The Fed Truely Is The Only Lender

[MulaMan]

Seems that 100% of all residential mortgages originated in America in 2009 up to August were purchased by the Fed through printed money.

Time to let the house of cards crash - true home ownership will go through the roof when big city condos cost only $20K - everyone can then afford a home mortgage free - why do we need mortgage lenders when there are more houses and land then Americans desire?

The dirty secret of the mortgage industry is that Fannie and Freddie make homes more expensive, not more affordabe.

If nobody can get a mortgage, houses still need to sell but will sell at drastically lower prices. More people will be able to pay off thier homes in short order resulting in more disposible income for savings and consumption.

http://www.chrismartenson.com/blog/f...ued-2009/28343

[ThePythonicCow]

Re: The Fed Truely Is The Only Lender

Some of us will recall our concern when we noticed that China was the biggest holder of U.S. debt. We trusted that China would more likely operate in China's best interests, not the U.S. interests.

Does the same concern apply when it's the Federal Reserve that is the largest holder of U.S. debt? Should we trust the Fed any more than we do China?

The Fed has some "advantages" that China lacked. The Fed has apparently been able to get a hefty chunk of the other side of that debt invested in the U.S. stock market, meanwhile getting some major players seriously short the Dollar. The Fed could soon teach us "Dollar Doubters" a lesson we won't soon forget, with a monster short squeeze on the dollar. Once burnt, twice shy. The stock market rally of the last six months has not been healthy. Many who would normally have come into a rising stock market have been gun shy, after the double whammy of late 2008 and early 2009. Another hard takedown of the "Dollar Doubters", similar to that of July 2008 through February 2009, could install a timid fear in the Dollar Doubters for some time. I'm sure the Fed would like that result. Perhaps we are about to enter the final Wave C of a two year Elliott Wave A-B-C rally (up, down, up) in the dollar's grand decline.

Bernanke probably wasn't kidding when he told that Congressman a few months ago that a Fed audit risked another economic crisis. The Fed has the motive and now the means to insure just such a crisis. The House bill to audit the Fed might go through, but I wouldn't bet a warm tankard of Guinness stout that it will have sufficient bite to seriously constrain the Fed, well unless that is, the intent is to make out the Fed to be the bad guy, as a justification to move the world's meta-currency from the Dollar to some sort of IMF SDR construct.

The "Fed baiting" we are hearing from Congress now may be what amounts to a "good cop, bad cop" charade, or what the Japanese call Kabuchi Theatre: they huff and puff at the Fed; meanwhile nothing really changes. I just can't tell whether it's the Fed or the IMF that is supposed to win in the final act of this farce, or even if that really matters much.

If the Fed does manage to get off a short squeeze on the Dollar, that would presumably move stocks lower. What about gold? Gold has sometimes moved opposite the Dollar (we've seen periods of strong correlation between the Euro and gold in recent times, both opposite the Dollar.) But the goldbug analysts are claiming that China has their back, that China is willing to buy gold anytime they can get a good price, in what can be called a "Chinese put on gold" analogous to the "Greenspan put on U.S. markets."

Despite the imminent terrible crash of which the doomer goldbug analysts are (always :eek warning, it really doesn't feel that dangerous to me right now. Is playing short term games with some of one's gold position insanity (insert metalman provided graphic of steam roller and nickel collector here)?

P.S. -- Well there is one thing that strikes me as very dangerous in the short term. That is Israel and Iran. Given the concentration of U.S. military in that region, it would become Israel, Iran and the U.S within a matter of minutes.

[ricket]

Re: The Fed Truely Is The Only Lender

Given the concentration of U.S. military in that region, it would become the end of Israel, Iran and the U.S within a matter of minutes.

Fixed that for you.

[don]

Re: The Fed Truely Is The Only Lender

I'm still trying to parse out where this guy fits in....

A Neoliberal Hijacking

By MARSHALL AUERBACK
As a matter of national accounting, the domestic private sector cannot net save unless and until foreign or government sectors net deficit spend. Call this the tyranny of double entry bookkeeping: the government’s deficit equals by identity the non-government’s surplus.

