What Passes for Monetary Policy

Glad the Prime Rib cook was a hit! It was a great cook indeed.

Randy Moss Finds a Way
I will be honest, I was pretty pissed when the New England Patriots let Randy Moss go to the Vikings for a 3rd round draft pick. I have always thought Moss is maybe the single most dangerous man in the NFL. After what happened in his stint at Minnesota I just have no idea what is going on.

Here is where things are; Moss was waived today by the Vikings after just 3 games there. The post game press conference was very strange as Moss went nuts talking about how great the Patriots are and how much he misses the team. It has never been clear what drove the breakup between Moss and the Pats, but maybe he was becoming more unhinged and they saw that. I don't know.

The major issue for Moss now is that he is looking for a contract and he wants big time receiver money, maybe 8 million a year. No one in their right mind will pay him that now, no one. Not even the Raiders or Redskins (well maybe). I have always been a fan of Moss and I can only hope he can get his head on straight before it is to late. What the heck is going on here?

Election Eve
Before I became a hard core financial junkie, I was once very into things politics. I followed everything and read tons of stuff. I remember when Instapundit was my first and last stop on the computer. I remember emailing the author on several occasions telling him the the biggest issue coming up was the housing bust (2006-2008) but only after it broke was there coverage! Anyways, what I am saying is that I used to be all gung ho about politics.

Looking to tomorrow's election you will hear that this is "the biggest election maybe ever" or until the next one or the next one. Is it big? Yes and no.

Look I want to tell you if the Republicans win big tomorrow things will change. I don't baloney my readers so I cannot write that. I want to say a whole slew of old time incumbents will get the boot, but I think the hype has been overdone on that angle.

US politics will never change as long as voters cannot correctly identify the major issues and then make sure candidates face them. Items like gun rights or unlimited abortion at 7-11's pale as issues next to the reckless spending and nasty economic issues facing this country. The last 2 years have seen the biggest frauds in financial history and never before has the taxpayer been on the hook for losses so large it makes one dizzy. The FED and the Treasury operate without law and without oversight. Theses things are issue number one, the rest is background. If one cannot be sure of their future security, what does all that other stuff really matter?

I don't want to get all political here. I will leave at I suggest you vote out anyone that voted for any bailout and anyone really in office Dem or Rep. Change as many seats as possible. Just don't expect the new guys to be much different from the old guys (or girls). At least we could scare them a little!

What Passes for Monetary Policy
Things will be flat until the elections are over and the FED makes their big splash (or splat?) on Wednesday. There were some words out today about an investigation into JP Morgan regarding their Magnetar dealings but look for a smallish settlement to occur on that. Ambac (ABK) is going bust in what was the slowest motion wreck ever (No worries MBIA rallied on the news!) but again such things matter little when free money is around. Kid Dynamite covers an important item about the Wilmington trust bank selling itself today at 1/2 off Friday's price. All the time I spent on the evils of mark to myth are covered here; when the rubber meets the road the banks are in trouble.

One other note was a Paul Krugman item that reminds me why I call him "The Krugmonster". In an opinion blog post The Krugmonster offers this dandy of an item:

The End Of Western Civilization
Gauti Eggertsson writes in to follow up on my piece on quantitative easing in the Great Depression. He points me to a 2008 paper (pdf) in which he shows that the coming of FDR, combined with America’s exit from the gold standard, was seen by markets as a huge regime change; it was, said FDR’s own budget director, “the end of Western civilization.”

This regime change immediately shifted expectations of future inflation, well before there was any actual surge in monetary base. That, rather than the quantitative easing per se, is how monetary policy — or more accurately, expectations of future monetary policy — gained some traction in the 30s liquidity trap.

Again, an important lesson — but how relevant is it to current circumstances? Bernanke, unfortunately, cannot convince people that he’s bringing the end of Western civilization.

Understand?

Clowns like The Krugmonster would prefer you panic and buy 10 tons of rice and 5 houses out of fear your money will be worthless just to support "aggregate demand" on one of his stupid equations. This kind of thinking shows how dangerous thinkers like this can be. No care is given to imbalances or whether this kind of thing is a long term solution. When I read something like this I wonder how far Bernanke will go to scare people into blowing their cash. A Yahoo Finance story has this gem:
Fed Puts Stamp of Approval on Riskier Assets
You can read the whole thing, but the ending is the best line:

Here's the key to understanding QE2's impact: Don't think of it as a stock movement. Instead, think of it as a risk movement with a seal of approval from the Federal Reserve.

Wow.

Maybe it is time to get stocked up on rice, toilet paper, and some shiny metals.

Have a good night.

In the Mind of a Child

My house is a complete mess right now. We are about set up for the kitchen project to commence tomorrow. Paper plates, paper cups, and easy cook meals via the microwave or the Steel Keg will have to do for the next 2 weeks or so. Of course waiting until the last minute to buy your range, hood, microwave, sink, faucet and flooring is not recommended.

