“I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington,” Fisher said in a speech at the University of St. Andrews in Scotland.
“There is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress,” said Fisher, 63. He said investors are concerned the Fed has “already expanded its balance sheet to its stretching point.”
Fisher Cites Marketplace ‘Fear’ About Fed Balance Sheet
http://www.bloomberg.com/news/2012-06-05/fisher-cites-marketplace-fear-about-fed-balance-sheet.html
Wednesday, June 6, 2012
Thursday, March 29, 2012
Fed purchased a stunning 61% of Treasury issuance
For your consideration....our current artificially induced rate levels and what happens to market rates once the Fed is done buying!
Demand for U.S. Debt Is Not Limitless
In 2011, the Fed purchased a stunning 61% of Treasury issuance. That can't last.
http://online.wsj.com/article/SB10001424052702304450004577279754275393064.html?grcc=5e70830871af2cf81c081d6506f568e8Z11Zhpge&mod=WSJ_hpp_sections_opinion
The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.
The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.
Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, "If you look at the markets, they're practically falling over themselves to lend money to the federal government." Sadly, that's no longer accurate.
It is true that the U.S. government has never been more dependent on financial markets to pay its bills. The net issuance of Treasury securities is now a whopping 8.6% of gross domestic product (GDP) on average per annum—more than double its pre-crisis historical peak. The net issuance of Treasury securities to cover budget deficits has typically been a mere 0.6% to 3.9% of GDP on average for each decade dating back to the 1950s.
But in recent years foreigners and the U.S. private sector have grown less willing to fund the U.S. government. As the chart (attached) shows, foreign purchases of U.S. Treasury debt plunged to 1.9% of GDP in 2011 from nearly 6% of GDP in 2009. Similarly, the U.S. private sector—namely banks, mutual funds, corporations and individuals—have reduced their purchases of U.S. government debt to a scant 0.9% of GDP in 2011 from a peak of more than 6% in 2009.
The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit.
The failure by officials to normalize conditions in the U.S. Treasury market and curtail ballooning deficits puts the U.S. economy and markets at risk for a sharp correction. Lessons from the recent European sovereign-debt crisis and past emerging-market financial crises illustrate how it is often the asynchronous adjustment between budget borrowing requirements and the market's appetite to fund deficits that triggers a shock or crisis. In other words, budget deficits often take years to build or reduce, while financial markets react rapidly and often unexpectedly to deficit spending and debt.
Decisive steps must be implemented to restore the economy and markets to a sustainable path. First, the Fed must stabilize and purposefully reduce the size of its balance sheet, weaning Treasury from subsidized spending and borrowing. Second, the government should be prepared to lure natural buyers of Treasury debt back into the market with realistic interest rates.
If this happens, the resulting higher deficit may at last force the government to make deficit and entitlement reduction a priority. First and foremost, however, we must abandon the conventional wisdom that market demand for U.S. Treasury debt is limitless.
Demand for U.S. Debt Is Not Limitless
In 2011, the Fed purchased a stunning 61% of Treasury issuance. That can't last.
http://online.wsj.com/article/SB10001424052702304450004577279754275393064.html?grcc=5e70830871af2cf81c081d6506f568e8Z11Zhpge&mod=WSJ_hpp_sections_opinion
The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.
The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.
Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, "If you look at the markets, they're practically falling over themselves to lend money to the federal government." Sadly, that's no longer accurate.
It is true that the U.S. government has never been more dependent on financial markets to pay its bills. The net issuance of Treasury securities is now a whopping 8.6% of gross domestic product (GDP) on average per annum—more than double its pre-crisis historical peak. The net issuance of Treasury securities to cover budget deficits has typically been a mere 0.6% to 3.9% of GDP on average for each decade dating back to the 1950s.
But in recent years foreigners and the U.S. private sector have grown less willing to fund the U.S. government. As the chart (attached) shows, foreign purchases of U.S. Treasury debt plunged to 1.9% of GDP in 2011 from nearly 6% of GDP in 2009. Similarly, the U.S. private sector—namely banks, mutual funds, corporations and individuals—have reduced their purchases of U.S. government debt to a scant 0.9% of GDP in 2011 from a peak of more than 6% in 2009.
The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit.
The failure by officials to normalize conditions in the U.S. Treasury market and curtail ballooning deficits puts the U.S. economy and markets at risk for a sharp correction. Lessons from the recent European sovereign-debt crisis and past emerging-market financial crises illustrate how it is often the asynchronous adjustment between budget borrowing requirements and the market's appetite to fund deficits that triggers a shock or crisis. In other words, budget deficits often take years to build or reduce, while financial markets react rapidly and often unexpectedly to deficit spending and debt.
Decisive steps must be implemented to restore the economy and markets to a sustainable path. First, the Fed must stabilize and purposefully reduce the size of its balance sheet, weaning Treasury from subsidized spending and borrowing. Second, the government should be prepared to lure natural buyers of Treasury debt back into the market with realistic interest rates.
