Federal Reserve buys Treasury Inflation Protected Securities (TIPS)

Posted on May 27th, 2009 by bile
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NEW YORK, May 26 (Reuters) – U.S. Treasury debt prices weakened further on Tuesday after the Federal Reserve bought $1.55 billion of the $8.52 billion of Treasury Inflation Protected Securities (TIPS) dealers had submitted.

The benchmark 10-year Treasury note’s yield, which moves inversely to its price, rose to 3.46 percent <US10YT=RR>, from 3.45 percent shortly before details of the Fed operation. (Reporting by John Parry; Editing by Leslie Adler)

What?! The FED bought inflation proof treasuries. Price inflation that they primarily create through monetary inflation. Is this normal? I’ve not noticed it before.

Ron Paul questions Ben Bernanke

Posted on May 5th, 2009 by bile
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Inflation in U.S. Wanes?

Posted on October 16th, 2008 by bile
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The cost of living in the U.S. was unchanged in September, restrained by declines in fuel costs, automobile prices and airline fares that show the slowing economy is starting to cool inflation.

The Labor Department’s consumer price index was unchanged after a 0.1 percent drop in August; economists had forecast an increase for last month. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.

Today’s figures show that for the first time in two years, prices didn’t increase for two straight months. Waning inflation gives Federal Reserve Chairman Ben S. Bernanke scope to lower interest rates further as policy makers attempt to unfreeze credit markets.

“It’ll give the Fed a little bit of cover to cut rates when they meet next,” on Oct. 28-29, John Ryding, chief economist at RDQ Economics in New York, said in an interview with Bloomberg Television.

Does this look like a wane in inflation?

Oh… they mean price inflation. Well… that will come. The wave is coming. I’d like to be upset about the impending interest drop but at this point so much money has been injected and will be injected in the future… a 0.0% rate wouldn’t make much of a difference.

Is the credit market really frozen? The data doesn’t back it up.

Posted on October 9th, 2008 by bile
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The Data Don’t Justify Financial-Market Panic by Robert Higgs

As the hysteria has grown in the discussion of financial markets and related government policies, I have been puzzled by the discrepancy between the best available data and the descriptions quoted in the press – statements by financial gurus, traders, and professors, as well as by government officials. To hear these spokesmen tell the story, you’d think that the world will soon go to hell in a hand basket, if it hasn’t gone there already. Yet every time I look for data to check these claims, I find nothing solid to back them up. …

Consider first the interest rates for commercial paper. For the past several weeks, 30-day nonfinancial paper has been going for about 2 percent; 60-day and 90-day loans in this market have required a slightly greater rate of interest. Financial commercial paper has been going for roughly 3 percent, give or take a few tenths of a point, with little difference among the 30-day, 60-day, and 90-day rates.

Given that the rate of inflation at present is greater than 3 percent, and presumably will remain greater than 3 percent for the next three months, these nominal interest rates on commercial paper imply that lenders are actually giving away money to corporations that sell commercial paper – the nominal rates of interest are less than the expected rate of inflation. Is this situation what one expects to see during a “credit crunch”? Hardly.

Many commentators claim, however, that virtually no transactions are occurring in this market. These claims are completely false. For the week that ended October 1, which is the most recent week currently reported, total commercial paper outstanding amounted to $1,607 billion. Yes, this amount was down from the $1,702 billion reported for the previous week, but is a 5.6 percent drop a good reason to panic? If we go back to March 2008, when nobody was talking excitedly about the commercial market’s “freezing up,” we find that the total amount outstanding, on average, was $1,822 billion, or only 13 percent more than last week. In March, the market was working fine; now it’s “locked up.” This sort of hyperbole, with which we are being bombarded hourly around the clock, is totally without a basis in the facts.

For the year 2006, when the financial markets were, for the most part, still ripping along very nicely, the total amount of commercial paper outstanding, on average, was $1,983 billion; for 2007, it was $1,781 billion. For the past seven months, on average of the monthly data, it was $1,743 billion.

