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Dallas Fed President Fisher .....

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Richard Fisher (President of the Dallas Fed) was on CNBC yesterday. He said a few things that I thought were quite extraordinary and applicable to the UK too :

- He saw causation rather than mere correlation between QE2 and higher oil prices measured in dollars.

- Additional QE won't work because there is already sufficient liquidity in the system. All that it accomplishes is to raise commodity prices which has a larger negative effect on household finances than the positives from low rates. In essence further QE is equivalent to a tightening of monetary conditions for households.

- What is needed is demand for the liquidity already in the system. This cannot be addressed by monetary policy or fiscal policy. It is really an issue of industrial policy and the complexity and compliance cost of doing business and the long term certainty of the rules.

- He was against QE2 in the US but lost the battle.

- The reason that Texas avoided the boom and bust in the property market is because they had sensible laws on downpayments (20% minimum) and equity withdrawal. They remembered the lessons that they learned from the S&L crisis.

- The Texas state legislature is limited to sitting for 140 days every two years. He joked that some people would prefer to see it sit for 2 days every 140 years. He implied that government is the problem and not the solution.

- The main reasons that so many businesses are relocating to Texas are low housing costs and a low compliance burden. He mentioned that the way that Texas is winning the internal competition in the US currency zone could be a blueprint that EuroZone members could emulate.

I have not heard a central banker being so forthright on TV before. While he strayed dangerously close to being political, I thought that most of what he said made sense.

I would live to be a fly on the wall when / if Mervyn King watches the interview.

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Alas, in the US the States are like mini countries and Texas is able to make rules for itself in the way that Eurozone politicians either do not wish to do, or perhaps no longer think they are allowed to do, for their own countries.

This QE has been a disaster for most of us, but a daily lotto win for the banksters.

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I don't disagree with the argument that the problem isn't a lack of liquidity and that QE could do more harm than good.

However I think governments the world over have lost sight of their primary function, that being to increase the standard of living for everyone.

All this anti-government rhetoric, even from within governments, and self-congratulatory guff we hear from the small government types when their lower tax rates poach companies from other tax regimes, ignores the effect on the people.

Texas is great if you are rich and have no empathy but pretty terrible for the poor

http://epi.3cdn.net/7396aa000ba8937a69_glm6bninw.pdf

And given the choice in the US is between the blatantly corporatist Republicans and the less corporatist but still corporatist, Democrats their is a complete illusion of democracy.

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Yes we all know this. But they will prnt more and more money and get to QE3849 in a futile effort to prove you wrong.

but look at it this way.... This time next year Rodney we'll be nonillionare^103423984723874832974982374982374982374983274827394872398472398472398472398472389472398472398472893479823749823749832749832749823748923749823749832748326472657436593246597432654325297436523746534756987436527436529

Shame a penny sweet will be nonillionare^1034239847238748329749823749823749823749832748273948723984723984723984723984723894723984723984728934798237498237498327498327498237489237498237498327483264726574365932465974326543252974365237465347569874365274365293284392853894

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no need to rush into qe3

Fed balance sheet hits fresh record size

The balance sheet -- a broad gauge of Fed lending to the financial system -- swelled to $2.772 trillion in the week ended June 1 from $2.759 trillion the prior week.

The central bank's holding of U.S. government securities grew to $1.532 trillion on Wednesday from last week's $1.519 trillion total.

The central bank has signaled it will complete QE2 at the end of June, but will continue to reinvest proceeds from the bonds as they mature.

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I got this from the turds metal blog, good blog if you follow metals (http://tfmetalsreport.blogspot.com/2011/06/waiting-for-bernank.html?commentPage=2)

seemed pretty concise:

WHAT QE IS "ABOUT":

1) Funding the deficit spending of the U.S. Federal Government

2) Providing free cash for insolvent TBTF/PD banks

3) Funding the deficit spending of the U.S. Federal Government

4) Creating the inflation necessary to service existing debts

5) Funding the deficit spending of the U.S. Federal Government

6) Infusing cash into the Primary Dealers which they, in turn, can use to buy S&P futures and prop up the stock market

7) Funding the deficit spending of the U.S. Federal Government

Before The Bernank, takes the podium, please take a moment to ponder from where the U.S. government will find its $1,650,000,000,000 needed for next year without continued Quantitative Easing.

1) China? Nope.

2) Japan? Good one.

3) Europe? Mmmm, no.

4) The Middle East? Negative.

