He said fed will likely (or should) come in with 100 bips. I all but threw the tv against the wall ('no' dryfly doesn't have a flat panel and 'yes' he has heard of Best Buy and can afford one)...
What are the implications of such a 100 basis pt cut (over a 50 or a 75 pt cut) ? From where does this graph derive probablities ?
My understanding is that this rate signifies the rate at which banks lend money to each other. How do these rates translate into - say mortgage rates, credit card rates, rates at which companies borrow money, bond yields ?
Is it possible, say to have a current interest rate of 1% (probably indicating a slow economy) and a 10 year bond yield of say 10% (high inflation ?).
The theory is that the banks need more margin to get back to profitable. The theory is that new loans will have a larger spread twixt cost of funds and consumer loan rates. Problem is all those HELOCs like mine at prime minus a fraction ride the curve down and the home ATM is closed so there aren't any new larger margin loans to write. A few people paying ARMs on the edge may get a little breathing room but in truth many of them couldn't afford a fully amortizing schedule at 1%.
Ken Lewis was in Calabasas today at a town hall meeting with CFC mgt and employees. All indications are the deal is a go, but I agree the price tells the truth.... we shall see.
A 100 basis point Fed Funds rate cut will put the dollar into a death spiral and gold will reach escape velocity.
I foolishly never bought into the gold story, thinking that if the economy stalled, it would be deflationary. That may still be the case, but foreign markets are going to have to cool down first.
what would a 100 basis point cut do for Gold? I say it makes a quick move to close to $1000. The Fed saying inflation be damned is going to scare a lot of people.
Good one. Wayne Angel is a fruit loop. I am amazed how virtually none of Kudlow's guests acknowledge that easy monentary policy and reckless credit standards are what got us into this mess.
I work primarily with non-profits whose charters demand very conservative investments. The last ten years has nearly put them out of business with CD rates at or near 1%. That being the case it was a great relief to see them earning 4-5% over the last year on their endowments.
Now we're going to be back were we started. Depressing.
Vikram, yes, that is possible - the long end should be driven by inflation expections.
risk capital, nice opportunity if you think the deal will fly! Under $5 now, and you receive $6.55 in Q3 (based on current BofA price). What's that? About a 30% return in less than 9 months?
i wonder how many mass transit systems you could build in cities for $150 Billion?
How much housing insulation?
How many solar power plants, or better yet, home-based distributed solar power systems?
Besides the war, the other huge problem is the $300 Billion a year we spend importing oil. Borrowing money to cut that number is good!
If we're going to spend $150 Billion let's GET something back, not just more shit assembled in China, then tossed the landfill.
Though I've always thought deep down our plan in the US was to consume everything on the planet and get it in to our landfills. Then, we'll just mine those and have everything.
CR,
My guess is the price reflects the likelihood of a materially adverse development quashing the deal. Sure there's your scenario of substantial modification but I'd bet some stockholders successfully argue that BAC not get a second free chance and open up the carcass to bidding.
The thought of 2% CDs is frightening my mother depends on the interest from her savings to live. So how is lowering rates to 0% going to help us. Half the population depends on higher interest rates to live and the other half wants them low to live beyond their means. To me this is a neutral effect at best and really slams on the brakes for the retired folks.
God help us just 368 days to what has to be better than this.
dryfly, do you at least have granite counters?
bacon dreamz | 01.18.08 - 8:38 pm | #
Not granite - some kind of synthetic stuff that looks like stone. I wanted to make counters out of poured concrete but the wife would have none of that. The synthetic stone came from a factory near here and I knew about them - so I talked her into that instead of granite.
There are a bunch of granite mines north of the Twin Cities so if you hunt around at the smaller quarries you can get the stuff surprisingly cheap - not like on the coasts. Nice stuff too - they ship it all over the world. With the housing bust those prices will get cheaper.
I still wish I'd been cut loose on pouring my own - that would have been a blast. Maybe in my next house (I've lived here for almost 25 years).
They should just do a 425bp cut and get it over with.
That way, we don't have to hear Bernanke and that idiot Greenspan give improptu speeches anymore.
I think the Fed needs to try some new tactic like just issuing a statement:
"We're going to raise rates 325 bps and increase reserve requirements to 100% if you deadbeats don't start buying stocks and paying off your mortgages and credit cards."
All this simply indicates that the Fed has lost control of the situation and may be in a panic. If so, that would be the worst possible development. I wonder what the market will do Tuesday; Monday is a holiday.
OK, but what about Europe? They've held their rates steady, the Euro is way up. What would 75-100 bps do to them? How pissed would they be?
What about the Chinese? The falling dollar has been putting increased inflation pressure on them. How pissed are they going to be about 75-100 bps?
Plus, current economic conditions are slippery if not starting to ice over, do you really want to yank the wheel hard right? Sudden moves don't sound like such a good idea to me.
I'm not saying the Fed won't lower rates 75-100 bps, but it seems to me that the rock and hard place are getting rockier and harder.
