- What You Absolutely Need to Know About Money (Part 6) How did stodgy traditional banking morph into “casino banking” on a global scale? Shah Gilani explains the crooked path to where we are today… Read more... Read More...
5 Things the Federal Reserve Hopes You'll Never Find Out
Most Americans assume the U.S. Federal Reserve is a powerful government institution that seeks only to safeguard the dollar, boost the economy and drive employment higher.
That's what the Fed wants you to think.
The illusion of the Fed as a stabilizing, positive government entity has more or less existed since its creation under dubious circumstances in 1913.
"It not only avoided the word bank, it cleverly implied federal, or government, control over the establishment of a pool of reserves that would backstop the new banking 'system,'" said Money Morning Capital Wave Strategist Shah Gilani.Read More...
FOMC Meeting Message: Don't Blame Us for Sluggish Economy
The Federal Open Market Committee (FOMC) meeting concluded today (Wednesday) with one clear message to Washington: Thanks for the lousy economy.
Central bank members cited only "moderate" expansion in economic activity and a slow improvement in the stubbornly high unemployment level.
Acknowledging the economy is moving at an unhurried pace, the FOMC members pointed an accusing finger at Capitol Hill.
"Fiscal policy is restraining economic growth," the statement read. That remark was in direct reference to a deadlocked Congress, sequestration and its far-reaching impact.
A spate of fresh economic reports back that sentiment:Read More...
David Stockman: Thanks to the Fed, We're in "Monetary Fantasyland"
David Stockman, who served as budget director under President Ronald Reagan, is taking aim at a favorite target: the U.S. Federal Reserve.
Stockman minced no words in a Monday interview on FOX Business' "Varney & Co."
Speaking of the Fed, he told host Stuart Varney, "They have violated every rule of sound money that's ever existed. They've got the money market rates at zero. They have managed and rigged the entire yield curve so nothing is real out there. It's all trading against the Fed."
He said speculators will continue to invest as long as the Fed can hold the bond price up and the yield down "and keep shoveling out free overnight money."
"We're in a monetary fantasyland," Stockman said.Read More...
- Why Crime Pays for "Too-Big-To-Fail" Banks U.S. banks will pay more than $100 billion in fines due to acts that caused the financial crisis. Think that bothers them? Shah Gilani explains why it's just business as usual… Read More...
Why We Can't Avoid Ben Bernanke's "Monetary Cliff"
When it comes to the Federal Reserve, an accurate “reading of the tea leaves” means paying attention to all of the fine print. And while the markets cheered last week's FOMC meeting with yet another rally, a deeper look at Ben Bernanke's press conference left me with a slightly different taste in my mouth.
If you sift through the "Fedspeak," it becomes obvious that the Fed is now lining up a “monetary cliff" that’s bigger than the fiscal one we spent the last half of 2012 worrying about.
Here’s what the Fed has in store for us now... Read More...
- What You Absolutely Need to Know About Money (Part 5) Ever wonder where the Federal Reserve came from? Shah Gilani explains the little-known history behind the “The Creature from Jekyll Island." Take a look. Read More...
Do We Really Need the Federal Reserve?
Last week I spent two days speaking to senior government officials and business leaders in Bermuda, which is one of the world’s leading international insurance and reinsurance hubs. The men and women in the room are responsible for hundreds of millions in assets worldwide.
As I was finishing up, I received one of the most provocative questions I’ve gotten in a long time:
"Does any nation really need a 'Fed'?"
Here is my unequivocal answer... Read More...
- What You Absolutely Need to Know About Money (Part 4) Ever wonder why they call the Federal Reserve “The Creature From Jekyll Island?" Shah Gilani explains… Read More...
There's More Than One Way for the Fed to End QE
The market has been looking ahead to the inevitable end of the U.S. Federal Reserve's quantitative easing (QE) program with considerable apprehension.
Most market observers expect the end of the Fed's QE asset-purchasing program to immediately result in a sharp sell-off in bonds and higher interest rates.
This is expected to hit the mortgage-backed securities (MBS) market, where the Fed has been very active, quite hard.
As part of a policy to communicate more openly with the markets, Chairman Ben Bernanke and the Fed have been regularly launching QE exit strategy trial balloons into the market to see how quickly they get shot down.
The latest exit strategy that has been gaining traction is the idea of "tapering" QE asset purchases so that there isn't a sudden halt to supply of money flowing from the Fed into the Treasury and MBS markets. The markets seem to be pretty sanguine about the tapering idea, although there has been no specific suggestion on timing.
