Federal Reservations

Terry Coxon, Casey Research writes: "A rock and a hard place" is a long-running theme of Casey Research publications. It refers to the dilemma the US government has wandered into with its continued policy of rescue inflation. The "rock" is what will happen if the Fed pauses for long in printing still more money – the collapse of an economy burdened by an accumulation of mistakes that rescue inflation has been keeping at bay. The "hard place" is the disruptive price inflation that becomes more likely (and likely more severe) with every new dollar the Fed prints to keep the effects of those mistakes suppressed.

Originally from The Market Oracle

Download Podcast | iTunes | Podcast Feed

On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the collapse of the European markets over the past six weeks, the Fed’s “Operation Twist” and the crazy philosophies of Elizabeth Warren.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

U.S. Stock-Index Futures Trim Losses After Four-Day Rout
€gads!
Fed’s ‘Operation Twist’ Fails to Convince Investors It Will Boost Growth
My Dog Owns My House? I don’t think so…

Follow Brad on Twitter
Follow Ben on Twitter
Follow Francis on Twitter

The hosts and guests of Coffee and Markets speak only for ourselves, not any clients or employers.

Originally from Big Government

Captain of the ship spoke sternly to the Chief Steward, "Red chairs on the port side, and blue ones on starboard." Such started a typical, icy cold morning on the Titanic. We imagine that the Chairman of the Federal Reserve likewise spoke sternly this week to the committee, "We will buy some blue ones and sell some red ones."

Originally from The Market Oracle

Kerri Shannon writes: If you're handicapping the U.S. Federal Reserve's two-day Federal Open Market Committee (FOMC) meeting that concludes today (Wednesday), you can make the following two predictions - and you'll almost certainly be right:

Originally from The Market Oracle

The Federal Reserve played its part well, along with the Treasury Department, the White House, and Congress, in helping prevent the financial meltdown of 2008-2009 from turning the ‘Great Recession’ of 2007-2009 into the next Great Depression. But its solo intervention with its QE2 quantitative easing program last year to boost the again faltering economy seems to have only delayed the business cycle.

Originally from The Market Oracle

The Dow fell by 635 points, Asia followed suit and Europe is expecting losses for up to 6 percent following the downgrade of US debt by ratings agency Standard & Poor’s. Whether the move by S&P can be wholly blamed for the heavy selling of stocks is open to question, but the market is now asking how the Fed will react when it meets today to discuss its response at its monthly meeting.

Originally from All News, Video and Posts related to TOPIC: Federal Reserve

PGL, in the process of an optimistic piece, points us to Martin Feldstein ringing in 2011. Apparently, the reason is this:

The most substantial potential boost to spending comes from a temporary reduction of the payroll tax, lowering the rate paid by employees on income up to about $100,000 from 6.2 per cent to 4.2 per cent. But, while the decline in tax payments will be about 0.8 per cent of GDP, it is not clear how much of this will translate into additional consumer spending and how much into additional saving. Because this tax cut will take the form of lower withholding from weekly or monthly wages, it may seem more permanent than it really is, and therefore has a greater impact on spending than households’ very feeble response to the previous temporary tax changes.

Feldstein attempts a free-finesse with "it may seem more permanent than it really is." This is like playing the seven to the Queen when you're only other holding is 10-x and expecting it to work.

It's six months later. The crowd jewel of BarryO's deficit-saving agreement, per Feldstein, was a low-impact change that was mostly (if my paycheck is any indication) neutralized by other factors (such as increases in health insurance costs). So the payroll cut is going to UHC or Aetna, or BCBS, or some other place where the money multiplier will be significantly less than one.

Even more interesting is that, just three paragraphs before, Feldstein understood that workers are still engaged in balance-sheet repair, and the likely consequences of same:

Even for those taxpayers who had feared a tax increase in 2011 and 2012, it is not clear how much the lower tax payments will actually boost consumer spending. The previous temporary tax cuts in 2008 and 2009 appear to have gone largely into saving and debt reduction rather than increased spending.