Drop 50 bps and the stock market drops hard.
Drop 75-100 bps all at once and maybe Europe and China decide to make some sudden moves of their own.
I think the Fed will try to finesse this with a 50 bps cut, but a clear statement that more are coming.
Even so, I think we'll look back on this dilemma and it will look easy. Slick roads -- bah! Wait 'til we turn the corner and the bridge is out. And the mud slide hits. And the back seat DVD/MP3/Off-Track Betting system cuts out.
On the meat of the issue, I've listened pretty carefully to Bernanke twice in the last 10 days. I can barely interpret what he says as 50 basis points - 50 yeah but stretching for it it seems to me.
A friend just poured their own countertops. Dirt cheap and pretty fancy looking. Concrete is the new black (and cheap).
I'm surprised anyone is surprised about impending rate cuts. Ben and the rest have said they are coming and will keep coming. They aren't even doing a head fake.
They do call him helicopter ben, right?
Maybe i'm wrong, but if not, I'm golden like ponyboy.
Maybe zee Fed is trying to increase the value of its gold by driving up inflation and thus driving down the dollar, in hopes that the price of gold reserves will help pay back Fed debts....yah. that is it, that is what we see in Vienna
In 2001, it was estimated that all the gold ever mined totalled 145,000 tonnes.[2] As one metric tonne equals 1,000 kilograms (or 32,150 troy ounces), one tonne of gold equated to a value of US$23.8 million in September 2007 ($739/troy ounces), so the total value of all gold ever mined would be some US$3.4 trillion.
Please adjust your price to about $882 and then readjust as The Fed CopyCats Japan in a race to zero.
I collect stamps, including old mailed envelopes with stamps on them. Collectors call these "covers."
I have some from Germany in the 1920s in which every available space on the envelope is covered with stamps, because at this time of runaway currency debasement, you needed the whole sheet of stamps you bought last week to mail today's letter.
These are called "inflation covers."
I wonder if we'll be making some new ones for next year's Christmas cards...
It does not matter how much they cut, it won't help. They can't fight a deflation of this scale. They should just let the chips fall where they may. Once the dust settles will be the time to prime the economy.
The fundamental problem is that housing is overpriced, that the financials took unwarranted profits based on those elevated profit levels, that investors invested in those financials at those elevated profit levels, and it was all a lie.
Oh my God, the economy may slow down and walmart may sell less meatloaf, and home depo may end up with too many lawn mowers and grocery stores will have backrooms stuffed with aging lettuce, these are the signs of a financial panic! The reality is however, there are too many walmarts, too many home depos, too many needless useless unwanted bigbox businesses that were jammed into too many communities and now these mindless pigs want more stores, more lawnmowers, more meatloaf sales and non stop sustained growth regardless of the true cost!
As we all are seeing, economic growth does not occur from synthetic off balance sheet derivatives that connect strings of bogus financial packages together in order to build another walmart 10 miles from the other new one; this insanity has to stop ASAP!
"OK, but what about Europe? They've held their rates steady, the Euro is way up. What would 75-100 bps do to them? How pissed would they be?
What about the Chinese? The falling dollar has been putting increased inflation pressure on them. How pissed are they going to be about 75-100 bps?"
Remember, the dollar is our currency but your problem.
"I think the Fed will try to finesse this with a 50 bps cut, but a clear statement that more are coming."
I wonder whether the fed listens to this street chatter about interest rate cuts. They didn't go for the "emergency surprise" cut that a lot of people were talking about during the past few weeks. I think that Ben et al. are smart enough not to use all of their ammunition in a couple of shots. For people following the markets (myself included), a few days with big moves seems like a long time. We can hardly remember that just a few days ago, everything was different. The Fed at least realizes that the monetary (as opposed to psychological effects) of a rate cut take many months to take effect. Moreover, the market may be satisfied for only a few minutes before it starts down again.
My guess is that the Fed still views 50 pb as a big move.
I already said this so sorry for the repeat but it ties in with dryfly's TV experience.
I watched Wayne Angel (ex fed governor) on Kudlow on Wednesday. He said that we NEED to drop the Fed Funds Rate low enough so that people are FORCED to get out of "safe" investments and put their money where it is needed: in the mortgage market and secondary securities markets.
"...another walmart 10 miles from the other new one; this insanity has to stop ASAP..."
Looking at my local community I think it unlikely that wal-mart will be the business going away. We have 4 wal-marts all about 10 miles apart. The parking lots are always full. Home Depot, Circut City, Sears are always empty. So I think the market is speaking, and the market wants more walmart not less.
Like the t-shirt that says, "Th beatings will continue until morale improves"., cuts will continue.
The point here is not what happens to the consumer, it's what is happening to the financial institutions. There is magical thinking going on where there is a low interest rate at which everything will resume, fat and happy, circa 2005.
