Archive for the Money category
November 23rd, 2008
Here’s a good if convoluted chat about the current macro picture as the various economic powers twist in the breeze and try to protect themselves.
China in late October increased by several orders of magnitude its verbal attacks on the dollar. But in the wake of the G20 meeting it seems to have softened its own currency (by buying dollars) in an attempt to prop up its domestic industrial enterprises (which are suffering for lack of consumers in, to begin, the U.S.).
The dollar has been going up for a month or so, generally speaking. A good deal of this is flight from minor currencies (like Argentina’s, alas) based on fear that the local banks will collapse.
This component of the dollar’s recent surge won’t last. Best guess is that soon enough the dollar will continue its plummet, and that long-term the chinese currency will rise.
The current dollar boost, then, might be imagined as the point in the sinking of the Titantic where the bow suddenly goes under the waves and the stern ascends to bring the ship nearly vertical — until it shaps amidships — upon which the stern falls like a brick into the sea.
And, as the dollar turns and sinks, the cost of oil (denominated in dollars) will go back up.
A debased dollar is good for people who make things with dollars and sell them in other currencies. And for debtors, in general (assuming they can make their payments). Otherwise it’s rather bad.
November 9th, 2008
Recent MUST READS in the NY Review of Books:
On Cheney.
On the financial crisis — by George Soros.
And the full interview that Prime Minister Ehud Olmert gave before resigning — in which he renounces militarism as a possible basis of Israeli security.
November 7th, 2008
The President Elect met with his econoteam and then answered press questions for the first time today.
Meanwhile the people running GM and Ford told the world that time is running out.
Brusque types are saying “Let them go.” Down the drain.
But the employment consequences nationwide would be catastrophic, and it’s clear that Hammerin’ Hank Paulson, after fucking the globe royally with Lehman, is on the case. A Treasury spokesman indicated that some of the TARP $700 billion might get thrown over the automakers to keep them dry awhile.
The full resolution may be nationalization (perhaps through the equity-kicker provisions of the TARP) — leaving something like Airbus in Europe:Â a unified quasi-nationalized auto company.
Such an enterprise could be effectively directed by the incoming Donkey regime to the ends often indicated across the campaign years: a native auto industry fully dedicated to green cars.
Similar initiatives were crushed by the Reaganites immediately upon assumption of power in 1981, as they shut down Jimmy Carter’s Energy Department in support of the Oil Mafia status quo ante.
It illumines American democracy to look back across that expanse of time — lost time — and to think that it may take the triple whammy of high oil prices, a ruined financial system and bankrupted Ford and GM to finally pry loose the Oil Mafia’s grip on Washington.
(It’s often left unsaid that the core of the OM’s political power these many decades has been the Pentagon — which cannot run its tanks and aircraft on natural gas or the sun or the wind or nuclear power.)
The first Earth Day was in 1968. Everything in the way of knowledge needed to act on our energy problems was known in the wake of the oil crunches of the 70s. Instead we got Reagan. This time … We shall see.
November 4th, 2008
A recent review of Fed actions to date recalled that roughly a year ago the Fed’s (self manufactured) assets were roughly $900 billion — and, as a result of its rescue attempts since, they’ve gone to $1.8 trillion — about $1.3 of which is wounded bonds and similar that the Fed has taken off the hands of wounded financial instituitons.
Today, one of the supposedly hawkish members of the Fed board — ie, an Inflation Fighter typically damning the torpedoes — said in public that it’s likely the Fed’s balance sheet will rise to THREE trillion. ?!?
Before the year is out.
?!?!?
Perhaps in reaction, the dollar (rebounding lately against the euro, sterling) tanked today, and gold (and oil, of course) shot up.
The picture is reminiscent not only of what the Fed tried to do between 1929 and 1932 (discussed here a number of times across the past year) — but also, atmospherically at least, of the Weimar Republic’s death-by-inflation throes. People in the streets with wheelbarrows of evanescent cash, trying to spend it before it becomes completely worthless …
What happens when countries go bankrupt?
I’m not saying, even, what the Fed is doing is wrong (although there are plenty of people doing so — saying in effect that the Fed is fighting the LAST great depression instead of today’s — fighting a Liquidity Crisis in the banking system when in fact the problem is a Debt-Insolvency Crisis).
Me — I don’t know. It’s just noteworthy and shocking to watch this stuff happen and fly.
Here is a Gold Bug, Lance Lewis, at Minyanville.com, discussing today’s Fed speak:
$3 Trillion Fed Balloon?
This morning, the Fed’s supposed inflation hawk, Dallas Fed President Fisher, said the “Fed’s balance sheet may expand to $3 trillion by year’s end.”
That means the Fed would have to take its balance sheet up over $1 trillion in just 7 weeks from the current $1.97 trillion (which had already doubled over the past 6 weeks from under $1 trillion). The next question is how would they do this?
Thus far, the Fed has not been actively monetizing government debt in the open market by creating cash out of thin air and buying treasury bonds. Instead, the Treasury has been playing a game whereby it has issued debt and then placed it on deposit with the Fed for the Fed to use as it pleases. This is still inflationary but not quite as inflation as if the Fed was in reality physically running the printing presses.