In the Mind of a Child
Last week I was pressed for time so I did not really write much. After giving things some thought today, I came to the conclusion that global denial is in fact coordinated policy and the markets (via stock proxies) are willing enablers. Small business and the private sector have not been able to join in on the La-La Land Parade, but maybe they should it has been quite a party so far.

What do I mean? Take any of the following:
Kid Dynamite writes about the FDIC playing guarantee games. Read the whole entry and can see the next logical application of "extend and pretend".

Even more action involving the FDIC and said guarantees; even now issuing FDIC Bonds which is a first:

The FDIC must sell assets to continue the closings. It has about $37 billion of bad-bank assets to sell, but the stockpile would bring only 10 to 50 cents on the dollar.

Enter the FDIC's Securitization Pilot Program, the sale of U.S.-guaranteed FDIC senior certificates. This enables the FDIC to push much of the losses off its books, thanks to the U.S. guarantee of principal and interest. The program starts with a $500 million issue.

"They aren't really selling the bad assets. They're selling the equivalent of a Treasury bond without congressional approval," says William Black, a former thrift regulator. "It hides the economic substance of what's really happening—an unlimited taxpayer bailout."

The FDIC contests the characterization, saying it doesn't expect a claim on the guarantee because of an equity cushion to absorb the losses, and the use of only performing mortgages in the pools. The agency says a lot of resources stand between it and the taxpayer.

Of course this will get a total of ZERO discussion or review.

The Euro Stress tests were about as silly as expected, but note this observation:

First of all, you should be skeptical anytime EVERYONE is saying that the stress tests were too weak, if the market doesn't register the same disappointment.

Well then I guess the market knows all! Makes things easy, yes?

All is going so well we finally see some acknowledgement of what I have been saying forever; low rates are now structural in nature and no large economy will be able to function if rates rise:
Ernst & Young: The UK Recovery Is So Weak That They Won't Be Able To Raise Interest Rates For Many Years To Come
Exactly.

The Housing Time Bomb opines on all this with the following questions:

The problem longer term is there are too many questions that have no answers:
How long can the Fed replace the consumer?
How long can we continue to sell $189 billion in treasuries like we are about to do next week?
How long will unemployment continue to rise?
Where are the new jobs going to come from?
How are we going to pay down the deficit?
How are the states going to stay solvent?
How do we continue to fund Social Security and Medicare?

An excellent set of questions.

So what is the solution to all of this? It is simple really, you just have to think like a child.

Ignore it and pretend it does not exist.

For all that has been written over the past 2 years it really all boils down to that one line. The very essence of all the programs have been to enforce the denial.

Extend unemployment insurance? Why not? Jobless people will stay somewhat quiet if they get handed a few bucks rather than get nothing. There is now a large section of the "working"population that will be on extended UE for as long as 5 years before this is all said and done. These people would be the engine for change if they were motivated, and UE benefits keep that from happening.

FDIC, Fannie, Freddie, FHA, all these guaranteed debt issuers will never have to have their day of reckoning. Discussion on how broke they might be, or what their assets are really worth can be fun, but it is also useless. All these assets are what the US policy makers say they are one way or another.

Overall if you pile on all the uses of the following terms:
-Guarantee
-Backstop
-Explicit Backing
-Accommodating
-Shift Losses
-Taxpayer funded

A clear picture can be seen.

Just like a child, our policy is to ignore and pretend. I can say that I am amazed this has both worked and been adopted all over the global financial system. I guess we can really get away with this kind of stuff, someone or something would have stopped the process by now. It stinks to be wrong, but I guess I was foolish to think rules and reality were things that come to the surface. What can you do?

If you use the basic premise submitted here the news and events in things finance only make more and more sense. Strange days.

Have a good night.

US Economic Policy On Display

A bit short on time this evening, so just two items for consideration.

Silver Steeped in Mystery
All readers know that Economic Disconnect is a huge fan of the precious metal silver. I hold various positions in it (some SLV, PAAS, and physical mainly) so I have a bias for the shiny stuff to be sure. That said, there is yet another item out this evening that shows some possible issues with how the Silver ETF's are accounting for their physical silver which if this an area of interest to you is well worth the time.

Zero Hedge has a report up described as "a paper on statistical and factual anomalies in silver ETFs". With a title like that, you have to dig in!
Conclusion excerpt:

During our research into the inventory lists of the iShares SLV and London-based ETFS physical silver funds, we discovered multiple anomalies which cannot be easily dismissed. These included the presence of internal duplicates, rough internal duplicates, weight duplicates, statistical clustering, and cross-reference duplicates. Taken together, these anomalies are cause for concern, and we suggest that more capable teams conduct further research into these issues, as they effect price discovery within the precious metals market, as these ETF shares are being used for settlement and possibly price suppression on the COMEX.

If these problems are caused by accounting errors, they are disturbing and perhaps profoundly incompetent, and we suggest both these funds should have their senior management replaced.

