Tuesday, August 25, 2009

Damage Control?

"The Federal ruling that the Fed must disclose its secretive recent bank activity and the reappointment of Fed Chairman Bernanke are connected events."
-Jim Sinclair

Fed Must Make Public Reports on Emergency Loans, U.S. Judge Says
Aug. 24 (Bloomberg) -- The Federal Reserve must make public reports about recipients of emergency loans from U.S. taxpayers under programs created to address the financial crisis, a federal judge ruled.

Most red ink ever: $9 trillion over next decade
WASHINGTON (AP) -- In a chilling forecast, the White House is predicting a 10-year federal deficit of $9 trillion -- more than the sum of all previous deficits since America's founding. And it says by the next decade's end the national debt will equal three-quarters of the entire U.S. economy.

On Monday afternoon news breaks that a federal judge rules that the Fed can no longer keep secret the recipients of their "emergency loans" to banks at the height of the financial crisis last year. On Tuesday morning the White House tells the world that America's deficit problem is bigger than anybody could have imagined...$2 TRILLION bigger. Suddenly, while on vacation, the president shows up infront of a makeshift "Presidential Podium" in some hotel backroom and announces that he will reappoint Ben Bernanke a Chairman of the US Federal Reserve. Strange coincidence?

Not at all. In an obvious effort to "protect" the US Bond Markets, Team Obama had to do "something" to divert attention from the TRUTH. The US Fed is about to be stripped naked, and America is without a doubt broke.

Why Did Obama Reappoint Bernanke on His Vacation?
By Ezra Klein
The surprise isn't that Barack Obama reappointed Ben Bernanke. It's that he announced reappointing Ben Bernanke today. Obama is on vacation in Martha's Vineyard. It's a rare person who reappoints the Fed chairman in order to relax. Nor was this an urgent decision: Bernanke's term doesn't end till January. So why today?

...the OMB is coming out with big deficit numbers today, which could rattle the markets and be used as a cudgel against health-care reform. To prevent that, the White House scheduled the Bernanke announcement for the same day. Fed chairmen may be insulated from politics, but the people who choose them sure aren't.

By Tim Fernholz
...there's plenty of interest in why Obama chose today of all days to unveil his decision, since Bernanke's first term doesn't end until January and the president's on vacation in Martha's Vineyard. Noam Scheiber, as well as sharing my appreciation for Bernanke's extremely effective and pragmatic crisis management, suggests it's about coddling the bond markets, as monetary policy decisions often are.

...the bond markets love to freak out at the first sign of increasing deficits. To counteract the deficit news that otherwise would put CNBC and the markets in a huff, the White House is pushing ahead the Bernanke announcement, putting a little honey in the bad medicine. Bernanke is "trusted" by the "markets," in the insane parlance of our times, and this should give them some confidence going forward. (It also won't hurt to take health-care reform out of the news cycle for a few hours or so.) And if, as Noam suggests, Bernanke's market credibility will give him more leeway to wait on raising interest rates until recovery truly comes instead of jumping early, then that will help bring down unemployment and prevent a 1937-style second recession.

It should also be interesting to note that the Treasury has a mountain of debt to auction this week...imagine that. After auctioning off $61 BILLION in three and six month debt yesterday, and beating up the Precious Metals Markets to do it, the Treasury AND the Fed were at it again today. Gold once again came in scortching hot this morning only to see it's gains beaten back once again by the goons on the CRIMEX as the Fed "bought more debt than some had expected it would in the first of the U.S. central bank's two U.S. debt purchases scheduled for this week". No, seriously, Gold sold off because the Fed bought MORE debt than was expected. The Fed bought $6 BILLION of Treasury Debt, with money created out of thin air, and the price of Gold went down? ONLY IN NEW YORK.

Treasurys add to gains after Fed's big buyback
Major supply of notes, bills up for bid in government auctions this week
NEW YORK (MarketWatch) -- Treasury prices advanced Monday after the Federal Reserve bought more debt than some had expected it would in the first of the U.S. central bank's two U.S. debt purchases scheduled for this week.

The rally "started after the buyback which was a little better then expected," said Thomas Di Galoma, head of U.S. rates trading at brokerage Guggenheim Capital Markets.

Dealers submitted $29.371 billion in offers to the Fed.

Such offers may be higher than in past repurchases if traders decide to use the buyback to set up for the auctions this week, said George Goncalves, chief fixed-income rates strategist at Cantor Fitzgerald, one of the 18 primary government security dealers required to bid at auctions.

Still, gains may be short-lived before the week's government auctions -- $109 billion in notes plus $117 billion in shorter-term bills -- get underway.

Traders usually prepare for coming sales of new debt by selling existing holdings, both to have assets to bid on auctions and to push prices down to get a better deal.

The Treasury will sell $42 billion in 2-year debt on Tuesday and $39 billion in 5-year notes the following day. It will also offer $28 billion in 7-year securities on Thursday.

One challenge for this week's auction slates is that the government is selling far more in new debt than it has debt maturing and interest payments, meaning investors have less cash to roll over into the new securities. The relative success of last month's auction slate was in part attributed to very large amounts of maturing debt and interest payments.

"The burden will be the new money issue in the period given the $19 billion in 2-year debt as the sole maturing issue while raising $90 billion new money," said John Spinello, Treasury strategist at primary dealer Jefferies & Co., referring to the note sales.


Team Obama may be focused on damage control today, but it looks like they've decided they will all go down with the ship together tomorrow.

No comments:

Post a Comment