Posts tagged liquidity
By Tyler Durden
In just under 30 minutes, Peter Schiff and Doug Casey muse on many facets of the crumbling edifice of the status quo that is our current world.
From Gold’s relatively imminent rise to $5,000 and beyond, to investor ignorance of reality, Casey & Schiff swing from discussions of the US as political entity going forward to ‘escape from America’ plans for personal and wealth assets, and the realization that the biggest casualty (of US indebtedness), aside from individual liberty, is the value of the dollar – as taxing the middle class is unpopular with both parties – leaving only one route for the government – the inflation tax. Owning gold, silver, and foreign assets is preferred and while the rest of the world is also printing, the US is likely to beat them all.
People “are clueless with respect to the true state of the global economy,” with regard to inflation, fiat currencies, and specifically what will happen to the dollar. The conversation is wide-ranging and absolutely must-see as they remind market-watchers that “the whole thing is artificial,” as you can’t just keep printing money and monetizing debt without the dollar imploding with monetary policy descending (along with its trillion dollar coin) into ‘Three Stooges’ comedy.
The conversation weaves to some endgame discussions which bring Peter to discuss his father, who he sees as a political prisoner, and his views on the future…
“the biggest change that is coming to the global economy is a realignment of global living standards.”
There is something here for everyone…
Have You Heard About The 16 Trillion Dollar Bailout The Federal Reserve Handed To The Too Big To Fail Banks?
What you are about to read should absolutely astound you. During the last financial crisis, the Federal Reserve secretly conducted the biggest bailout in the history of the world, and the Fed fought in court for several years to keep it a secret. Do you remember the TARP bailout? The American people were absolutely outraged that the federal government spent 700 billion dollars bailing out the “too big to fail” banks. Well, that bailout was pocket change compared to what the Federal Reserve did. As you will see documented below, the Federal Reserve actually handed more than 16 trillion dollars in nearly interest-free money to the “too big to fail” banks between 2007 and 2010. So have you heard about this on the nightly news? Probably not. Lately Bloomberg has been reporting on some of this, but even they are not giving people the whole picture. The American people need to be told about this 16 trillion dollar bailout, because it is a perfect example of why the Federal Reserve needs to be shut down. The Federal Reserve has been actively picking “winners” and “losers” in the financial system, and it turns out that the “friends” of the Fed always get bailed out and always end up among the “winners”. This is not how a free market system is supposed to work.
According to the limited GAO audit of the Federal Reserve that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the grand total of all the secret bailouts conducted by the Federal Reserve during the last financial crisis comes to a whopping $16.1 trillion.
That is an astonishing amount of money.
Keep in mind that the GDP of the United States for the entire year of 2010 was only 14.58 trillion dollars.
The total U.S. national debt is only a bit above 15 trillion dollars right now.
So 16 trillion dollars is an almost inconceivable amount of money.
But some other dollar figures have been thrown around lately regarding these secret Federal Reserve bailouts. Let’s take a look at them and see what they mean.
A recent Bloomberg article made the following statement….
The $1.2 trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven programs tallied by Bloomberg — was almost three times the size of the U.S. federal budget deficit that year and more than the total earnings of all federally insured banks in the U.S. for the decade through 2010, according to data compiled by Bloomberg.
The $1.2 trillion figure represents the peak outstanding balance on these loans, not the total amount of all the loans. On December 5, 2008 the “too big to fail” banks owed this much money to the Federal Reserve. Many of them could not pay these short-term loans back right away and had to keep rolling them over time after time. Each time a short-term loan got rolled over that represented a new loan.
The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?
December 1, 2011
In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right.
The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball. Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks).
Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks.
Before getting into the timing of the Fed’s god-father actions, let’s discuss its two kinds of swaps (jargon alert – a swap is a trade between two parties for some time period – you swap me a sweater for a hat because I’m cold, when I’m warmer, we’ll swap back). The Fed had both of these kinds of swaps set up and ready-to-go in the form of : dollar liquidity swap lines and foreign currency liquidity swap lines. Both are administered through Wall Street’s staunchest ally, and Tim Geithner’s old stomping ground, the New York Fed.
The dollar swap lines give foreign central banks the ability to borrow dollars against their currency, use them for whatever they want – like to shore up bets made by European banks that went wrong, and at a later date, return them. A ‘temporary dollar liquidity swap arrangement” with 14 foreign central banks was available between December 12, 2007 (several months before Bear Stearn’s collapse and 9 months before the Lehman Brothers’ bankruptcy that scared Goldman Sachs and Morgan Stanley into getting the Fed’s instant permission to become bank holding companies, and thus gain access to any Feds subsidies.)