Look at their first cuts-in spite of low unemployment and high inflation, cuts began-it was for rescuing the financial sector. The rescue hasn't been achieved, and now there is rising unemployment and and a slowing economy. They now have the perfect cover for their rate cuts.
Will it be 1%--probably not because that is firing a mighty big gun, with a danger of possibly having little or no effect on the problem. Remember, they are still in the first stages of gaining an understanding of the issues and depth of the pond. I'm hoping that someone is lying awake at night there running through the scenarios of what could happen.
But, on the other hand, this is a "faith-based" administration, where the belief in an idea is proof of it's correctness. And, dissent is traitorous and defeatist.
Anonymous said, "Maybe zee Fed is trying to increase the value of its gold ... in hopes that the price of gold reserves will help pay back Fed debts..."
Supposing the US actually had the stated 261 million ounces. Suppose its market price increased from zero to $900 in 5 years. This is +$47 billion/year.
The Comptroller General notes that unfunded liabilities of the US are increasing at > $3000 billion/year.
The price appreciation of gold will have to increase by a factor of 64 before this scenario works.
@flow5
Good to see you.
I'm interested in reading your response to this comment in an earlier Calculated Risk blog post. It seems Table 3 of the latest H.3 makes it look like non-borrowed reserves are less than 0.
Instead of rising in response, the stock market will drop like a rock when the announcement is made. A small bet of a tip of the hat to the winner of this little wager.
Psycho-Dave: The Fed has had for many years the power to create any amount of IBDDs (Interbank Demand Deposits). There are no reserve or reserve-ratio restrictions on the credit-creating capacity of the 12 Federal Reserve Banks.
The newly created IBDDs can be put at the disposal of any bank in the System through the discount window or in the present situation the Term Auction Facility. These borrowed deposits are not only money to the recipient bank, they also become a part of the legal reserves of the System. And therein lies a limitation.
One dollar of borrowed reserves provides the same legal-economic base for the expansion of money as one dollar of non-borrowed reserves. The fact that advances have to be repaid in 28 days is immaterial. A new advance can be obtained, or the borrowing bank replaced by other borrowing banks. The importance of controlling borrowed reserves is indicated by the fact that at times (1/16/08) nearly all legal reserves are borrowed.
The Fed cannot increase the legal reserves of the System without creating the basis for a multiple expansion of the money supply (multiple in terms of the incremental reserves).
The Fed can, and does, offset domestic borrowings & foreign exchange swap lines with open market selling operations, thus eliminating any net increase in bank legal reserves. Therefore, with the rescue operation of the TAFs dimension, it has offset TAF auction credit with open market selling operations of U.S. Treasury Bills (-) 61,659 (H4.1) 1/10/08.
Note: Commercial banks pay for excess reserves in the inter-bank market (direct/correspondent or brokered, etc.), or acquire reserves via open market operations from the trading desk.
Commercial banks also pay the Reserve bank for borrowed reserves from either the discount window or the Term Auction Facility. Anyway, IBDD's are not always idle or even costless demand deposits.
Prior to Jan 2003 the discount rate or adjustment credit, etc. averaged c. 25-50 basis points below the fed funds rate. Then the problem was that the commercial banks flaunted the Boards rule that advances should not be used for profit. & the profit proclivities of the commercial banks eliminated any stigma to the borrowing.
Afterwards, the discount rate became a penalty rate designed to minimize discount window borrowing in times of rising interest rates and rising inflation.
Hence the new cost differential discouraged excessive advances that are made regardless of (1) the purpose or (2) the reserve position of the borrowing banks. I.e., because all of these institutions are able to borrow in the fed funds market at lower costs.
However, the 1/14/08 TAF auctions stop-out rate of 3.95% was effectively the same as the trading desks one-day target repo rate on Treasuries, i.e., the one-day cost-of-carry on Government Securities. This is the true monetary policy instrument.
Discount window administration is necessarily concerned with
Discount window administration is necessarily concerned with the emergency needs of specific banks. The TAF gives the Fed enhanced surveillance over the short-term liquidity needs of problem banks. Thus the FOMC has maximized the funding supplied to the inter-bank market by accepting a wider variety of collateral (assumption of risk) and driving down the market price to counter-parties.
In contrast the FOMC targets the federal funds rate (at a higher 4.25%), nominally the rate banks charge each other on overnight loans of deposits at the Fed. The FF market is where un-collateralized (unsecured) inter-bank loans (excess reserves) are lent & borrowed for short duration. The daily federal funds transactions in comparison to the Government Securities market are a trivial amount.
The H4.1 shows both factors supply & absorbing reserves. Modern Money Mechanics demonstrates both commercial and the reserve banks balance sheet changes which affect the free legal reserves owned by the depository institutions on the H4.1.
"The Fed has offset TAF auction credit with open market selling operations of U.S. Treasury Bills (-) 61,659 (H4.1) 1/10/08"
flow5 | 01.20.08 - 11:28 am
Thanks so much for responding.
