JFK vs the Fed?

From Smaulgld.com:

This myth gets peddled  as often as the "comex imminent collapse" 

JFK was not challenging the Fed by issuing US notes backed by silver

  https://smaulgld.com/john-f-kennedy-favored-federal-reserve-notes/

Fed Bank President Calls for Zero Interest Rates Until 2016!

Chicago Fed President Charles Evans during a speech today said that the Federal Reserve shouldn’t raise interest rates until early 2016.

“The U.S. economy is looking stronger than it was a year ago,” he said. However, “there continues to be significant underutilization of labor,” he added. “I don’t think inflation is going to take off any time soon.”

He sees inflation staying below the Fed’s 2% objective “well past 2017.”

Bottom line: There are serious money printers at the Fed, Although I suspect that price inflation may slow over the very near term (SEE: Economists Have Downgraded Estimates for Inflation Due to Falling Oil Prices and a Strengthening Dollar), Fed members are simply projecting current trends out into the future. They have no idea how quickly price inflation can accelerate once it starts a serious upward projection.

Evans' remarks are further evidence of my view, and that of Martin Feldstein, that the Fed is going to raise rates very slowly and that at some point price inflation is going to jump way ahead. (SEE: Price Inflation Propaganda from National Review)

The Fed shouldn't be manipulating money supply and interests at all, but this Fed is exceptionally dangerous. We not only have a drunk teenager behind the wheel of the economy, but a drunk and blind teenager behind the wheel.

The Federal Reserve's Unauthorized Massive Bailout of Europe (and Possibly Japan)

On Monday of this week, I posted a commentary by Ron Paul calling for the halt of a coming  Federal Reserve bailout out of Europe (The Coming Fed Bailout of Europe Must Be Stopped!)

Now, beltarian insider Gerald O'Driscoll (former vice president at the Federal Reserve Bank of Dallas and later at Citigroup and now a senior fellow at the Cato Institute) warns, in WSJ, that the bailout that Ron Paul warned about has started, when one examines the latest Fed reports.

O'Drsicoll writes:

This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light.

Perhaps MSM is spending time on what Dr. Paul didn't write 20 plus years ago versus what he is actually writing now.

Here's O'Driscoll warning about what Dr. Paul spotted:

America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here. [Except for Ron Paul-rw]

The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.

Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.

The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.

O'Driscoll then goes on to detail a bit of bailout history and report on how the bailout is cranking up again:

The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)

Aside from the obvious inflationary consequences of printing more dollars via swaps (even though they start off in Europe those dollars could easily hit these shores) O'Driscoll lists a number of other problems with the swaps, including the fact that they are illegal:

First, the Fed has no authority for a bailout of Europe. My source for that judgment? Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have "the intention or the authority" to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.

Second, these Federal Reserve swap arrangements foster the moral hazards and distortions that government credit allocation entails. Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better.

Third, the nontransparency of the swap arrangements is troublesome in a democracy. To his credit, Mr. Bernanke has promised more openness and better communication of the Fed's monetary policy goals. The swap arrangements are at odds with his promise. It is time for the Fed chairman to provide an honest accounting to Congress of what is going on.

Protesters Rally Outside Nashville Fed Branch

Nearly a dozen people from various Libertarian groups rallied outside the Federal Reserve Bank Saturday, reports Nashville News 5.

"You'll notice from even a year ago prices have increased. It's not that the price of milk or gasoline has gone up. It's the purchasing power of the dollar has gone down because the Federal Reserve keeps printing money, out of nothing," said protester Matther Gulliver.

Fed Relies on Bacon to Solve the PIIGS Crisis

Forget the President's Working Group on Financial Markets, aka The Plunge Protection Team, there is a new major player on the scene, and it appears they had major influence on yesterday's coordinated Fed announcement on global swaps. Unlike the Plunge Protection Team, which consists of government officials, this new group, the Investor Advisory Committee on Financial Markets, consists of top Wall Street operators.

WSJ's Susan Pulliam reports on the committee:

Wall Street executives, in a private meeting with a top Federal Reserve official in late September, recommended a coordinated effort by central banks to remedy the European financial crisis...The meeting...preceded a joint action Wednesday by the world's major central banks, which banded together to provide liquidity to the markets through cheap U.S. dollar loans.

