Friday, March 20, 2009

Bernanke shoots at recession, hits us instead.

Bernanke finally did it and printed up $300 billion to buy up more treasuries. Such an action is important as the treasury yields could wreck the economy as they set interest rates for numerous industries as well as the rates the government must pay those who are financing our deficit. The Wall Street Journal reported yesterday:
"The Federal Reserve ramped up its effort to revive the economy, declaring it would buy as much as $300 billion of long-term U.S. Treasury securities in the next few months and hundreds of billions of dollars more in mortgage-backed securities.
The Fed had already cut its benchmark interest-rate target to near zero. Unable to go lower, the central bank now is essentially printing money to raise the supply of credit and thus push down the longer-term rates paid by families and companies on mortgages and other key loans. The impact was immediately felt
..."

Some such as the chief economist at New York Mellon Bank applauded the move:
"This is a very powerful and aggressive move,” Hoey, chief economist at Bank of New York Mellon Corp., said in an interview with Bloomberg Television. “One of the reasons I’ve been arguing we won’t have a depression is we’ve got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine.” Bloomberg: Rambo Fed buying treasuries

However, the Fed's decision to print money to purchase so many treasuries in an attempt to cap interest rates drew much criticism from financial bloggers. Here are some of the comments from around the web:

Karl Denninger of The Market Ticker penned the headline "Ben inserts gun in his mouth" as he wrote with acid in denouncing the Fed's action:
"We've got over a trillion in trash on our balance sheet now, which we promised would fix the problem but it didn't do jack. That's because nobody in their right mind will borrow money when the economy is in the tank and debt levels are above sustainable maximums. The only borrowers are people who are deadbeats, and that doesn't help. Instead of clearing this out by forcing the bankrupt to take their medicine our "solution" is to attempt to devalue the currency by explicit monetization. We have little choice in this matter because the most-recent TIC data that has been published, along with what hasn't been published (yet) but which we have, shows that foreigners have given us the finger in buying any more of our agency, corporate and sovereign debt. In short, we're screwed - within months - and we know it. .." Kevlar anyone?

and a little more soberly in this analysis:
"Ultimately The Fed winds up owning all of its own government's bonds, having destroyed the private capital market for sovereign debt (just as it has done for other securitized debt by threatening to overpay for those issues!)
The difference is that if this happens for sovereign debt then deficit spending becomes impossible on an instant basis; this would in turn force a nearly 75% contraction of government spending...." Quantitive Easing


Calculated Risk pointed out contrary to expectations, mortgage rates may not fall even though such is part of Bernanke's intent:
"Based on this historical data, the Fed would have to push the Ten Year yield down to around 2.3% for the 30 year conforming mortgage rate to fall to 4.5%.
Currently the Ten Year yield is 2.58%, suggesting a 30 year mortgage rate around 4.7%.
If the Fed buys Ten Year treasuries with the goal of 4.0% mortgage rates, they might have to push Ten Year yields down under 2.0%, maybe close to 1.5.." How far will mortgage rates fall?

Bernanke will have to buy many more treasuries to push the rates that low. Naked Capitalism stated pros and cons in a couple of succint paragraphs:
"it's a gamble. The Fed's purchasing power is not made in a tree by elves. It comes from, essentially, printing more money. If the world's biggest danger is deflation, as Bernanke and a number of economists believe, then this action is wise. The trick to price stability is "reflation" not tight-fisted central banks. If conditions are different, however, it bakes serious inflation in the cake. Thus today's market gyrations, which at the moment have the dollar down, gold and oil up and stocks falling. This is less a fear of raging inflation, than a fear of uncertainty itself, to paraphrase FDR.
But the Fed is out of the conventional tools it has used in post-World War II recessions. Interest rates are virtually zero. So now it's a step into a risky undiscovered country. Among the risks is how our overseas creditors react if they believe this will dilute the value of their dollar-based assets, including Treasuries. Then there's the danger that Bernanke is creating yet another Fed-made bubble, with an even worse crash to follow. If it works, however, it may finally get credit moving. Stay tuned..." Road to Reflation


Option Armageddon was rather curt in its opinion:
"The Fed will be creating money electronically out of thin air to finance these purchases. When you buy a bond, its price rises and its yield drops. Buying another $750 billion of MBS along with $300 billion worth of Treasurys with printed money is a simple trade-off, debasing the currency so we can put a lid on the public’s and home buyer’s cost of debt finance.
This is terrible monetary policy. Keeping interest rates artificially low will encourage credit expansion when what’s needed to actually heal the economy is credit contraction. This sounds counter-intuitive, isn’t more lending what’s needed to “get the economy going?” No, too much credit is what got us into this economic mess in the first place. Asset values of all kinds are still over-inflated relative to their intrinsic value, the value of their discounted cash flows.
Credit is a drug. And the Fed is America’s dealer. We know we need to quit the stuff, but we’ll worry about that tomorrow. What we need right now is another fix in order to get through today. Our dealer, of course, is happy to oblige
."
Fed crack anyone?

Finally, leading finance blogger Mish minced no words in calling this policy a failure:
Please note that Bernanke has already failed. "It" (deflation) has arrived. And deflation has arrived in spite of the fact that Bernanke has slashed rates to 0%, instituted numerous lending facilities that have all failed, squandered $trillions in taxpayer money, and has already implemented phase II (or do I mean phases 2 through 20) of his plan, that being the "offer fixed-term loans to banks at low or zero interest, with a wide range of private assets as collateral...
The Fed has become the lender of only resort as opposed to the lender of last resort. Bernanke cannot force banks to lend nor can he force companies to hire or if they do hire the wages that will be paid.Wage destruction continues unabated, and if Bernanke does succeed in driving prices higher, he just might ask himself, how anyone is going to pay the bills..."
Bernanke's Grand Experiment

Bernanke's "Grand Experiment" is going to cost us dearly as he tries to manipulate the bond markets. This will force potential buyers (including the Chinese who have already done so) to sit on the sidelines as they will no longer trust the market. As demand dries up, the governmnet will then print more money to keep the yields down, opening up the inflation can of worms. At some point, consumers will face interest rates that have gone up, a weakened dollar, and inflation that threatens our livelihood. Already, the dollar is falling as reflected in the Wall Street Journal about oil today: "Crude-oil prices surged above $50 a barrel Thursday, a day after the Federal Reserve said it will inject billions of dollars into the U.S. economy.
The surprise action sent the dollar plunging against the euro, reviving long-dormant investor interest in using crude-oil futures as a hedge against weakness in the U.S. currency..."

The Fed is playing with matches and unfortunately there are no adults around in case they catch the house on fire.

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).


Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.


In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.


Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS
.