Busted: Bankers and The Global Economy

January 12, 2009

Real Expectations for U.S. Jobs and Economy

lowering expectations

lowering expectations

When compared to the political wisdom being spread about in Washington, D.C. recently, the Federal Reserve, the government watchdog for the U.S. economy stands out in contrast. At the last FOMC meeting, the Fed admitted that (more…)

July 30, 2008

Federal Reserve Installs More Confidence

Rhetoric aside, tough times are clearly ahead in the eyes of the U.S. Federal Reserve system. Not one to be outdone, the Fed has moved to expand and strengthen confidence in the U.S. financial system.

The Fed is adopting longer terms for banking institution loans through its lending provisions. Since other central banks are involved in the economic bailout, the European Central Bank and the Swiss National Bank are “adapting the maturity of their operations” as well.

In the words of the Federal Reserve, “continued fragile circumstances in financial markets” continue to exist. Federal Reserve provisions would be withdrawn should the FOMC Board decide that “conditions in financial markets are no longer unusual and exigent.”

Provisions include:
1. Extension of the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) through January 30, 2009.
2. The introduction of auctions of options on $50 billion of draws on the TSLF.
3. The introduction of 84-day Term Auction Facility (TAF) loans as a complement to 28-day TAF loans.
4. An increase in the Federal Reserve’s swap line with the European Central Bank to $55 billion from $50 billion.

~ E. Manning

June 23, 2008

Banking: Central Banks and World Domination

Three months ago, the FOMC approved the establishment of the Primary Dealer Credit Facility (PDCF). This action was taken pursuant to Section 13(3) of the Federal Reserve Act, which empowers the Board of Governors of the Federal Reserve to authorize a Federal Reserve Bank to lend to a corporation, including a securities firm, in “unusual and exigent” circumstances when the corporation cannot “secure adequate credit accommodations from other banking institutions.”

At that time, the Board of Governors made the “necessary” statutory (more…)

June 12, 2008

Uncle Ben and the Inflation Demon

On June 9, our Uncle Ben, venerable Federal Reserve chief, provided a note of honesty with a conference of buddies. He blithely admitted that he doesn’t know it all, that the Fed doesn’t know it all and that he needs the opinions of others in the field. That has to be pretty refreshing. Knowing that Uncle Ben struggles at anything is a wonder to consider. “In the spirit of this conference, my remarks this evening will highlight some key areas where additional research could help to provide a still-firmer foundation for monetary policymaking.” Hey babe, that is as close as you are going to get for an admission of fallibility.

He has changed his tune about the recovery of the U.S. economy to a more realistic model. “Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.” This isn’t going to be a one-quarter gas attack any more.

“Inflation has remained high, largely reflecting sharp increases in the prices of globally traded commodities.” Uncle Benny, it just can’t be! Inflation is high at 3%? How is 3% inflation today higher than 3% inflation a year ago or thirty years ago? Now the collective economy knows that Uncle Benny and his cohorts have been handing us a zinger for the last thirty years about the eternal 3% inflation rate.

What’s more, he’s decided that globally traded commodities are to blame for high prices. For anyone that knows what he is talking about, the admission is stunning and revolutionary. Well, perhaps only to the less ingeniously-minded. The brains of America have began to pick up on the gross corporate and investor profit-taking that has magically and mysteriously appeared on the scene, almost as if by divination.

Uncle Ben is more than comforting in his analysis. The FOMC (that’s the Federal Open Market Committee to you) will strongly resist an erosion of longer-term inflation expectations. Are you happy to have someone so determined at the helm? “Economists within the Federal Reserve System and at other central banks have made and will continue to make important contributions in these areas.” It almost takes your breath away.

Now the good news of recognition comes to play. “Rapidly rising prices for globally traded commodities have been the major source of the relatively high rates of inflation we have experienced in recent years.” He is all about forecasting and understanding what mysteriously drives those changes outside of the desire to make lots of money.

Any takers on what drives “the factors” aside from monetary glee? Please share your thoughts on this one! “Policymakers and other analysts have often relied on quotes from commodity futures markets to derive forecasts of the prices of key commodities.” I would suppose that Uncle Ben and his friends have been looking at the wrong keys in the hopes that they wouldn’t be found it. It’s too late now. The futures markets are in control.

Uncle Ben is the master of ten dollar words when he wants to be. However, he does speak one truth. “Investors in commodity futures can expect to earn supernormal risk-adjusted returns.” Touché, Uncle Ben! It’s time to get rich quick!

Here is the absurd part. Uncle Ben wants to forecast greed and profit in the market. In essence, he is predicting another bank scandal with CDOs and the like, except with market futures. He admits that “futures prices may not effectively aggregate all available information.”

Uncle Ben then discusses the theoretical analyses about economic outcomes. Insanity has been coined as doing the same thing over and over and expecting a different result. The only problem here is that Uncle Ben wants a different result with the next new investor foray into “economic bubbles”.

He has one idea of truth on his side. Behavior in the market is idiosyncratic to supply and demand factors. In other words, you can safely believe that “the law of supply and demand” has nothing to do with out-of-control prices and investor profits.

Ben Bernanke is convinced that he can do it all with the Phillips curve, if he can just get enough information. Like a scientist, if he can know more, he can come up with all the answers before the problems happen. Does that sound likely?

Essentially, Bernanke has admitted that central bankers have been all wrong about inflation, especially where labor has been concerned. With uncertain times comes the uncertainty of real time policymaking. He isn’t sure, but wants to “ignore noisy output gap measures.” For years, Fed politicos have ignored the importance of energy costs and the price of food in their economic equations and inflationary measurements. Now, Uncle Ben is working on deciding what the Fed should ignore next as they build new policy.

He is desperately seeking the core inflation rate so that economists can continue to manipulate the figures into a nice clean 3% inflation rate that won’t hurt anyone. The only problem is that you see the difference in your life. Are you willing to bite off on this years’ version of 3% inflation or do you finally see the light? Can you take being manipulated and lied to by economic theorists and “our government”?

Uncle Ben and his cohorts are counting on the possibility that you won’t notice the difference.

Comments? You can make them here!

June 2, 2008

Fed Policy is Now an Open Door

Filed under: banking, federal reserve — Tags: , , , , , — digitaleconomy @ 2:30 pm

The Federal Reserve Board’s website now features convenient access to historical documents of the Federal Open Market Committee for the years 1978 through 2002. Historical Greenbooks and Bluebooks have been available to researchers and others, upon request, for some time. Posting historical documents on the Board’s website makes them more accessible to the public.

Nice move. The Fed’s rise to power has made them much less secretive and they have been opening a door to the public. Now anyone on the internet can check out the Fed here with an eye to history from their institutional perception. Ignacio Lopez de Loyola would be proud of the public acceptance.

February 20, 2008

Landmark Fed Decision for Open Market

Today, the Federal Reserve Board and the Federal Open Market Committee released the minutes of the Committee meeting held on January 29-30, 2008:

moneywheelbarrow.jpgIn a new confirmation measure at that FOMC meeting, the Federal Reserve has been authorized to purchase and sell securities and bonds to serve as a protection to the economy of the United States. Essentially, the Fed of New York “has been given” carte blanche to influence and sustain the open securities marketplace and to use whatever means it deems necessary to prevent a financial catastophe through purchasing on the open market.

Constitutionally, I am not certain what authority the FOMC (more…)

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