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Mar 11, 2013


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"Treasury Scarcity to Grow as Fed Buys 90% of New Bonds"

The Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co."

"Mr. Bernanke for the first time addressed concerns that the impasse in Congress over tough spending cuts and tax increases needed to bring down deficits will eventually force the Fed to accommodate deficits by printing money and buying Treasury bonds — effectively financing the deficit on behalf of Congress and spurring inflation in the process.

But the move runs the risk of damaging the dollar’s reputation and spawning much higher inflation that would be debilitating to the U.S. economy and living standards.

Rep. Brad Sherman, California Democrat, asked Mr. Bernanke directly whether the Fed would consider such a strategy, especially since IMF officials endorsed it.

“We’re not going to monetize the debt,” Mr. Bernanke declared flatly, stressing that Congress needs to start making plans to bring down the deficit to avoid such a dangerous dilemma for the Fed.

“It is very, very important for Congress and administration to come to some kind of program, some kind of plan that will credibly show how the United States government is going to bring itself back to a sustainable position.”



"Everyone sees their paper currency buying less and less physical goods, but the cause of this inflation is not widely understood, which means everyone just looks to cast the blame on each other.

Referring to the general populace, Grice writes:

"The problem is that while they will be acutely aware of the reduction in their own spending power, they will be less aware of why their spending power has declined. So if they find groceries becoming more expensive they blame the retailers for raising prices; if they find petrol unaffordable, they blame the oil companies; if they find rents too expensive they blame landlords, and so on.

So now we see the mechanism by which debasing money debases trust.

The unaware victims of this accidental redistribution don’t know who the enemy is, so they create an enemy.

"Deliberately impoverishing one group in society is a bad thing to do," says Dylan Grice, referring to central banks, "But impoverishing a group in such an opaque, clandestine and underhanded way is worse."

Below is the key passage:

So with their crackpot monetary ideas, central banks have been robbing Peter to pay Paul without knowing which one was which.

...So although Peter doesn’t know why he’s suddenly poor, he knows it must be someone else’s fault.

He also sees that Paul seems to be doing OK.

So being human, he makes the obvious connection: it’s all Paul and people like Paul’s fault.

But Paul has a different way of looking at it. Also being human, he assumes he’s doing OK because he’s doing something right.

He doesn’t know what the problem is other than Peter’s bad attitude. Needless to say, he resents Peter for his bad attitude. So now Peter and Paul don’t trust each other. And this what happens when you play games with society’s bonding.

When we look around we can’t help feeling some- thing similar is happening. The 99% blame the 1%; the 1% blame the 47%.

...25% of the Italian electorate vote for a professional comedian whose party slogan “vaffa” means roughly “f**k off” (to everything it seems, including the common currency), the Germans are repatriating their gold from New York and Paris.

Meanwhile in China, that centrally planned mother of all credit inflations, popular anger is being directed at Japan...

Of course, everyone blames the bankers (“those to whom the system brings windfalls... become ‘profiteers’ who are the object of the hatred”).


Andrew Brod

I'm sure the Italian vote had nothing to do with rising unemployment, which reached 11.8% in January, or the decline in GDP in the 4th quarter of 2012.

But to Hartzman, it's all about monetary policy, everywhere and all the time.

Bill Yaner

Did Hartzman attach his comments to the wrong posting? I had to go back a couple of times to see what relevance his comments might have to Goldman underpricing IPO's in order to make a killing, but I could not find such a link.

Maybe I just don't get it.

Ed Cone

Dude's got a hammer, everything looks like a nail.

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