Since I haven't seen this operation in any Open Market Desk Operations or in TOMA's Permanent Operations, is it fair to assume that, like some previous operations, it was a reverse-repo done with a non-U.S. institution?
Psycho-Dave: You ask good questions. I don't have all the answers.
There were Tresury Bill redemptions, reverse repos, & Treasury bill sales.
I haven't tracked the specific volumes used to drain reserves (offset TAF borrowings).
The reverse repurchase agreements with foreign official & international accounts on the 16th was 41,079. That was up 8,082 from the previous week. And non-borrowed reserves on the H.3 fell by approximately the same figure from the prior week. So I would agree with your assessment (reverse repos with non-U.S.banks).
Essentially, the trading desk substituted virtually all non-borrowed reserves with borrowed reserves at the TAF (injecting maximum liquidity).
"I don't have all the answers"
flow5 | 01.20.08 - 7:22 pm
True enough, but I learn where to focus when you respond. you've enough experience to show me when I'm getting distracted. E.g. It was a brilliant move by the FED.
Agreed. Can't understand why people watch football when there's world-class play action like this going on.
In this case, to display my inexperience, I thought it material whether some SOMA assets matured, or the Fed (once again) had to borrow from foreign entities.
I suspect the 61,659 you quoted above has more to do with the upcoming 60 billion TAF auction than with anything else.
@flow5 By the way, in case we don't run into each other again, I forgot to thank you.
Last May or August, you posted a comment on AI's site, recommending getting completely out of stocks by January 2008. You helped me and my li'l sister with that. That is a nice piece of forecasting algorithm you worked up. Hope you think it was worth the effort.
I don't trade currencies, but I know you've been interested. In case you've overlooked it, I've come to respect Macro Man's site.
Yep, gotta cut the rates! Gotta give the Big Boyz another hit of low-rate dope! Imagine the horror if rates were high, people could SAVE their money safely, and the peons actually had stable jobs, affordable housing, etc.
Same thing as always: Wall Street makes their money through fees, churning, and volatility. They hate the concept of people actually being able to afford to live decently (without being in debt) and being able to save their wealth from the ravages of inflation.
So, we'll see a big rate cut - and then another, and then another still until the dollar is worthless, we're in soup lines, and the Wall Street pigs have their own secure compounds in which to live.
"Check out Bart's SOMA graph"
flow5 | 01.21.08 - 9:22 am
Oh shoot! You're killing me with kindness! I was supposed to finish off my share of the annual Xmas letter today. This a.m. the wife even put her foot down. What're you trying to do, tempting me like this?
That fruitloop ex-ed governor on Kudlow last night was right. I'll be damned.
He said fed will likely (or should) come in with 100 bips. I all but threw the tv against the wall ('no' dryfly doesn't have a flat panel and 'yes' he has heard of Best Buy and can afford one)...
And this isn't inflationary, how?
What are the implications of such a 100 basis pt cut (over a 50 or a 75 pt cut) ? From where does this graph derive probablities ?
My understanding is that this rate signifies the rate at which banks lend money to each other. How do these rates translate into - say mortgage rates, credit card rates, rates at which companies borrow money, bond yields ?
Is it possible, say to have a current interest rate of 1% (probably indicating a slow economy) and a 10 year bond yield of say 10% (high inflation ?).
I'll get my wheel barrel out to carry the dollars I'll need for bread and milk.
cr-
the spread widened-
Doubts Over Deal Hit Countrywide Shares - WSJ.com
dryfly, do you at least have granite counters?
PS, you can afford a Best Buy?! wow!
The theory is that the banks need more margin to get back to profitable. The theory is that new loans will have a larger spread twixt cost of funds and consumer loan rates. Problem is all those HELOCs like mine at prime minus a fraction ride the curve down and the home ATM is closed so there aren't any new larger margin loans to write. A few people paying ARMs on the edge may get a little breathing room but in truth many of them couldn't afford a fully amortizing schedule at 1%.
A 100bps Rate Cut and perhaps China will begin to park less and less of their $1.4 Trillion in U.S. Treasury notes.
Remember BB without Chinas billion dollars a day, the United States could not keep its economy stable or spare the dollar from collapse.
Ken Lewis was in Calabasas today at a town hall meeting with CFC mgt and employees. All indications are the deal is a go, but I agree the price tells the truth.... we shall see.
A 100 basis point Fed Funds rate cut will put the dollar into a death spiral and gold will reach escape velocity.
I foolishly never bought into the gold story, thinking that if the economy stalled, it would be deflationary. That may still be the case, but foreign markets are going to have to cool down first.
The rapids always come around the waterfall
what would a 100 basis point cut do for Gold? I say it makes a quick move to close to $1000. The Fed saying inflation be damned is going to scare a lot of people.
dryfly,
Good one. Wayne Angel is a fruit loop. I am amazed how virtually none of Kudlow's guests acknowledge that easy monentary policy and reckless credit standards are what got us into this mess.
What other lines are hiding along the bottom of the chart that might rear their heads before the meeting?