Either someone is deliberately trying to spook us, or these panic-mongers have simply lost their grip on reality. Officials at the Fed and the U.S. Treasury are running around like chickens with their heads cut off. They are dragging the world’s leading central bankers and finance ministers around with them. The news media are raving like lunatics. The big unanswered question is: WHY?

I’ve been suspecting the same. I’d seen numbers here and there that didn’t seem to add up. I’m sure there are components missing to this analysis… but what?

Ron Paul grills Ben Bernanke during joint economic hearing this morning

Posted on September 24th, 2008 by bile
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I love how Bernanke stutters after Paul interrupts him with “coins.”
The pleading of the Fox Business people are pretty entertaining too.

Taxpayers comment on bailout

Posted on September 22nd, 2008 by bile
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  • “NO NO NO. Not just no, but HELL NO,” writes Richard, a reader from Anchorage, Alaska.
  • “This is robbery pure and simple,” Anna from Denver posted on CNNMoney.com’s TalkBack blog this weekend.
  • “I’m tired of rewarding institutions and people for the bad decisions they have made,” said Dean from Madison, Wis. “Sure, it will hurt tax payers if/when some of these institutions fail, but perhaps we need to let that happen. We do not need more big government involved in our lives. Enough is enough.”
  • “Companies, like individuals, should be held responsible for their decisions,” wrote Jorge from El Paso, Texas. “This buyout does not address the other problems in the pipeline such as personal credit default and market slowdowns in most industries. No new jobs will be created.”
  • “It is time for the financial institutions of this country to be called to the mat. We should be expecting and demanding responsible and ethical business practice, not rewarding it at the expense of taxpayers.” Paul from Portsmouth, N.H.
  • “The government does not have $700 billion dollars. WE have $700 billion, and it is being taken from us. If this is passed then the next administration and the next will be extracting this one from the people who are supposedly being protected by this bailout.” John from Springfield, Va.
  • “Why not take the billions and … make funds available to home owners stuck in the loans these idiots created, marketed and sold,” asked Don from Coarsegold, Calif. “It will put the money where it should be with the little guy who made a mistake, instead of the big guy who created the problem.”
  • “Once I invested in something and lost money. Maybe I could just change the rules of investing so that my loss turns into a gain? Oh, I forgot only banks can do that!” Jordan from Charlestown, Ind.
  • “I will be watching to see which of our representatives vote for this bailout,” said R. Kidd in Troy, N.C. “Let the American people see how many we can fire come election time.”
  • “Call your Congressman. Stop blogging, posting comments, and call your congressman. This is the patriotic thing to do. Let them hear your opinion, show them this is still America and that you will not stand for this!!” Danny from Texas

Not everyone is upset about this though:

  • “I was opposed to the bailout at first, but realized that the scope of this thing is global and so massive that the entire global economy could collapse if nothing was done. …The priority has to be resolving the present crisis of confidence in our economy. Remember, if Wall Street collapses, Main Street will go with it.” Bill from St. Louis
  • “This money is not a handout to companies. It’s simply giving banks and mortgage companies loans, since the banking system itself is too unstable to raise this kind of capital. And no, the government cannot just use the $700 billion to pay back all the citizens that will be hurt by this. If the companies like AIG fail, the cost will be far far greater than $700 billion. Wake up!!” Andy from Chicago
  • “It’s NOT a bailout. The government is not handing out cash, they actually stand to make a great deal of money out of this, which will trickle down to YOU. First priority should be to try to control and fix the problem, then regulate sufficiently to make sure this NEVER happens again.” Surfta from Brooklyn, N.Y

From Answers.com:

bailout: n. A rescue from financial difficulties: corporate bailouts.

Any profit the government would make on this is going to be completely negated by price inflation and interest on the debt accumulated. There is no money to perform this bailout. The money will be borrowed or printed. If the market was allowed to unwind this those issues would not occur and recovery would be far faster. Malinvestment needs to be liquidated and prices recalculated… not arbitrarily inflated.