According to the Mortgage Bankers Association, low rates fueled a burst of refinancing applications in the August 13 week. The refinancing index jumped 17.1 percent to its highest level since May last year. This most assuredly means that more money will be headed the Fed's way--at least in the short term/
On top of this,as Paul Kasriel and Asha Bangalore at Northern Trust point out:
In July, for only the second time in the past 21 months, U.S. commercial bank total credit(loans and securities) increased. And it was a healthy increase at 8.3% annualized.If bank lending kicks in, banks may start to drawdown on the trillion plus in excess reserves. Then we are talking huge potential money growth acceleration.
Yesterday, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said that the Federal Open Market Committee decision that was made last week “has had a larger impact on financial markets than I would have anticipated.”
He said, it should have been interpreted as only a technical adjustment:
The Fed’s holdings of long-term assets were shrinking, leaving a larger share of the long-term risk in the economy in the hands of the private sector. This extra risk in private hands could force up the risk premia on long-term bonds and be a drag on the real economy.In fact, Kocherlakota may be the one misunderstanding the FOMC move. With increasing cash flow to the Fed from MBS investments and banks starting to lend money, this may be more of a tsunami of newly created money hitting the economy then a simple technical adjustment.
It's still very early in the game, but this is not the time to dismiss inflationary fears. The countervailing deflationary forces continue to rule, but this is an extremely volatile time and things could change very quickly. Buckle your seat belts, and hold on to your long-term gold positions.
Thanks for the report: "In July, for only the second time in the past 21 months, U.S. commercial bank total credit(loans and securities) increased. And it was a healthy increase at 8.3% annualized."
ReplyDeleteI think that the increase in "loans and securities" came from two sources: rising euro yen carry trade investing and monetization of US government debt by banks.
Today, the US Ten Year Note, IEF, is rising back up to its August 16, 2010 high of 98.78, which was attained in a nine week rally, rising from 92.3 to 98.78 beginning with the announcement of the EFSF Monetary Authority on June 10, 2010. The 20 to 30 year US Government Bonds, TLT, jumped higher today to 105.1 after rising parabolically from 101.3 on August 11, 2010. This would make any banker leap for joy, especially those who were capitalized by QE and the receipt of 1.2 Trillion, most of which is now in Excess Reserves, with the Fed
However, Total Bonds, BND,today is trading down today, on a day when stocks on trading down. This is likely due to today’s carry trade investing, the EUR/JPY, being turned lower to trade at 109.79 having closed yesterday at 110.24, and opened today at 110.06.
I believe bonds will be going south soon, being led so by Junk Bonds, JNK. Although being totally invested in gold coins, for institutional investors I recommend a short of junk bonds at this time. Soon it will be time to go short other bonds.
You write: "If bank lending kicks in, banks may start to drawdown on the trillion plus in excess reserves. Then we are talking huge potential money growth acceleration."
I do not see banks lending in today's deflationary economy. I believe they will leave the 1.2 Trillion on reserve with the Fed, even as US Government Bonds fall lower as I think if they pulled it out, the FDIC might swoop in and close the bank.
There was major benefit to the banks with the Fed's QE and use of TARP, in that they were preserved from capital depletion. They were nationalized and integrated with the US Federal reserve, effectively creating a new form of government, that being state corporatism. The gains of this bloodless coup were privatized to the banks and insightful traders who went long the banks, KBE; the losses were socialized to the taxpaying public. And now a behemoth, a beast, controls money, credit and lending.
I see the day coming soon when there will be a liquidity crisis and out of that, Credit Bosses, what I call Credit Seigniors, will be appointed to issue and manage credit, as the debt bubble implodes and the economy shatters.
Governments will become seignior, that is they will exercise seigniorage and become the first, last and only provider of credit. Then only food stamps and strategic needs will be financed.
National and regional seigniors throughout the world will likely be networked through unified regulation of banking globally as related in James Politi and Gillian Tett Financial Times article NY Fed Chief In Push For Global Bank Framework. Eventually, a Global Seignior will arise to boss them all.