Jump to content
House Price Crash Forum
whoami

Rbs - Prepare For 'monster' Money Printing By Federal Reserve

Recommended Posts

Ambrose -Pritchard, Telegraph article

RBS tells clients to prepare for "monster" money printing by the Federal Reserve

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.

The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.

The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely (http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm)

because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".

We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.

Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".

A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.

Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.

Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.

The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.

It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?

Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.

Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.

The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.

Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.

At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was

2.2pc.

We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a

debt-deflation trap.

There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

Share this post


Link to post
Share on other sites

Ambrose -Pritchard, Telegraph article

RBS tells clients to prepare for "monster" money printing by the Federal Reserve

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.

The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.

The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely (http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm)

because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".

We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.

Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".

A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.

Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.

Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.

The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.

It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?

Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.

Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.

The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.

Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.

At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was

2.2pc.

We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a

debt-deflation trap.

There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

Share this post


Link to post
Share on other sites

There are rumours of a 3-5 Trillion dollar money-printing scheme. This would be designed as a 'shock and awe' tool (though of course it will ultimately fail).

Food (grains etc), land, gold, silver, oil, gas, rare metals etc etc - all these, and other similar things, are the only protection against this monetary insanity.

Edited by Errol

Share this post


Link to post
Share on other sites

There are rumours of a 3-5 Trillion dollar money-printing scheme. This would be designed as a 'shock and awe' tool (though of course it will ultimately fail).

Food (grains etc), land, gold, silver, oil, gas, rare metals etc etc - all these, and other similar things, are the only protection against this monetary insanity.

except none of them outside of potentially gold have been saying that over the last 3 years, strange that

Share this post


Link to post
Share on other sites

QUOTE: The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

There are rumours, unconfirmed, that the printing presses are now made in China and other nations also have them. A press was also discovered in this country, place of manufacture believed to be Birmingham, but it is not known if our government have ever resorted to using it. I have an awful suspicion that others may be following the US to fill the black hole left by the world HPCs.

http://www.cbpm.cn/English/ProductRange/Facilities/

Nanjing Mint, the subordinate of China Banknote Printing and Minting Corporation (CBPM), is an integrative enterprise specialized in manufacturing machines for banknote printing and minting, producing circulating coins, printing value-added tax invoices and developing banking machinery products. Equipped with a specialized R&D institution for banknote printing and minting machinery, the Mint enjoys a high capacity in mechanical production and advanced technology capability. It is the exclusive supplier of special machinery in banknote printing and minting in China, and also one of the few manufacturers of special machinery in banknote printing and minting in the world.

Share this post


Link to post
Share on other sites

Indeed. They're all at it (the Uk included).

Gold acts as the red flashing warning light for the world economy. At the moment it is flashing very red and very strongly. It warns of something distinctly unpleasant to come.

Share this post


Link to post
Share on other sites

Indeed. They're all at it (the Uk included).

Gold acts as the red flashing warning light for the world economy. At the moment it is flashing very red and very strongly. It warns of something distinctly unpleasant to come.

on the contrary, markets arent that stupid, if inflation was baked in and obvious all the things you mention would already be priced above 2007 levels. None are other than gold, until it gets confirmed by other commodities it is telling me that gold is actually the fake and is there based on emotional premium, an emotional premium i am quite happy to ride but everything else that has rallied the last year looks corrective in nature technically and even gold is now starting to create some technical divergences on longer time frame analysis

Edited by Tamara De Lempicka

Share this post


Link to post
Share on other sites

except none of them outside of potentially gold have been saying that over the last 3 years, strange that

Yes they have! Lots of eminent persons have said that the safe place to go is Gold, Silver, Palladium, land and food production investments. Try Marc Faber and Jim Rogers for two. Although true to say, I have not heard it suggested that in the event of a mega crash an investment in oil or gas is recommended. I think they would fall sharply along with lower demand. Best to stick to physical Gold and Silver in my view. AND the tipping point is being reached. The article means we are witnessing the beginning of the destruction of some key fiat currencies and therefore resource rich countries will come out best - the AUD will do well along with some South American resource countries. Even Russia may improve its lot.

