Wild Coincidence: Fed Begins Printing Currency Bearing Timothy Geithner's Signature, Ends Up With $100B in Monopoly Money

But unlike the real worthless money the fed has been printing lately, these bills will be quarantined.

A printing problem with the new high-tech $100 bills has forced government printers to shut down production - and to quarantine more than one billion of the notes.

The flawed notes represent more than ten per cent of the U.S. currency on the entire planet.

They are being stored in giant vaults at Fort Worth in Texas and in Washington, DC, as the Federal Reserve desperately tries to resolve the problem.

Meanwhile printers have begun reprinting the old $100 notes - without the high-tech security features and still bearing the signature of George W Bush's treasury secretary, Hank Paulson - in order to prevent a cash flow crisis.

With the holiday shopping season in full swing, authorities are scrambling to do everything they can to keep U.S. cash flowing.

'There is something drastically wrong here,' one source told CNBC. 'The frustration level is off the charts.'

The new high-tech bills were initially scheduled for release in February of 2011. They were due to be the first in circulation that bore the signature of President Obama's treasury secretary, Timothy Geithner.

Cross-posted.

Heckuva A Job Bennie

Time magazine has named Ben Bernanke as it's Person of the Year and now the rest of the sycophantic media is left to come up with something positive to say about the guy and failing miserably in the attempt.

Some of the choicer nuggets.

From Reuters:

Bernanke, 56, a former Princeton University professor, is an expert on the Great Depression.

So much of an expert apparently that is trying to recreate it.
From the AP:

Other previous winners have included Bono, President George W. Bush, and Amazon.com CEO and founder Jeff Bezos (BAY'-zohs.)

How much did it hurt them to mention former president Bush? But it is kind of weak putting Bono and the founder of Amazon on the same list. I don't think Ben is much of a singer and since he has spent all of his time in the world of academia he really doesn't have a lot of real world experience in how the real business world works.
From CNN this:

Time called Bernanke " the most powerful nerd on the planet."

Uhmm, I think somebody like Bill Gates of Microsoft or Steve Jobs at Apple would better fit that bill.

The poor media is tying themselves in knots trying to come up with something nice to say with one article even pointing out that hey, he was appointed by a Republican. The bottom line is this is some guy who has taught economic theory all his life and has no first hand experience at the actual application of those theories until now, and what has it given us?

I don't even know how much our debt has risen anymore, double, triple? At the rate that congress is charging on the credit card who can keep up. His big plan to dole out all the TARP funds, while it may have been created in good faith, resulted in nothing more then a chance for the progressives in Washington to exert control over the financial business sector, something they have realized and are now working furiously to get out from under. That in itself is turning into another debacle since congress thinks all that money being paid back can simply be used for whatever other socialist agenda they want to push. The dummies don't realize that the money needs to go back from whence it came, meaning the federal government coffers of the taxpayers where it came from.

Bernanke Seeks Expanded Fed Powers

Federal Reserve Bank Chairman Bernanke is looking for more regulatory powers for the Fed.

Federal Reserve Chairman Ben Bernanke said Tuesday that the Fed should have additional powers to prevent and limit financial market turmoil.

Congress should consider giving the Fed power to set standards for capital liquidity holdings and risk management for investment banks, Bernanke said.

In the past, the Securities and Exchange Commission has been the primary regulator of broker dealers.

In addition, Congress might give the Fed broad power to promote financial market stability, Bernanke said.

I am in favor of this suggestion by Bernanke. Over the years, the financial markets have changed, become more complex and the lines between banks (traditionally the regulatory jurisdiction of the Fed) and broker/dealers (traditionally the regulatory jurisdiction of the SEC) have become blurred. I believe that the oversight arms need to be updated to keep pace.

And just recently, the Fed did make some creative moves to provide some liquidity to the brokerage house sector:

Bernanke said the Fed is considering extending its emergency loans to broker-dealers beyond 2008.

"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end," he said.

In March, as market conditions worsened, the Fed established two lending facilities for brokerages. One allows them to swap a range of illiquid assets for Treasury securities. The other facility provides cash to broker dealers in a system that is similar to its discount window for banks.

I would expect to see the SEC eventually become an arm of the Federal Reserve Bank. Very clearly, their activities need to be coordinated.

Massive Borrowing From Fed

There may be some early signs that the market is emerging from the recent financial volatility.

Primary dealers borrow $37 billion from Fed

Investment banks and broker dealers borrowed more than $30 billion a day from the Federal Reserve's discount window this past week, but showed only tepid interest in a separate 28-day lending facility from the Fed that got under way on Thursday.

The 20 primary dealers borrowed $37 billion from the discount window on Wednesday, $8.2 billion more than the previous week. For the entire week, loans to the 20 primary dealers averaged $32.9 billion a day, up $19.5 billion from the previous week.

This liquidity removes a large aspect of risk for the market and investors. Very clearly, the Feds are not going to allow major components of the financial system to fail.