Pulliam goes on to report that the private meeting with the Fed was headed by a hedge fund manager, Louis Bacon of Moore Capital Management:

Mr. Bacon has been asked to speak about Europe during meetings with the Fed a number of times. In an email exchange Sept. 20, a Fed official asked Mr. Bacon to lead the meeting. "I was wondering if you would consider leading off the discussion on Europe, as you did at a meeting last year," the official said in the email.

Of note in the Pulliam report is that the Wall Street elite who took part in the meeting sound like a bunch of cry babies calling for a Fed bail out. They suggested many ways:

The bulk of the three-hour meeting with [NY Fed President] Dudley on Sept. 27 at the New York Fed headquarters addressed the fallout from the financial crisis in Europe. Mr. Bacon, who was asked by Fed staff members to lead the discussion, began by saying he felt a Greek default was "likely" and he believed there was a "sizable risk of an accelerated Greek bank run," according to meeting minutes.

Committee members also said they believed a default by Greece would lead to increased pressure on the already weak position of French banks and create funding strains for European banks, according to the minutes.

The group suggested a number of ways to address the European crisis, including "coordinated credit easing and/or quantitative easing by" the European Central Bank. The group also urged "central bank guarantees of sovereign debt," "investments in European sovereigns and banks," "implementation of capital controls" and "government guarantee of bank funding and/or depositors," as well as "recapitalization of the IMF," according to the minutes.

Who besides Bacon is on the committee? WSJ reports:

Members of the Investor Advisory Committee on Financial Markets include some of the biggest names on Wall Street, including Keith Anderson of Soros Fund Management; Mohamed El-Erian of Allianz SE's Pacific Investment Management Co.; Peter Fisher of BlackRock Inc.; Joshua Harris of Apollo Management LP; Alan Howard of Brevan Howard Asset Management; Deryck Maughan, a former chief executive of Salomon Brothers who now is at Kohlberg Kravis Roberts & Co.; and David Tepper of Appaloosa Management LP.

Other members include:

Nicole Arnaboldi
Vice Chairman of Alternative Investments
Credit Suisse Group

Garth Friesen
Principal
III Associates

Scott Malpass
Vice President and Chief Investment Officer
University of Notre Dame

Lawrence Schloss
Chief Investment Officer and
Deputy Comptroller for Pensions
NYC Public Pension Funds

Morgan Stark
Managing Member
Ramius LLC

Bottom line, we see the elitists at work, again, calling for every possible intervention in markets, including the  "implementation of capital controls"! Got that? Calls for capital controls from those operating in the capital markets! These guys will say, do and be in favor of anything that will protect their positions. And this is who the New York Fed brings in to give them advice. Crony capitalism winning again.

HOT: Fed Announces Massive Global Central Bank Intervention

Developing...

UPDATE 1: The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank have just announced coordinated actions to enhance their capacity to provide liquidity support to the global financial system.

UPDATE 2: According to the Fed, the purpose of the actions is to ease strains in financial markets and "thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."

UPDATE 3: The central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise, the Federal Reserve said. These swap lines are authorized through February 1, 2013.

BOTTOM LINE:Central banks have agreed on a major global money printing scheme. Major global inflation is on its way.

The Fed Currency Swaps Begin

That didn't take long.

The Federal Reserve provided $9.205 billion of liquidity to foreign central banks since reopening foreign exchange swap lines this last week, the New York Fed reports.

The European Central Bank was the only institution to draw on the swap lines this week, swapping the full $9.205 billion amount.

The terms for the ECB swap were eight days at 1.22 percent, the New York Fed said.

This number has to be watched closely. If it gets out of control ($100 billion or more), there is no way the Fed will be able to sterilize that kind of money printing and severe inflation will be on the way.

Is the Big Inflation About to Hit?

It's a little early to tell, but Bob Murphy has emailed me a very interesting article that points to a change in strategies by banks.

The article was written by Jeff Cox at CNBC. The key points to the article are:

Surprisingly strong Treasury auctions in March had help from banks, which normally stay away from such events.