Those dollar-swap lines ended on February 1, 2010. BUT – three months later, they were back on, but this time the FOMC re-authorized dollar liquidity swap lines with only 5 central banks through January 2011. BUT – on December 21, 2010 – the FOMC extended the lines through August 1, 2011. THEN– on June 29th, 2011, these lines were extended through August 1, 2012. AND NOW – though already available, they were announced with save-the-day fanfare as if they were just considered.
Then, there are the sneakily-dubbed “foreign currency liquidity swap” lines, which, as per the Fed’s own words, provide “foreign currency-denominated liquidity to US banks.” (Italics mine.) In other words, let US banks play with foreign bonds.
These were originally used with 4 foreign banks on April, 2009 and expired on February 1, 2010. Until they were resurrected today, November 30, 2011, with foreign currency swap arrangements between the Fed, Bank of Canada, Bank of England, Bank of Japan. Swiss National Bank and the European Central Bank.
They are to remain in place until February 1, 2013, longer than the original time period for which they were available during phase one of the global bank-led meltdown, the US phase. (For those following my work, we are in phase two of four, the European phase.)
That’s a lot of jargon, but keep these two things in mind: 1) these lines, by the Fed’s own words, are to provide help to US banks. and 2) they are open ended.
There are other reasons that have been thrown up as to why the Fed acted now – like, a European bank was about to fail. But, that rumor was around in the summer and nothing happened. Also, dozens of European banks have been downgraded, and several failed stress tests. Nothing. The Fed didn’t step in when it was just Greece –or Ireland – or when there were rampant ‘contagion’ fears, and Italian bonds started trading above 7%, rising unabated despite the trick of former Goldman Sachs International advisor Mario Monti replacing former Prime Minister, Silvio Berlusconi’s with his promises of fiscally conservative actions (read: austerity measures) to come.
Perhaps at that point, Goldman thought they had it all under control, but Germany’s bailout-resistence was still a thorn, which is why its bonds got hammered in the last auction, proving that big Finance will get what it wants, no matter how dirty it needs to play. Nothing from the Fed, except a small increase in funding to the IMF.
Rating agency, Moody’s announced it was looking at possibly downgrading 87 European banks. Still the Fed waited with open lines. And then, S&P downgraded the US banks again, including Goldman ,making their own financing costs more expensive and the funding of their seismic derivatives positions more tenuous. The Fed found the right moment. Bingo.
Now, consider this: the top four US banks (JPM Chase, Citibank, Bank of America and Goldman Sachs) control nearly 95% of the US derivatives market, which has grown by 20% since last year to $235 trillion. That figure is a third of all global derivatives of $707 trillion (up from $601 trillion in December, 2010 and $583 trillion mid-year 2010. )
Breaking that down: JPM Chase holds 11% of the world’s derivative exposure, Citibank, Bank of America, and Goldman comprise about 7% each. But, Goldman has something the others don’t – a lot fewer assets beneath its derivatives stockpile. It has 537 times as many (from 440 times last year) derivatives as assets. Think of a 537 story skyscraper on a one story see-saw. Goldman has $88 billon in assets, and $48 trillion in notional derivatives exposure. This is by FAR the highest ratio of derivatives to assets of any so-called bank backed by a government. The next highest ratio belongs to Citibank with $1.2 trillion in assets and $56 trillion in derivative exposure, or 46 to 1. JPM Chase’s ratio is 44 to 1. Bank of America’s ratio is 36 to 1.
Separately Goldman happened to have lost a lot of money in Foreign Exchange derivative positions last quarter. (See Table 7.) Goldman’s loss was about equal to the total gains of the other banks, indicative of some very contrarian trade going on. In addition, Goldman has the most credit risk with respect to the capital it holds, by a factor of 3 or 4 to 1 relative to the other big banks. So did the Fed’s timing have something to do with its star bank? We don’t really know for sure.
Sadly, until there’s another FED audit, or FOIA request, we’re not going to know which banks are the beneficiaries of the Fed’s most recent international largesse either, nor will we know what their specific exposures are to each other, or to various European banks, or which trades are going super-badly.