I work primarily with non-profits whose charters demand very conservative investments. The last ten years has nearly put them out of business with CD rates at or near 1%. That being the case it was a great relief to see them earning 4-5% over the last year on their endowments.
Now we're going to be back were we started. Depressing.
the fallout-
MarketWatch.com
So they end up making everything even more expensive and people buy even less.
Yeah, great plan, there....
Vikram, yes, that is possible - the long end should be driven by inflation expections.
risk capital, nice opportunity if you think the deal will fly! Under $5 now, and you receive $6.55 in Q3 (based on current BofA price). What's that? About a 30% return in less than 9 months?
My guess is the deal will be priced lower.
Best to all.
i wonder how many mass transit systems you could build in cities for $150 Billion?
How much housing insulation?
How many solar power plants, or better yet, home-based distributed solar power systems?
Besides the war, the other huge problem is the $300 Billion a year we spend importing oil. Borrowing money to cut that number is good!
If we're going to spend $150 Billion let's GET something back, not just more shit assembled in China, then tossed the landfill.
Though I've always thought deep down our plan in the US was to consume everything on the planet and get it in to our landfills. Then, we'll just mine those and have everything.
cr-
at times, 4% returns are real cool.
No cut, or 25bp at most. There is a new game in 'town' and it does not involve low interest rates.
US 2008 == Japan 1990.
CR,
My guess is the price reflects the likelihood of a materially adverse development quashing the deal. Sure there's your scenario of substantial modification but I'd bet some stockholders successfully argue that BAC not get a second free chance and open up the carcass to bidding.
The thought of 2% CDs is frightening my mother depends on the interest from her savings to live. So how is lowering rates to 0% going to help us. Half the population depends on higher interest rates to live and the other half wants them low to live beyond their means. To me this is a neutral effect at best and really slams on the brakes for the retired folks.
God help us just 368 days to what has to be better than this.
dryfly, do you at least have granite counters?
bacon dreamz | 01.18.08 - 8:38 pm | #
Not granite - some kind of synthetic stuff that looks like stone. I wanted to make counters out of poured concrete but the wife would have none of that. The synthetic stone came from a factory near here and I knew about them - so I talked her into that instead of granite.
There are a bunch of granite mines north of the Twin Cities so if you hunt around at the smaller quarries you can get the stuff surprisingly cheap - not like on the coasts. Nice stuff too - they ship it all over the world. With the housing bust those prices will get cheaper.
I still wish I'd been cut loose on pouring my own - that would have been a blast. Maybe in my next house (I've lived here for almost 25 years).
They should just do a 425bp cut and get it over with.
That way, we don't have to hear Bernanke and that idiot Greenspan give improptu speeches anymore.
My poor savings account,
How many of the above mentioned things would the 600B from the Iraq War bought us?
end of an error-
That's the whole plan here. Trash cash returns to save asset values. Why would anyone want to save money anymore at two percent yields?
Money goes in one pocket and right back out the other.
Welcome to The New Economy. 90 percent consumption relative to GDP.
I think the Fed needs to try some new tactic like just issuing a statement:
"We're going to raise rates 325 bps and increase reserve requirements to 100% if you deadbeats don't start buying stocks and paying off your mortgages and credit cards."
CR, I'd argue the math here:
Looking at the chart, I derive:
=0.43.5+0.423.75+0.18*4.0
which excel tells me is 3.695; I'd call that closer to a 50 basis point cut rather than a 75 basis one.
How do you derive 3.57 ?
-K
Hmm, never mind, I downloaded their spreadsheet and from THERE the calculation would be:
=0.7673.5+0.1983.75+0.0284 +0.0064.5
which is 3.566%
BUTT.. the graph doesn't show a .76 probability for a 3.5% - It shows .4 probability.
-K
All this simply indicates that the Fed has lost control of the situation and may be in a panic. If so, that would be the worst possible development. I wonder what the market will do Tuesday; Monday is a holiday.
but is it a market holiday? the market is open on some bank holidays.
Its a market holiday, thank god - I'm exhausted; I need to go ski.
-K
The market is closed for MLK day. We have LBJ to thank for that, or so says Hillary.
Tell me if I'm off base here.
The stock market wants 75-100 bps.
OK, but what about Europe? They've held their rates steady, the Euro is way up. What would 75-100 bps do to them? How pissed would they be?
What about the Chinese? The falling dollar has been putting increased inflation pressure on them. How pissed are they going to be about 75-100 bps?
Plus, current economic conditions are slippery if not starting to ice over, do you really want to yank the wheel hard right? Sudden moves don't sound like such a good idea to me.
I'm not saying the Fed won't lower rates 75-100 bps, but it seems to me that the rock and hard place are getting rockier and harder.
Drop 50 bps and the stock market drops hard.
Drop 75-100 bps all at once and maybe Europe and China decide to make some sudden moves of their own.
I think the Fed will try to finesse this with a 50 bps cut, but a clear statement that more are coming.
