maybe we're not printing enough?
Bucking the Federal Reserve's efforts to push interest rates lower, investors are selling off U.S. government debt, driving rates in many cases to their highest levels in more than three months.
The Fed's $600 billion program to buy Treasury bonds began late last week and is kicking into high gear this week, with the central bank buying up tens of billions of dollars of debt.
That should have driven prices up on those bonds and lowered their interest rates, or yields, which move opposite to the price. Instead, yields on almost every Treasury have been rising.
The trend is a potential problem for the economy and the Fed. Rates had fallen sharply for months in anticipation of a Fed buying program, and in a short time much of that effect has been lost, spelling an unwelcome rise in borrowing costs throughout the economy.
That could throw a wrench in what the Fed is trying to accomplish: to use low rates to encourage more borrowing and risk-taking by consumers, businesses and investors, thereby reviving growth...
Many observers still believe that the power of the Fed's printing press will prove overwhelming and economic growth disappointing. Both forces would eventually drive rates lower. Still, the recent move in rates has been jarring, raising some market worries that the Fed's program might be ineffective or backfiring...
Realistically you arent
Given the amount of debt in the US (around 35 trillion private and public, excluding unfunded future liabilities), and how much debt destruction is taking place $600 billion is a drop in the bucket.
Many were stating a few weeks before the announced QE 2 that it was going to have to around $1.2-1.5 trillion to have any real effect on market perceptions
The cruel thing of what the Fed is doing is that it is inflating assets that the poorest American have to consume, food and gas for their cars to get to work. Clothing prices will be next due to the hike in cotton costs.
cpwill said:The trend is a potential problem for the economy and the Fed.
Mr. Rosengren counters that long-term interest rates rose a bit a few months after the Fed announced its last round of bond purchases in March 2009, then settled down. That program, he said, helped to hold mortgage rates down in the longer-run and helped to stabilize the housing market. “The program’s success is not based on temporary fluctuations,” he said. “Over time you would expect rates to continue to be lower as long as you’re holding a large stock of that asset.” He added that financial markets had been anticipating the Fed’s program since August, so recent movements in bond yields shouldn’t be seen as the market’s verdict on the program. Bond yields fell substantially when Fed Chairman Ben Bernanke started speaking more openly about the program in August.
Speculators imo. Bond markets have been acting strangely for 2 years.. going for short term profit rather than long term stability. That can only be speculators betting on a negative.
Americans will adjust their spending habits, and producers will see margins contract. They simply won't be able to pass increased raw materials' prices through to consumers to the degree they desire. Outgo for households cannot exceed income indefinitely.
Speculators imo. Bond markets have been acting strangely for 2 years.. going for short term profit rather than long term stability. That can only be speculators betting on a negative.
You are wrong that none of the cost increases will find their way to the consumer. Food and gas prices are already higher. The poor will make choices because they to. But the choices will not always be to change brand name. People are much to cavilier about the pain of the poor.
Not sure why or what basis you make this statement. Bonds are bought from a variety of people and governments. Countries take our debt as they sell us stuff, retirees buy bonds to be safe, not speculate, pension funds the same.
Maybe what you are saying is true whereever you come from.
I didn't say "none." I said they wouldn't be able to pass the costs on "to the degree they desire." It's not just the poor who are hurting. It's the American consumer in general. He's tapped out. His real median income has been stagnant for thirty years. He hasn't saved money in more than two decades. He relied on the equity in his home as a piggy bank to fuel his consumption. Now he finds 23% of him and rising owes more on his home than it's worth. There is simply too much shadow inventory in the housing market, and we have millions of homes still in various stages of foreclosure. Who can/wants to buy an asset that's still deflating? A million Bernankes wouldn't be able to bail him out. No, sir, the consumer's tank is dry, done, kaputt. This is not complex math, my friend. Outgo can not exceed income indefinitely. He can't spend more than he earns any longer, even if he wants to (which he doesn't).
It is more than often not the bonds themselves that are the problems, but the insurance and other financial instruments that are connected with them. When a person can make "bets" on a negative, which you can in the financial markets these days, and make a huge profit in doing so, then there is a huge incentive for making that negative happen in any way possible.