Hence, if the US private sector is to rebuild its balance sheet by spending less than its income, the government will have to spend more than its tax revenue. The only other possibility is that the rest of the world begins to dis-save massively—letting the US run a current account surplus—but that is highly implausible, and socially undesirable, since it means we export our economic output, rather than consume it domestically. And if the government deficit does not grow fast enough to meet the saving needs of the private domestic sector, national income will decline, which, given the size of the private sector’s debt problem, will generate a huge debt deflation.

This is the foundation of modern monetary theory. Would that the IMF and the G20 understood these basic facts. The anodyne communiqué from last weekend's Pittsburgh summit makes clear that this is not the case. Western policy makers appear determined to consign us to years of additional economic misery because of the continued embrace of a flawed market fundamentalist economic paradigm.

So far, instead of trying to revive the productive economy, most of the G20's resources have consisted of mouth-to-mouth resuscitation for a dying financial sector. This has not "worked" to the extent that last weekend's communiqué advertised. The best analogy to describe the current state of our financial system is that we have placed scaffolding over a decaying building, but done little to repair the underlying structure. What happens when the economic scaffolding is removed via "exit strategies", as the G20 participants have advocated?

For many generations, we didn't face the unprecedented financial fragility we are experiencing today. But there are good reasons why we avoided this until recently. We have spent the past quarter century eviscerating what was fundamentally a robust structure originally devised during New Deal, a system which basically saved the US capitalist system and served the interests of its citizens very well until it was hijacked by a bunch of corporate predators under the guise of deregulation and neo-liberalism.

To read the communiqué from the Pittsburgh summit is to gain insight into an ideology which views government, not as a stabilizing influence protecting us from private sector rent seeking monopolists, but as an unwanted stepchild, brought out on display as a necessary evil, and destined to be shoved away as soon as we get back to a "normal" economic state of affairs, where the government minds its own business and lets the magic of the "free market" operate. Hence, the emphasis by the Pittsburgh summiteers on "sustained, strong and balanced growth", the usual code words designed to encourage budget surpluses, more private sector savings and shift from public to private sources of demand.

There is little understanding that if households and firms try to net save (save more out of income flows than they tangibly invest) incomes collapse, and desired private net saving is thwarted. The private "excess saving" cannot exist without a budget deficit or a trade surplus. Many people make this mistake. At best, we can talk about planned private saving being in excess of planned private investment, but other than that, we are violating double entry book keeping principles.

But consider this: in 1998, 1999 and 2000 (increasing each year), the US government "virtuously" ran budget surpluses. And guess what happened? The private sector became more heavily indebted than before as the fiscal drag squeezed liquidity and destroyed aggregate demand and incomes.

Along with our misconceived embrace of financial deregulation, the combined result was sharply rising unemployment and a major recession in 2001-02 with unemployment rising sharply and the automatic stabilizers pushing the budget back into deficit.

Unfortunately, that was the yellow flag for what was to follow, a warning signal blithely ignored by our economically illiterate policy makers. Instead, we perpetuated a massively leveraged financial system via Frankenstein financial products such as collateralized debt obligations, and credit default swaps. We squeezed private sector incomes via constrictive fiscal policy, thereby inducing the debt fuelled consumption that is now regularly decried by our officialdom and the commentariat.

The bottom line is that if we want habitual private sector savings, we need habitual government deficits.

And government deficits are not an aberration; they are the norm. Our first Treasury Secretary, Alexander Hamilton, called the national debt a "national blessing". Similarly, Paul Krugman and L Randall Wray have been only the latest in a line of economists arguing that it was World War II and the subsequent cold war that ended the depression, which created the foundations for a significant expansion of government debt, which in turn set the stage for the “Golden Age.” The government deficit reached 25 percent of GDP during the war, providing a massive amount of private sector saving in the form of safe financial assets that strengthened balance sheets. From 1960 onward, the baby boom drove rapid growth of state and local government spending, so that even though federal government spending remained relatively constant as a percentage of GDP, total government spending grew rapidly until the 1970s. This pulled up aggregate demand and private sector incomes, and thus consumption.