Banks snapped up $5.7 billion of the total $34 billion auctioned in 10-year notes and 30-year bonds, providing demand for auctions that many analysts thought would flop....At the same time, bank credit fell 5.1 percent in the month and loans and leases dropped 6.4 percent, according to the Federal Reserve .

The pattern suggests that banks have been starting to put their large cash balances to work, but is not an indication that bank balance sheets as a whole have started to grow," Deutsche Bank said in a research note.

The suggestion is that banks are using Treasurys as a way to get some return on their money that they might otherwise reap from making loans.

That banks would get so involved with long-dated securities came as additional surprise since they aren't usually such active participants at auctions and generally buy mostly short-dated notes. Under normal circumstances banks don't have much interest in keeping long-term rates low as that could compress the yield curve and cut into the profits they could make on lending.

Yet combined with their purchase of agency-backed debt such as mortgages and student loans, banks bought a total of $40 billion from the Treasury in March, according to analysts at Deutsche Bank.

But there's also another less-obvious reason banks could be stepping in to the Treasury market: A type of tacit quid pro quo with the Federal Reserve to keep short-term rates low by helping the government finance its debt through Treasury auctions.

Art Cashin, director of floor operations at UBS, noted after the 30-year auction suspicions among traders about who was doing the buying. In remarks to CNBC, he spoke of "all manner of conspiracy theories floating around. Is the Fed putting on a fake moustache and a raincoat and coming in as an indirect buyer?"

While there's disagreement among analysts whether the actions are part of an explicit pact between the two sides, some suspect a gentleman's agreement in which both sides benefit.

"Banks are stealing money from the public, giving consumers zero percent interest on deposits, and instead of turning over risk to the over-indebted consumers, they're loaning money to the government," says Michael Pento, chief economist at Delta Global Advisors in Parsippany, N.J. "I'm sure it's at the behest of (Fed Chairman) Ben Bernanke—we're going to keep rates low but you must facilitate the Treasury auctions going off smoothly."

The Fed funds rate is near zero, meaning that banks can borrow at almost no cost and lend out at the prevailing rate—or invest in vehicles such as Treasurys.

The 10-year yield edged over 4 percent in the days after the weak March auction for the benchmark note but has fallen precipitously since then, trading around the 3.75 percent area and helping to keep government borrowing costs down.

Now, the fact that bank loans dropped during the period would suggest on first blush that the Treasury is crowding out the private sector, i.e. banks are buying Treasury debt instead of loaning funds out to businesses.

But, there is one other intriguing piece of data.

Excess reserves fell by $41 billion in the month of March. That is almost the exact amount that banks bought in Treasury and agency-backed debt. Does this mean that the banks are starting to move some of the trillion dollars in excess reserves they are holding and starting to pump them into the system? Possibly.

One other piece of data suggests that there is a countervailing drain going on somewhere. 3 month annualized M2 growth is actually negative, so I am not ready to sound the alarm bells just yet, but I am watching things very carefully.

What needs to be monitored is how much more Treasury and agency debt banks buy, any further down trends in excess reserves, and, of course, M2 growth. If M2 growth starts to pick up with declining excess reserves and banks buying government paper, it is a signal that we are headed into a new inflation phase. It means the Fed can't keep interest rates down, without sneaky inflation via getting banks to start using excess reserves. Again it is still early, and these numbers do move around a bit, but if a trend starts to develop over the next couple of months the early warning inflation alarm bell will have to be sounded.

Fed Official: We Can Just Print Money, Damn It!

In an odd post, WSJ analyzes the Fed's just released financial statements as though it were simply a bank like any other, and concludes:

It has a more risky portfolio than it’s ever had before, including $1.25 trillion in mortgage securities that could lose market value if interest rates rise, if defaults climb or if it has to sell them quickly. A 4% loss on that portfolio would equal almost all of its capital.

Coming back to reality, WSJ then notes:

Of course the Fed can print money itself. (As opposed to a bank, which depends on the backing of depositors and other creditors to fund its operations.) Thus, as a Fed official notes, on condition of anonymity, it would be able to continue operating even if its capital becomes depleted.