06-06-2009, 09:02 AM
THE BIG COLLAPSE COULD BE VERY NEAR
Robert Wenzel
http://www.globalresearch.ca/index.php?context=va&aid=13826
The Federal Reserve appears to be increasingly nervous about the long term bond market. This is serious. How panicked are they? After leaking a story on Friday, they are back at it on Sunday.
The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Probably because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targetting the long rate. Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed?
The Fed can of course print money to buy up every Treasury bond in existence, but the inflationary ramifications would be Zimbabwe like, and crush the dollar on international currency markets. Are we near the phase where all hell breaks loose? I have never even answered, maybe, to this question before. It's always been, "no." Now it's maybe.
What really has me spooked is another article out this afternoon (on a Sunday) that Drudge has even picked up. It's a Reuters story by Alister Bull. The headline: Federal Reserve puzzled by yield curve steepening.
Translation, the Fed doesn't know what is going on, but they are really scared.
Here's more from Bull:
The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.
But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.
Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.
Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities...
An obvious culprit for the move in bond yields is the country's record fiscal deficit, which will generate a massive amount of new government issuance.
The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit, resulting from falling tax revenues, an economic stimulus package and sundry bank bailouts.
It's the Chinese, and any other Treasury bond buyer who follows the markets, that have pulled away, to varying degrees from buying Treasury long securities. No one wants to be the last one holding bonds, where the new debt about to be issued is in the trillions.
Bull continues with the part of the message the Fed really wanted to get out: With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely.
"I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said. It's the same message as Friday. The Fed does not want to spook the world into thinking that it can't push long term rates down, so it says it is not trying. But if rates continue to climb, a panic out of Treasury securities is a very likely scenario. And Bernanke has only one play to force long rates back down, buy every long bond in sight, which of course is highly inflationary and puts upward pressure on rates. How's that for a dilemma?
The end of the current financial system, as we know it, may be imminent. If you would have asked me even two weeks ago if collapse was imminent, I would have said it was highly unlikely, now I am saying it is possible. Bernanke may be able to patch things up short-term, if he is lucky, but in the long term the U.S. financial structure is in serious trouble. There is just too much Treasury debt that needs to be raised. An international panic out of Treasury securities, even a slow controlled panic, means the Fed will be the major buyer. This will ultimately mean record inflation.
And keep this in mind, we have never seen a collapse of a currency like the dollar. Even the hyperinflation during Germany's Wiemar Period can not serve as an example. Since the dollar is the reserve currency of most of the world, a panic out of the dollar means more dollars will return to the U.S. shores than any country has ever experienced.
Other countries have had collapsed currencies, but never in the history of world of finance has so much currency been held outside a country of issue that could come flying back, almost on a moments notice. If the panic out of the dollar starts, even if Bernanke stops printing money (unlikely), all the dollars flying back into the U.S. could cause a huge price inflation all on its own.
OUR ECONOMY IS GOING TO KEEP TANKING UNTIL WE STOP SHOVELING BILLIONS TO RICH PEOPLE
Pam Martens
http://www.globalresearch.ca/index.php?context=va&aid=13865
For the past eight months, we have been a nation focused on bailouts and bankruptcies.
For the past ten years, we have been a nation ignoring massive wealth transfer and wealth concentration through a rigged Wall Street.
As simple and clear as this picture is, some of the brightest minds in this country are unwilling to connect the cause and effect of wealth in too few hands to bankruptcies and a tanking economy.
Wealth-deprived consumers can't buy the goods and services being produced. This leads to repetitive cycles of layoffs and growing unemployment which leads to more wealth-deprived consumers leading to more overcapacity in production plants, more layoffs, more shrinking purchasing power.
The accompanying, and equally dangerous, problem is that concentrated wealth stifles the very innovation that is necessary to create new industries, new jobs and lead us out of the downward economic spiral.
