted, and to be contemplating huge new middle class entitlements right now is flat crazy. But you knew that...
You really think either the British Gov’t or the British Banks were financially healthy enough to be net buyers of 150 billion$ in Treasuries? This with the Brits announcing last week they “The British Pound is in focus in the European trading session as the Bank of England releases minutes from its August policy meeting when it unexpectedly boosted its quantitative easing program by 50 billion pounds.”
So the Brits expand their monetary base in order to buy US Treasuries? Something does not add up.
Hardly. The Fed hasn't absorbed any treasuries, net, over the past 2 years. It ran down its treasury holdings in 2008 to loan to banks, and has run them back up again as banks repaid it. The private sector here is absorbing the new treasuries issued; notably, banks want to reduce the total credit risk on their balance sheets.
"Fed balance sheet is now full of worthless mortgages"
Nothing worthless about them. Charge offs on mortgage loans are running 2.3% of principle, which is certainly high but well under the interest earned.
The Fed is not lending new money to banks, its short term loans are running off as it is repaid. This has been true since April, that was the sheet-size peak. $700 billion in loans under 90 days to banks, foreign central banks, and the money market directly (corporate paper e.g.) that they made during the crisis have been repaid to the Fed since then. They've reinvested $500 billion of it into long term securities, 40% treasury, 10% agency, and 50% mortgage backed securities. The other $200 billion have been extinguished, shrinking their balance sheet 10% since April.
There is no "fraud" in a particle of it, and your reckless smears are simply silly.
Sorry, my use of the word “scary” was dumb. It just popped into my mind and I typed it. A better word would have been “interesting”. And I DO think it is interesting.
London is a major financial center. UK holdings of US treasuries, like the holdings in Ireland, Switzerland, or the caribbean islands, reflect the portfolio decisions of financial institutions based there. That includes British banks, also accounts in British banks owned by Europeans and Americans, also British unit trusts (their version of mutual funds), hedge funds, etc.
How can you expand the economy if the US consumer is ‘deleveraging’? With consumer spending amounting to 70% of GDP that is an impossibility. The gov’t throwing money at the problem is only an effort to reinflate a bubble and is leading to our ruination.
The cash for clunkers is example 1 of the fallacy of the gov’t thinking. The car people bought today is one they will not buy tomorrow. The unintended consequence is the poor have seen their supply of affordable autos decrease, and used car prices have gone up.
Gov’t should maybe solve the housing crisis by hiring people to tear down 10% of the houses in the country? Just think of the new houses that would have to be built to replace them, the appliances and furniture needed to equip them, the mexicans needed to landscape the yards. Happy days will be here again.
Gov’t involvement in the economy is in all cases bad. That the gov’t, the Fed, and the banks are conspiring to defraud the taxpayer is criminal.
Chinese are free to exit USTreasury debt issue. Question, where are the proceeds running off to? or What are the Chinese buying?
Of course the mortgages Fannie and Freddie have are only running 2.3% of principal losses? That is why the gov’t has had to cover over 100 billion in losses so far?
Funny how banks which were collapsing a year ago are now flush enough to pay back TARP. Explain how the foreclosure rate is hitting records each successive month and yet the Fed and banks are in swell shape?
Here is how great the loans are performing in the gov’t landfill they were put into. OFF BALANCE sheet of course.
Freddie Mac holds $61.9 billion worth of non-performing assets off balance sheet, four times as much as those on the books. Fannie Mae holds $144.2 billion, 5.5 times as many as assets on balance sheet.
Chinese are buying ‘hard’ assets. Copper has doubled on their buying. Oil (they just announced huge investments with many countries) Gold to a lesser degree.
Tell that to the folks in Cali...check the dow chart for 1929-1931 and compare to current chart 2008 to now.
California’s Unemployment Rate Hits Record High [11.9%]
The economy shrank was long as the savings rate was soaring, as soon as it stops increasing the economy grows again. The higher savings rate remains and services past debts, funds new capital investment, etc. Incomes have been maintained the while, despite higher unemployment and lower capacity utilization, largely by the change in the government's role. Meaning, tax receipts are down 17% year over year and spending is up, and all of that is someone else's receipt.
Nobody is "defrauding the taxpayer" (OK, occasional pieces of pork in unneeded "stimulus", sure, but that isn't Fed or banks or macro-econ, it is just congress being congress, i.e. illiterate). The government is taking less of people's income right now because more people are in reduced circumstances.
Sure we should stop giant new entitlements like Obama care, and resist any and all tax increases with the economy still fragile. We could refrain from spending the unspent balance of the February "stimulus", which as usual with anything from the congress is too late and poorly directed. All the necessary policies were put in place before Bush left office. Let them work and the economy will recover.
The sun will also come up and water will remain wet. Screaming doom about it endlessly will just make those doing so look foolish. Free economies right themselves, and the policy response last fall was entirely responsible and entirely sufficient, without further congressional meddling and dem-populist boondoggles. As usual, the much-maligned technocrat "elitists" got all of it right and the bawling children hate them and try to screw everything up anyway.
