| From: Keith Feral | 1/2/2013 10:06:49 PM | | | | | | | One caveat for this Friday would be the unemployment numbers. They keep surprising to the upside, even with Sandy storm. Employment could exceed expectations for the next few months before the delayed spending cuts kick in. But, all the winter storms the past few weeks will probably avoid any significant improvement like we had last winter when the snow was virtually non existent. |
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| From: FCom777 | 1/2/2013 10:57:04 PM | | | | | | I posted a message some time ago about what the cost of the Federal Reserve was to the govt on this Board that was never responded to by anyone. Last night, on a different Forum, I posted a similar question to someone who over the years has demonstrated a superior knowledge of the finer points of the banking system. Below is my post posing the question along with the response I received. Thought some of you might find the discourse interesting. I sure did ....
I've got a question regarding the "budget" of the Federal Reserve. Compared to the Federal Budget, how much do they "spend"?
I use quotation marks since the words enclosed seem to have dubious meanings when it comes to the Fed. I downloaded the Fed's budget document from their web site to try to find the answer to my question myself, but the budget described seemed limited to operational costs - which were frankly trivial. They may even have claimed to - on net - been a credit to the govt. The numbers didn't seem to jibe very well with the 80 billion they claim to be spending each month on MBS and other easing measures.
My guess is that their Balance Sheet is where the real dollars get spent - and that much trickery is involved to make that confusing and opaque. Moreover, I suspect that the quality of securities held in that balance sheet is the variable that never gets disclosed.
What's your take on this? You seem real knowledgeable. Compared to the Federal Budget, how much does the Fed "spend"? I thought the last debt ceiling was supposed to last until this coming fall - yet apparently we are there already. Is this due to Fed activities? How can Fed "spending" be "tracked" - even if it is indirect.
Thank you.
--------------- Response Below ---------------
stimpy - Wednesday at 1:59 AMEverything the Fed does is intentionally opaque. If they just explained it in plain English they would be hunted by mobs with pitchforks and AR-15's with 30 round clips. Pretty sure they know this and hence the push for pro-pitchfork legislation.
"I use quotation marks since the words enclosed seem to have dubious meanings when it comes to the Fed. I downloaded the Fed's budget document to try to find the answer to my question, but that seemed limited to operational costs - which were frankly trivial."
They are a wholly owned agency of the member banks. So this doesn't really mean anything. They buy the tallest skyscraper in San Francisco and keep a spartan office in the brick building wherever. Intentional deflection built into the whole thing, big stone faced humble buildings to convey sober bureaucracy and drabness. But no it doesn't cost much to run the joint.
"The numbers didn't seem to jibe very well with the 80 billion they claim to be spending each month on MBS and other easing measures."
No, the two have nothing to do with each other.
They are buying 40 billion of MBS and 45 billion of treasuries. The MBS is paper held by the banks from bundled loans. It is safe to assume they are not worth what the Fed is paying for them, but I don't know if there's any way to demonstrate that. Even if you track them down by CUSIP number their value isn't really known until the underlying loans are paid off or defaulted. This is just a continuation of the bailout. If you took out a loan to buy a house, and then couldn't pay it, you lose the house and the bank loses its loan. But the loan bundled in MBA gets passed to the Fed for cash, making the bank whole again.
The Fed doesn't take $40 in capital and give it to the bank holding the MBS. Last I checked the Fed only has $50 billion in paid in capital to work with. Wouldn't get very far on that. The Fed conjures the $40 billion from the ether. The idea is somewhere down the road it can sell the MBS for the cash back, and cancel the money out. Or collect the payments and retire them later. Either way it isn't existing capital it is a fractional loan-gift.
"Compared to the Federal Budget, how much does the Fed "spend"? I thought the last debt ceiling was supposed to last until this coming fall - yet apparently we are there already. Is this due to Fed activities? How can Fed "spending" be "tracked" - even if it is indirect."
The SOMA
newyorkfed.org
That is the Fed portfolio. When the Fed conjures money and buys things, it puts them in the soma. That is how you can measure how much cash is given to the banks and the government by the Fed. It was around 500 billion when I started following it in 2007. It will be at about $4 trillion by the end of this year. Half of that will go to uncle sam to spend on necessary things like obamaphones and hip replacements for centenarians who retired before I was born, and sniping angry teenagers in Yemen with killer flying assassin robots. (Isn't that awesome? That's totally for real!)
