Central banks’ expansion

*Warning* This is a continuation of yesterday’s. It is long and complicated.
The video refuses to upload.
So it is audio only…*Note on the audio*…I use a USB mic and have been struggling to get good volume out of it lately. I have found out why – Not all USB ports are the same, some are `more powerful` than others. I have now found the best port for the mic, so it is lovely and clear now.
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  • snedmeister1

    Evening, Nick….

    I have two thoughts on this tonight…

    I thought that, Operation Twist was “sterilised” anyway…???
    ie Sell short term notes, and buy long, so total money supply doesn’t change…???

    Secondly, maybe the FED’s idea now, is to squeeze the banks, thus forcing them to consider making riskier loans to keep profits up…
    After all, if you can’t make as much on the margin, you must increase your “trades”..???

    I quite like the longer version tonight…
    Bit more thinky – thinky needed…:)

    • http://overthepeak.com/wordpress/ Mystic

       Twist sterilized~?  I would say `balanced` rather than `sterilized`, but that is very picky of me.
      (ECB sterilizes the PIG bond buying)
      I don’t think the Feds principle idea is to force the banks to lend….and if it was, it would show that they don’t understand the basics of banking.  (banks can’t play the `supermarket game`).

      This production was a, `if it can go wrong, it will go wrong production`.  Total pain.
      (I am guessing that you are not in the majority in wanting `more` (though I don’t know / maybe I’ll do a video and ask~?))……And, quite frankly, I was running close to edge of my understanding…me not comfortable).

      Hello Sned.

      • snedmeister1

        Mornin’ Nick…

        Do I want more…???
        Good question……

        If it is a choice between pushing on and having Blah, or Collapse, I choose Blah…. ( probably )….

        The answer is difficult, because it depends on the outcome of the decisions ( and I am no way near smart enough
        to calculate all the angles )…..

        What I can say, is that I would rather no Collapse, push on with Blah for a while, and then everyone can get
        together to talk about how a modern monetary system actually functions under certain conditions….??? 

        Lets be perfectly honest, as crucial as this is, this money issue is fixable…..
        The big problems that need the real brain power, are going to be energy issues…

        ( Maybe you could add a bit in your next vid, about the difference between balanced OP Twist, and
        sterilized Bond purchases..??? ) 

  • NascentMind

    Two long hauls; it must be important.
     Question.
    Is sterilization used to manipulate the value of  domestic currency?
    A Samson Option is a very big problem!

  • CSArichardo

    So are you saying short term rates could go up but long term rates stay low ?

    • http://overthepeak.com/wordpress/ Mystic

       I am saying that short-term rates will stay low, but interest rates charged by banks will go up.

      • Slough of Despond

        Does that mean that both the frugal savers and spendthrift consumers will both get smacked?
        1% on your savings account, but 7% on your car loan and 15% on your credit card?
        That is not a good development.

        • http://overthepeak.com/wordpress/ Mystic

           The banks are going to have to come off their peak slowly…..They are slipping down too fast at the moment.
          They will have to get some extra bottom line from somewhere.
          You look to be their best bet~!

  • Bigcollapso

    Once you are short on wealth and long on numbers, it’s just a faster and faster set of tricks to keep it covered up until the day of reckoning comes. Bernie must be sitting in his cell laughing and identifying with each phase of increasing ridiculous machinations of these characters.

  • Slough of Despond

    Nick,
    Thanks for the breaking down this topic.  Please take as much as time as you need to explain.  The length of the presentation is not a problem.  This is complicated stuff.  The fact that you mention this is the first time in five years that you are worried makes the subject matter even more important.
    I thought you might like to read this historical analysis of the orignial Operation Twist and its effects on long term Treasury yields.  It was written by researchers at the Economic Research Department of the Federal Reserve Bank of San Francisco.
    The original plan was created during President Kennedy’s term.  It was named after the popular dance craze of the time.  Maybe Bernanke should call his plan Operation Hip-hop.

      http://www.frbsf.org/publications/economics/letter/2011/el2011-13.html

    • http://overthepeak.com/wordpress/ Mystic

       Read it~!  Read it~!

      • Slough of Despond

        I should have known that The Mystic is always one step ahead.  That’s why he’s The Mystic~!