In our opinions, the only way for all of these anomalies to occur together as noted in this paper, is via systemic fraud or gross accounting error bordering on jaw-dropping incompetence.

The paper references a post by the writer Mark Anthony (not J-Lo's husband!) which found some glaring problems with the silver ETF's holdings. I found the article here so please read as a follow up. For a taste of the mysterious, Zero Hedge notes that:

Unfortunately, our private considerations are for the former,
especially considering 'revisions' published to the ETFS bar list
after the appearance of Mark Anthony's July 14th 2009 article on
Seeking Alpha regarding possible ETF fraud. The ETF Securities bar lists were changed after the Anthony's discovery of duplicate bars in the Great Wall brand.

I think I have mentioned that silver holds the highest short position of any metal ever. Very interesting.

US Economic Policy On Display
Today brought several items that are very revealing in the arena of just how the US plays the game of economic fantasy land. That this kind of bold lying is both accepted, and then acted upon as truth by the rest of the world is the single most perplexing observation I have seen in my entire life.

First up, Federal Reserve Bank of Philadelphia President Charles Plosser tries to give some help to the massive bond sales this week by saying the FED may raise rates soon:

A FED Inflation Hawk Speaks
“I think we will probably have to begin raising rates sometime in the not-too-distant future,” Federal Reserve Bank of Philadelphia President Charles Plosser told Dow Jones Newswires and the Wall Street Journal in an interview.

A renowned inflation hawk at the Federal Reserve is at it again, trying to pull more dovish Fed officials under his wingspan of influence to get them to do more to battle incipient inflation.

And the timing of Plosser’s comment is interesting, notes Charles Brady, senior editor of the Fox Business Network.

The Fed is selling a record amount of weekly debt, $115 billion now coming up, a sum that tops the previous weekly record of $104 billion set just last month. The bond glut pushes yields higher because so many bonds means a lot of competition, which means the Treasury has to offer enticing, come-hither yields to lure investors in.

“The impending glut of supply has been pushing Treasury yields higher,” says Brady. “What better way to try and keep a lid on rates ahead of this debt sale than to have a Fed official say that policy makers are likely to begin raising rates sooner rather than later.”

Brady adds: “It’s also interesting to note that Plosser is not a voting member of the Federal Open Market Committee, which helps distance Plosser’s comments from the policy makers who actually do vote on rates.”

Just last week we had Ben Bernanke state with no doubt that rates would be accommodating for, well basically forever. Now another FED player tries to say the opposite. This is another example of how the US just has to say things and not do them for them to be real. Nice work if you can get it.

Next in line for the pantomime if our own Treasury head Tim Geithner. Geithner is over on tour in China saying all the right things, like this quip:

Geithner: US to address deficits after recovery
WASHINGTON (AP) -- Treasury Secretary Timothy Geithner says he has reassured China that the United States will take steps to address rising budget deficits once the economic recovery is firmly in place.

China has huge investments in the United States and has worried it could be undermined by U.S. budget deficits. Geithner says the Obama administration plans to reverse the spending of hundreds of billions of dollars devoted to stimulating the economy and propping up a teetering financial system.
Geithner spoke at a news conference Tuesday capping two-days of high-level talks between Chinese envoys and U.S. officials.

Geithner says the Chinese agreed to take steps to increase domestic consumption of its products.

Geithner pretends that US deficits are a temporary phenomena, while in fact surpluses are like a rare Amazonian animal that is rumored to exist, but never captured on film. If I was at one of these events I would roll over laughing at stuff like this.

Rounding out the trifecta today is Fed governor Janet Yellen who went so far out into pretend-ville that Jesse over at the Cafe spilled some high quality ink (pixels) on the charade (varied excerpts, but read the whole thing!):

The mainstream media is reporting that Fed governor Janet Yellen, a noted dove on inflation as Fed governors go, just told a gathering of bankers in Idaho that "deficits do not cause inflation" and summarily dismissed any concerns in that regard.

So, consulting the source material which is included just below, I am struggling to understand what she is saying, and to believe that she said it with a straight face, and was not just jawboning...

...So, we can inflate our way to prosperity, provided that we control the perception of the results of our actions. Jigger the CPI so its no longer valid, suppress long term interest rates by buying the curve selectively and suppressing gold (See Gibson's Paradox by Larry Summers), and coerce the world's central banks through various means to support our monetary inflation step for step. After all, everything is relative. Until it is not.

OMG. Our entire financial system is based on the sufferance and good will of potential adversaries to do what is in our best interests because the fragility of our currency frightens them. And well they might be fearful, when they read this from Ms. Yellen, and see how many true believers in the omnipotence of the Fed take it seriously.

Jesse lays it out much better than I ever could!

Ever since starting my foray into the economic world I have been at first surprised and then just flabbergasted that the US can do whatever it wants and then just toss out a few token lines of sanity and all is well. If China thinks our deficits are a short term event (short term = 10 years plus?) just because we say so, then I guess the US is in better shape than I thought.

Have a good night.