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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Bill Buckler
March 3, 2010
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SHOCK - HORROR - THE FED RAISES RATES!!

As you undoubtedly know, the US Fed “shocked” the financial world on Thursday, February 18 when they announced that they were RAISING their discount rate from 0.50 percent to 0.75 percent. Note carefully please, the Fed has raised its discount rate, NOT its fed funds rate.

If this is a joke, it isn’t very funny. But of course the markets, serious bastions of monetary and fiscal judgment as they are, didn’t treat it as a joke. The U.S. Dollar promptly soared with the USDX moving above the 81.00 level. The Gold price duly fell. The Fed insisted that the rate rise was in response to improved financial market conditions and claimed that it was merely “a further normalization of the Federal Reserve’s lending activities”. The markets took it as a sign that the Fed might be raising their “real” interest rate - the fed funds rate - a little earlier than had been anticipated.

The Fed’s discount rate is, for all intents and purposes, an anachronism. It is characterized as a “penalty rate”. It is the rate that is charged to commercial banks that borrow straight from the Fed itself. Banks don’t do that. They borrow the “excess” reserves the Fed makes available on the overnight market - at a rate of 0.00 - 0.25 percent. The very LAST thing that the Fed wants to do is to “penalize” banks from borrowing - as witness the extraordinary steps they have taken over the past two years to prop up the “too big to fail” end of the U.S. banking system.

And as for the Fed’s claim that they were responding to “improved financial market conditions”, consider a report which came out on the day before the Fed’s “surprise” announcement:

“U.S. Bank Lending Falls At Fastest Rate In History”:

That was a the headline of a story which appeared on February 17 in the UK Telegraph newspaper. The Telegraph reports that thus far in 2010, U.S. bank lending has fallen by over $U.S. 100 Billion, the equivalent of an annual rate of contraction of 16 percent. At the same time as this news came out, shadowstats.com was reporting that the money supply number that the Fed does NOT report – Broad Money or M3 - has been contracting at a rate of 5.6 percent over the past three months.

The Fed’s race against credit DEFLATION in the U.S. economy is being lost. All the stimulus, all the guarantees, all the deficits and all the outright cash giveaways which the U.S. financial authorities have been lavishing on their economy over the course of the GFC to date have NOT compensated for the shrinkage of credit based “money supply”. Some US banks don’t want to lend period. Some cannot find any borrowers - outside government guaranteed entities - they want to lend to. But the biggest “problem” is that - outside government entities - the demand for loans is simply NOT there.

 

Have New Debt Limit - Will Borrow!:

Next week (February 25 - 28), the U.S. Treasury plans to “auction” $U.S. 180 Billion (plus change) worth of its debt paper. The “change” refers to the “usual” weekly auction of four-week notes to be sold on February 26. Details for this auction have not yet been announced, they will be on February 25.

The “yield spread” between two and ten-year Treasury paper has widened to a record. The Treasury’s “TIC” survey revealed a record decrease in Treasury debt held by foreigners in December 2009, the most recent data available. Last week, Mr. Bernanke was mumbling about various esoteric means by which the Fed might start to dismantle its “support” for the U.S. economy. Yet the Fed has now actually raised one if its interest rates. How does one reconcile this with the record fall in U.S. bank lending? Simple, it is a desperate attempt to make sure that “demand” for Treasury debt does not falter even more.


Ó 2009 – The Privateer

http://www.the-privateer.com

capt@the-privateer.com

(reproduced with permission)

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