I want to start my dialogue with this quote:
“We’re at the dawn of a revolution in central banking, in which the likes of the Bank of Canada, the U.S. Federal Reserve Board, and eventually the European Central Bank (ECB) will exert more influence over the global economy than government, business or consumers. ”
That is really a scary thought but still a true statement and is becoming more of a reality by the day. Central banking does sit at the apex of our economy and through their different programs and levers, that affect basically every person on the planet.
The problem I have is that was not the deal we made in America when we were fed up with Monarchical rule from England and decide to revolt against the foreign ruler. Now we have another entity trying to sit on the throne and because our representatives can not make the hard choices and risk being unelected, they give that new throne more power by the day. What I mean is by us giving more and more entitlements to our people without the means to pay for them, we RELY on outside financing to fill the gap by issuing IOUs (Treasuries). This gives them a claim and that give power and influence to exert polices choices that may not be our own.
You may counter that the Federal Reserve and other central banking institutions are part of the government but the continual claim of needed independence allows them to make decisions on their own without the influence of the people. This can not be discounted and popular rule is not such a bad thing with the proper checks & balances.
At the end of the day, the people you elect go along with this system so until you will take time out of your day to go something that may not have a direct effect on your daily life, our representatives with continue to think they have the support and a mandate of the people. Democracy is not easy and need participation to work effectively. Somewhere we have missed this crucial point. Enjoy the rest of the article.
The Star - It’s a quiet revolution. And it’s the inevitable consequence of our currently difficult times. If not for the near-collapse of the world financial system in 2008-09, and the seemingly intractable financial crisis in Europe, central bankers would have remained the unseen players who for decades devoted themselves mostly to controlling inflation.
He is right. We do need to continue to keep aggressive polices in place to support this recovery. I appreciate the amount of honesty I am read and watching as of late. The only problem is that is underlines how precarious of a position we are in, not just the United States but globally. We are now fully inter-connected and dependent on one another. After reading this article, I wonder if Mr. Williams included the U.S. as one of the countries that has “unsustainable debt levels” and have not been resolved?
WSJ – It is essential for the Federal Reserve to provide strong stimulus to the economy under current economic circumstances, a top central banker plans to say Wednesday.
“It’s essential that we keep strong monetary stimulus in place,” John Williams, president of the Federal Reserve Bank of San Francisco, is scheduled to say, according to the text of a speech to be delivered as part of the SPUR Business Breakfast Series in San Francisco.
Utter garbage. How can we sit back and let a bank move a massive load of liabilities to a banking unit that has deposits and is backed by the U.S. taxpayers via the FDIC? No surprise the Federal Reserve didn’t see a problem because they would not be first in line to make that banking unit whole again if something went wrong and trigger the CDS and whatever, other exotic contracts Merrill Lynch may have. We are just increasing the risk on this massive institution.
We need to quit using this line of global uncompetitiveness as a reason why our deposit institutions need to act like investment banks and take those type of risks. If it is that important to Bank of America or any other bank (not to single them out), they just need to make BofA Investments or whatever so they can run that operation off their own capital and investors so they can take that risk so try and increase profits. Our banks just need to be competitive in our home market, America.
If other countries allow their “safest” banks jump off a cliff, should we compete to let ours? Even William K. Black is mentioned in the article and he thinks we should have tight runs against this type of practice. Just so people know, I am not against banks or banking, personally I find them fascinating companies and I love their history, but what we have these days is nothing like the old days. When I say that, I mean the sense of duty and prudence is not their and that is a loss for the industry as a whole.
Bloomberg (Bob Ivry, Hugh Son and Christine Harper): Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.
Mr. Rogers ain’t no slouch when it comes to banking matters. He made the very astute comment that regardless if we have QE3 or not, the Federal Reserve has been in the market all this time. When the Fed wants to lower interest rates, the actual method they use to accomplish this is by purchasing agency securities and that pushing yields lowers because of the artificial but very real demand created in that market. They continue to do this until they get to the desired interest rate.
Jim also understands how to handle an excessive debt problem. You have to let them fail so they bad (excessive) debt can be defaulted. Until we get this point and act on it, we will continue to see more disastrous policies and uncertain markets that could spike or crash on a dime and down the road, who knows? We just need to own up to the problem and see how we can fix it and learn.
With no surprise, the Fed after their two day interest rate policy meeting continues to maintain short term interest rates at near zero and they maintained the “for an extended period” statement in there. At this point they have not given the market any clue that they are starting an interest rate hike cycle.
This continues to tell us that even with the large rally in the equity markets, we are not out of the neck of the woods and things are still holding together by a string. The New York Times article discusses the same important topic I have mentioned about the massive balance-sheet the Federal Reserve has at the moment that is filled with many mortgage related securities and so-called toxic assets.
With the position our banking system is in, they are in no place to purchase back the over $1 trillion dollars in assets they are holding on their books. Until we can deal with those assets in a transparent manner, we can not say that we have a real recovery in our financial system. If they aren’t dealt with then they have essentially been off-loaded to the public and that would be a tragedy having to deal with the inflation associated with that because the banks would have all that extra cash to lend with.
New York Times - The Federal Reserve on Wednesday kept short-term interest rates near zero and maintained, as it has for nearly a year, that rates would stay at that level for “an extended period.”
Despite intense market speculation, the central bank disclosed nothing about the fate of the $2.3 trillion balance sheet it accumulated as it acquired mortgage-backed securities in an effort to prop up the housing market.
The Fed reiterated its expectation that the benchmark fed funds rate would remain “exceptionally low,” as it has since December 2008, for some time, despite growing concerns among policy makers that the stance was too constraining.