My problem with the system is that as it stands now, making sure that certain countries fail is more profitable than helping them out of the crisis. We are talking about the lives of 10s of millions of people here... it should simply not be possible to make a profit from misery like that. And that is where the present bond markets come into the picture.. they are driven more by rumour and speculators words, than actual fact. Ireland for example, does not need any funding before mid next year, and yet its rates are through the roof and that has spread to Portugal and even Spain and Italy some what. There is no doubt that the economy in Ireland is in the toilet, and they are in trouble, but what is happening now is like killing off the wounded because it is more profitable to do so than save them. And when that is done, the same people will move on to the next target, which looks to be Portugal. These are the same people that drove oil prices up to 150 dollars btw.. and even created in many ways the financial crisis we are all in today including the subprime crash in the US.
PeteEU said:Ireland for example, does not need any funding before mid next year, and yet its rates are through the roof
Short selling! How immoral! Making money when something goes up in price seems so much more socially acceptable, But, of course, markets go up and markets go down: that's the nature of markets. Being able to earn a profit from a decline in price is a necessary component of markets: without it, markets would not be able to fulfill their economic function of price discovery.
Which is what one should expect: the markets (all markets, not just debt markets) are always forward looking, anticipating and evaluating all information available and continually formulating and revising expectations. Economists refer to this as the 'price discovery' function of markets.
It's funny how outraged some folks get (not referring to you, just in general) when money is made because something, anything, goes down in price. Short selling! How immoral! Making money when something goes up in price seems so much more socially acceptable, But, of course, markets go up and markets go down: that's the nature of markets. Being able to earn a profit from a decline in price is a necessary component of markets: without it, markets would not be able to fulfill their economic function of price discovery.
I think some of what went on during the financial crisis bordered on evil. Look at what happened to Lehman Brothers. You had people who knew the bank was highly leveraged with illiquid derivatives, so they bought CDS contracts on Lehman bonds they didn't own, shorted the stock, and then hit the Street with rumors that the bank was going belly up. It might have gone under anyway, but these people didn't help it.
PeteEU said:There is a difference in making money because you short a stock or commodity, but had no influence what so ever in getting it right. The problem is those people who use financial instruments to bet on a negative outcome and then do their damnest to make sure that negative outcome actually occurs. This is what speculators are doing in key markets... they are making the negative happen via the means they have, because the profit will be so much bigger.
"Evil?" Not by a long shot, IMO.
If I bought an insurance policy on your antebellum home that had survived numerous wars, panics, and depressions, then sold your home to someone else even though I didn't own it, helped burn it down, bought the sticks from you, handed the title to the sticks to my buyer, and then collected on the insurance policy, some people would, at the least, have an ethical problem with that. I'm not saying that Lehman's demise wasn't, at its core, a product of its own making, but some of the circumstances surrounding the failure of the bank stink. I don't think some people gave it a second thought that they helped put a venerable investment bank and tens of thousands of people out of work by knowingly spreading false rumors in an attempt to make money. If that isn't evil, it's close.
Defiant Dick Fuld blames false rumours and the Fed for collapse of Lehma | Business | The Guardian
your comparison is broken
It wasm't meant to be a straightforward comparison. It was a limited analogy designed to illustrate a point.
ok. then i must confess that i missed it
Realistically you arent
Given the amount of debt in the US (around 35 trillion private and public, excluding unfunded future liabilities), and how much debt destruction is taking place $600 billion is a drop in the bucket.
I didn't say "none." I said they wouldn't be able to pass the costs on "to the degree they desire." It's not just the poor who are hurting. It's the American consumer in general. He's tapped out. His real median income has been stagnant for thirty years. He hasn't saved money in more than two decades. He relied on the equity in his home as a piggy bank to fuel his consumption. Now he finds 23% of him and rising owes more on his home than it's worth. There is simply too much shadow inventory in the housing market, and we have millions of homes still in various stages of foreclosure. Who can/wants to buy an asset that's still deflating? A million Bernankes wouldn't be able to bail him out. No, sir, the consumer's tank is dry, done, kaputt. This is not complex math, my friend. Outgo can not exceed income indefinitely. He can't spend more than he earns any longer, even if he wants to (which he doesn't).
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