5) TBTF banks. Jim Rickards says so. He's fooling himself. $1.65T? From the banks? Hahaha.

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I got this from the turds metal blog, good blog if you follow metals (http://tfmetalsreport.blogspot.com/2011/06/waiting-for-bernank.html?commentPage=2)

seemed pretty concise:

WHAT QE IS "ABOUT":

1) Funding the deficit spending of the U.S. Federal Government

2) Providing free cash for insolvent TBTF/PD banks

3) Funding the deficit spending of the U.S. Federal Government

4) Creating the inflation necessary to service existing debts

5) Funding the deficit spending of the U.S. Federal Government

6) Infusing cash into the Primary Dealers which they, in turn, can use to buy S&P futures and prop up the stock market

7) Funding the deficit spending of the U.S. Federal Government

Before The Bernank, takes the podium, please take a moment to ponder from where the U.S. government will find its $1,650,000,000,000 needed for next year without continued Quantitative Easing.

1) China? Nope.

2) Japan? Good one.

3) Europe? Mmmm, no.

4) The Middle East? Negative.

5) TBTF banks. Jim Rickards says so. He's fooling himself. $1.65T? From the banks? Hahaha.

That's the crux of it.

As our man states, QE is self-defeating, in that by using it to avoid interest rate rises it may keep govt. debt servicing costs down and mortgage costs down for struggling homeowners, but it also destroys disposable income and the taxable economy through inflation.

However, stopping it means that not only do interest rates go up and not only is disposable income squeezed by higher debt costs instead, but the burden of government debt grows yet further and becomes less payable, rather than shrinking, unless draconian cuts are made that no one has the appetite for.

The lesser evil is to QE to inflate the debt away and hope you get the debt under control before the side effects of QE implode the economic whole system. Lesser of two evils as it were.

The choices are simple, deflationary depression or inflationary depression. The latter is better in a democracy from a poltician's stand point, because the electorate and VI'swon't stand for the pain of the cuts needed, so if you can engineer it so the whole inflationary clusterf4ck blows up on your opponents watch then you are still the good guy.

By the way, I know Texas University pension fund recently bought a tonne of gold and took delivery or something, but I think I also heard they are legislating to legalise silver currency again. Break away from the Union imminent? :huh:

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Fischer misses the point. The point is not to add liquidity but to force those sectors holding the credit side of the global imbalance out along the risk curve.

The FED itself has stated this many times so this man must be talking about a different FED.

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Fischer misses the point. The point is not to add liquidity but to force those sectors holding the credit side of the global imbalance out along the risk curve.

The FED itself has stated this many times so this man must be talking about a different FED.

I assume you mean to be holding longer duration notes?

Wouldn't you need liquidity as a pre-requesite to investors taking on more risk?

Aren't the creditors doing the exact opposite now moving to shorter and shorter dates?

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Richard Fisher (President of the Dallas Fed) was on CNBC yesterday. He said a few things that I thought were quite extraordinary and applicable to the UK too :

- He saw causation rather than mere correlation between QE2 and higher oil prices measured in dollars.

- Additional QE won't work because there is already sufficient liquidity in the system. All that it accomplishes is to raise commodity prices which has a larger negative effect on household finances than the positives from low rates. In essence further QE is equivalent to a tightening of monetary conditions for households.

- What is needed is demand for the liquidity already in the system. This cannot be addressed by monetary policy or fiscal policy. It is really an issue of industrial policy and the complexity and compliance cost of doing business and the long term certainty of the rules.

- He was against QE2 in the US but lost the battle.

- The reason that Texas avoided the boom and bust in the property market is because they had sensible laws on downpayments (20% minimum) and equity withdrawal. They remembered the lessons that they learned from the S&L crisis.

- The Texas state legislature is limited to sitting for 140 days every two years. He joked that some people would prefer to see it sit for 2 days every 140 years. He implied that government is the problem and not the solution.

- The main reasons that so many businesses are relocating to Texas are low housing costs and a low compliance burden. He mentioned that the way that Texas is winning the internal competition in the US currency zone could be a blueprint that EuroZone members could emulate.

I have not heard a central banker being so forthright on TV before. While he strayed dangerously close to being political, I thought that most of what he said made sense.

I would live to be a fly on the wall when / if Mervyn King watches the interview.

Are there any references to what he said?

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Fischer misses the point. The point is not to add liquidity but to force those sectors holding the credit side of the global imbalance out along the risk curve.