This is unsurprising: The private sector cannot create "net nominal wealth" because every private financial asset is offset by a private financial liability.
Over the long term, the maximum that a government can hope to collect in the form of taxes is equal to its purchases of goods of services. There is no hope of running long term budget surpluses because the government cannot possibly collect more than the income it has created as it paid out dollars. When the government attempts this, as it did during the Clinton Administration, the public finds that its net financial assets would be less than its tax liability, requiring households to dip into its "reserves" of accumulated savings, which gradually become depleted. In the absence of other factors, demand slows and the government almost invariably falls back into deficit.

If an external creditor is added (such as China or Japan) it merely delays or extends the process, since for a time, countries running current account surpluses with the US can use their surplus dollars to accumulate additional US dollar financial claims. But in the absence of any increase in US government spending (which is the only source of new net financial assets), the end result is still a massive accumulation of private sector debt, which is what got us into this mess in the first place. By contrast, assuming a non-convertible, freely floating fiat currency, a government can never be insolvent even if its tax revenue declines significantly. Its balance sheet can never become precarious in the same way that a household balance sheet can.

In the abstract, this always sounds controversial to those uncomfortable viewing the world within a financial balances construct. It also helps to explain the intellectual incoherence at the heart of the G20 communiqué and the Obama Administration's economic policies, which has been dominated by Wall Street interests.

So it's worthwhile considering some historic examples, which illustrate the point better. During WWII, the US government generated huge deficits and bond issues. The record expansion of government deficits not only facilitated the war effort, but created full employment. (As an aside, it is always interesting to pose the following question to "deficit terrorists ": if government budget deficits are so awful, and so egregious for the long term performance of an economy, then why run them at all during wartime, when presumably we need the economy to be functioning in an optimal manner?)

After the war, the Fed was concerned with potential inflationary pressures and raised interest rates. President Truman, a hard money man par excellence, drastically cut defense spending from $90.9bn to $10.3bn and the US accumulated huge fiscal surpluses. Post war surpluses, combined with Fed tightening, contributed to a recession in 1949. Unfortunately, it took the "military Keynesianism" brought on by the Korean War to shift Truman away from his aversion to deficit spending, which was continued by Eisenhower, and sustained via his national highways building program.
Unemployment fell sharply during that period. Similarly benign effects on unemployment were manifested in the wake of the Kennedy tax cuts and those of Reagan in the early 1980s.

Today, budget deficits are the highest as a percentage of GDP but are overstated to some degree, because they include the TARP measures to stabilize the financial system which brought the global economy to its knees in 2007/08. Classic Treasury expenditures deal with the purchase of real goods and services; Federal Reserve functions deal with the purchase and sale of financial assets. And yet, the focus of policy makers is quickly reverting to "exit strategies" and a reduction of budget deficits, where the Pittsburgh communiqué pledged to "prepare our exit strategies and, when the time is right, withdraw our extraordinary policy support in a co-operative and co-ordinated way, maintaining our commitment to fiscal responsibility." Would that this were true. The only way one could politically justify a government running a sustained surplus would be to make the case that unemployment created a more functional way of ensuring high profits (via wage discipline) than full employment. Put in those terms, it's not a particularly compelling message, but it has the virtue of being consistent with modern monetary theory.

Oddly enough, the G20 communiqué devotes considerable attention to the government’s "exit strategies" which came in response to the destructive private sector financial practices which created this catastrophe. There has been less attention directed to the underlying causes themselves. Thus the IMF, in its latest "Global Financial Stability Report”, suggests that restarting securitization markets is “critical” to a wider economic recovery, and that current US and European proposals to force banks that originate loans to hold on to the first 5% of losses in all securitizations, were not sufficiently flexible and might backfire. In the words of Credit Lyonnais Asia strategist, Christopher Wood,

"[The IMF] is yet again doing the world a disservice by acting as a lobbying group for the securitised debt peddlers. It is clearly fundamentally correct that the agents of securitisation should be made to retain some 'skin in the game' after the terrible damage they have inflicted. It is true that the collapse of securitisation represents a massive deflationary risk for the global economy. But that does not mean that the answer is to allow a new free-for-all in securitisation assuming, charitably, there is demand for the securitised product." ("Greed and Fear", 24 Sept. 2009, CLSA, Asia Pacific Markets)