Let's think about the individuals who tapped into Wall Street's rigged wealth transfer system and what they have done with their ill-gotten loot: typically, they own three or more homes, fancy cars, multiple country club memberships, airplanes, yachts, and numbered offshore bank accounts. The problem is, they just can't buy enough to compensate for the purchases they have deprived hundreds of thousands of other consumers from being able to make.
Goods sit on shelves, new orders get cancelled, leading to production cuts, layoffs, plant closings and bankruptcies.
In a nutshell, it's the $1 Billion that Sandy Weill extracted from Citigroup as its former CEO and Chairman that's the problem; it's the $42 million condo he bought that's depriving 140 other people from having $300,000 to buy a home ready to go into foreclosure for want of a buyer. It's the hundreds of millions Weill is throwing around to plaster his name and his wife's name on buildings that could be in the hands of 10,000 consumers going out to buy Chrysler and GM cars now gathering dust on the lots of dealers about to go bust.
It's also that Sandy Weill and his colleagues of that era on Wall Street did not do anything worthy or smart in exchange for extracting that wealth from the system. They repealed the regulations that had kept the system on a more solid footing, then looted the system and left it a basket case. We have no residual benefits of innovation to compensate for all that missing wealth.
And that is the real and overlooked attendant danger: too many billionaires sitting atop too many billions tied up in mansions and yachts means that millions of budding innovators and entrepreneurs are being deprived of adequate funds to create the breakthroughs that will lead to new industries and future job growth.
And let's not forget about the trillions of dollars of wealth that evaporated in bogus ventures that Weill and his fellow Wall Streeters brought to market on NASDAQ. Add those trillions to the bailout trillions and you're looking at a lost generation of funds for innovation.
What all of this means is that President Obama has precious little time left to stop rewarding failure and bad behavior before his own Presidency is deemed a failure. It was difficult enough to countenance the reappearance in his administration of all those Wall Street faces who failed to rein in the Wall Street abuses or, worse, aided and abetted the actual creation of the opaque system that permitted the looting and pillaging. But this past week's news that the President might be considering a pivotal role for the Federal Reserve in the new regulatory structure planned for Wall Street crosses the line, if true, from hubris to outright contempt for the American people.
The inherent cronyism of the Federal Reserve renders it utterly useless as a watchdog. (Why is it even necessary to have to state that obvious fact when no one can shake loose from the Fed what it's done with trillions in taxpayer dollars or why it failed to police these Frankenbanks in the first place.) The same thing is true of the U.S. Treasury, which can't auction its own debt without the goodwill of its Wall Street primary dealers.
According to March 31, 2009 data from the Federal Deposit Insurance Corporation, there are 8,246 FDIC insured institutions with total assets of $13.5 Trillion and domestic deposits of $7.5 Trillion. Four institutions, Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., four institutions out of 8,246, control 35% of all the insured domestic deposits and 46% of the assets according to the March 31, 2009 figures from the FDIC.
Has the Federal Reserve taken steps to reduce this massive concentration since the financial crisis began? Quite the contrary. Bank of America was allowed to purchase the investment bank and brokerage firm Merrill Lynch as well as subprime lender Countrywide Financial; JPMorgan Chase took over the investment bank and brokerage firm Bear Stearns as well as Washington Mutual; Wells Fargo & Co. took over Wachovia.
The Federal Reserve's answer to concentrated wealth is to concentrate it further. The Federal Reserve's answer to unmanageable, dysfunctional banking institutions is to make them more unmanageable and more dysfunctional.
President Obama needs to do three things quickly to get the country back on course: he needs to separate investment banking/brokerage from commercial banks. This will restore risk taking and innovation to where it belongs, in non FDIC insured institutions. He needs to put new faces that Americans can trust in charge of real regulators with real powers. He needs to stop funneling money to zombie institutions that haven't created anything of innovative value in a decade and channel those funds into innovative research and development projects.
President Obama needs to step up to the plate and stop listening to conflicted advisors. The fate of a nation, as well as his place in history, hangs in the balance.
Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com
Robert Wenzel
http://www.globalresearch.ca/index.php?context=va&aid=13826
The Federal Reserve appears to be increasingly nervous about the long term bond market. This is serious. How panicked are they? After leaking a story on Friday, they are back at it on Sunday.
The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Probably because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targetting the long rate. Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed?
The Fed can of course print money to buy up every Treasury bond in existence, but the inflationary ramifications would be Zimbabwe like, and crush the dollar on international currency markets. Are we near the phase where all hell breaks loose? I have never even answered, maybe, to this question before. It's always been, "no." Now it's maybe.
What really has me spooked is another article out this afternoon (on a Sunday) that Drudge has even picked up. It's a Reuters story by Alister Bull. The headline: Federal Reserve puzzled by yield curve steepening.
Translation, the Fed doesn't know what is going on, but they are really scared.
Here's more from Bull:
The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.
But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.
Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.
Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities...
An obvious culprit for the move in bond yields is the country's record fiscal deficit, which will generate a massive amount of new government issuance.
The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit, resulting from falling tax revenues, an economic stimulus package and sundry bank bailouts.
It's the Chinese, and any other Treasury bond buyer who follows the markets, that have pulled away, to varying degrees from buying Treasury long securities. No one wants to be the last one holding bonds, where the new debt about to be issued is in the trillions.
Bull continues with the part of the message the Fed really wanted to get out: With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely.
"I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said. It's the same message as Friday. The Fed does not want to spook the world into thinking that it can't push long term rates down, so it says it is not trying. But if rates continue to climb, a panic out of Treasury securities is a very likely scenario. And Bernanke has only one play to force long rates back down, buy every long bond in sight, which of course is highly inflationary and puts upward pressure on rates. How's that for a dilemma?
The end of the current financial system, as we know it, may be imminent. If you would have asked me even two weeks ago if collapse was imminent, I would have said it was highly unlikely, now I am saying it is possible. Bernanke may be able to patch things up short-term, if he is lucky, but in the long term the U.S. financial structure is in serious trouble. There is just too much Treasury debt that needs to be raised. An international panic out of Treasury securities, even a slow controlled panic, means the Fed will be the major buyer. This will ultimately mean record inflation.
And keep this in mind, we have never seen a collapse of a currency like the dollar. Even the hyperinflation during Germany's Wiemar Period can not serve as an example. Since the dollar is the reserve currency of most of the world, a panic out of the dollar means more dollars will return to the U.S. shores than any country has ever experienced.
Other countries have had collapsed currencies, but never in the history of world of finance has so much currency been held outside a country of issue that could come flying back, almost on a moments notice. If the panic out of the dollar starts, even if Bernanke stops printing money (unlikely), all the dollars flying back into the U.S. could cause a huge price inflation all on its own.
OUR ECONOMY IS GOING TO KEEP TANKING UNTIL WE STOP SHOVELING BILLIONS TO RICH PEOPLE
Pam Martens
http://www.globalresearch.ca/index.php?context=va&aid=13865
For the past eight months, we have been a nation focused on bailouts and bankruptcies.
For the past ten years, we have been a nation ignoring massive wealth transfer and wealth concentration through a rigged Wall Street.
As simple and clear as this picture is, some of the brightest minds in this country are unwilling to connect the cause and effect of wealth in too few hands to bankruptcies and a tanking economy.
Wealth-deprived consumers can't buy the goods and services being produced. This leads to repetitive cycles of layoffs and growing unemployment which leads to more wealth-deprived consumers leading to more overcapacity in production plants, more layoffs, more shrinking purchasing power.
The accompanying, and equally dangerous, problem is that concentrated wealth stifles the very innovation that is necessary to create new industries, new jobs and lead us out of the downward economic spiral.
