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Jim Cook



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
April 8, 2011
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“Feeding The Chooks”:

We must apologise for this “Australianism”, but it is the most descriptive phrase we can come up with. Along-serving Aussie politician used to use it (privately) whenever he had to front the press. If you have ever had the experience of feeding actual “chooks” (chickens), you will know that they fall all over each other to get what you are dishing out to them and that they will consume almost anything presented.

All this is very much like what goes on at a modern press conference, or for that matter a government official testifying before an august body of government. In this context comes the big news out of the US that Fed Chairman Bernanke and his colleagues have decided to begin holding press conferences at the end of (some) FOMC meetings. These conferences will be held four times a year or at every second FOMC meeting. The first one is scheduled for April 27 - the date of the next meeting.

Mr Bernanke has thus decided to join the ranks of his counterparts in most if not all of the other
“developed” nations. The statement accompanying this announcement stated that the press briefings are: “intended to further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication. the interest of ensuring accountability and increased public understanding.” Our Aussie politician (who has since sadly gone to his reward) would be splitting his sides. As any veteran of “press conferences” knows, the LAST thing they are designed to do is to “increase public understanding”.

Don’t forget, Mr Bernanke has been fending off criticism since the Fed let it be known that they were considering another round of Treasury debt monetisation in July last year. And in December, a poll showed that a startlingly high number of Americans thought the Fed should be abolished outright.

How Ridiculous Is This?:

On March 29, St. Louis Fed President James Bullard was reported to have said that the Fed should think about “trimming” its plan to buy $US 600 Billion in Treasury (and other government) debt by $US 100 Billion - “if the economy is as strong as I think and hope it will be in 2011”. In the first place and according to the Fed’s own figures, their monetisation program has already created about $US 550 Billion. In the second place, way back in July 2010 Mr Bullard was selected as the Fed’s “front man”.

He was the Fed President who “suggested” that the Fed re-start its Treasury purchases to avert what he called the rising possibility of a Japan-style deflation.

Notably, Mr Bullard made his comments outside the US in Europe. He was quoted while attending a banking conference in Prague. Even more choice was this statement he made during the conference: “Exit strategy was widely discussed in 2010, and that debate will likely revive during 2011.” As already mentioned, Mr Bullard was in the vanguard of those who cut short any talk about a Fed “exit strategy” in mid 2010 with his July suggestion of another round of Treasury monetisation. While he was speaking outside the US, at least three other regional Fed bank presidents were speaking out inside the US. All three were adamant that QE2 would last for its full “term” - until the end of June. None of the three were specific about what would happen after the end of June.

Mr Bullard and his Fed colleagues have been watching a US government lurching on the fiscal brink. Over the past month, temporary agreements have been made to “cut” federal government spending by a grand total of $US 10 Billion, an absurd number in relation to the $US 3,700 Billion budget and the $US 1,650 Billion deficit. This pushed the date at which the government ran out of money forward - first to March 18 and then to April 8. In the meantime, no progress whatsoever has been made on any credible plan to reduce the deficit, much less the debt. The only question now is how many more continuing spending resolutions will take place before the Congress is faced with the necessity to raise the Treasury’s debt limit. When that happens, how much will they raise that debt limit? This last question is especially relevant given the Fed’s professed plans to stop buying Treasuries three months from now. . .

In September/October 2008, the US Federal Reserve stepped in as the lender of last resort to the US banking system, or at least that portion of it which does business from Wall Street. In March 2009, the Fed stepped in as the lender of last resort to the US government with its first program of Treasury debt monetisation. That bout of credit creation revived US and global financial markets (notably stock markets) at least in its early stages. It also relieved the (biggest) banks and made virtually “free” money available (via the Fed Funds rate) which those same banks used in paper markets everywhere.

A recent “economist” commentary on the government debt situation in the US claimed that the US could sustain its large debts because - “the country has a large and liquid debt market and a stable government with a history of effective tax collection.(emphasis by The Privateer)

Right now, the US federal government’s “tax take” is less than 15 percent of US GDP - its lowest level since 1950 when government debt was microscopic by current standards. In 1950, the taxpayers could still be counted on. They can’t now. Nor can anyone else. The Fed is definitely the last resort. . .

Since the paper market recovery began in March 2009, the Fed has been officially (or unofficially) monetising Treasury debt paper. As the countdown to the official end of QE2 progresses, this monetisation is now the ONLY mechanism which is propping up the entire global financial system with US Dollars and Treasury debt as its ultimate underpinnings. It is also the major prop under US and global paper asset markets, specifically stock markets. Unfortunately for the Fed, price rises are no longer being confined to the paper markets but are now spilling over into the real economy.

Many of the practices which led to the credit freeze of late 2008 are now back in play. On March 31, US stock markets finished their best first calendar quarter since 1999. Mortgage Backed Securities (MBS), the “toxic sludge” whose collapse ushered in the GFC, are back on the radar of even institutional investors. The debt appetite is not confined to US “Agency” paper (paper underpinned by Fannie Mae and Freddie Mac). US institutional investors are now buying “non-agency” paper which was yielding 20 percent plus at the height of the crisis in early 2009 but whose yield is now down to 5-7 percent. AIG, whose portfolio of MBS was bailed out by the US government in 2008, recently offered to buy back paper that the Fed had taken from it to add to its balance sheet back then. Don’t forget, the Fed took the paper at 100 cents on the Dollar. AIG has offered to buy it back at just over 50 cents on the Dollar.

With the complacency on US financial markets now at breathtaking levels, the entire mechanism is facing the fact that a $US 2.19 TRILLION increase in the Treasury’s debt limit has lasted the US government for a bit more than a year. Clearly, no financial entity besides the Fed could begin to “liquefy” this amount of new debt. If the super saturation point doesn’t come on June 30, it will not be long delayed. . .

The message that it has is unrelenting.  At the end of March, US financial news was replete with stories that US stock markets had just enjoyed their best first calendar quarter since 1999. Please note that ALL the gains for that calendar quarter were made over the last two weeks of that same quarter. On March 16, 2011, the Dow showed a 2011 gain of 0.30 percent and the S&P showed no gain at all. On March 31, the Dow was up 6.6 percent and the S&P up 6.1 percent. The catalyst was the co-ordinated currency intervention. The last resort or “nuclear option” for a chronically indebted government is when its central bank monetises its debt. The last resort for a global credit-money system is when the world monetises its own money to support the reserve currency. We are running out of “last resorts”.



Ó 2009 – The Privateer

(reproduced with permission)


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