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GFC II GFC2 New Global Financial Crisis Mark 2 Alert; Almost half of Australians believe world is on cusp of another financial crisis
Topic Started: 27 Jun 2011, 01:21 PM (14,293 Views)
Andrew Judd
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9 Jul 2011, 12:38 AM
b-b riddle me this,why would a bank sell a risk free 10 yr to the FED? you are implying it is a zero sum game.
Also you should do your homework QE involved the purchase of Bonds, Mortgage Backed securities and Other financial instruments.

QE was designed to expand the FED's balance sheet, and yes I believe that is inflationary.
Normal OMO open market operations by a central bank are usually funded by asset sales, hence the central bank does not normally expand its balance sheet.
Japan was suffering deflation when QE was implemented in 2001 the BOJ targeted a zero interest rate until inflation moved to zero or above and this is when QE was removed in 06.
If you had any knowledge of the history of QE you would know it is designed to create inflation/ halt deflation.
I would like to know what you think QE is designed to do.
Before you rubbish someone's views you should do some basic research.




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From the point of view of bank assets sold to the fed, QE is zero sum from the point of view of a world awash with cash like products in 2007. Where for example even a municipal bond was cash like as an auction rate security.

A US bank could already produce a conforming loan to be sold to the GSE's in 2007. QE has just continued the game. Only new government spending can lead to inflation. The impact of QE is to convert highly liquid assets (as of 2007) into even more highly liquid assets. To get significant inflation government spending will have to significantly increase from the levels of 2007.

The only question i have on QE is the impact of private bond sales where now the bond seller has a similar asset but the bank has reserve balances. Private bond sales must have enabled some money creation. And the banks can speculate with that if they are not prevented from doing so.
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Andrew Judd
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9 Jul 2011, 12:38 AM
b-b riddle me this,why would a bank sell a risk free 10 yr to the FED? you are implying it is a zero sum game.
Also you should do your homework QE involved the purchase of Bonds, Mortgage Backed securities and Other financial instruments.

QE was designed to expand the FED's balance sheet, and yes I believe that is inflationary.
Normal OMO open market operations by a central bank are usually funded by asset sales, hence the central bank does not normally expand its balance sheet.
Japan was suffering deflation when QE was implemented in 2001 the BOJ targeted a zero interest rate until inflation moved to zero or above and this is when QE was removed in 06.
If you had any knowledge of the history of QE you would know it is designed to create inflation/ halt deflation.
I would like to know what you think QE is designed to do.
Before you rubbish someone's views you should do some basic research.




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The term QE was supposedly first used in 1995 by Richard Werner who argued that the crisis Japan had could not be solved by a traditional monetary easing where more money was supplied to the banking system. The Japanese used the term but did not follow his suggestions for a credit easing. Where he was talking about making it easier to get credit in the economy rather than giving the banks more money. Bernanke was critical of the BOJ and said they were not creative.

US QE has included asset purchases and credit easing policies as for example non recource loans via one of the programs for the car purchases and student loans and many other loan types. All the banks had to do was find the customers and the feds took the risk once the loans were deposited with the fed.
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Andrew, you say only new government spending can lead to inflation I believe this is wrong,
three points.
1) when the FED expands its balance sheet it buy's assets with longer maturities for liquid assets this brings available cash assets forward increasing liquidity. Where do the banks put this liquidity?
2) QE as a policy intervention flattens the yield curve. This has resulted in the USD falling as there is no demand to buy US treasuries at close to zero return, QE trashes the currency hence the US is importing inflation.
3) The Howard Costello Government ran surpluses ie less spent than collected in taxation and I didn't see Australia suffer from deflation, quite the opposite if you look at the increase in property prices.




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The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.”
― Friedrich A. von Hayek


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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Enjoy The Ride
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9 Jul 2011, 01:14 AM
Andrew, you say only new government spending can lead to inflation I believe this is wrong,
three points.
1) when the FED expands its balance sheet it buy's assets with longer maturities for liquid assets this brings available cash assets forward increasing liquidity. Where do the banks put this liquidity?
2) QE as a policy intervention flattens the yield curve. This has resulted in the USD falling as there is no demand to buy US treasuries at close to zero return, QE trashes the currency hence the US is importing inflation.
3) The Howard Costello Government ran surpluses ie less spent than collected in taxation and I didn't see Australia suffer from deflation, quite the opposite if you look at the increase in property prices.




Enjoy The Ride!
Just a furter point American mortgage backed securities are not a cash like asset. There is no buyer at the mark to fantasy basis that they exist on banks balance sheets. No buyer except the US Federal Reserve.





Enjoy The Ride!
Enjoy The Ride!

The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.”
― Friedrich A. von Hayek


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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Andrew Judd
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Enjoy The Ride
9 Jul 2011, 01:14 AM
Andrew, you say only new government spending can lead to inflation I believe this is wrong,
three points.
1) when the FED expands its balance sheet it buy's assets with longer maturities for liquid assets this brings available cash assets forward increasing liquidity. Where do the banks put this liquidity?
2) QE as a policy intervention flattens the yield curve. This has resulted in the USD falling as there is no demand to buy US treasuries at close to zero return, QE trashes the currency hence the US is importing inflation.
3) The Howard Costello Government ran surpluses ie less spent than collected in taxation and I didn't see Australia suffer from deflation, quite the opposite if you look at the increase in property prices.




