Commodity Cliff Diving

[vinoveri]

Re: Commodity Cliff Diving

The Fed's magic balance sheet before and after the crisis
Assets: $894 billion before, $2.3trillion after.
Liabilities: $857 billion before, $2.3 trillion after.
Assets - Liabilities: $37,112 million before, $53,285 million

The trick was to make the MBS and agency debt simultaneously a "deposit" and a "holding."

"Trick" is right. I have no background in accounting, but this sure seems strange - The Fed's "equity" increased 50% due to money printing? Now all we need to complete the fraud is the repubs to pass the "audit the Fed" bill and we can have the GAO put its imprimatur on this monetary fiction and a sham.

As for increasing FDNs as you say these are a claim against the U.S. economy, like any other Federal Government Security. Should inflation or default risk rise on these securities then the asset value will decline. But that's about the only way the Fed can get into trouble for holding too many of them. A trillion or ten trillion, doesn't matter so long as the security remains liquid and at full value.

Agreed, and given the wealth of the US, i.e., its ability to pay it debts, and the absence (currently) of any competing currency with similar depth of liquidity, it does not appear obvious what a trigger for a sudden stop or Poom event would be - absent some significant and deliberate geopolitical event, e.g., coordinated act of "financial war" against the US - dumping treasuries for instance.

[touchring]

Re: Commodity Cliff Diving

Ok, what about gold? Gold is also crashing?

[icm63]

Re: Commodity Cliff Diving

EJ..Should inflation or default risk rise on these securities then the asset value will decline. But that's about the only way the Fed can get into trouble for holding too many of them. A trillion or ten trillion, doesn't matter so long as the security remains liquid and at full value.

and

Southern Guy..1) the CB balance sheet is one of ASSETS, not debt. So I don't see a valid reason why there has to be a limit to it's growth.

Reminder: By a presidential threat the US Society of Accountants was ordered to remove 'mark to market' accounting

So now all financial assets are "mark to model', or whatever the bank wants to be! ha

The argument against mark to market as stated by economists is rubbish, and political. Accounting is a measure of value. Economists are simply saying that .."you cant handle the truth, so we must protect your from it."...

Of course if a market falls and stays down, the mark to model folks will always over value the asset at cost saying value will return in the long run...years.

The real truth is 'mark to model' is really 'mark to hope'...

The FED assets of MBS or mortgage backed securities is market to model as the HOPE the house prices will be higher in 20 years.

The housing market is still under the 2007 year peak, so MBS are over valued now for 7 years and running.

Its a confidence game...the more poop on the FED balance sheet, the greater the risk.

[GRG55]

Re: Commodity Cliff Diving

Ok, what about gold? Gold is also crashing?

Gold in 2014:
Up 7.9% in Canadian Dollars;
Up 7.7% in Australian Dollars;
Up 9.9% in Swiss Francs;
Up 12.1% in Euros;
Up 5.0% in British Pounds;
Up 12.3% in Japanese Yen;
Down 1.5% in US Dollars.

Crashing (or getting KILLED!!!!! in Megaspeak)? Hardly.

[RebbePete]

Re: Commodity Cliff Diving

Gold in 2014:
Up 7.9% in Canadian Dollars;
Up 7.7% in Australian Dollars;
Up 9.9% in Swiss Francs;
Up 12.1% in Euros;
Up 5.0% in British Pounds;
Up 12.3% in Japanese Yen;
Down 1.5% in US Dollars.

Crashing (or getting KILLED!!!!! in Megaspeak)? Hardly.

Gold isn't crashing, commodities mostly aren't crashing, the US dollar is soaring. When the dollar goes up, it means you can buy more of real "stuff" with it, so the price of the "stuff," denominated in dollars, goes down.

Jury's still out on oil, whether it's part of this, or whether it's really due to oversupply and/or a deliberate attempt to crash the Russian economy.

- Pete

[GRG55]

Re: Commodity Cliff Diving

Gold isn't crashing, commodities mostly aren't crashing, the US dollar is soaring. When the dollar goes up, it means you can buy more of real "stuff" with it, so the price of the "stuff," denominated in dollars, goes down.

Jury's still out on oil, whether it's part of this, or whether it's really due to oversupply and/or a deliberate attempt to crash the Russian economy.

- Pete

Oil is doing what it always does. It didn't matter what Putin did, what Obama did, or what Ali al-Naimi and King Abdullah did. The oil price was going to fall regardless. All the peripheral stuff will only play a part in how far and how long.