Share this post


Link to post
Share on other sites

Yes they have! Lots of eminent persons have said that the safe place to go is Gold, Silver, Palladium, land and food production investments. Try Marc Faber and Jim Rogers for two. Although true to say, I have not heard it suggested that in the event of a mega crash an investment in oil or gas is recommended. I think they would fall sharply along with lower demand. Best to stick to physical Gold and Silver in my view. AND the tipping point is being reached. The article means we are witnessing the beginning of the destruction of some key fiat currencies and therefore resource rich countries will come out best - the AUD will do well along with some South American resource countries. Even Russia may improve its lot.

perhaps i should have been clearer, i mean none of the commodities have said it in their price, to be honest i couldnt give a toss what anyone eminent or not thinks is going to happen or not, i always rely on the markets to point me in the right direction, ultimately my analysis may be completely wrong but its the only one i can trust

Edited by Tamara De Lempicka

Share this post


Link to post
Share on other sites
Guest spp

perhaps i should have been clearer, i mean none of the commodities have said it in their price, to be honest i couldnt give a toss what anyone eminent or not thinks is going to happen or not, i always rely on the markets to point me in the right direction, ultimately my analysis may be completely wrong but its the only one i can trust

The more insane politicians become the less you will see Gold and Silver act as commodities!

Share this post


Link to post
Share on other sites

They've already done it, now they need you all to sit there dreaming deflation dreams to maximise the profit from it.

Well there are enough useful idiots out there screaming deflation at anything and everything for them not to need to do this..

Remember in this new paradigm printing money is hyperdeflationary!

Share this post


Link to post
Share on other sites

Hyperinflation agogo if this happens.

Deflation is the natural part of the economic cycle, you cannot beat it.

It's total insanity.

They are trying to rewrite the rules because they don't like the outcome and they are all being shown to be liars.

Share this post


Link to post
Share on other sites

Hyperinflation agogo if this happens.

Deflation is the natural part of the economic cycle, you cannot beat it.

It's total insanity.

They are trying to rewrite the rules because they don't like the outcome and they are all being shown to be liars.

Free markets for everyone but central bankers!

They are all going to push it until they are removed. One way or another.

Share this post


Link to post
Share on other sites

Hyperinflation agogo if this happens.

Deflation is the natural part of the economic cycle, you cannot beat it.

Zimbabwe has managed for quite some time haven't they?

Remember they've got a printing press and they ain't afraid to use it.

Share this post


Link to post
Share on other sites

Zimbabwe has managed for quite some time haven't they?

Remember they've got a printing press and they ain't afraid to use it.

Zimbabwe haven't managed it? They've decimated there economy, what's actually left?

Share this post


Link to post
Share on other sites

Zimbabwe haven't managed it? They've decimated there economy, what's actually left?

The ones with power and influence and money before hand are all doing fine, I mean how else can Bob Mugabe keep sending his wife (who incidentally has diplomatic immunity in China and nearly kicked a guy to death) to HK on $1Million US$ shopping trips? Bob's pad in HK is near my dad's place costs $5.5mil US

Share this post


Link to post
Share on other sites

Yeah - so they pump 5t in - devalue the currency - buy a few years of "printed" GDP growth...

THEN what?

Print more?

FFS - game over man - GAME OVER!

After the next 5 trillion of QE.. down the road we will need even larger QE. At some point say when they are printing 3 or 4 trillion a year.. they will only need to print an extra 10% over the year before to keep up.

Its the same as the question what follows the private credit expansion seen in xxxx year. For 300 years the answer has been an even bigger private credit expansion down the road. Now that is no longer viable, so we have to turn to printing.

Share this post


Link to post
Share on other sites

After the next 5 trillion of QE.. down the road we will need even larger QE. At some point say when they are printing 3 or 4 trillion a year.. they will only need to print an extra 10% over the year before to keep up.

Its the same as the question what follows the private credit expansion seen in xxxx year. For 300 years the answer has been an even bigger private credit expansion down the road. Now that is no longer viable, so we have to turn to printing.

Challenge for you - I want you to build me a house with bricks of a random and unknown size that will change as you start and all the way while you work at random intervals and to random sizes.

What's your house going to look like?

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.