Even so, I think we'll look back on this dilemma and it will look easy. Slick roads -- bah! Wait 'til we turn the corner and the bridge is out. And the mud slide hits. And the back seat DVD/MP3/Off-Track Betting system cuts out.
1% yup
100bps will require coordination with other central banks no?
sk, it's in the spreadsheet that the Cleveland Fed provides (excel file).
Best Wishes.
sk, oops, just read your next comment. The spreadsheet shows two scenarios, with and without a 100bps cut as a possibility.
With a 100bps cut, the odds are 17% 100bps, 40% 75 bps, and 43% for 50 bps.
Best Wishes.
Thanks CR.
On the meat of the issue, I've listened pretty carefully to Bernanke twice in the last 10 days. I can barely interpret what he says as 50 basis points - 50 yeah but stretching for it it seems to me.
-K
dryfly
A friend just poured their own countertops. Dirt cheap and pretty fancy looking. Concrete is the new black (and cheap).
I'm surprised anyone is surprised about impending rate cuts. Ben and the rest have said they are coming and will keep coming. They aren't even doing a head fake.
They do call him helicopter ben, right?
Maybe i'm wrong, but if not, I'm golden like ponyboy.
If the Fed cuts more than 50bps, I'll be looking to buy a roll of tenth oz gold eagles. They'll be replacing Ben Franklins soon enough.
The last 2 days the mkt dropped just after the imbeciles who we voted into ofc spoke. Coincidence?
Or are people finally realizing there is nothing they can do with a problem of this size anyway.
Maybe zee Fed is trying to increase the value of its gold by driving up inflation and thus driving down the dollar, in hopes that the price of gold reserves will help pay back Fed debts....yah. that is it, that is what we see in Vienna
In 2001, it was estimated that all the gold ever mined totalled 145,000 tonnes.[2] As one metric tonne equals 1,000 kilograms (or 32,150 troy ounces), one tonne of gold equated to a value of US$23.8 million in September 2007 ($739/troy ounces), so the total value of all gold ever mined would be some US$3.4 trillion.
Please adjust your price to about $882 and then readjust as The Fed CopyCats Japan in a race to zero.
I collect stamps, including old mailed envelopes with stamps on them. Collectors call these "covers."
I have some from Germany in the 1920s in which every available space on the envelope is covered with stamps, because at this time of runaway currency debasement, you needed the whole sheet of stamps you bought last week to mail today's letter.
These are called "inflation covers."
I wonder if we'll be making some new ones for next year's Christmas cards...
12th percentile
...not just ponyboy...
we are all going to be either golden or outsiders if the fed goes 100 basis points
The Fed is trying to fight deflation. And they will most likely lose the battle. What's all this inflation nonsense?
It does not matter how much they cut, it won't help. They can't fight a deflation of this scale. They should just let the chips fall where they may. Once the dust settles will be the time to prime the economy.
The fundamental problem is that housing is overpriced, that the financials took unwarranted profits based on those elevated profit levels, that investors invested in those financials at those elevated profit levels, and it was all a lie.
The system will eat itself, and it has.
Oh my God, the economy may slow down and walmart may sell less meatloaf, and home depo may end up with too many lawn mowers and grocery stores will have backrooms stuffed with aging lettuce, these are the signs of a financial panic! The reality is however, there are too many walmarts, too many home depos, too many needless useless unwanted bigbox businesses that were jammed into too many communities and now these mindless pigs want more stores, more lawnmowers, more meatloaf sales and non stop sustained growth regardless of the true cost!
As we all are seeing, economic growth does not occur from synthetic off balance sheet derivatives that connect strings of bogus financial packages together in order to build another walmart 10 miles from the other new one; this insanity has to stop ASAP!
another walmart 10 miles from the other new one; this insanity has to stop ASAP
Well at least they are 10 miles apart, unlike Starbucks where you walk out of the Starbucks and see... another Starbucks.
Lewis Black on Starbucks
YouTube
- Broadcast Yourself.
"OK, but what about Europe? They've held their rates steady, the Euro is way up. What would 75-100 bps do to them? How pissed would they be?
What about the Chinese? The falling dollar has been putting increased inflation pressure on them. How pissed are they going to be about 75-100 bps?"
Remember, the dollar is our currency but your problem.
"I think the Fed will try to finesse this with a 50 bps cut, but a clear statement that more are coming."
Couldn't agree more!
... and the model in the urban areas called for them every 5 miles (unless cannabalization occurred) so consider yourself lucky.
I wonder whether the fed listens to this street chatter about interest rate cuts. They didn't go for the "emergency surprise" cut that a lot of people were talking about during the past few weeks. I think that Ben et al. are smart enough not to use all of their ammunition in a couple of shots. For people following the markets (myself included), a few days with big moves seems like a long time. We can hardly remember that just a few days ago, everything was different. The Fed at least realizes that the monetary (as opposed to psychological effects) of a rate cut take many months to take effect. Moreover, the market may be satisfied for only a few minutes before it starts down again.