The FED itself has stated this many times so this man must be talking about a different FED.

Agreed to some extent.

Bernanke wrote about this very point extensively during his academic carreer (which, some might say is still ongoing).

They have succeeded in pushing people out along the yield curve and into risky financial instruments.

They have failed to push people into investing more in the real economy which is where jobs actually come from.

The other area where Bernanke's logic has failed is that globalisation means that labour no longer have the bargaining power to translate price inflation into wage inflation. It is this breakdown in the transmission mechanism that will probably cause the most pain for the economy : rising prices and stagnant to falling nominal wages.

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They have failed to push people into investing more in the real economy which is where jobs actually come from.

I disagree, because all these other investments have carrying costs.

The other area where Bernanke's logic has failed is that globalisation means that labour no longer have the bargaining power to translate price inflation into wage inflation. It is this breakdown in the transmission mechanism that will probably cause the most pain for the economy : rising prices and stagnant to falling nominal wages.

oh they do, just not in America. I think you'll find chinese workers are obtaining rather respectable pay rises - which is causing manufacturers to move to poorer inland regions or out of china altogether.

Let me try a question on you. What has happened in you view, to the money "lost" to investors during the recent commodities rout?

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I disagree, because all these other investments have carrying costs.

oh they do, just not in America. I think you'll find chinese workers are obtaining rather respectable pay rises - which is causing manufacturers to move to poorer inland regions or out of china altogether.

Let me try a question on you. What has happened in you view, to the money "lost" to investors during the recent commodities rout?

I look at the option to invest in a new business venture as the risk adjusted return versus the opportunity cost. The Fed has done everything that they can do to get the opportunity cost as close to zero as possible. Capital starvation means that returns are very high for those with capital left and yet they are still not investing.

I agree completely that the globalisation of labour markets means that Chinese workers (and many others) are seeing rising wages at the same time that US and UK workers are seeing roughly stagnant wages at best. QE doesn't seem to work for those who need it to work. When China's turn to need QE comes (perhaps in 50 to 100 years), it won't work for them either.

The money lost by investors in the recent commodities route takes one of three forms :

1. It is a realised loss. In this case the investor has lost some real money to the market.

2. It is an unrealised loss in an otherwise static and unleveraged balance sheet. In this case, no real money has been gained or lost. The investor probably feels some sort wealth effect but that is it.

3. It is an unrealised loss in a dynamic and leveraged balance sheet. The investor and lender have both increased their risk due to the fall in commodity prices. Depending on the collateral arrangements in the loan, this could quickly turn into a loss of real money to the market if prices fall further

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<br />I don't disagree with the argument that the problem isn't a lack of liquidity and that QE could do more harm than good.<br /><br />However I think governments the world over have lost sight of their primary function, that being to increase the standard of living for everyone.<br /><br />All this anti-government rhetoric, even from within governments, and self-congratulatory guff we hear from the small government types when their lower tax rates poach companies from other tax regimes, ignores the effect on the people.<br /><br />Texas is great if you are rich and have no empathy but pretty terrible for the poor<br /><a href='http://epi.3cdn.net/7396aa000ba8937a69_glm6bninw.pdf' class='bbc_url' title='' rel='nofollow'>http://epi.3cdn.net/...9_glm6bninw.pdf</a><br /><br />And given the choice in the US is between the blatantly corporatist Republicans and the less corporatist but still corporatist, Democrats their is a complete illusion of democracy.<br />

Sorry for the above format crap but i'm being blocked from posting again

1963: The Kennedy Assassination -- President John F. Kennedy Sr. was shot and killed in Dealey Plaza in Dallas, Texas near the 33rd Parallel

Sottish Masons - 33 degrees (33 Parallel (also refers to the parallel World/economy they run in semi-secrecy)

St Andrew martyred on an 'X' shaped cross

(why you get 'X' files prgrammes starring Anderson (a founding Modern Mason's family name) & 'X' Factor (a factor is a scottish rent/money collector working for their elites)

Take the 'X' out of Te as and you see the 'Tea' party (set up in the 'Green' Dragon, Tavern, Boston a few doors down from the nearest Masonic Temple - which started a revolution and hundreds of thousands of deaths) and their masonic 'witty' Tease.

Leads to mad hatters - Alice 10/6

(Masonic Leaders wear top hats during degree ceremonies in their temples)

prob has a ref to building ratio/mix of mortar (hat) etc then they share a feast together - symbolic 'supper' or 'tea' party headed by a mad/dam top/pot hatter?

