Tuesday, November 12, 2013

Confessions of a Quantitative Easer; Andrew Huszar, who managed a Fed $1.25 trillion security purchase program in 2009-10

"We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.

I can only say: I'm sorry, America.

As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street.

But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

...Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."

...I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp...

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets.

...QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

...several other Fed managers also began voicing the concern that QE wasn't working as planned. Our warnings fell on deaf ears. ...the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers.

Sorry, U.S. taxpayer.

...the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street.

...The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

...aggressive QE over five years has generated only a few percentage points of U.S. growth.

...QE isn't really working. Unless you're Wall Street.

...Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts ...are suggesting that conditions are again "bubble-like."

Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.

Even when acknowledging QE's shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces).

The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction.

But the Fed is at the center of that dysfunction.

Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy."


Monday, November 11, 2013

Legal Theft, by Whoever Votes for Greensboro's City Council Agenda Item 34

34. Resolution authorizing a loan of $100,000 to Samet Corporation and authorizing a loan for $100,000 to McConnell Center Partners, LLC to be used for grading of qualified industrial sites.


On the recommendation of Andy Scott and Kathi Dubel.

And also Zack;

And Hoffmann;

And another couple of Samet's for Hoffmann;


And David Howard of Windsor Investments for Robbie; Page 10 of 30;


ROBBIE PERKINS 09/25/09 David R. Howard Windsor Commercial TREBIC MEMBER Real estate-development
ROBBIE PERKINS 09/27/09 William S. Seymour Windsor Commercial TREBIC MEMBER Real estate-development
ROBBIE PERKINS 09/16/07 Tom Hall Windsor Investments TREBIC MEMBER Real estate developer

November 12, Greensboro City Council Agenda with Attachments


8. PUBLIC HEARING - Ordinance changing the name of the portion of East Lee Street, West Lee Street and High Point Road from I-40 westward to its intersection with Groometown Road to East Gate City Boulevard and West Gate City Boulevard.

9. Resolution supporting the Greensboro Partnership’s Development of a Entrepreneurship Ecosystem including a Business Accelerator Program.

10. Resolution approving changing the loan and security agreement with the Nussbaum Center for Entrepreneurship, Inc. to a grant.

15. Resolution Approving Inter-local Agreement with Guilford County regarding additional funding for the Greensboro Public Libraries.

18. Resolution authorizing conveyance of a portion of 2110 Phillips Avenue by the Redevelopment Commission to Glandon Forest Equity, LLC.

19. Resolution authorizing purchase of a portion of property located at 2800 High Point Road for the High Point Road Streetscape Project.

34. Resolution authorizing a loan of $100,000 to Samet Corporation and authorizing a loan for $100,000 to McConnell Center Partners, LLC to be used for grading of qualified industrial sites.

Number 10;

"we're worried about whether there's much [Fed] gas left in the tank and what will happen if there isn't."

"In the old days central banks moved interest rates to run monetary policy. ...All that changed when interest rates hit 0%; "printing money" (QE) replaced interest-rate changes. Because central banks can only buy financial assets, quantitative easing drove up the prices of financial assets and did not have as broad of an effect on the economy...

...the marginal effects of wealth increases on economic activity have been declining significantly.

The Fed's dilemma is that its policy is creating a financial market bubble that is large relative to the pickup in the economy that it is producing.

...the Fed is ...losing its effectiveness.

...quantitative easing is a much less effective tool when asset prices are high and thus have low expected returns than it is for managing financial crises.'

Quantitative easing today is driving asset prices to unsustainable levels, without stimulating much additional activity.

...interest rates are at zero and US asset prices have been driven up to levels that imply very low levels of returns relative to the risk, so there is very little ability to stimulate from here if needed.

...we're not worried about whether the Fed is going to hit or release the gas pedal, we're worried about whether there's much gas left in the tank and what will happen if there isn't."


