[DrStool]

Rationalize, on Dec 2 2008, 08:09 AM, said:

Umm, ok I am confused.

If the FED buys Treasuries means it is printing money to finance government spending, right?

Money supply explosion.

They've already announced that they will by $600 billion of GSE and MBS paper. That would have the same effect and virtually everybody reached the conclusion you did. But as I've been saying, while it would seem likely that it would be direct monetization, it depends on whether they continue to attract reserve deposits apace. If they don't, then it is monetization. Whether that results in an increase in the money supply depends on what the players do with it. If intermediaries continue to hoard cash, then there will be no growth in M.

I remain a skeptic until the data tells me otherwise, and I don't trust the money supply data one iota. It' hasn't reflected the collapse of the debt backing the money. If too many economic units decide that they want their money at the same time it will bring about the collapse of not only the financial system, but potentially the US government as well given that it has taken upon itself to guarantee all this "money" in the bank, and MMFs.

We are sitting on a tinderbox and it could blow at any time if confidence sags any more.

[DrStool]

http://wallstreetexa...s-update-12208/

[Rounder]

Uncle Buck gettin spanked this morning, crude rallying back after trading as low as 47.36 overnight.

[psyche doctor]

Rounder, on Dec 2 2008, 09:33 AM, said:

Uncle Buck gettin spanked this morning, crude rallying back after trading as low as 47.36 overnight.

Bought some oil futures (CLF9) last night near that price. My limit to sell at 49.85 got tripped sometime for a nice move. I probably should of stayed in the trade longer, though.

[Rounder]

psyche doctor, on Dec 2 2008, 08:42 AM, said:

Bought some oil futures (CLF9) last night near that price. My limit to sell at 49.85 got tripped sometime for a nice move. I probably should of stayed in the trade longer, though.

Nice trade bro... got rejected at 50 level, may be tough to breach unless Bucky continues her slide

[Rationalize]

.. ES is wandering between 830 & 835 ..

Computer says DOWN.

I say: uncommitted.

EDIT

[coastiepilot]

DrStool, on Dec 2 2008, 08:19 AM, said:

They've already announced that they will by $600 billion of GSE and MBS paper. That would have the same effect and virtually everybody reached the conclusion you did. But as I've been saying, while it would seem likely that it would be direct monetization, it depends on whether they continue to attract reserve deposits apace. If they don't, then it is monetization. Whether that results in an increase in the money supply depends on what the players do with it. If intermediaries continue to hoard cash, then there will be no growth in M.

I remain a skeptic until the data tells me otherwise, and I don't trust the money supply data one iota. It' hasn't reflected the collapse of the debt backing the money. If too many economic units decide that they want their money at the same time it will bring about the collapse of not only the financial system, but potentially the US government as well given that it has taken upon itself to guarantee all this "money" in the bank, and MMFs.

We are sitting on a tinderbox and it could blow at any time if confidence sags any more.

Doc,

Am I correct in stating that regardless of whether or not the new reserves that will be added once the FED purchases the GSE/MBS paper are utilized to increase fractional-reserve lending (at least initially), there would still be substantial direct monetization because the Treasury account at the FED will be credited by the same amount of the purchases ( since they are the conservators now?). Unless the FED and Treasury have some sort of agreement for the latter to not spend that fresh cash, I don't understand how this would not be inflationary.

Am I way off base here?

[Rationalize]

coastiepilot, on Dec 3 2008, 01:00 AM, said:

Doc,

Am I correct in stating that regardless of whether or not the new reserves that will be added once the FED purchases the GSE/MBS paper are utilized to increase fractional-reserve lending (at least initially), there would still be substantial direct monetization because the Treasury account at the FED will be credited by the same amount of the purchases ( since they are the conservators now?). Unless the FED and Treasury have some sort of agreement for the latter to not spend that fresh cash, I don't understand how this would not be inflationary.

Am I way off base here?

* If the GSEs use the $ purely as reserves then it is effectively sterilised. Not lent = no multiplier effect = no 'add'.

Did I get that backward?

[ChicagoBear]

coastiepilot, on Dec 2 2008, 09:00 AM, said:

Doc,

Am I correct in stating that regardless of whether or not the new reserves that will be added once the FED purchases the GSE/MBS paper are utilized to increase fractional-reserve lending (at least initially), there would still be substantial direct monetization because the Treasury account at the FED will be credited by the same amount of the purchases ( since they are the conservators now?). Unless the FED and Treasury have some sort of agreement for the latter to not spend that fresh cash, I don't understand how this would not be inflationary.

Am I way off base here?

I think we need to look at where the money comes from. If the Fed is using funds from the SFP, then they are not monetizing. The money was borrowed by our government who then gave it to the Fed to use. This would only be jello moving around the plate.

