There’s a key market-moving event this week investors can’t miss: the semi-annual Ben Bernanke monetary policy testimony before Congress on Wednesday (House) and Thursday (Senate).
Congressional legislation known as Humphrey-Hawkins (now expired) required the Federal Reserve’s Open Market Committee to report to Congress on both the state of the U.S. economy and monetary policy twice a year (February and July). The Fed Chairman testifies before Congress in conjunction with the report.
Don’t worry. The bubble “Quantitative Easing” has built is still intact. For now.
However, even though there’s breathing room, don’t think it’s time to breathe easy. There will be Hell to pay, just not now.
When U.S Federal Reserve Chairman Ben Bernanke strongly hinted at a press conference last week that the end of QE was on the horizon, the markets went into a tailspin.
Most investors have followed what the Fed’s QE policy has done to gold, but few realize its impact on oil prices.
Recently, I talked about how crude was beginning to occupy a position as a store of market value (“Why Oil Is Becoming the New ‘Gold Standard,” May 20, 2013). The development has been a direct consequence of the flight from holding gold.
Some in the mass media continue to be confused about the historical trajectory of the Fed’s balance sheet. People have trouble distinguishing between the liquidity facilities provided by the central bank and the various monetary expansion activities. H…
If investors needed a reminder that global stock market rallies have been goosed by the Fed’s lose monetary measures, they got it.
Japan’s monetary experiment is truly unprecedented, both in size and scope. Not only is the overall central bank balance sheet growth accelerating, but the assets purchased are not just government securities.Total Assets (source: BOJ)The Bank of Japan …
Japanese government bonds experienced a spectacular sell-off in the past few days, with the 10-year JGB yield rising by a half of its value.
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| Source: Investing.com |
This is taking place in spite of BOJ’s pledge to keep on buying paper (see post). Anyone who doubts the central bank’s resolve should only take a look at its JGB holdings. The Bank of Japan is now buying over 70% of all new government bond issuance.
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| Source: BOJ |
The spike in JGB yields – in spite of all the central bank buying – is quite troubling. It is precisely the opposite of what the BOJ had intended. It means that liquidity in JGBs is disappearing, as the market is increasingly controlled by a single buyer. And with most speculative players positioned long, what started as a small sell-off, quickly became amplified – as bets are unwound.
WSJ: – On Monday, Japanese yields moved higher even as the BOJ scooped up ¥1.2 trillion of JGBs maturing in one to 10 years at three separate operations—exactly the opposite effect the BOJ had been hoping for, strategists said.
With liquidity deteriorating, “a risk-free investment has now become risky,” said Manabu Tamaru, senior investment manager at Baring Asset Management (Japan). “Thus investors are demanding a risk premium under the BOJ’s buying program.”
As of 10:30 EST (5/14) the sell-off continued.
From our sponsor:
Before the housing market crash, economists warned that record low-interest and mortgage rates were fueling a housing bubble.
Unfortunately, those fears were both overlooked and underestimated.
Now, an advisory council to the U.S. Federal Reserve is warning the Fed that its record $85 billon-a-month stimulus and ultra-low interest rates are fueling new bubbles in student loans and farmland.
“Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis,” according to minutes of the council’s Feb. 8 meeting.
In addition, “agricultural land prices are veering further from what makes sense,” the council said. “Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.”
These warnings come from the Federal Advisory Council, a panel of 12 bankers chosen by the 12 Federal Reserve banks, which consults with and advises the Fed. Members of the council include the CEOs of Morgan Stanley (NYSE: MS), State Street Corp. (NYSE: SST), BB&T Corp. (NYSE: BBT), Bank of Montreal (NYSE: BMO), Capital One Financial Corp. (NYSE: COF) , U.S. Bancorp (NYSE: USB) and the former CEO of PNC Financial Services (NYSE: PNC).
What’s more, the council warned the Fed in September that QE3 and its plan to buy bonds indefinitely would distort bond prices and have a limited impact on the economy and that “uncertain effects” will arise from the eventual unwinding of the balance sheet, including “risks to price and financial stability.”
So while Uncle Ben likes to remind us that the Fed will step in and take appropriate fiscal measures when necessary, the central bank’s own council believes the Fed’s actions are doing more harm than good.
Our last chapter was about how the U.S. Federal Reserve was created and why. But it ended with an extreme example of how the universal central banking model works today.
Cyprus.
As another domino threatened the house of cards holding up European banks, more money had to be pumped into Cypriot banks so their doors didn’t close and rapid contagion wouldn’t implode all of Europe, and then the world.
Only this time was different.
The European Central Bank (ECB) reached straight into Cypriot bank depositors’ pockets and stole about $6 billion from them. The “how” isn’t important. It’s a simple equation, as revealed in Part V. Governments are the backstoppers of central banks; that’s where their authority ultimately comes from.
Why did the ECB steal depositors’ money? So they could turn around and lend that and more to the insolvent banks to keep them alive. It’s the latest twist in the old “extend and pretend” game.
The big question is, how did banks get so big and so dangerous in the first place?
Or, how did stodgy traditional banking morph into “casino banking” on a global scale?
Here’s how it started…
