Federal Reserve | timiacono.com - Part 55

Stressing Over the Fed Stress Test Scenario

Late yesterday, the Federal Reserve released details of its stress test scenarios for the nation’s too-big-to-fail banks and they included the worst case (a.k.a. nightmare or doomsday) scenario summarized below from this story at CNBC:

The results of the stress tests are slated for release on Thursday (don’t look for any big banks to fail badly) and, given all the bad press that Bank of America has received in recent months about its long-term viability, it should be interesting to see how it fares.

Of course, if banks’ assets had to be marked to market, few of them would likely pass this or any other stress test, however, that’s just a minor detail.

Prompted by last week’s trial balloon about “sterilized bond purchases”, I went looking for that clip from a few years ago when Fed Chief Ben Bernanke told Congress during the early stages of the financial crisis that central bank’s asset purchases would be “sterilized” (as if Congressman understood what that meant). I never did find that clip, but, I did find this:

The post title is a paraphrasing of words of wisdom from Caddy Shack’s Carl Spackler:

So I jump ship in Hong Kong and make my way to Tibet, and I get on as a looper at a course over in the Himalayas. You know, a caddy, a looper, a jock. So, I tell them I’m a pro jock, and who do they give me? The Dalai Lama, himself. Twelfth son of the Lama. The flowing robes, the grace, bald… striking. So, I’m on the first tee with him. I give him the driver. He hauls off and whacks one — big hitter, the Lama – long, into a ten-thousand foot crevice, right at the base of this glacier. And do you know what the Lama says? Gunga galunga…gunga – gunga galunga. So we finish the eighteenth and he’s gonna stiff me. And I say, “Hey, Lama, hey, how about a little something, you know, for the effort, you know.” And he says, “Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consciousness.” So I got that goin’ for me, which is nice.

I wonder what that was that Austan Goolsbee muttered to himself there…

In this story at the New York Post, economic/financial market skeptic John Crudele suggests that you lower your expectations for tomorrow’s labor report for the following reasons:

As I’ve reported before, the 2.689 million job loss turned into a gain of 243,000 only because Labor’s seasonal adjustment programs expected the job losses to be bigger. The warm winter weather probably kept some people from being put out of work, and this threw off Washington’s calculations.

New York PostWill that same thing happen with tomorrow’s number?

That isn’t likely. Yes, the weather has remained warm. But Labor’s computers are expecting undoctored, not seasonally adjusted growth of more than 800,000 jobs in February.

So there’s less chance that the seasonal adjustments will be pleasantly surprising.

And February isn’t one of those months in which Washington includes a huge guesstimate for jobs added by companies it thinks, but can’t prove, were just started. This so-called Birth/Death Model has been the biggest contributor to job growth — bogus job growth — over the past few years.

Also, John has spotted a link between Tuesday’s stock market dive and Wednesday’s story about the Fed’s latest thinking on the next round of money printing:

Even though one Fed official last week told investors to stop depending on “morphine” from the central bank, the cry for another version of quantitative easing went out less than 24 hours after the Dow Jones industrial average fell 203 points on Tuesday.

Why not give Wall Street what it wants?

Because the Fed’s money-printing operation is leading to higher commodities prices. And as thrilled as I would be to bail Wall Street out again, can’t we at least wait until it really needs our help?

That’s a good question (the second one, that is).

Jim Grant on Fed Money Printing

Jim Grant of Grant’s Interest Rate Observer talks to Maria Bartiromo and Kelly Evans of CNBC about yesterday’s announcement that the Federal Reserve is considering “sterilized” asset purchases, what now appears to be the leading candidate for the Fed’s next round of “quantitative easing”, otherwise known as money printing.

While the quip “Capitalism is an alternative for what we have now – I highly recommend it” has been highly cited, his comments about the 1920-1921 recession were also of interest as that appears to have been the last time that an economic slowdown has been left to run its own course without massive intervention by the government and central bank.

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