Enjoy The Ride!
I was meaning that only significant government actions today can create inflation. I am not saying i absolutely agree but this is the theory being put forwards. I already said that new money might be being created for private bond purchases since the customer gets a deposit and the bank gets reserve balances.

The point B_B is making is that if you have a 20 year bond and have access to the most highly liquid bond market in the world your spending does not get brought forwards by selling the bond to the feds. You might make a tiny loss only by selling to the market. So the impact of QE is far less than might be understood by the idea new money is available. The bond was already money like.

As for previous inflationary periods if people perceive asset price rises they are less inclined to be concerned by interest rates or government spending and so forth. More credit leads to inflation generally speaking even in a rising interest environment.

The USD has changed against some countries but not against others. Fairly similar against the pound and euro? Yen?

Personally i think QE for the americans has been very successful. They do have inflation of some things even if housing is still in bad shape.
Edited by Andrew Judd, 9 Jul 2011, 01:32 AM.
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Andrew Judd
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9 Jul 2011, 01:24 AM
Enjoy The Ride
9 Jul 2011, 01:14 AM
Andrew, you say only new government spending can lead to inflation I believe this is wrong,
three points.
1) when the FED expands its balance sheet it buy's assets with longer maturities for liquid assets this brings available cash assets forward increasing liquidity. Where do the banks put this liquidity?
2) QE as a policy intervention flattens the yield curve. This has resulted in the USD falling as there is no demand to buy US treasuries at close to zero return, QE trashes the currency hence the US is importing inflation.
3) The Howard Costello Government ran surpluses ie less spent than collected in taxation and I didn't see Australia suffer from deflation, quite the opposite if you look at the increase in property prices.




Enjoy The Ride!
Just a furter point American mortgage backed securities are not a cash like asset. There is no buyer at the mark to fantasy basis that they exist on banks balance sheets. No buyer except the US Federal Reserve.





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Yes but compared to money levels of 2007 you are describing a deflationary situation even with the huge number of excess reserves because the banks have a damaged balance sheet. Mortgage lending is in bad shape in the USA outside the conforming loans that can be sold to the GSE's. Even with that Loans over 420,000 require a deposit of 35%. Forget about a loan over 720,000. Loans over 720,000 are reducing in many states by 120,000 in october because the earlier conforming loan limits of 420,000 were temporarily increased to that level.

If you want to look at inflation pressures correctly i think you need to compare to the situation of 2006/2007 when there was a wall of money and liquidity . And then there was not.
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newjez
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It just keeps getting better



European markets slide over Italy stability fears
European stock markets have tumbled due to fears that the eurozone's debt crisis will engulf Italy.


Investors are worried that Giulio Tremonti, Italy's finance minister, is threatened by corruption accusations against a former aide

Italy's benchmark index, the FTSE Mib, closed 3.5pc down amid worries that political jostling in Rome threatens the country's fiscal stability. France's CAC 40 Index also suffered, dropping 1.6pc, and Germany's DAX lost 0.9pc. In Spain, the Ibex fell 2.6pc, while Portugal's PSI 20 ended 1.3pc lower.

The flight from Italian government debt saw the yield, or return, on its 10-year bonds touch 5.3pc, a euro-era high.

Mike Riddell, a fund manager at M&G, described the situation as a "bloodbath". "Whatever your view is or was [of Italy's finances], the reality now is that those pesky bond vigilantes have caught sight of Italy, and that is basically all that matters," he said.

Investors are worried that Giulio Tremonti, Italy's finance minister, is threatened by corruption accusations against a former aide and seems to have lost the support of his prime minister Silvio Berlusconi. "He thinks he's a genius and that everyone else is stupid," Mr Berlusconi said yesterday.

The fear is that if Mr Tremonti is forced out of government it could derail the austerity measures he has pushed through to bring down Italy's huge debt, which amounts to around 120pc of its GDP.

That would leave Italy in greater danger of being sucked into the turmoil which overtook Greece and Portugal, as doubts about their finances saw them shut out of the international debt markets.

Mario Draghi, Italy's top central banker and the next president of the European Central Bank, tried to offer reassurance with a statement backing Rome's austerity measures as "credible".

However, markets were already unsettled after rating agency Moody's downgraded Portugal's debt to junk status earlier this week and disappointing US jobs numbers did nothing to calm nerves.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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SuperEgo
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b_b
8 Jul 2011, 12:32 PM
That is what is cited.

But it is incorrect.

Banks were not injected with any capital from QE2. They simply swapped bonds for cash. Their total assets were unchanged. Which mean their total liabilities (deposits) were unchnaged. No new money in the system at all.

The banks are in no better, or worse position to write a loan post QE2.
QE stands for quantative easing which indicates a relaxing of the money supply or increasing the money supply, the suspected reason for QE was for replacing liquidity lost from (China?) removing 500Billion from overnight money markets.

Banks where injected with working capital that they exchanged for bonds /non working capital (RE)

Total assets where fundamentally changed from

Illiquid Assets = Totally underwater/worthless assets (RE)

to

Liquid Assets = ability to now buy something that isnt totally underwater/worthless assets (RE)

Edited by SuperEgo, 10 Jul 2011, 06:24 AM.
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mugshot
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Is the GFC 1 over?
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mugshot
11 Jul 2011, 11:59 PM
Is the GFC 1 over?
LOL
No basically we have just posponed it. As we all know these problems are always easier to fix later, hopefully by someone else!




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Enjoy The Ride!

The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.”
― Friedrich A. von Hayek


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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