With consumer spending amounting to 70% of GDP that is an impossibility. The gov’t throwing money at the problem is only an effort to reinflate a bubble and is leading to our ruination. The cash for clunkers is example 1 of the fallacy of the gov’t thinking. The car people bought today is one they will not buy tomorrow. The unintended consequence is the poor have seen their supply of affordable autos decrease, and used car prices have gone up. Gov’t should maybe solve the housing crisis by hiring people to tear down 10% of the houses in the country? Just think of the new houses that would have to be built to replace them, the appliances and furniture needed to equip them, the mexicans needed to landscape the yards. Happy days will be here again. Gov’t involvement in the economy is in all cases bad. That the gov’t, the Fed, and the banks are conspiring to defraud the taxpayer is criminal.
employment numbers have not bottomed. housing numbers have not bottomed. Inflation numbers being massaged and stagflation ‘Jimmy Carter’ style will soon be here. Having lived long enough to remember the 70’s and early 80’s conditions are much worse this time.
The Fed, far from having ‘saved’ us has only pushed the day of reckoning down the road a bit. Their accomodating monetary policy combined with Obama/Congress’s prolifigate spending will soon be seen in CPI.
Watching/investing in the energy markets I see this already. Crude/nat gas ratio is at record 25X, when 8-9X is normal. Crude is an int’l commodity, whereas nat gas is a more ‘local’ commodity due to transport issues. When one (nat gas) is at decade low while the other (crude) has more than doubled from low of 6 months ago tells me something is afoot. Both have huge surpluses, low demand (nat gas industrial demand has collpased) but oil can be more easily bought and stored anywhere. Watch the USD$ it is in dangerous territry
Nothing funny about it, the bond market has recovered, after the money markets, and those drive everything else. Banks own assets that must compete with all other forms of investment. When rates on A corporate bonds hit 12-15%, a mortgage written at 6% isn't worth its full face value, because any investor will take the 12-15% with A rated corporate default risk, over a mortgage paying 6 at best and running 2% credit losses.
The bond market bottomed in December of last year. It was precisely the rise in rates on all of their traded assets that was causing most of the extraordinary losses at the banks and other financial firms. They have been cash flow positive throughout (the subprime focused players excepted). It was entirely foreseeable that a quarter of improvement in the bond market would suffice for the banks to report improved earnings, and that as soon as they did so the markets for new issuance and refinancing would reopen. It was fear of corporate default that was driving all of it.
For the bond market to improve, liquidity first had to be restored, allowing firms to finance and carry their longer term bond positions. It was inability to do so that was forcing their sale at distressed prices. The Fed cured the liquidity problem by flooding the short term money market with funds. That led short term rate spreads to fall, and let the bond market turn upward, and was all accomplished by December of last year.
In the first quarter, on the real side companies were still adjusting to the new state of demand, as households raised their savings and their spending fell - that was the painful part and caused the unemployment increase. But the financial side had already turned in the bond market. The better earnings had not been reported yet, however, and pessimism drove stocks to their March lows. The banks then announced their entirely unsurprising improved earnings, and the market rallied.
That turn reopened the corporate borrowing markets, for commercial paper and term bonds. Understand, when bonds issued several years ago are selling in the market for 60 cents on the dollar to yield 12-15%, companies cannot raise new funds. They aren't earning that much on new capital, and at the rates they could cover, investors would rather buy the existing bond at its discount. So the bond market was closed to new issues, effectively, for much of the 4th quarter of 2008 and the first quarter of 2009.
Well, that has since changed and companies can borrow again. They have been able to issue nearly $1 trillion in loans this year, refinancing or rolling over maturing loans etc. The fire sale need to sell all assets for anything they can bring is over. Since companies have access to capital again, on reasonable terms, they can repay their debts as they fall due. That improves the banks further.
So everyone began repaying not only TARP, but the Fed. its loans under 90 days in support of the money market have fallen $700 billion since March. Banks have repaid about 45% of what they were lent, the commercial paper march 65%, and foreign banks (supported by swap lines in the crisis) 70%.
At the banks, their funding costs have cratered. That has restored their spreads and profits even with continued gross credit losses. Banks are middlemen; they pay on CDs and collect on mortgages and business loans. Well, they aren't paying on the short side what they were a year ago. Their interest margins are up to 3.25% again, as LIBOR has fallen from 4.5% to 0.45%. Total charge off rates on all loans and leases is running 2.64%.
Next on the relation between non-performance, default events, gross credit losses, and net losses on loans. There is continual misinformation on the subject and illiterate spin. Not all non-performing loans progress to full default; transactions are the usual work-out. A small business can't pay its note, it sells an asset, as a simple example. Next defaults are not losses. There is collateral and there are recoveries.
Next the gross losses net of recoveries are not actual losses on that category of loan, because interest rates charged for each category include amounts that amortize credit losses. The only category of loans on which credit losses have exceeded the rates charged, at any time in this crisis, are the original subprimes that set it off, long since written to zero.
The relevant economic variables are the charge off rate compared to the net interest margin. Whenever it is positive on a category of loan, it can be made without sustained loss. Now, banks have running costs, and they are not charities, so they need something beyond that. But to first order, the banks are in actual peril from loan losses only if charge off rates exceed net interest margins.
When the yield curve is completely flat and credit spreads are narrow, that means loans made under those conditions are quite dangerous. But when instead long corporates with 1% charge off rates yield 7% and banks can borrow short on CDs or LIBOR at 1%, they are not going to go bankrupt.
Nice link.
Your inflationary brainstorm narrative is precisely what the bubble maniacs literally bet the house on last year, and they are homeless.
Oil prices off by half from their peak are not "being massaged". The dollar is more valuable today than this time last year. The world predicted an inflationary collapse of the dollar from 2005 to 2008, recklessly, but the Fed refused to give them one (M1 was literally completely flat over that period, while house prices galloped 15% a year and oil prices 25% a year) and we got the deflationary endgame instead. All the inflationary brainstorms are dead wrong.
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