Worth a Read Tuesday
A few posts ago I was discussing the FED looking to remove any banking reserves and what that would mean. That lead to a far reaching discussion across another site (Kid Dynamite) and I learned quite a bit.
Mish steps in and tackles the same story today:
Bernanke Wants to End Bank Reserves Completely: Does it Matter? What Chaos Will Result
Key point from Mish:
Q1: What in the world is Bernanke thinking?Well there you go!
A1: That elimination of reserve requirements simply matches what banks are already doing. Moreover, a formal policy shift eliminates a bunch of accounting paperwork that started in 1994 when Greenspan authorized sweeps.
Why makes banks go through all these sweep charades given the result before and after is effectively a policy of "no reserves" anyway? Viewed that way, (and at the risk people will take this sentence completely out of context) Bernanke's proposal makes perfect sense.
Q2: If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system?
A2: Exactly the kind of banking chaos we have already seen! Nothing has changed. Expect more chaos because it is coming.
Greenspan said last week reserves must grow by 40% and others say they do not matter. Economics is a real science.
All that's wrong with the political/banking system can be summed up by the following headline:
Jon Corzine Joins MF Global As Chairman And CEO, Stock Surges Ridiculously
Well, at least he did not return to Goldman Sachs.
The much hyped HAMP mortgage program has underperformed and a great guest post over at Calculated Risk has one example of the non effort most are going through to qualify for a free, I mean better mortgage:
HAMP Applicants Tanned and Juiced
One months spending by an applicant included:
• visits to the tanning salonThe consumer is never dead!
• the nail spa
• some kind of gourmet produce market (have you seen the price of arugula?)
• various liquor stores
• A DirecTV bill that must involve some serious premium programming or pay-per-view events (or both?).
• And over $1,700 in retail purchases, including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples, and Footlocker.
Another example of the joke being played on us all.
Jesse's Cafe Americain links to a post covering the way I think about default and hyperinflation:
Watch the Bond Market, not Bank Lending or Velocity
The deflationists have it backwards. As we've illustrated, severe deflation is what leads to hyperinflation. Debt crisis' go hand in hand with currency crises. In fact, if we had an increase in bank lending, consumption and velocity, we'd be assured we wouldn't have hyperinflation. We'd end up with rising price inflation for certain, but not hyperinflation. Hyperinflation has never occurred at a time of strong or growing demand.
Are we not in deflation right now?
The soon to be newest FED head had this to add to all you fools thinking a rate hike was coming as soon as this year:
The Fed's New Vice Chairman Janet Yellen Implies No Fed Rate Hike Until 2013
Now Yellen did not say "no hike until 2013" but here criteria for a rate hike make one impossible for a long time.
Have a good night.