Maybe this is too simple and I'm missing something, but I don't think we can call it monetization.

I'm looking forward to Doc's next Fed report.

[DrStool]

coastiepilot, on Dec 2 2008, 09:00 AM, said:

Doc,

Am I correct in stating that regardless of whether or not the new reserves that will be added once the FED purchases the GSE/MBS paper are utilized to increase fractional-reserve lending (at least initially), there would still be substantial direct monetization because the Treasury account at the FED will be credited by the same amount of the purchases ( since they are the conservators now?). Unless the FED and Treasury have some sort of agreement for the latter to not spend that fresh cash, I don't understand how this would not be inflationary.

Am I way off base here?

Whether any expansion of the Fed's balance sheet is inflationary or not depends on what the recipients of the cash do with it. Obviously it also depends on whether the expansion is really monetization or just a circle jerk. If the Treasury or the banks are deposting cash at the Fed, and the Fed then lends that to somebody else, or back to the same players, that's just a circle jerk. Only if those players then lend to other third parties does the money supply expand.

We need a lawyer to explain how conservatorship works. I don't think that the accounts of Fannie and Freddie are consolidated with the Treasury's balance sheet. I also don't know that the the funds would be deposited at the Fed, or where or what the GSEs would do with the funds. I also don't know how much of the paper would be purchased directly from Fannie and Freddie and how much from third parties. What will the third parties do with the funds; hoard or lend?

Also, as I have discussed in the Fed report, the Fed is now stepping in where the FCBs have stepped out. What difference does it make to substitute a subsidy from one set of central banks with a subsidy from another central bank? I guess it depends on the relative size and timing of the purchases. The FCBs have already dumped over $100 billion of GSE paper in the past two months. The Fed says it will buy $100 billion. Not enough, since the FCBs will only pick up their pace of selling now that the Fed is willing to replace them as bagholder of last resort. The Fed says that it will buy $600 billion of other MBS. What will the holders do? Will they lend, or will they just breathe a sigh of relief, say "thank you very much" and stick the cash in their pocket?

So although virtually everyone is doing it, I don't think it's prudent to automatically assume that any of this will result in inflation at any time in the forseeable future. We remain in a deflationary debt collapse, and until I see evidence that this slide is beginning to reverse, I want no part of any major committment to an inflation trade.

I am more interested in what is than in what will be, because I don't think in this environment that you can count on any particular outcome. The trick is to identify when the game is changing as early as possible, but not too early. That is the point at which we adjust our strategy and tactics.

Japan already tried all this crap and they were never able to inflate. Why the inflation camp ignores this obvious and undeniable fact, I don't understand. I suppose it comes back to what I have said in the past about the attachment to gold being more like religion. Goldbugs hold gold as a matter of faith. Not that there's anything wrong with that. Sometimes it works. It has worked since 2001. I'm just not sure that it will continue to work in this environment. So call me an agnostic on the potential for future inflation.

Those are my thoughts at this time. I will continue to discuss these issues in greater depth in the Wall Street Examiner Professional Edition Fed Report. An update will be published today.

[ChickenLittle]

One question:
The Yen was not an international reserve currency. I dont recall BOJ setting up swap lines for Yen liquidity with other CBs. So all the high powered Yen created by BOJ basically sat around and stagnated on Japanese bank balance sheets.

The Dollar seems to be different. fed has provided waht, $300bn or so in swap lines?

Iam also starting to seperate out Dollar credibility from Inflation. I think inflation is mostly driven by oil . Oil has almost vertical supply/demand lines and the spare capacity cushion is very low - perhaps 2mm bbls/day - So one can expect huge price moves with slight shifts in the demand or supply curves. Therefore I would'nt take too much comfort fro the recent plunge in crude prices . It could reverse equally fast.

[Speakeasy]

Bucky is showing some weakness this ayem in the potential form of a H&S, his preferred top since THE top. If it were to play out, we are looking at 80.5 drop at a minimum.

I added to my index calls on the morning retest. If the spx inverse h&s plays out, we be looking at 1050 or so.

Attached thumbnail(s)

• 

[phatbubble]

It sure was easier when it was just OMO feeds & drains.

[ChickenLittle]

As for gold. It is more related to credibility/lack thereof in the dollar and the banking system. It will be driven mostly by moves in the midle east and asia as the wealthy try to crystallize their wealth in tangible form and central banks increase their gold holdings. Nothing to do with the US CPI!!

[prancing_cow]

Some guest on Crapvision called Nenner is talking about cycles, news is noise and that we might be facing Japan scenerio.

BTW, he sees a tradable low now.