Let's think about the individuals who tapped into Wall Street's rigged wealth transfer system and what they have done with their ill-gotten loot: typically, they own three or more homes, fancy cars, multiple country club memberships, airplanes, yachts, and numbered offshore bank accounts. The problem is, they just can't buy enough to compensate for the purchases they have deprived hundreds of thousands of other consumers from being able to make.
Goods sit on shelves, new orders get cancelled, leading to production cuts, layoffs, plant closings and bankruptcies.
In a nutshell, it's the $1 Billion that Sandy Weill extracted from Citigroup as its former CEO and Chairman that's the problem; it's the $42 million condo he bought that's depriving 140 other people from having $300,000 to buy a home ready to go into foreclosure for want of a buyer. It's the hundreds of millions Weill is throwing around to plaster his name and his wife's name on buildings that could be in the hands of 10,000 consumers going out to buy Chrysler and GM cars now gathering dust on the lots of dealers about to go bust.
It's also that Sandy Weill and his colleagues of that era on Wall Street did not do anything worthy or smart in exchange for extracting that wealth from the system. They repealed the regulations that had kept the system on a more solid footing, then looted the system and left it a basket case. We have no residual benefits of innovation to compensate for all that missing wealth.
And that is the real and overlooked attendant danger: too many billionaires sitting atop too many billions tied up in mansions and yachts means that millions of budding innovators and entrepreneurs are being deprived of adequate funds to create the breakthroughs that will lead to new industries and future job growth.
And let's not forget about the trillions of dollars of wealth that evaporated in bogus ventures that Weill and his fellow Wall Streeters brought to market on NASDAQ. Add those trillions to the bailout trillions and you're looking at a lost generation of funds for innovation.
What all of this means is that President Obama has precious little time left to stop rewarding failure and bad behavior before his own Presidency is deemed a failure. It was difficult enough to countenance the reappearance in his administration of all those Wall Street faces who failed to rein in the Wall Street abuses or, worse, aided and abetted the actual creation of the opaque system that permitted the looting and pillaging. But this past week's news that the President might be considering a pivotal role for the Federal Reserve in the new regulatory structure planned for Wall Street crosses the line, if true, from hubris to outright contempt for the American people.
The inherent cronyism of the Federal Reserve renders it utterly useless as a watchdog. (Why is it even necessary to have to state that obvious fact when no one can shake loose from the Fed what it's done with trillions in taxpayer dollars or why it failed to police these Frankenbanks in the first place.) The same thing is true of the U.S. Treasury, which can't auction its own debt without the goodwill of its Wall Street primary dealers.
According to March 31, 2009 data from the Federal Deposit Insurance Corporation, there are 8,246 FDIC insured institutions with total assets of $13.5 Trillion and domestic deposits of $7.5 Trillion. Four institutions, Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., four institutions out of 8,246, control 35% of all the insured domestic deposits and 46% of the assets according to the March 31, 2009 figures from the FDIC.
Has the Federal Reserve taken steps to reduce this massive concentration since the financial crisis began? Quite the contrary. Bank of America was allowed to purchase the investment bank and brokerage firm Merrill Lynch as well as subprime lender Countrywide Financial; JPMorgan Chase took over the investment bank and brokerage firm Bear Stearns as well as Washington Mutual; Wells Fargo & Co. took over Wachovia.
The Federal Reserve's answer to concentrated wealth is to concentrate it further. The Federal Reserve's answer to unmanageable, dysfunctional banking institutions is to make them more unmanageable and more dysfunctional.
President Obama needs to do three things quickly to get the country back on course: he needs to separate investment banking/brokerage from commercial banks. This will restore risk taking and innovation to where it belongs, in non FDIC insured institutions. He needs to put new faces that Americans can trust in charge of real regulators with real powers. He needs to stop funneling money to zombie institutions that haven't created anything of innovative value in a decade and channel those funds into innovative research and development projects.
President Obama needs to step up to the plate and stop listening to conflicted advisors. The fate of a nation, as well as his place in history, hangs in the balance.
Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com