The IMF, the G20, indeed virtually all Western policy makers - including the Obama Administration - will make themselves far more relevant when they emphasize that full employment and prosperity can only be achieved to the extent that governments are prepared to spend up to a level justified by non-government saving. That does not mean unconstrained government spending. . But the spending ought to be set with regard to results desired and competencies to execute plans—not out of some pre-conceived notion of what is “affordable”. Our federal government can afford anything that is for sale in terms of its own currency. And if it spends too much after getting us to a state of full output, it can get inflationary. But let's get to that state of affairs first before we start worrying about perpetuating a flawed status quo ante, which created only transitory prosperity and wage gains, but risks creating years of future economic misery if sustained in the future.

Marshall Auerback is a market analyst and commentator. He is a brainstruster for the Franklin and Eleanor Roosevelt Institute. He can be reached at MAuer1959@aol.com

http://www.counterpunch.org/auerback09292009.html

[vinoveri]

Re: The Fed Truely Is The Only Lender

where do these folks come from (learn economics)? -I'm not sure what he's trying to say, but am sure that some of his economic assumptions and conclusions are ludicrous - my comments in red

I'm still trying to parse out where this guy fits in....

A Neoliberal Hijacking

By MARSHALL AUERBACK
As a matter of national accounting, the domestic private sector cannot net save unless and until foreign or government sectors net deficit spend. Call this the tyranny of double entry bookkeeping: the government’s deficit equals by identity the non-government’s surplus. (or call this the tyranny of fiat currency and legal tender laws)

Hence, if the US private sector is to rebuild its balance sheet by spending less than its income, the government will have to spend more than its tax revenue. The only other possibility is that the rest of the world begins to dis-save massively—letting the US run a current account surplus—but that is highly implausible, and socially undesirable, since it means we export our economic output, rather than consume it domestically. And if the government deficit does not grow fast enough to meet the saving needs of the private domestic sector, national income will decline, [can government spending increase the national income?] which, given the size of the private sector’s debt problem, will generate a huge debt deflation.

This is the foundation of modern monetary theory. Would that the IMF and the G20 understood these basic facts. The anodyne communiqué from last weekend's Pittsburgh summit makes clear that this is not the case. Western policy makers appear determined to consign us to years of additional economic misery because of the continued embrace of a flawed market fundamentalist economic paradigm.

So far, instead of trying to revive the productive economy, most of the G20's resources have consisted of mouth-to-mouth resuscitation for a dying financial sector. This has not "worked" to the extent that last weekend's communiqué advertised. The best analogy to describe the current state of our financial system is that we have placed scaffolding over a decaying building, but done little to repair the underlying structure. What happens when the economic scaffolding is removed via "exit strategies", as the G20 participants have advocated?

For many generations, we didn't face the unprecedented financial fragility we are experiencing today. But there are good reasons why we avoided this until recently. We have spent the past quarter century eviscerating what was fundamentally a robust structure originally devised during New Deal, a system which basically saved the US capitalist system and served the interests of its citizens very well until it was hijacked by a bunch of corporate predators under the guise of deregulation and neo-liberalism.

To read the communiqué from the Pittsburgh summit is to gain insight into an ideology which views government, not as a stabilizing influence protecting us from private sector rent seeking monopolists, but as an unwanted stepchild, brought out on display as a necessary evil, and destined to be shoved away as soon as we get back to a "normal" economic state of affairs, where the government minds its own business and lets the magic of the "free market" operate. Hence, the emphasis by the Pittsburgh summiteers on "sustained, strong and balanced growth", the usual code words designed to encourage budget surpluses, more private sector savings and shift from public to private sources of demand.

There is little understanding that if households and firms try to net save (save more out of income flows than they tangibly invest) incomes collapse, and desired private net saving is thwarted. The private "excess saving" cannot exist without a budget deficit or a trade surplus.[ ah - true enough, the key is trade surplus ... one generates more revenue than one spends and voila savings - but the alternative of deficit spending generating savings is gobbledygook] Many people make this mistake. [I guess I'm one of those:rolleyes:] ... At best, we can talk about planned private saving being in excess of planned private investment, but other than that, we are violating double entry book keeping principles.