My guess is that the Fed still views 50 pb as a big move.
I already said this so sorry for the repeat but it ties in with dryfly's TV experience.
I watched Wayne Angel (ex fed governor) on Kudlow on Wednesday. He said that we NEED to drop the Fed Funds Rate low enough so that people are FORCED to get out of "safe" investments and put their money where it is needed: in the mortgage market and secondary securities markets.
I have never hated someone as much as I did then.
oh...
and he also said we were 100bps behind the curve, and that we need another 100bps after that too.
I agree with others... why not just drop the rate to 0%?
"...another walmart 10 miles from the other new one; this insanity has to stop ASAP..."
Looking at my local community I think it unlikely that wal-mart will be the business going away. We have 4 wal-marts all about 10 miles apart. The parking lots are always full. Home Depot, Circut City, Sears are always empty. So I think the market is speaking, and the market wants more walmart not less.
Like the t-shirt that says, "Th beatings will continue until morale improves"., cuts will continue.
The point here is not what happens to the consumer, it's what is happening to the financial institutions. There is magical thinking going on where there is a low interest rate at which everything will resume, fat and happy, circa 2005.
Look at their first cuts-in spite of low unemployment and high inflation, cuts began-it was for rescuing the financial sector. The rescue hasn't been achieved, and now there is rising unemployment and and a slowing economy. They now have the perfect cover for their rate cuts.
Will it be 1%--probably not because that is firing a mighty big gun, with a danger of possibly having little or no effect on the problem. Remember, they are still in the first stages of gaining an understanding of the issues and depth of the pond. I'm hoping that someone is lying awake at night there running through the scenarios of what could happen.
But, on the other hand, this is a "faith-based" administration, where the belief in an idea is proof of it's correctness. And, dissent is traitorous and defeatist.
Banks as a system dont loan out anything. They create money when they make loans
Money creation is not self-regulating
You cant take money out of the banking system (only the FED can)
Savings transferred through the intermediaries never leaves the CB system. The intermediaries are the customers of the CBs.
Savings held within the commercial banking system are lost to investment or to any other type of expenditure.
From the standpoint of the economy the banks shouldnt pay for something they already have.
Payments on savings raise all interest rates, induce disintermediation among the financial intermediaries, shrink real-gdp, & lower CB profits.
The solution to our non-bank problem is to get the money creating depository institutions out of the savings business.
Anonymous said, "Maybe zee Fed is trying to increase the value of its gold ... in hopes that the price of gold reserves will help pay back Fed debts..."
Supposing the US actually had the stated 261 million ounces. Suppose its market price increased from zero to $900 in 5 years. This is +$47 billion/year.
The Comptroller General notes that unfunded liabilities of the US are increasing at > $3000 billion/year.
The price appreciation of gold will have to increase by a factor of 64 before this scenario works.
50 Fed Funds, 75 Discount rate, and a statement more dovish than George McGover
Great a 100bps cut and a $1600 check...Going to use the Blubberments/Goverments money to make money....what a country.
@flow5
Good to see you.
I'm interested in reading your response to this comment in an earlier Calculated Risk blog post. It seems Table 3 of the latest H.3 makes it look like non-borrowed reserves are less than 0.
In any case, hope you keep posting.
Instead of rising in response, the stock market will drop like a rock when the announcement is made. A small bet of a tip of the hat to the winner of this little wager.
Psycho-Dave: The Fed has had for many years the power to create any amount of IBDDs (Interbank Demand Deposits). There are no reserve or reserve-ratio restrictions on the credit-creating capacity of the 12 Federal Reserve Banks.
The newly created IBDDs can be put at the disposal of any bank in the System through the discount window or in the present situation the Term Auction Facility. These borrowed deposits are not only money to the recipient bank, they also become a part of the legal reserves of the System. And therein lies a limitation.
One dollar of borrowed reserves provides the same legal-economic base for the expansion of money as one dollar of non-borrowed reserves. The fact that advances have to be repaid in 28 days is immaterial. A new advance can be obtained, or the borrowing bank replaced by other borrowing banks. The importance of controlling borrowed reserves is indicated by the fact that at times (1/16/08) nearly all legal reserves are borrowed.
The Fed cannot increase the legal reserves of the System without creating the basis for a multiple expansion of the money supply (multiple in terms of the incremental reserves).
The Fed can, and does, offset domestic borrowings & foreign exchange swap lines with open market selling operations, thus eliminating any net increase in bank legal reserves. Therefore, with the rescue operation of the TAFs dimension, it has offset TAF auction credit with open market selling operations of U.S. Treasury Bills (-) 61,659 (H4.1) 1/10/08.
Note: Commercial banks pay for excess reserves in the inter-bank market (direct/correspondent or brokered, etc.), or acquire reserves via open market operations from the trading desk.
Commercial banks also pay the Reserve bank for borrowed reserves from either the discount window or the Term Auction Facility. Anyway, IBDD's are not always idle or even costless demand deposits.