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I agree completely that the globalisation of labour markets means that Chinese workers (and many others) are seeing rising wages at the same time that US and UK workers are seeing roughly stagnant wages at best. QE doesn't seem to work for those who need it to work. When China's turn to need QE comes (perhaps in 50 to 100 years), it won't work for them either.

The ultimate point of QE I think, is to remove the absolute (as opposed to comparative) advantage of mercantilist states. We get poorer, but ultimately we get more competitive and get some jobs back. If the mercantilist opposition attempts to close out the capital flows and succeeds then the money comes back and gets into wages back home, which is the only way the private debts in the west can be paid off - by a rise in nominal wages versus nominal debt.

3. It is an unrealised loss in a dynamic and leveraged balance sheet. The investor and lender have both increased their risk due to the fall in commodity prices. Depending on the collateral arrangements in the loan, this could quickly turn into a loss of real money to the market if prices fall further

That is what I was alluding to with my question. If a leveraged investor suffers a decline in the value of his portfolio then he has to deleverage. Thus the commodity rout must have resulted in a de-leveraging and thus a fall in the broad money supply. If the counterparty in the trade was a leveraged short then presumably there is no overall change in the money supply and the winner-loser correspndance is 1:1. But given that the positioning was so heavy on the long side that can't have been the case. The speculators equity must have been damaged, in aggregate.

So the winners are those who preserved or increased their equity. The biggest single winner must be the FED/public sector since not the rout resulted in a rise in the value of the FED assets, or if you prefer you could equivalently view this is a reduction in the leverage of the public sector.

At peak private debt, leveraged speculation is going to end in tears for the speculators absent increase in credit growth and demand in the consuming sectors - households.

Given that the private sector is so much more leveraged than the public sector, it stands to reason that the private financial sector can't win this battle by fighting the FED and end consumers at the same time.

[edit: HAM: hopefully this explains what I was getting at...]

Edited by scepticus

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May I translate this into plain English? (Or at least, language that thickos like me can understand).

Please correct any factual/logical errors.

The ultimate point of QE I think, is to remove the absolute (as opposed to comparative) advantage of mercantilist states. We get poorer, but ultimately we get more competitive and get some jobs back. If the mercantilist opposition attempts to close out the capital flows and succeeds then the money comes back and gets into wages back home, which is the only way the private debts in the west can be paid off - by a rise in nominal wages versus nominal debt.

The ultimate point of QE is to flood the world with money. We get poorer as that money flows into commodity prices and foreign markets.. but as those markets grow richer, we become more competitive by virtue of the fact that we are now relatively poorer.

If countries try to stop flow of dollars out of America.. then that currency debasement should promote an even quicker (more traditional) wage price spiral in the US.

Or, in very simple terms.. if you print enough money.. eventually some of it will return to domestic wages one way or another.

That is what I was alluding to with my question. If a leveraged investor suffers a decline in the value of his portfolio then he has to deleverage. Thus the commodity rout must have resulted in a de-leveraging and thus a fall in the broad money supply. If the counterparty in the trade was a leveraged short then presumably there is no overall change in the money supply and the winner-loser correspndance is 1:1. But given that the positioning was so heavy on the long side that can't have been the case. The speculators equity must have been damaged, in aggregate.

So the winners are those who preserved or increased their equity. The biggest single winner must be the FED/public sector since not the rout resulted in a rise in the value of the FED assets, or if you prefer you could equivalently view this is a reduction in the leverage of the public sector.

[i assume by commodity rout, you mean the asset/commodity price crash of 2008]

During the credit crunch, many leveraged speculators were forced to rapidly unwind their positions causing a huge drop in broad money supply. Because of this, anyone holding currency instantly became relative winners, even if their nominal holdings didn't change.

This deflation caused a reduction in leverage in the public sector [presumably because they were the largest holders of bonds?]

At peak private debt, leveraged speculation is going to end in tears for the speculators absent increase in credit growth and demand in the consuming sectors - households.

Given that the private sector is so much more leveraged than the public sector, it stands to reason that the private financial sector can't win this battle by fighting the FED and end consumers at the same time.

If we don't continue to grow the money supply (through credit growth or other), then any leveraged speculation will end in tears as asset price deflation sets in again.

Is that about right?

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It has been a while since we had a Austrian view on this..

Hope you don't mind if I post Peter Schiff's most recent view on QE etc..

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  • 311 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%



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