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The Fed Buys Last Week’s Treasury Notes
Chris Martenson, chrismartenson.com
In concert with the claims I made in the prior Martenson Insider post, The Fed bought $7 billion in Treasuries today and even more yesterday.
This is at the upper end of their recent range of already exceptional purchasing activity.
If things are so rosy that every single dip is being bought in the stock market with a vengeance, I wonder why these printing operations are really necessary?
This $14 billion plus buying activity by the Fed represents fresh money created out of this air that was exchanged for the sovereign debt of the US. However, since the Fed has, for all practical purposes, never undone its permanent operations (hey, that’s why they are called “POMOs”) we can consider these additions of money as good as permanent themselves.
…Good grief! Just last week, when the auction results were announced it was trumpeted to great fanfare that there was “more than sufficient” bid-to-cover, “strong demand” and all the rest.
And now it turns out that 47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by the Fed and permanently secreted to its balance sheet.
They didn’t even wait a full week! A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using “primary dealers” and “POMOs” and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public…
(6 August 2009)
Chris writes on his website:
I’ve started a new service for enrolled members called the Martenson Insider where I will be putting my more timely and market-sensitive thoughts. This week it is freely available to all.
Here’s a recent example illustrating that the Fed’s actions are more consistent with financial desperation than economic health.
This Time, We Can’t Leave the Middle Class Behind
Jared Bernstein, Huffington Post
Even before we got to the White House, the President, the Vice President, and the economic team were crafting policies designed to offset the deepest recession since the Great Depression. Back in mid-December of last year, I remember a meeting in Chicago, with the snow swirling outside, as we began to plan the Recovery Act, the financial stabilization plan, and housing relief, all in the context of a budget that would bring down the trillion-plus dollar deficit we were about to inherit as quickly as possible.
I also remember the Vice President talking about the difficulties facing the middle class, struggles that predated the recession. With the campaign fresh in their minds, he and the President recalled that even in supposedly good times, when the economy was expanding and unemployment was low, the families they met on the trail were having far too much trouble making ends meet. Saving for college, paying for health care, keeping up with the mortgage payments… just making their basic budgets balance out at the end of the month seemed awfully hard in an economy that was supposedly solid.
…Today, in August of 2009, we’re faced with yet another set of realities. After falling at a rate of about 6% from the last quarter of 2008 through the first quarter of this year, a rate of decline we hadn’t seen in half a century, the economy contracted at a 1% rate in the second quarter of 2009. Yes, our economy is still ailing, but six months ago, economists worried the recession would descend into depression; now they’re asking when recession will become recovery.
Here in the White House, however, recovery means something very specific, and it’s different than what economists generally mean when they talk about it. According to the panel that decides when recessions officially begin and end, you don’t need job growth or falling unemployment to declare that a recovery is underway. In fact, in the last two recoveries, it took 15 and 19 months, respectively, before the unemployment rate peaked.
That definition doesn’t work for us. No jobs, no recovery.
But — and this is the real subject of this post — job growth isn’t enough either. Remember, unemployment fell to below 5% at the end of the last expansion, but middle-income families ended up worse off, in real dollar terms, than they were before that expansion began. The productivity of our economy increased by 19% from 2000 to 2007, but the real median income of working-age households fell $2,000. The share of Americans living in poverty was actually higher in 2007 than it was in 2000…
(11 August 2009)
Jared Bernstein is Chief Economist to Vice President Biden, to get the bias here out in the open. -KS
One eye is taken for an eye
ilargi, The Automatic Earth
There’s a bad moon rising somewhere today. Not for the increasing numbers of people living in tent cities, they’ve been there and done it. All the happy talk passes them by. To get a home they need to find a job. But everyone agrees job losses will continue, even if the economy would really recover. If you don’t have a job, you ain’t getting no home. And if you don’t have a home, you ain’t getting a job. For many of the tent city dwellers, and the large numbers set to join them in the aftermath of mortgage resets, foreclosures and more job losses, that is their foreland.
There’s a great piece of logic today in the Wall Street Journal that goes something like this: because so many people lost their jobs in the past 12-18 months, many more will find jobs. Or something. I kid you not. It’s absolutely brilliant:
Pace of Job Losses Sets Stage for Quick Labor-Market Rebound
“But the biggest reason jobs might bounce back quicker from this downturn than the past two recessions, said Comerica Bank economist Dana Johnson, is that the economy looks likely to see a much bigger bounce as it recovers. Gross domestic product — the value of all goods and services produced by the economy — has fallen by 3.9% since economic output peaked last year, marking the steepest decline since the end of World War II. In contrast, the 2001 and 1990-91 recessions were among the shallowest on record.
History says that given the depth of the downturn, GDP should grow at a 6% to 8% rate over the next year..”
…Yes, stock markets have been going up. So what? That just means there’s still money out there that’s seeking a place to be. Or, more correctly, there was money out there when the rally started and now it’s found a way to change hands. And when everybody and their pet parrot feels they need to get themselves a piece of the profits, that’s when the lever for the false bottom is pulled. Tragic for many, but not exactly a unique event.
Consumers are still up to their necks in debt, the Obama administration requests permission to drag the nation deeper in, and companies across the industrial spectrum are hoarding cash as a buffer against what they fear will befall them once the bad moon starts rising. Namely, that they won’t be able to pay back their debt. It’s the same anguish that options trades are already acting on: a deep seated fear of September and October, a fear that is much less abstract and much more real than the childish green shoots mantra that has lifted markets in the first part of 2009.
We are at the tail end of a six month period of change we can believe in that hasn’t changed much of anything, a period that will be remembered as one characterized primarily as an orgy of free money, free money for banks, for carbuyers and for homebuyers. We are soon to find out how free that money exactly has been. It may take another month, or two, it may take us into November even, if debt ceilings are raised and more stimulus plans full of free money are spread among the faithful flock…
(11 August 2009)
From the automatic earth website: Stoneleigh and Ilargi present a daily overview of Debt, Diesel and Dämmerung.
