Federal Reserve Maintains Zero Percent Interest Rates For Extended Period
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.
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Video: Dylan Ratigan breaks down the Federal Reserve as a racket
Dylan Ratigan has been doing good journalism lately, really taking time to educate people on issue about money and how our high level financial system works. This video is not exception. You may think he is too opinionated in the clip but if you fact check what he is saying and take an unbiased view of what is actually happening in operation you will see that we do not have control over our own money and the people who do have the interests of the banks first and then the American people.
In my opinion, our country was founded so we could get rid of any outside control and self-govern as a independent republic. Things will change because the system we have setup up is not sustainable.
ENJOY!
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Fed to exit mortgage-backed security market today
This is positive news. The more we see these government programs winds down and their assistance not being there to support for the U.S. housing market, the more we will see if this is a real recovery or a head fake. The market has run up in the last few weeks so we are going to continue more impressive earnings and growth to get everyone back into growth and investment mode. Like I said, this is a good first step.
Bloomberg - The end today of the Federal Reserve’s unprecedented buying of mortgage securities won’t have much effect on the market, BlackRock Inc.’s Curtis Arledge said.
Yields on agency mortgage securities relative to benchmark rates will likely widen “a bit” and become more volatile after the Fed’s exit, though probably won’t expand more than 0.2 percentage point, Arledge, chief investment officer of fixed income at New York-based BlackRock, said today in an interview with Bloomberg Television.
“It’s been one of the more telegraphed changes we’ve seen in a long time,” said Arledge, who oversees about $590 billion at the world’s largest money manager. “The marketplace has positioned itself for the Fed to be absent.”
The Fed’s $1.25 trillion of purchases in the $5.4 trillion market of securities guaranteed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae helped drive yield premiums to the lowest on record, which they remain near by some measures as the program ends.
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Fed keeps key interest rates steady despite board member’s disapproval
Interesting they are still keeping interest rates low for an “extended period” even though we are in a recovery. They must know something we don’t. They called the recovery moderate for sometime and that tells me that the earnings will not keep up with where the market is priced so we should see a correction.
LA Times – Washington D.C. - Reporting from Washington – Amid the political rancor over Federal Reserve Chairman Ben S. Bernanke’s bid for a second term, central bank officials encountered some dissension in their first policy-setting meeting of the year, even as they affirmed their pledge to keep interest rates at near zero for “an extended period.”
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The Federal Reserve Made $52 Billion In 2009
The Federal Reserve reaped quite a nice reward for its rescue efforts during the financial crisis. According to its preliminary unaudited 2009 results, the central bank made a whopping $52.1 billion in profit. Somewhere, Ron Paul’s blood is boiling. But before populist outrage at these profits take hold, let’s consider a few things.
First, the vast, vast majority of these profits are going back to taxpayers — $46.1 billion. As the release says:
Under the Board’s policy, the Reserve Banks are required to transfer their net income to the U.S. Treasury after providing for the payment of statutory dividends to member banks and equating surplus to paid-in capital.
Those statutory dividends were $1.4 billion, while the surplus capital was $4.6 billion. Taxpayers get the rest.
So the first point is that taxpayers actually benefit from the Fed’s profits. A lot. They got 89% of its net income. As a taxpayer, I’m pretty happy about that.
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Video: DeMint amendment to audit Federal Reserve blocked by Senate leadership
Editor’s Note: Watch this video if you would like to see what is happening to the “Audit the Fed” bill that has been co-sponsored by over 50% of the U.S. House of Representatives. It looks like the Senate is using “Rule 16″ to stop this amendment to the bill even when the same Senate has language in the same bill that violates the same rule they are using to stop this amendment. Oh the hypocrisy.
Video:
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Fed’s Kohn warns less independence & autonomy may cause higher interest rates
As you know in this previous post, I was in agreement on the technical basis, that an perceived erosion in the Federal Reserve’s independence would be back in the short-term. The reasoning was on the basis that foreign investors would become scared that the money printing would accelerate and that would devalue all dollars so to compensate for this, the investors would demand higher yields on new treasury issues.
BUT, I do take issue with the statement farther down in the article that quotes Donald Kohn as saying this about the bill in audit the Federal Reserve via the GAO (General Accounting Office), “Such legislation is “contrary to the public interest” because investors may see it as “undermining monetary independence,” Kohn said. “Such an action would increase inflation fears and market interest rates and, ultimately, damage economic stability and job creation.””
What this tells me is that the books for Fed are so messed up, that a full audit would send the market into a panic. If that is the case then the audit is what is really needed to restore confidence. I don’t buy the argument that somethings are better to not be known for our own good. That is an area that is ripe for abuse because of the opaqueness.
News (Bloomberg):
Federal Reserve Board Vice Chairman Donald Kohn said any “substantial erosion” of the central bank’s independence in setting interest rates may fuel investor fears of inflation and provoke higher long-term borrowing costs.
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