Goldman Sachs - 'The Fed Needs to Print $4 Trillion in Mew Money'

Cassandra Syndrome

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Next week should reveal the next hair raising, eye popping voodoo monetary policy measures of the Federal Reserve (deliberately postponed the October FOMC to after the mid term elections, thats how independent they are politically these days)

The first round of Quantitative Easing was $1.25 Trillion and it achieved....

A lot of that money came slushing back round to the Feds again, as people simply cannot afford to borrow anymore. So they decided to monetise the treasury debt by buying up their bills, notes and bonds and buy up some equities through POMO to keep the Dow up above 10,000 (or indeed 4,000 where the historic chart suggests it should be at) with the sizeable doggie bag leftover from the insolvent institutes who are trying to make money out of the spread between what they take off the Fed and what they deposit back to them at. (the Feds unexpectedly increased the deposit rate 6 months ago)

Confused? No worries, so is the Federal Chairman Bernanke evidently.

With just over a week left to the QE2 announcement, discussion over the amount, implications and effectiveness of QE2 are almost as prevalent (and moot) as those over the imminent collapse of the MBS system. Although whereas the latter is exclusively the provenance of legal interpretation of various contractual terms, and as such most who opine either way will soon be proven wrong to quite wrong, as in America contracts no longer are enforced (did nobody learn anything from the GM/Chrysler fiasco for pete's sake), when it comes to printing money the ultimate outcome will certainly have an impact. And the more the printing, the better. One of the amusing debates on the topic has been how much debt will the Fed print. Those who continue to refuse to acknowledge that the economy is in a near-comatose state, of course, hold on to the hope that the amount will be negligible: something like $500 billion (there was a time when half a trillion was a lot of money). A month ago we stated that the full amount will be much larger, and that the Fed will be a marginal buyer of up to $3 trillion. Turns out, even we were optimistic. A brand new analysis by Jan Hatzius, which performs a top down look at how much monetary stimulus is needed to fill the estimated 300 bps hole between the -7% Taylor Implied Funds Rate (of which, Hatzius believes, various other Federal interventions have already filled roughly 400 bps of differential) and the existing 0.2% FF rate. Using some back of the envelope math, the Goldman strategist concludes that every $1 trillion in new LSAP (large scale asset purchases) is the equivalent of a 75 bps rate cut (much less than comparable estimates by Dudley, 100-150bps, and Rudebusch, 130bps). In other words: the Fed will need to print $4 trillion in new money to close the Taylor gap. And here we were thinking the economy is in shambles. Incidentally, $4 trillion in crisp new dollar bills (stored in bank excess reserve vaults) will create just a tad of buying interest in commodities such as gold and oil...
Goldman: The Fed Needs To Print $4 Trillion In New Money | zero hedge
 


Sync

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Remember in Leaving Cert economics when one of the duller kids would inevitably ask "Why can't we just print more money?" Guess we know where they ended up.
 

YoungLiberal

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Remember in Leaving Cert economics when one of the duller kids would inevitably ask "Why can't we just print more money?" Guess we know where they ended up.
A very similar memory popped into my own head, strangely enough.
 

rhonda15

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[ame=http://www.youtube.com/watch?v=NCyCrl8mMbo]YouTube - Currency Wars, The Point of No Return[/ame]

[ame=http://www.youtube.com/watch?v=QMwDynuruN4]YouTube - 1. Cash Is Trash. Why Gold & Silver? - Free Investing Movie With Mike Maloney[/ame]

Protect yourself while you still can!
 

kerdasi amaq

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He's wrong to say that they are repeating the same stupid mistakes of the past.

What they are doing is quite intentional.
 

ne0ica

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Remember in Leaving Cert economics when one of the duller kids would inevitably ask "Why can't we just print more money?" Guess we know where they ended up.
Funny thing you said that. A kid asked that very question in my Economics class and is now a SIPTU rep in the silly service.
 

rhonda15

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[ame=http://www.youtube.com/watch?v=ZAgjTo_awjA]YouTube - Yet another crash[/ame]

Again we are in the midst of a financial crash, which goes unnoticed by the public.
 

LeDroit

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This exposes Goldman Sachs current investment tips;

1. Buy Gold. They're fueling the Gold Bubble.
2. Short the Dollar.
3. Hedge Euros. They'll be the new reserve currency.

And I didn't even charge 10%.
 

LeDroit

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Typically you do the opposite of what Goldman Sacs says.
Ironically so do they. They were selling Credit Default Swaps & Subprime Bonds and Shorting Both!
 

Sync

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Typically you just buy their shares. The people running it are far smarter than those who supervise them and those who govern the countries in which they operate. When the global nuclear winter eventually falls you can bet GS will printed on both the bombs and the bomb shelters.
 

Iarmuid

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The markets are pricing this in already - a great deal of dollar inflation is expected - things are getting pretty ominous I feel, I hope I'm wrong.

Treasurys give up gains ahead of note auctions Bond Report - MarketWatch

NEW YORK (MarketWatch) — Treasury prices erased earlier gains on Monday, which analysts attributed to traders setting up for three days of note auctions starting on Tuesday with 2-year notes.

Bonds had been higher through most of the session after a combination of small signals in recent days left bond investors wondering whether the Federal Reserve will buy even more debt that previously predicted.


.....

The Treasury Department sold $10 billion in 5-year Treasury Inflation Protected Securities at a yield of negative 0.55%, the first time the yield on the maturity has come in below zero. See recent auction results.

TIPS pay investors a coupon — that’s -0.55% in this case — plus the rate of inflation as measured by the government’s consumer price index.

The negative real yield for this auction indicates investors expect enough inflation over the life of the debt to make the protection worthwhile.


The auction is a reopening of the 5-year TIPS sold in April, meaning they will carry the same coupon and maturity date as those securities.

If your wondering why gold is going up, it is not, FIAT currencies, particularly the reserve currency, are tanking.

Also Mervyn King had some interesting things to say today, listing possible bank reforms including, imagining the abolishment of fractional reserve banking. Times past, for the BOE govenor to even mention such a thing would have been heresy. wtf:shock2:

BBC - Newsnight: Paul Mason

Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he describes the Basel III bank regulations as inadequate and proposes a much more radical structural breakup of the banks:

...

This leads him to a list of much more radical proposals.

1. Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.
2. The Volcker rule-style enforced breakup of banks into speculative and non-speculative arms.
3. The "Kotlikoff proposal", which forces banks to match each pool of risks with a requisite amount of capital, preventing losses in one spilling over into another.
4. Stunningly, Mervyn King imagines the "abolition of fractional reserve banking":

May you live in interesting times, the curse goes.
 
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Goban Saor

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Typically you just buy their shares. The people running it are far smarter than those who supervise them and those who govern the countries in which they operate. When the global nuclear winter eventually falls you can bet GS will printed on both the bombs and the bomb shelters.
That made me laugh! It is poxy true!
 

Squire Allworthy

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Also Mervyn King had some interesting things to say today, listing possible bank reforms including, imagining the abolishment of fractional reserve banking. Times past, for the BOE govenor to even mention such a thing would have been heresy. wtf:shock2:




May you live in interesting times, the curse goes.

Mervyn King is very capable and it is well worth paying attention to what he says and the nuances of what he says.

Currently they are fuelling bubbles in commodities, but all the time the value of currency is eroding. The existing exchange rates needs to shift dramatically to allow proper adjustment and a new equilibrium, but those with undervalued currencies are doing their utmost to ensure that they maintain what they consider their economic advantage. It is economic growth through subsidy. This is short sighted and cannot end well.
 


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