The rest goes to the banks. It is important to remember that the Fed is the banks. The shareholders of the Fed are the Fed, the member banks. That is the front of opaqueness, because you won't find a list. Private info. You can find the common shares are mostly held by institutions which is how they sell this whole scheme ultimately, because hey it's grandma's pension, not some illuminati reptilian inbred Rothschild the 14th. Or maybe it is, and it's none of your business anyway. The point is the Fed takes $40 billion from the ether in its right hand and trades it to its left hand, for a stack of paper. Then its left hand can do anything it wants to with it. Lately it buys politicians and plots the invasion of oil laden muslim countries. Hopefully soon it will go back to blowing domestic market bubbles. But that is of course entirely up to the invisible hand of the free market.
One variable to consider as well, the Fed doesn't keep the obligations to the government. When it buys a bond from the treasury, it gives the treasury a credit in their account to spend. Then the treasury pays the interest to the Fed. The Fed takes 6% of this as a service fee (I have volunteered to provide this service for 5% but they won't answer my letters, I guess you need a special magic fairy or something to conjure money and only the Fed has one). They give the rest back to the treasury at the end of the term. The more the Fed lends, the larger their dividend. In this way it is some hybrid variant stepchild of Three-card Monte and a Ponzi scheme.
But that is a bit piece, the dividend cut, compared to the siphoning of high powered money to the banks who can buy the outstanding issue for full interest and principle. That is some chunk of $300 billion taxpayer dollars a year straight to the Caymans, tax exempt.
So the answer is I don't know, and nobody does. You can read bank annual reports but they don't make any sense. BNY says they have $25 trillion assets under custody. Whose, how, what... private information. JPM, same deal. Who is the Fed? The member banks are the Fed. So you can't track the Fed without tracking the member banks, and you can't track them because they are private corporations and only release what they feel like, or what little the SEC makes them. And they slush in the public net worth to make it a non-issue. You know, capitalism. If you don't like it, move to Cuba.
As for the debt ceiling, it's not real. The Fed already said it is buying $600 billion gov debt this year. which curiously would be 100% of new debt issue if the fiscal cliff had stuck. If the debt ceiling stuck they couldn't buy any of it. We can't stop spending, everyone knows this, the theater is what it is. |
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| To: Fiscally Conservative who wrote (43041) | 1/3/2013 12:11:22 AM | | From: sandeep | | | | | You don't have to pay for tax cuts. It is the people's money. Only when you spend people's money, it needs to be paid for. That makes me think - is there a limit to how much a prez or a congressman spend on their fav vacations? Who approves this? |
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| To: Keith Feral who wrote (43050) | 1/3/2013 5:21:31 AM | | From: GROUND ZERO™ | | | | Yes, very possible, that's why I like covered call positions, especially around the VP regions... but I also think this huge gap higher could be the beginning of a mammoth gap and go rally that could last for a long time... this is exactly what happened in the first trading day of 2012, we had a huge gap higher and the market just kept on going... of course last year's 21 point gap wasn't like this years jumbo 37 point gap, but a 37 point gap is probably telling us something, and it's probably not all that bearish...
GZ |
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| To: Vendit™ who wrote (43035) | 1/3/2013 5:36:30 AM | | From: GROUND ZERO™ | | | | THE FOLLOWING PRICES ARE THE UPSIDE VP LIST FOR THIS RALLY...
minor - - 1451.00 (already reached)
MAJOR - - 1476.40, due no later than Wednesday, February 6th...
There are currently only two VPs for this current rally, additional VP levels will be posted if and as they begin to emerge...
GZ |
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| To: Keith Feral who wrote (43053) | 1/3/2013 6:02:34 AM | | From: GROUND ZERO™ | | | | I think the U.S. Dollar is not only going to move higher from here, I suspect the U.S. Dollar may very well have a substantial rally, especially as the bonds move lower and rates begin to firm up... this could only be more attractive to the U.S. Dollar in the long run... I'm going to take a long position in the U.S. Dollar today... if my entry doesn't put a top in that market, then nothing will... LOL!!!
GZ |
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| To: phlegmish who wrote (43048) | 1/3/2013 6:11:06 AM | | From: GROUND ZERO™ | | | | Thanks, I presume you were directing your comments to me... I very much appreciate them... I fully agree with you, things have changed for the worst, especially for the self motivated well educated successful individuals, and this is why I've gone completely Galt as of 2012, this government will not get another cent from me this tax season... most definitely, see you on the bike trail, it's lots of fun, great fresh air and beautiful scenery along the way, enjoy!!!
GZ |
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| To: FCom777 who wrote (43034) | 1/3/2013 6:15:37 AM | | From: GROUND ZERO™ | | | | Excellent post, I think you're right on all points, although I don't know if this entire gap will ever be filled, my hunch is that it will not be completely filled, this could just as easily be a breakaway gap, one of those gap and go type things...
GZ |
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