But consider this: in 1998, 1999 and 2000 (increasing each year), the US government "virtuously" ran budget surpluses. And guess what happened? The private sector became more heavily indebted than before as the fiscal drag squeezed liquidity and destroyed aggregate demand and incomes. WTF - lunacy

Along with our misconceived embrace of financial deregulation, the combined result was sharply rising unemployment and a major recession in 2001-02 with unemployment rising sharply and the automatic stabilizers pushing the budget back into deficit.

Unfortunately, that was the yellow flag for what was to follow, a warning signal blithely ignored by our economically illiterate policy makers. Instead, we perpetuated a massively leveraged financial system via Frankenstein financial products such as collateralized debt obligations, and credit default swaps. We squeezed private sector incomes via constrictive fiscal policy, thereby inducing the debt fuelled consumption that is now regularly decried by our officialdom and the commentariat.

The bottom line is that if we want habitual private sector savings, we need habitual government deficits. pure poppycock; produce more than you consume and you have savings

And government deficits are not an aberration; they are the norm. Our first Treasury Secretary, Alexander Hamilton, called the national debt a "national blessing". Similarly, Paul Krugman and L Randall Wray have been only the latest in a line of economists arguing that it was World War II and the subsequent cold war that ended the depression, which created the foundations for a significant expansion of government debt, which in turn set the stage for the “Golden Age.” The government deficit reached 25 percent of GDP during the war, providing a massive amount of private sector saving in the form of safe financial assets that strengthened balance sheets. From 1960 onward, the baby boom drove rapid growth of state and local government spending, so that even though federal government spending remained relatively constant as a percentage of GDP, total government spending grew rapidly until the 1970s. This pulled up aggregate demand and private sector incomes, and thus consumption.

This is unsurprising: The private sector cannot create "net nominal wealth" because every private financial asset is offset by a private financial liability. WTF?
Over the long term, the maximum that a government can hope to collect in the form of taxes is equal to its purchases of goods of services. There is no hope of running long term budget surpluses because the government cannot possibly collect more than the income it has created as it paid out dollars. When the government attempts this, as it did during the Clinton Administration, the public finds that its net financial assets would be less than its tax liability, requiring households to dip into its "reserves" of accumulated savings, which gradually become depleted. In the absence of other factors, demand slows and the government almost invariably falls back into deficit.

If an external creditor is added (such as China or Japan) it merely delays or extends the process, since for a time, countries running current account surpluses with the US can use their surplus dollars to accumulate additional US dollar financial claims. But in the absence of any increase in US government spending (which is the only source of new net financial assets), the end result is still a massive accumulation of private sector debt, which is what got us into this mess in the first place. By contrast, assuming a non-convertible, freely floating fiat currency, a government can never be insolvent even if its tax revenue declines significantly. Its balance sheet can never become precarious in the same way that a household balance sheet can.

In the abstract, this always sounds controversial to those uncomfortable viewing the world within a financial balances construct. It also helps to explain the intellectual incoherence at the heart of the G20 communiqué and the Obama Administration's economic policies, which has been dominated by Wall Street interests.

So it's worthwhile considering some historic examples, which illustrate the point better. During WWII, the US government generated huge deficits and bond issues. The record expansion of government deficits not only facilitated the war effort, but created full employment. (As an aside, it is always interesting to pose the following question to "deficit terrorists ": if government budget deficits are so awful, and so egregious for the long term performance of an economy, then why run them at all during wartime, when presumably we need the economy to be functioning in an optimal manner?)

After the war, the Fed was concerned with potential inflationary pressures and raised interest rates. President Truman, a hard money man par excellence, drastically cut defense spending from $90.9bn to $10.3bn and the US accumulated huge fiscal surpluses. Post war surpluses, combined with Fed tightening, contributed to a recession in 1949. Unfortunately, it took the "military Keynesianism" brought on by the Korean War to shift Truman away from his aversion to deficit spending, which was continued by Eisenhower, and sustained via his national highways building program.
Unemployment fell sharply during that period. Similarly benign effects on unemployment were manifested in the wake of the Kennedy tax cuts and those of Reagan in the early 1980s.