But we do know from the US bailouts in phase one of the global meltdown, that providing ‘liquidity’ or ‘greasing the wheels of ‘ banks in times of ‘emergency’ does absolute nothing for the Main Street Economy. Not in the US. And not in Europe. It also doesn’t fix anything, it just funds bad trades with impunity.
Republican candidate for president Rep. Ron Paul (R-TX) appeared on CNBC to discuss the Federal Reserve and a worldwide quantitative easing, the 2012 field and an independent run for office.
“That doesn’t mean a whole lot. That’s what they’re in the business of doing, and that is to inflate the currency to tide people over and to provide liquidity. And providing liquidity in a situation like this just means they’re buying up bad debt that nobody else wants and they do this by creating credit. But I think it’s sort of a reflection of a panicky type of reaction to get everybody doing this. Including China. They must really be worried to get together like this,” Ron Paul said about the Fed’s decision, 9 to 1, to not change the monetary policy, which means more printing.
Opining on the Republican field, Ron Paul says they all “just represent the status quo.”
“Yeah, I think it’s because it’s more of the status quo. I think all the other Republican candidates just represent the status quo,” Paul told CNBC. “More of the same. No change in the foreign policy. No change in the federal reserve. No cut in spending. I’m the one that’s offering a trillion dollars in cuts because I believe the government is so big and so out of control that you have to have real cuts. But all this other talk about cuts, whether it’s Romney or anybody else, the cuts in proposed increases, that’s why the American people don’t believe that they have a solution.”
“We just keep doing exactly what we’ve been doing for the 40 years. Spending excessively, running up debt, printing up money, and manipulating interest rates. And we’re up against the wall now, it doesn’t work anymore. Lowering interest rates is essentially impossible. That’s what they’re desperately trying to do today. But, you know, when our interest rates to the banks are down to zero, What are they going to do? Used to be that Congress would just spend more money and that would help. How can they spend more money when there’s no more money in the Treasury. So, no, Romney and the rest aren’t offering anything new,” he said.
Ron Paul also warns the Federal Reserve in the interview. He says the Fed shouldn’t bailout Europe on the backs of the American taxpayers.
Paul once again wouldn’t rule out a third party run if he does not get the Republican nomination. However, Paul said it was very unlikely, describing the chances as 1 in 20 million.
Please visit Ron Paul’s official campaign site and donate today!
“Half of all American workers now earn $505 or less per week.”
Do you ever get the feeling that the middle class in America is shrinking? Well, you are not imagining things. A confluence of very troubling long-term economic trends has created an environment in which the middle class in America is being absolutely shredded.
Today, most American families would be absolutely thrilled if they could live as well as past generations did. The dream of receiving a solid education, getting a good job, owning a beautiful home and enjoying the good things that America has to offer is increasingly becoming out of reach for a growing number of Americans.
The reality is that even though our population has grown, there are less jobs than there used to be. A much higher percentage of the jobs that remain are low income jobs. Millions of middle class American families are desperately trying to hang on as inflation far outpaces the growth of their paychecks. Millions of others have fallen completely out of the middle class and are now totally dependent on the government for survival.
We once had the largest, most vibrant middle class in the history of the world, but now way too much unemployment, way too much inflation, way too much greed and way too much debt are all starting to catch up with us. America is changing, and not for the better.
When most of us were growing up, we understood that there was an unspoken promise that if we got good grades, stayed out of trouble, worked really hard and did everything we were told to do, the system would reward us.
Well, today there are millions of Americans that have done all of those things but don’t have anything to show for it.
As large numbers of hard working people continue to fall out of the middle class, there is a growing sense that “the system” has betrayed us all.
Sadly, the truth is that the U.S. economy is dying. The endless prosperity that we all enjoyed in the past is gone and it is never going to come back.
The following are 34 pieces of evidence that prove that the middle class in America is rapidly shrinking….
#1 In 1980, 52 percent of all jobs in the United States were middle income jobs. Today, only 42 percent of all jobs are middle income jobs.
#3 Only 63.5 percent of all men in the United States had a job last month. According to Bloomberg, that figure is “just slightly above the December 2009 nadir of 63.3%. These are the lowest numbers since 1948.”
#4 In 1969, 95 percent of all men between the ages of 25 and 54 had a job. Last month, only 81.2 percent of men in that age group had a job.
#5 According to one recent survey, 64 percent of Americans would be forced to borrow money if they had an unexpected expense of $1000.
#6 The wealthiest 1% of all Americans now control 40 percent of all the wealth in this country.