If this happens, the resulting higher deficit may at last force the government to make deficit and entitlement reduction a priority. First and foremost, however, we must abandon the conventional wisdom that market demand for U.S. Treasury debt is limitless.
Friday, March 16, 2012
Inflation is like a banana
Inflation, inflation, where for art thou......'hiding' in the price increases and decreased size of every day items that we purchase, I would gesture to say....
Watch Bernanke’s ‘Little’ Inflation Capsize U.S.: Shlaes
http://www.bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html
Excerpts:
Watch Bernanke’s ‘Little’ Inflation Capsize U.S.: Shlaes
http://www.bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html
Excerpts:
Another way to put this is how the central banker Henry Wallich did. Inflation is like a banana, Jerry Jordan of the Cleveland Fed quoted him as saying. Once you see one brown spot, it’s too late.
The reason that markets haven’t jumped yet is that the last great inflation and correction happened in the late 1970s and early 1980s, just long enough ago that most adults in the financial markets don’t remember it.
We can debate whether today’s challenge resembles that faced in the early 1980s, or something worse. But one thing is clear: pretty soon, we’ll all be in deep water.
Saturday, March 10, 2012
amazing times...
BofA Makes a Deal on Side
By RUTH SIMON and NICK TIMIRAOS
http://online.wsj.com/article/SB10001424052970203961204577269870720165892.html?mod=WSJ_hp_LEFTWhatsNewsCollection
By RUTH SIMON and NICK TIMIRAOS
More than 200,000 financially strapped households will have a chance to sharply reduce their mortgage balances under a side deal negotiated byBank of America Corp. that could allow the bank to avoid as much as $850 million in penalties.
Under the arrangement, part of the recent $25 billion settlement of alleged foreclosure abuses between government officials and five large lenders, Bank of America will make deeper and broader cuts in balances than other banks.
http://online.wsj.com/article/SB10001424052970203961204577269870720165892.html?mod=WSJ_hp_LEFTWhatsNewsCollection
Under the broader settlement,banks must provide at least $10 billion in principal reductions. They receive full credit for reductions on loans they own and 45% credit on loans owned by investors. Under its deal, Bank of America must continue to offer principal reductions to all eligible borrowers even after it meets its formal obligations under the settlement, the Obama administration official said.Government officials hope that the broader settlement will pave the way for more widespread principal reductions.
Tuesday, February 28, 2012
what a great comment from Gross....
Gross is an interesting ‘investor’ and usually has something of ‘interest’ to say – whether he is correct or not is another matter for discussion on another day! But this piece of commentary speaks quite directly.
Gross Says Investors Should Embrace Defense With Zero Rates, Systemic Risk
http://www.bloomberg.com/news/2012-02-28/gross-says-investors-should-embrace-a-defensive-strategy-amid-zero-rates.html
“An instant replay of these past few decades would have shown that accelerating asset prices weren’t due to any particular wisdom on the part of academia or the investment community but an offensively minded Federal Reserve and their global counterparts who were printing money, lowering yields and bringing forward a false sense of monetary wealth that was dependent on perpetual motion,” Gross wrote in a commentary posted on Newport Beach, California-based Pimco’swebsite today.
Gross Says Investors Should Embrace Defense With Zero Rates, Systemic Risk
http://www.bloomberg.com/news/2012-02-28/gross-says-investors-should-embrace-a-defensive-strategy-amid-zero-rates.html
Sunday, February 5, 2012
No free liquidity...
A truly amazing time that we live in when the market has moved to the point where investors are willing to pay the Treasury to 'park' their liquidity!
Treasury May Let Investors Pay to Hold U.S. Debt
Published February 01, 2012; Reuter
The U.S. government may ask investors to pay for the
privilege and safety of holding short-term debt issued by its Treasury
Department.
In response to clamor from investors, the Treasury said on
Wednesday it was looking closely atallowing negative-yield auctions. This would
mean bidders who want the security of U.S. government debt in the face of
global insecurity, might have to pay a premium for it.
Doing so would allow the U.S. government to benefit from
something that is already occurring on the secondary market, where investors
have accepted negative yields in recent months to protect their cash from
financial strains.
Read more:
http://www.foxbusiness.com/investing/2012/02/01/treasury-may-let-investors-pay-to-hold-us-debt/print#ixzz1lADE97Da
Saturday, January 21, 2012
the refinanace paradigm
The refinance paradigm: Production levels increase and/or decrease, to a large extent, based upon certain interest rate movement threshold expectations.
Looks like we may have reached another threshold.
prb
NEW YORK (CNNMoney) -- Mortgage loan applications surged 23% last week, according to the Mortgage Bankers Association, as record-low interest rates convinced many homeowners it was time to refinance into lower-cost loans. Refinancing activity climbed 26.4% during the week ending January 13, to its highest level since early August, the MBA reported.
Meanwhile applications for new mortgages climbed 10.3% week-over-week.
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