Today, budget deficits are the highest as a percentage of GDP but are overstated to some degree, because they include the TARP measures to stabilize the financial system which brought the global economy to its knees in 2007/08. Classic Treasury expenditures deal with the purchase of real goods and services; Federal Reserve functions deal with the purchase and sale of financial assets. And yet, the focus of policy makers is quickly reverting to "exit strategies" and a reduction of budget deficits, where the Pittsburgh communiqué pledged to "prepare our exit strategies and, when the time is right, withdraw our extraordinary policy support in a co-operative and co-ordinated way, maintaining our commitment to fiscal responsibility." Would that this were true. The only way one could politically justify a government running a sustained surplus would be to make the case that unemployment created a more functional way of ensuring high profits (via wage discipline) than full employment. Put in those terms, it's not a particularly compelling message, but it has the virtue of being consistent with modern monetary theory.

Oddly enough, the G20 communiqué devotes considerable attention to the government’s "exit strategies" which came in response to the destructive private sector financial practices which created this catastrophe. There has been less attention directed to the underlying causes themselves. Thus the IMF, in its latest "Global Financial Stability Report”, suggests that restarting securitization markets is “critical” to a wider economic recovery, and that current US and European proposals to force banks that originate loans to hold on to the first 5% of losses in all securitizations, were not sufficiently flexible and might backfire. In the words of Credit Lyonnais Asia strategist, Christopher Wood,

"[The IMF] is yet again doing the world a disservice by acting as a lobbying group for the securitised debt peddlers. It is clearly fundamentally correct that the agents of securitisation should be made to retain some 'skin in the game' after the terrible damage they have inflicted. It is true that the collapse of securitisation represents a massive deflationary risk for the global economy. But that does not mean that the answer is to allow a new free-for-all in securitisation assuming, charitably, there is demand for the securitised product." ("Greed and Fear", 24 Sept. 2009, CLSA, Asia Pacific Markets)

The IMF, the G20, indeed virtually all Western policy makers - including the Obama Administration - will make themselves far more relevant when they emphasize that full employment and prosperity can only be achieved to the extent that governments are prepared to spend up to a level justified by non-government saving. this sounds like Krugman; the private sector will save and the gov will spend that savings for the private sector; remember, gov deficit spending is a claim on the savings of the country .That does not mean unconstrained government spending. . But the spending ought to be set with regard to results desired and competencies to execute plans—not out of some pre-conceived notion of what is “affordable”. Our federal government can afford anything that is for sale in terms of its own currency. And if it spends too much after getting us to a state of full output, it can get inflationary. But let's get to that state of affairs first before we start worrying about perpetuating a flawed status quo ante, which created only transitory prosperity and wage gains, but risks creating years of future economic misery if sustained in the future.

Marshall Auerback is a market analyst and commentator. He is a brainstruster for the Franklin and Eleanor Roosevelt Institute. He can be reached at MAuer1959@aol.com

http://www.counterpunch.org/auerback09292009.html

[Spartacus]

Re: The Fed Truely Is The Only Lender

One place he's wrong is that even with strong regulations in place in writing, the banksters would still be in charge, via the revolving door.

Not just the banksters - look at how MonSATAN has subverted various laws by placing former MonSATAN lawyers & executives in the FDA and USDA. MonSATAN got caught red handed in Canada, and they didn't succeed in infiltrating Europe but given another 10 years to work the system they will have subverted Canada too, and they almost got into Europe via the WTO. Maybe they already have - I haven't followed the bst issue for a while now.

where he's wrong is that (maybe until the last 6 months) there have not been any net savings - at least for 80 years (since the depths of the depression)

the sum of all debts is a MULTIPLE of all deposits. That's how fractional reserve lending works.

Except for paid-up land, buildings, precious metals, unleveraged stocks & bonds there are NO SAVINGS that are not spoken for (and possibly wiped out) MULTIPLE TIMES OVER by debt.

"Savings " in terms of cheap commodities - steel, copper, stored food and bullets qualify too, but the dollar value is too small to count for much.

When you include land, buildings, etc ... IMHO the same result obtains, just with smaller multiples.

For everyone who is debt free, there are others who more than make up for them, by borrowing far more than their "fair share".

I'm still trying to parse out where this guy fits in....
http://www.counterpunch.org/auerback09292009.html
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