Happening Now; Global Currency/Competitive Devaluation War amid Economic Slowdown

As the world enters what looks like a simultaneous recession, central banking and political authorities are moving to protect their own sovereign economies relative to all the others.

As the 2008 financial crisis led to coordinated moves by central banks, it seems they are now at war with each other to protect the competitiveness of currency; The lower the currency, the more commerce, as exports become more attractive relative to other currencies.

If the US dollar is worth 100 to 100 Euros = Equality of price for exports and imports

If 95 dollars can purchase 100 Euro's worth of goods, the Eurozone should be able to "sell more for less" to US importers, while US businesses trying to sell to Europe should find it is more expensive to sell their goods.
"The European Central Bank cut its key rate last week in a decision some investors say was intended in part to curb the euro after it soared to the strongest since 2011. The same day, Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand said it may delay rate increases to temper its dollar, and Australia warned the Aussie is “uncomfortably high.”

“It’s a very real concern of these countries to keep their currencies weak”...

...ECB President Mario Draghi, “persistently since earlier this year, has been trying to talk down the euro”

With the outlook for the global economy being downgraded by the International Monetary Fund and inflation slowing to levels that may hinder investment, countries and central banks are revisiting policies that tend to boost competitiveness through weaker currencies.

...The euro slumped as much as 1.6 percent against the dollar on the day of the rate cut, the most in almost two years...

...“There are places in the world where economies are generally quite weak, where inflation is already low,”

...The Czech National Bank’s drove its koruna down by 4.4 percent versus the euro on Nov. 7, the most since the single currency’s creation in 1999, when it intervened to spur inflation. Governor Miroslav Singer pledged to keep selling koruna “for as long as needed” to boost growth.

Peru’s central bank on Nov. 4 unexpectedly reduced borrowing costs for the first time in four years as slower export growth imperils the commodity-dependent economy.

The IMF last month cut its forecast for global economic growth to 2.9 percent in 2013 and 3.6 percent in 2014, from July’s projected rates of 3.1 percent and 3.8 percent...

Growth in global trade may slow to 2.5 percent in 2013, ...down from the organization’s previous estimate in April of 3.3 percent.

...At the same time the ECB is easing, the U.S. Federal Reserve said it will keep printing enough dollars to buy $85 billion of bonds each month because the economy is still too weak to stand on its own. The Bank of Japan is also employing a policy of quantitative easing.

...The Reserve Bank of Australia lowered its growth estimate for next year to 2 percent to 3 percent, compared with 2.5 percent to 3.5 percent three months ago. South Korea’s finance ministry said last month it may act to counter “herd behavior” in the currency, as the Bank of Korea lowered its outlook for the economy.

The rest of the world is trying to keep up with the Federal Reserve's money printing;

The more we print to "recover" from the last economic bubble mostly created by the Federal Reserve, the more other central banks have to print to keep their economies competitive.

For instance, Venezuela's official exchange rate, which doesn't match its black market rate, which is much higher;

What cost $2 US dollars in 2010, now costs more than $6.


What Hyperinflation reads like; "Venezuelan shoppers amass outside seized stores" "Venezuela Stock Market Up 454% for the Year"
By forcing the rest of the world to buy American made stuff for less, the rest of the world that chose not to keep pace with our money printing now has to print even more to catch up, which should be financial market inflationary until something goes wrong.
Can stability destabilize?

Governments cannot create but merely redirect.

When the government spends, the money has to come from somewhere.

If the government doesn't have a surplus, then it must come from taxes.

If taxes don't go up, then it must come from increased borrowing.

If lenders won't lend, then it must come from the printing press...

each additional dollar printed
diminishes the value of those already in circulation.

Something cannot be effortlessly created from nothing.

Peter Schiff

If a nation prints more money,
like cutting a large pizza into 16 slices instead of 8,
is each slice worth less?

What if the pizza shrinks while the number of slices rise?

Where under the [Roman] Principate
the strategy had been to tax the future to pay for the present,
the Dominate paid for the present by undermining the future’s ability to pay taxes.