Now, the Treasury isn’t going to be issuing another trillion dollars of debt over the next 7 weeks to place with the Fed, so how is it going to pull this off? Could it be that Fisher is hinting that the Fed will soon be monetizing treasury debt?
I’ve been wondering how the bond market was going to be able to handle the record amounts of treasury debt that are about to wash over it like a tidal wave. Perhaps this is how? The Fed is simply going to buy it all.
Perhaps that’s why gold is up $36 and the dollar has experienced its biggest percentage drop ever against the euro today?
October 27th, 2008
Here is a great look at the latest Fed balance sheet. It summarizes everything the Fed has done since August 2007 in response to the credit crisis.
When the Fed began to widen its windows and criteria for lending to financial institutions last year, it had roughly $900 billion in assets — ie, notional credits that it manufactures in cyberspace and then uses to buy Treasury bonds from the US gov’t or, now increasingly, wounded bonds of all sorts from wounded institutions. And the Fed said it was willing to use a quarter of its balance sheet to rescue the latter.
Fast forward a year. The balance sheet has doubled, to more than 1.8 trillion — roughly $1.3 of which is wrapped up in rescues.
Thus, the commentator linked above observes:
The Fed’s first $100 billion didn’t do it. The Fed’s first $1 trillion didn’t do it. Having the Treasury take over the $5 trillion in debts and guarantees of Fannie and Freddie didn’t do it. The Treasury’s $3/4 trillion rescue/bailout package didn’t do it. And another quarter trillion will?
This (again) echoes the early 30s — when the banks took and took and took everything the Fed had to give, until, in late 1932, the people who own and operate the Fed cried Uncle and the Great Depression settled in, to endure until the stimulus of the world war.
October 24th, 2008
Alan Greenspan’s broad confession before Congress yesterday brings to mind the parade in 1932 through those once hallowed halls of big brains from Wall Street and the Fed, all confessing their ideas were bankrupt and that they’d nothing left to suggest.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.
“Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.
“This modern risk-management paradigm held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”
As if in reaction, Asian and European stock markets went off the cliff overnight — Tokyo’s Nikkei 225 Index down 9.6%, Hong Kong’s Hang Seng down 8.0%, the Financial Times 100 down 5.0% — and the US markets are now following.
Sheer panic and forced selling (by margin callers) aside, the more slightly more concrete cause seems to be data and earnings reports indicating that the credit crisis that began 15 months ago has surely pushed the industrialized world into recession.
By the time FDR took office in March 1933, every bank in the United States was closed.
In general, however, the banking system then was much stronger than it is now. The crisis of the early 30s was largely a liquidity crisis created by bad austerity policy enacted post 1929 crash, which artificial austerity crushed the general economy. The crisis of today is an insolvency crisis created by a mountain of bad debt, crushing the finance sector first.
Opportunities and strategies for recovery, then, are likely to be different than they seemed to the bewildered owner-operators 76 years ago. Last week a bunch of Friedmanesque Chicago-School economists warned that today’s Fed and Treasury were fighting the last Great Depression (as if the crisis were merely a lack of liquidity in the credit system).
  Into all this strides Barack Obama (it seems).
His entry brings to mind the early years of Bush-Cheney, when Secretary of State Colin Powell was repeatedly sent on foreign missions, including to East 42nd street in New York, to explain (as if it were possible) and take flack for the collateral damage of their radical policies.
Will the Obama movement and all its hopes for a new age get crushed by the economic misery that will characterize his four years? Or will the misery be so widespread that it serves to found and root that new age?
October 15th, 2008
The Market giveth and it taketh away.
The powers that be seem indeed out of bullets.
Guess they’ll have to do it the old-fashioned way …
October 13th, 2008
Biggest ever raw point rocket. Fifth all time largest percentage gain.
Causes: Extremely oversold condition. European bank rescues over the weekend. Pending US bank rescue (out after the bell: Treasury will take $250 billion equity stakes in banks). And fear among the big shorts of another Plunge Protection Team assault (intervention, manipulation) of the sort that swung the Dow 900 points to the upside Friday afternoon.
Ho hum.
October 9th, 2008
1. Thursday of the week of Worldwide Wreckage — and the SEC lifts its ban on short-selling financial stocks.
The Dow 30 close down another 679 points at 8,625.
2. Recall that two weeks ago Todd Harrison at Minyanville.com reported that a good Washington source said that the feds had identified a concerted shorting campaign out of London and Dubai that began on September 11 and which they considered financial “terrorism.” Rather than simple Creatively Destructive greed.
But apparently that worry no longer troubles the SEC.
3.Here’s Joltin’ Jim Cramer re how the big short sellers destroy targeted stocks.
October 9th, 2008
The Fed press release about AIG’s latest injection reads deceptively for anyone who doesn’t understand swaps and repurchase agreements.
Here then is an elaborate homespun explication.
And the text:
The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated U.S. insurance subsidiaries of the American International Group (AIG), under section 13(3) of the Federal Reserve Act.
Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.
As expected, drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities.