It is surprising, therefore, that forecasters raised their GDP growth forecasts for 2011 significantly on the basis of the tax agreement.

But Feldstein did see some good in the greater tax deal—it would temper deficit fears:

Obama wanted to continue the 2010 tax rates permanently for all taxpayers except those with annual incomes over $250,000....By agreeing to limit the current tax rates for just two years, the tax package reduces the projected national debt at the end of the decade (relative to what it would have been with the Obama Budget) by some $2 trillion or nearly 10 per cent of GDP in 2020.

That reduction in potential deficits and debt can by itself give a boost to the economy in 2011 by calming fears that an exploding national debt would eventually force the Federal Reserve to raise interest rates — perhaps sharply if foreign buyers of US Treasuries suddenly became frightened by the deficit prospects.

There can be only one remaining question:

When will Martin Feldstein endorse Jon Hunstman for President?

Originally from Angry Bear

The QQQ (Etf for NASD 100) as been breaking down, and like every other major index it is at a critical juncture. What to do, but the dip? Just like all the previous dips since March 2009, maybe.

The markets are waiting for Athens and the Fed minutes. Price normally bounces of strong support once, and then if the down trend has legs breaks on the second test of said support. So that is what we will do wait for the second test. You can bet the perma bulls will do all they can to get a rally … [visit site to read more] or compare Best Credit Cards and Balance Transfer Credit Cards

Originally from DailyMarkets.com

When the Fed's Q1 Flow of Funds report was released on Thursday, I mentioned that some homeowners were paying down their loan amounts when they refinanced. I received some email questions about this, so I dug up the most recent Freddie Mac data.

Some borrowers are paying down their loans because they do not sufficient equity in their homes to qualify for a loan (a downpayment in arrears). Others are probably paying down their loan amount to meet the conforming loan limits and obtain a better rate.

Here is some data from Freddie Mac as of Q1: 75 Percent of Refinancing Homeowners Maintain or Reduce Debt in First Quarter

• In the first quarter of 2011, 3-out-of-4 homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Fifty-four percent maintained about the same loan amount, the highest share since 1985, when Freddie Mac began keeping records on refinancing patterns. In addition, 21 percent of refinancing homeowners reduced their principal balance.

• “Cash-out” borrowers, those that increased their loan balance by at least five percent, represented 25 percent of all refinance loans; the average cash-out share over the past 25 years was 62 percent.

• The net dollars of home equity converted to cash as part of a refinance, adjusted for inflation, was at the lowest level in 15 years (third quarter of 1996). ...

• The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.2 percentage points, or a savings of about 20 percent in interest costs.

A couple of graphs ...

Click on graph for larger image.

The first graph shows the percent of loans with Cash-Out, no change and lower loan amounts. Obviously the percent of Cash-Out loans is very low.

Freddie definitions: "Higher Loan Amount" refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "No Change In Loan Amount" refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan.

The second graph shows the dollar amount of cash-out, and as a percent of the unpaid principal balance. The equity extraction boom in the 2004 through 2008 is obvious (too bad lending wasn't tightened up in 2005 or 2006).

Here are the Freddie spreadsheets with additional data (from Freddie): Quarterly Cash-Out Statistics and Quarterly Cash-Out Volume

Earlier:
• Summary for Week Ending June 10th
• Schedule for Week of June 12th
• Updated List: Ranking Economic Data

Originally from Calculated Risk

Sometimes it’s not so hard predicting the future.
If, for example, you have reports like this –
“Fed’s Fisher Says US Economy Has Too Much Liquidity” (CNBC)
The U.S. economy has moved from having too little liquidity to having more than enough, a top Federal Reserve policymaker said on Thursday.
 
“We’ve gone from too little liquidity to too much,” said Richard Fisher, president of the Federal Reserve Bank of Dallas.
A steep retreat in oil prices suggests this liquidity and the … [visit site to read more] or compare Best Credit Cards and Balance Transfer Credit Cards

Originally from DailyMarkets.com