        How did you like that Frontline program on retirement, or the lack thereof?
        I just finished watching another Frontline on the American govt.’s Debt and future entitlement spending called “Ten Trillion and Counting”.  http://www.pbs.org/wgbh/pages/frontline/tentrillion/view/

        I understand that we are in for a protracted period of deflation and QE is the only way to go right now.  But, the situation with the baby boomers and future healthcare spending looks like a Fukushima Tsunami and Hurricane Katrina combined.  Maybe add some solar flares as well.
        My brain is telling me the spending is needed, but my gut is telling me “man, this is gonna be a wild ride!”
        Sooner or later, I think the Fed is going to have to jettison the housing market and focus on healthcare costs.  Can they really afford to fight a two front war?  Bernanke is going to need a squadron of attack helicopters to pay for the hip replacements of those 80 Million chubby boomers.

        • http://overthepeak.com/wordpress/ Mystic

           Yes, I quite like the Frontline stuff.  I pick up the audios from iTunes.

          This is the big problem.  Tradition says that the CB can really only bang the buck by helping through the fiscal channel (government spending), but the GOP have dammed (damned) that channel.
          He will have to put his creative wizard hat back on.
          Next probable step would be QE MBS’s again, but that is not wizard enough.

          He really can’t launch the choppers…..gov has the keys~!

          • Slough of Despond

            Frontline is the best investigative journalist program out there.  They are a bit quasi-MSM; somewhere between the Alex Jones whackos and the CNBC shills.  When they do an investigation, they dig deep.

            Bernanke pulled a nice wizard trick with this sterilized QE.  He shut the inflation hawks up before they could start squawking, “See, oil prices are climbing, you’ve devalued the dollar and created inflation!”
            MBS buying would have been my guess too, but he has to be very creative under this political climate.  He is doing a nice job.  I’m sure he has more tricks up his sleeve.  He is a pro.  There seems to be many ways to skin a chicken in the economics world.  It’s way beyond my limited knowledge.

  • Windcutter

    The more I try to understand economics, the more I realise that it is truly the “dismal science”. I can struggle and attain an understanding of one aspect of banking only to have to revisit and revise.

    Surely the Bernank is in the same boat? And as for all the politicians, well, how on earth would they find the time to try and understand how an economy works? Impossible.

    To take the sentence


    For instance, many investors and the broader public seem to view sterilized QE more favorably than unsterilized QE, even though we believe the distinction should be considered nearly irrelevant from a macroeconomic perspective”
    Now who are these “many investors”? And maybe more importantly who is the “the broader public”?For the first time I come across the words “sterilized QE”. I think that I get the concept that the money supply has not changed through the FED’s operations, but really, 99.99999% of the population do not have a friggin clue what it “sterilised QE” or “unsterilised QE” means, so I doubt whether they will view “sterilised QE” more favourably than “unsterilised QE”.

    Are they all going to rush out and shout, “hey! we’re all getting this Bernanke sterilised QE, I’m so happy, so much better than not sterilising it”?

    Certainly in their day to day financial transactions they will not consider anything more than “money in” versus “money out”.

    There used to be a time where surplus work over that required for living expenses generated extra income which could be invested or saved. Now the banks do not rely on savings but can get limitless amounts of magic cash from the FED at almost zero rates. Thereby breaking a feedback mechanism which would limit the growth of an economy to its productivity.

    Yes, we needed it all today, that stuff which we could possibly pay for from future earnings. 

    Impatient lot, aren’t we?

    So come on, let’s all go off and get the iPAD 3 on the ‘never never’, that IPAD 2 is, well, so old.

    But here it is, my solution.

    Let’s all go back to using paper money, yes, real bits of paper. No more credit/debit cards.

    The government could earn massive amounts through  seigniorage, transactions would not go through the banks, putting the 3% tax they extract from every transaction back into the pockets of the people. And as the governments could pay all its employees and bills with paper and not bank account credit entries, there would be a substantial amount of debt free money injected into the economy, enabling the public to pay down the debts.

    • http://overthepeak.com/wordpress/ Mystic

       I have just dedicated the title of today’s video to your comment.

  • Windcutter

    You’ll possibly love this

    http://www.theburningplatform.com/?p=30405 

    Full of graphs and, well, things juts ain’t what we are being told they are. Or maybe.

    ““There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution.” Aldous Huxley”

    Consumerism seems to fit.

    • http://overthepeak.com/wordpress/ Mystic

       Thanks for that.  I knocked Jim off my lists because he went away for a good while.
      Good to read the mad old dog again (and yes…..such charts……errrr….graphs~!).