Instead, the markets have been concentrating on how the Fed will get rid of all of the assets it has accumulated on its balance sheet during the QE program.Read More...
Ben Bernanke Testimony: We Have "Belts, Suspenders" to Unwind Balance Sheet
The two-day Ben Bernanke testimony before Congress continues today (Wednesday) as the U.S. Federal Reserve Chairman faces the House Financial Services Committee. Members will grill Bernanke for more information on the Fed's exit strategy from quantitative easing (QE) and its easy money policy.
While Bernanke did admit yesterday to the Senate Banking Committee that "there's no risk-free approach" to unwinding the $85 billion-a-month bond-buying program, he shed little light on how the QE measures would end.
In fact, Bernanke's vague answer to Sen. Richard Shelby, R-AL, when asked how the Fed will deleverage the balance sheet, was this: "In terms of exiting from our balance sheet... a couple of years ago we put out a plan; we have a set of tools. I think we have belts, suspenders - two pairs of suspenders. I think we have the technical means to unwind at the appropriate time; of course picking the exact moment to do, of course, is always difficult."Read More...
The buying is expected to continue until the Fed sees the unemployment rate fall to at least 6.5%, but Fed critics are concerned about the nearly $3 trillion balance sheet Bernanke has built up already.
With Unchecked U.S. Spending, It's Time to Hedge Against Inflation
Uncontrolled government spending could force the Fed to monetize the government's debt, creating runaway inflation, former Federal Reserve Governor Frederic Mishkin warned in a report.
If these circumstances were to occur, the Fed would be unable to do much, if anything, to control inflation, Mishkin said in the report, presented at a conference at the University of Chicago Booth School of Business.
In that case, Mishkin and his co-authors, David Greenlaw, James Hamilton and Peter Hooper, argue that the result could be "a flight from the dollar," according to a summary of the report by noted Fed-watcher Steven K. Beckner writing for MNI.
The report states, "Countries with high debt loads are vulnerable to an adverse feedback loop in which doubts by lenders lead to higher sovereign interest rates, which in turn make the debt problems more severe ... Countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics."
The authors of the report estimate U.S. net debt, excluding debt held by the Social Security Trust Fund, at about 80% of GDP in 2011, double what it was a few years before. To make matters worse, the United States runs a persistent current account deficit, which is funded by borrowing from other countries.
This puts the U.S. in a worse spot than Japan which, although its debt is much higher as a percentage of GDP, has a large current account surplus and a high savings rate.Read More...
- What Every Investor Should Know About the End of QE Equity markets around the world Wednesday expressed their distaste for the possible end of the Federal Reserve's quantitative easing (QE) policy. Share prices tumbled from New York to Tokyo. Here's what every investor needs to know. Read More...
The Bernanke Shock
The financial world was shocked this month by a demand from Germany's Bundesbank to repatriate a large portion of its gold reserves held abroad.
By 2020, Germany wants 50% of its total gold reserves back in Frankfurt - including 300 tons from the Federal Reserve.
The Bundesbank's announcement comes just three months after the Fed refused to submit to an audit of its holdings on Germany's behalf. One cannot help but wonder if the refusal triggered the demand.
Either way, Germany appears to be waking up to a reality for which central banks around the world have been preparing: the dollar is no longer the world's safe-haven asset and the US government is no longer a trustworthy banker for foreign nations.
It looks like their fears are well-grounded, given the Fed's seeming inability to return what is legally Germany's gold in a timely manner. Germany is a developed and powerful nation with the second largest gold reserves in the world.
If they can't rely on Washington to keep its promises, who can?Read More...
FOMC Preview: Will the Fed Continue its $85B/Month Bond-Buying Program?
Investors will be looking to the Federal Reserve Wednesday for clues about how long it might continue its bond-buying program aimed at pushing interest rates down.
The Federal Open Market Committee is expected to release a policy statement at 2:15 p.m. Wednesday, the second day of its two-day meeting.
In keeping with a practice it began last January, the first meeting of the new year will highlight the FOMC's long-term goals and monetary policy.
The Central Bank likely will reiterate the goal it has maintained all of last year: boosting the stagnant U.S. economy.The Fed's first meeting of 2013 comes after an extraordinarily busy year, capped by two key moves in December.
That's when the Fed said it would continue spending $85 billion a month on bond purchases to keep interest rates low. At the same time, the Fed set unemployment and inflation "thresholds" instead of a date when the central bank expected to be able to raise interest rates.Read More...