The Empire emerged from the third century crisis,
but at a cost that weakened its ability to meet future crises.

Joseph Tainter
The Collapse of Complex Societies

So what happens if the whole world does something at the same time, which has almost always had the same historical outcome?

Saturday, November 9, 2013

What Hyperinflation reads like; "Venezuelan shoppers amass outside seized stores" "Venezuela Stock Market Up 454% for the Year"

"As soon as Dorisbell Pena received a text message informing her that President Nicolas Maduro seized control of a nationwide chain of appliance stores Friday, she rushed to the nearest outlet in the hopes of finding what's become one of the scarcest items of all these days in Venezuela: a bargain.

A 34-year-old teacher, Pena has watched as the price of a new stove she needs has doubled in recent weeks to 40,000 bolivars even as her 2,500 bolivar-a-month salary stays the same.

"I've got to take advantage of this opportunity today because tomorrow the prices keep going up," Pena said while huddled among friends on the concrete sidewalk outside the Tiendas Daka store in the eastern Caracas neighborhood of Bello Monte.

She's not alone. At 1:30 a.m., shoppers were still arriving to join the hundreds who began amassing in the afternoon after price inspectors said they found evidence of "usury" and Maduro ordered the chain's "occupation." In a televised address Friday night, the president vowed to reopen the stores Saturday and unload their stock of plasma televisions, washing machines and other seized merchandise at "fair prices."

..."I heard the owners of this store don't even live in Venezuela, they're in Miami," said Solano, a 49-year-old salesman of engine varnish...

"Leave nothing on the shelves, leave nothing in the warehouses," he said. ...he also ordered the military to shut down businesses found hoarding products or speculating on prices.

The Friday night frenzy, described by one bargain hunter as an "organized looting," cut across Venezuela's normally insurmountable political divide — a reflection of how near-record 54 percent inflation and shortages of basic goods such as milk and toilet paper are affecting all families in South America's biggest oil producer.

Come nightfall, National Guardsmen, some brandishing assault rifles, helped maintain order..."


"Venezuela Stock Market Up 24% For Week -- Up 454% for the Year

Athenian money…defined a pattern
which was to repeat in other empires which were to follow
dominance of trade
influx of gold to balance exports
public wealth
the discovery of loosely managed money
as a stimulating solution to stagnation in an economy near its zenith…
before finally the emptiness of the monetary promise was exposed
leading to rapid national collapse
Paul Tustain

The Venezuela Stock Market is now up 454% for the year to date in bolivar terms, though only 278% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world."


What does Quantitative Easing mean?

When national debts have once been accumulated to a certain degree
[there has never been] a single instance
of their having been fairly and completely paid

The liberation of the public revenue...
has always been brought about by bankruptcy
though frequently by a pretended payment [through inflation]

Adam Smith
Moral philosopher and Father of Modern Economics

If Germany’s central bank suspended the right
to redeem gold backed Reichsmarks during World War I
and 170 Reichsmarks bought an ounce of gold in January 1919,
why did an ounce of gold cost 87,000,000,000,000 Reichsmarks
in November 1923?

Ponzi finance units must increase its outstanding debt
in order to meet its financial obligations

A transition occurs over the course of an expansion
as increasingly risky positions are validated by the booming economy
that renders the built in margins of error superfluous
encouraging adoption of riskier positions

Eventually, either financing costs rise
or income comes in below expectations
leading to defaults on payment commitments
"frequently by a pretended payment [through inflation]"

Hyman Minsky
The United States is doing the same thing, except we have the world's reserve currency at the moment.  When Venezuela's currency becomes worthless, the population will most likely adopt the US Dollar as a means of commerce, much like the black market does currently.
Next up may be Argentina, Vietnam or some other more centrally run nation who are functionally bankrupt as we are, but without the military firepower and financial infrastructure.  Having oil and other commodities priced in US dollars is key to maintaining a better position than Europe, Russia and China.