Prior to Jan 2003 the discount rate or adjustment credit, etc. averaged c. 25-50 basis points below the fed funds rate. Then the problem was that the commercial banks flaunted the Boards rule that advances should not be used for profit. & the profit proclivities of the commercial banks eliminated any stigma to the borrowing.
Afterwards, the discount rate became a penalty rate designed to minimize discount window borrowing in times of rising interest rates and rising inflation.
Hence the new cost differential discouraged excessive advances that are made regardless of (1) the purpose or (2) the reserve position of the borrowing banks. I.e., because all of these institutions are able to borrow in the fed funds market at lower costs.
However, the 1/14/08 TAF auctions stop-out rate of 3.95% was effectively the same as the trading desks one-day target repo rate on Treasuries, i.e., the one-day cost-of-carry on Government Securities. This is the true monetary policy instrument.
Discount window administration is necessarily concerned with
Discount window administration is necessarily concerned with the emergency needs of specific banks. The TAF gives the Fed enhanced surveillance over the short-term liquidity needs of problem banks. Thus the FOMC has maximized the funding supplied to the inter-bank market by accepting a wider variety of collateral (assumption of risk) and driving down the market price to counter-parties.
In contrast the FOMC targets the federal funds rate (at a higher 4.25%), nominally the rate banks charge each other on overnight loans of deposits at the Fed. The FF market is where un-collateralized (unsecured) inter-bank loans (excess reserves) are lent & borrowed for short duration. The daily federal funds transactions in comparison to the Government Securities market are a trivial amount.
The H4.1 shows both factors supply & absorbing reserves. Modern Money Mechanics demonstrates both commercial and the reserve banks balance sheet changes which affect the free legal reserves owned by the depository institutions on the H4.1.
some good background (2MB ".pdf" file)
"The Fed has offset TAF auction credit with open market selling operations of U.S. Treasury Bills (-) 61,659 (H4.1) 1/10/08"
flow5 | 01.20.08 - 11:28 am
Thanks so much for responding.
Since I haven't seen this operation in any Open Market Desk Operations or in TOMA's Permanent Operations, is it fair to assume that, like some previous operations, it was a reverse-repo done with a non-U.S. institution?
"Toma's"
Arrrgh! "SOMA's"
Psycho-Dave: You ask good questions. I don't have all the answers.
There were Tresury Bill redemptions, reverse repos, & Treasury bill sales.
I haven't tracked the specific volumes used to drain reserves (offset TAF borrowings).
The reverse repurchase agreements with foreign official & international accounts on the 16th was 41,079. That was up 8,082 from the previous week. And non-borrowed reserves on the H.3 fell by approximately the same figure from the prior week. So I would agree with your assessment (reverse repos with non-U.S.banks).
Essentially, the trading desk substituted virtually all non-borrowed reserves with borrowed reserves at the TAF (injecting maximum liquidity).
It was a brilliant move by the FED.
"I don't have all the answers"
flow5 | 01.20.08 - 7:22 pm
True enough, but I learn where to focus when you respond. you've enough experience to show me when I'm getting distracted. E.g. It was a brilliant move by the FED.
Agreed. Can't understand why people watch football when there's world-class play action like this going on.
In this case, to display my inexperience, I thought it material whether some SOMA assets matured, or the Fed (once again) had to borrow from foreign entities.
I suspect the 61,659 you quoted above has more to do with the upcoming 60 billion TAF auction than with anything else.
@flow5 By the way, in case we don't run into each other again, I forgot to thank you.
's site, recommending getting completely out of stocks by January 2008. You helped me and my li'l sister with that. That is a nice piece of forecasting algorithm you worked up. Hope you think it was worth the effort.
Last May or August, you posted a comment on AI
I don't trade currencies, but I know you've been interested. In case you've overlooked it, I've come to respect Macro Man
's site.
Psycho-Dave:
Check out Bart's SOMA graph "How much is the Fed supporting US Treasury Bonds and/or monetizing some of the debt?" on:
Fed watching & forecasting
Yep, gotta cut the rates! Gotta give the Big Boyz another hit of low-rate dope! Imagine the horror if rates were high, people could SAVE their money safely, and the peons actually had stable jobs, affordable housing, etc.
Same thing as always: Wall Street makes their money through fees, churning, and volatility. They hate the concept of people actually being able to afford to live decently (without being in debt) and being able to save their wealth from the ravages of inflation.
So, we'll see a big rate cut - and then another, and then another still until the dollar is worthless, we're in soup lines, and the Wall Street pigs have their own secure compounds in which to live.
"Check out Bart's SOMA graph"
flow5 | 01.21.08 - 9:22 am
Oh shoot! You're killing me with kindness! I was supposed to finish off my share of the annual Xmas letter today. This a.m. the wife even put her foot down. What're you trying to do, tempting me like this?
Thanks, good site.
Ben and the rest have said they are coming and will keep coming.
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