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Ron Paul’s Greatest Hits from Saturday Night

On December 12, 2011, in Debt, Economy, by Tim

Not having seen any of the GOP Presidential debate on Saturday night and failing to spot any coverage of Rep. Ron Paul’s comments on a brief sampling of Sunday morning talk shows yesterday, it was nice to see this compilation of his comments beginning with a discussion of why the economy is in the condition it’s in.

Of course, the idea that the excessive credit and debt that led to the recent malinvestment (a.k.a. the housing bubble) have to be liquidated before economic growth can resume continues to fall on deaf ears, as does the notion that we could save trillions of dollars in short order by relinquishing our role as the world’s policeman.

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When Guarantees are Not Loans

On December 7, 2011, in Banks, by Tim

Since Bloomberg’s  Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress article appeared last week, apparently a lot of people (including The Daily Show’s Jon Stewart) have been going around saying that the nearly $8 trillion in loans and guarantees made by the Fed were actually loans, when anyone who’s seen a chart like the one below would know immediately that this was not the case – loans at the crisis peak were under $2 trillion.

Not that a little under $2 trillion in newly printed money to bail out the big banks is all that much better than just under $8 trillion, but, it’s important to get the facts straight. As you might conclude yourself by perusing the many items in the previous links post, the Fed did a good job by not naming Bloomberg in their letter to Congress and addressing criticism of Fed emergency lending in general so that they could lump Bloomberg’s report (which, was not in error) along with the rest of them, many of which were in error.

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Fed Dollar Swaps Over Time

On December 2, 2011, in Currencies, Debt, Europe, by Tim

Since reading about the central bank dollar swap program announced the other day and that it really isn’t anything new, just the resurrection of a 2008-era crisis facility, plotting these swap lines versus everything else on the Fed’s balance sheet seemed like a good idea.

As shown above, the program “sprang to life” in December 2008 and, based on what’s happened in recent days, it looks like it just might spring to life again in the period ahead.

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Fed Dollar Swap Quote Of The Day

On December 1, 2011, in Currencies, by Tim

Reaction to yesterday’s coordinated move by central banks around the world to make U.S. dollars easier and cheaper to borrow has been met with a wide range of reactions by market analysts.

Some say that, while the actual impact of the changes will be minor, it was a bold move by the world’s best and brightest central bankers that demonstrated their collective resolve in not allowing the European sovereign debt crisis to morph into Lehman 2.0.

Others say that the move will only buy time for the inevitable reckoning due European nations who, for years, have spent more money than they should and that the time central banks purchased may be a lot shorter than it appeared yesterday when stock prices were soaring and bond yields were tumbling.

(Continue reading this article at Seeking Alpha.)

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Ron Paul on Monetary Freedom

On November 29, 2011, in Currencies, Debt, by Tim

Rep. Ron Paul (R-TX) appeared on Fox Business News yesterday to talk about the nation’s money and a return to the gold standard in the unlikely event that he’s elected president.

His discussion of the U.S. dollar throughout American history reminded me of a Wall Street Journal book review yesterday by James Grant that, from what I could tell, was a lot better than the book – Greenback Planet by H.W. Brands. From the book review:

“Greenback Planet” is the story of this amazing monetary transformation. The narrative begins in the 18th century and races to the present, pausing to catch its breath at some of the great American monetary landmarks: Andrew Jackson’s veto, in 1832, of legislation rechartering a predecessor to the Federal Reserve; Abraham Lincoln’s recourse to greenbacks, or fiat currency, to finance the Civil War; resumption of the gold standard in 1879, with which it once more became possible to exchange gold for paper and vice-versa at a fixed and statutory rate; J.P. Morgan quelling the Panic of 1907; the Federal Reserve not quelling, never mind preventing, the Great Depression; the crazy-quilt monetary improvisations of the 1930s; the halfway gold dollar of the post-World War II era; and the creation, in 1971, of the pure paper (later digital) model of today.

Mr. Brands is a paper-money man, though the subtitle of his book—”How the Dollar Conquered the World and Threatened Civilization as We Know It”—seems to betray some reservations.

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Ben Bernanke’s Advice to Savers

On November 2, 2011, in Economy, by Tim

With the possible exception of a dissenting vote by Chicago Fed President Charles Evans in today’s decision by the policy making committee of the central bank to do nothing (Evans apparently wanted more money printing sooner rather than later), there were no real surprises from  the Federal Reserve today – freakishly low interest rates through at least mid-2013 are still on tap, Operation Twist is ongoing, recent economic data showed modest improvement but forecasts were revised downward, and all policy tools remain at the ready.

The press conference following the policy meeting was similarly uneventful as a number of journalists asked about the next round of money printing to buy mortgage backed securities, currently believed to be the preferred option for QE3 after a recent round of speeches by the board.

When asked directly, Chairman Ben Bernanke noted with a little twinkle in his eye that the Fed’s printing presses could indeed be summoned to action if the need arises.

Aside from saying about six or eight times how good a job the central bank is doing in keeping inflation at just two percent (despite the official government data putting it at a three-year high of 3.9 percent just last month), about the only surprise came when the Fed chief  was asked what advice he would offer to savers looking for a decent return on their fixed income investments who are being punished by his freakishly low rates.

Bernanke commented:

We are quite aware that very low interest rates, particularly for a protracted period, do have costs for a lot of people. They have costs for savers … The response is there is a greater good here which is the health and recovery of the U.S. economy and for that purpose we’ve been keeping monetary policy accommodative … After all, savers are not going to get very good returns in an economy which is in a deep recession. Ultimately, if you want to earn money on your investments, you have to invest in an economy that is growing.

Tell that to some 75-year old with $50,000 in the bank who, up until Bernanke became Fed Chairman, could at least count on this tidy little sum to generate a few thousand dollars a year in risk-free returns to help pay the bills.

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