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A Mean, Stupid, and Futile Gesture – WSE Pro Fed Report

PDCF credit outstanding rose to $37 billion, an increase of $8 billion on the week as of Wednesday, March 26. The chart (shown in report) reflects the results of daily open market operations (OMO) and TAF, with $8.6 billion total PDCF and Discount Window borrowings added to Wednesday’s data. The PDCF addition was more than offset by the net change in OMO, so that as of Wednesday the net change in Fed credit outstanding was a drop of nearly $12 billion.

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The Fed is still not adding substantially to the gross amount of Fed credit outstanding as it changes the composition and targeting of that credit to direct liquidity where it is most urgently needed. These operations may be keeping some banks and Primary Dealers (PD) on life support but the are still starving the Primary Dealers of cash for their trading operations, keeping continuing liquidation pressure on the markets. Every diversion of credit from OMO to the Fed’s new toys reduces the margin in the PD trading accounts.

$20 billion was added to TAF credit outstanding on Thursday, but again, that was more than offset by other draining operations conducted through OMO, including outright sales and redemptions of Treasuries.

Meanwhile, the Fed is still reducing the size of its permanent asset base. The Fed announced today that it would redeem another $11 billion of its permanent holdings next Thursday. That brings to $80 billion the amount of permanent Treasury paper it has sold or redeemed since March 17 as an offset to the funds added through its new bells and whistles program. Is this a daring move that will save the financial system, or a mean, stupid, and futile gesture that will only debase the currency in the long run?

The above is excerpted from today’s Fed and Treasury report in the Professional Edition. Subscribers click here to download complete report in pdf format. Try the Professional Edition risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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5 Comments

  1. greg

    hey lee, thanks for your work…when the fed reduces its net credit outstanding, selling securities for cash, where does
    that cash go exactly, to money heaven?!?
    obviously not back into circulation, right?

  2. Hank Jestor

    I have seen the lite. The Fed is doing all the right things to spur U.S. economic growth. I was a Ron Paul supporter until yesterday. I know know he is wrong. A weak dollar only hurts people who want to buy foreign goods and want to drive SUV’s. A weak dollar will reverse the vacuum cleaner of jobs going to China and India. In the long run this will spur natural growth in the U.S.
    Hopefully the Chinese will get the hint and start selling their treasuries and get this over with quickly. The sooner they do this the sooner we hit bottom.
    The U.S. is in the process of stealing the entire trade debt from China. This means that we bought all that junk at bargain basement prices for the last 10 years. Now its time to bring the jobs home.

  3. Lee Adler

    greg-

    If that was the only thing they did, it would be extinguished, but they are turning right around with their other tools and putting it back into the system. A big circle jerk. They put more Treasuries on the balance sheets of their clients while taking in the crap collateral in return for cash, thus debasing the currency.

  4. Brad

    Right on Hank. I wish the liberal whiners in the US and Europe understood what the Chinese have been doing to intentionally devalue thier own currency for trade benefits. If they actually participated in the global economy the way they should, there would be no liquidity concerns.

  5. Hank Jestor

    Greg,
    Debase of the currency. What debased the currency is the Chinese peg of their currency and 300 million Americans buying their junk products. This is just a correction of that process.
    The only people who benefit from a strong dollar are multinationals, Oil producing countries and U.S. companies that export jobs.
    A strong dollar makes us less competitive not more. The only jobs created in the past 10 years are in the service industry. That is the effect of a strong dollar. Hopefully that trend is over.
    So if you want a longterm stock trade, buy American. Buy companies that are not Oil based. Buy companies that are organic to the U.S.
    Brad- Sorry to tell you, I’m a liberal. The only jobs that have been saved in the U.S. over the past ten years are Union based jobs. When things start getting hard you will see the growth in Union membership.
    What you are seeing is what happens to Corporations that are unregulated. They will sell out this country without batting an eye. Now its time for the chickens to come home to Roost.
    The main thing to remember is that Chinese/Indians/Russians are not Americans. Our ability to consume will never be replicated in those countries.

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