A key item, in my view, comes a little later in the article:

"Dealers did not show any signs of being desperate to liquefy collateral," wrote Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.

"The fact that dealers did not bid aggressively for funds would seem to suggest that funding problems are not widespread," wrote Lou Crandall, chief economist for Wrightson ICAP.

All told, the Fed has offered to lend the banks up to $200 billion for 28-day terms. Crescenzi said the results of the first auction indicate that perhaps not all $200 billion will be needed.

Simply put, the lack of interest in the loans indicates to me that, as of the moment, the corner has been turned on the mortgage-backed security shakeout in the market. If that is true, I would expect to see the economy and market begin to move forward the second half of this year.

Fed To Pull Out All Stops

The Federal Reserve is to take more action today.

The Federal Reserve is expected to continue pulling out all the stops to combat the two-headed threat of a financial-market meltdown and a U.S. recession by slashing interest rates later Tuesday, Fed watchers said.

Investors and Fed watchers are centering their expectations on a one-percentage-point rate cut, to 2%.

The impact will be to further expand the money supply and encourage borrowing, while at the same time fueling more inflation and devaluing the dollar more on the open market. Oil will get more expensive too, due to the dropping dollar.

Very clearly the Fed has made it clear that they are not going to stand idly by and watch the macroeconomy crumble and fall. Some shaking out in the markets, sure, but massive train wrecks, no.

Look for the results of this to be much more regulatory oversight of the mortgage industry and in the trading of mortgage-backed securities.

One conclusion that can be fairly drawn of this shakeout is that there were some risks to this business activity that were not being accurately priced into the market.

Fed Rate Cut Baffles the Beeb

Here is more pure stupidity by BBC editors.

Fed cuts US interest rates to 3%

The Federal Reserve has cut interest rates for the second time in nine days as it tries to keep the US economy from entering a recession.

The central bank lowered rates to 3% from 3.5% after a two-day meeting.

Last week, the Fed slashed the cost of borrowing by the largest amount in 25 years in a shock move to calm tumbling global stock markets.

The Fed is hoping the cuts will cushion the US economy from the worst effects of the credit crunch and housing slump.

There is no "hoping" to it, this will improve things in the market.

For those unfamiliar with how this impacts the economy (such as socialist BBC editors, apparently), not only does this lower borrowing costs, but it serves to expand the money supply due to increased lending activity. This will impact the economy much faster and deeper than any tax rebate. Fiscal policy moves like tax rebates have much longer time lags before they take effect.

Of course the BBc editors had to document their stupidity yet again by printing this criticism of the Fed:

The Fed looks foolish. It seems they're afraid of the market," said David Greenwald, a partner at Scalene Capital Management.

"Everyone knows that it takes a while for 75 basis points to get through the economy and by cutting 50 now, I just think they're not leaving much room in the future.

And everyone who knows what they are talking about knows that monetary policy takes effect much faster than fiscal policy. What would Mr. Greenwald and the BBC editors have the Fed do otherwise right now? Waive a magic wand? Wish upon a star?

Monetary policy moves have shorter time lags than fiscal policy moves. So once again, the BBC editors are either outright stupid or they are lying to you with this piece.

The reason why the Fed's did the 75-point basis cut last week was to forestall a market meltdown that was happening around the world on January 21 while the U.S. markets were closed due to a holiday. Their choice was either make the move or watch panic set in. The rest of the world was certainly not going to do anything to deal with the slide. Then the Feds recalculated and did the rest of the needed cut this week.

I look for the market to trade sideways for the next six months or so, and then start moving forward again. I also look for the BBC editors to continually document their stupidity in print with articles like this.

Spooked Fed Signals More Rate Cuts

It looks like Fed Chairman Ben Bernanke is a bit spooked.

Bernanke says more rate cuts coming

SAN FRANCISCO (MarketWatch) -- Federal Reserve Chairman Ben Bernanke said Thursday that more interest rate cuts are on the way, as the U.S. central bank wrestles with a deteriorating economy brought on by a struggling housing market, high energy prices and a weaker stock market.

In an unusually blunt speech, Bernanke said the economic outlook has taken a turn for the worse in the early days of the new year and that the Fed stands ready to act aggressively to ward off further weakening.

"In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary," Bernanke said in a speech to a business group in Washington."

"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," the Fed chairman said.

Several comments.

First, I would expect the Fed to do a 50 basis point cut at their next meeting.

Second, that combined with Europe's decision so far to stand pat with their interest rates means the dollar will depreciate even more and the Euro will appreciate.

Third, given that the role and mission of the Federal Reserve Bank is to maintain a stable currency, liquidity and a solid banking system, I find it a bit odd that Bernanke keeps talking about growing the economy. Bernanke's comments are more Keynesian than monetarist in nature.

I think it's been so long since we've had an appreciable recession, some folks are getting spooked as the macroeconomy inevitably slows down.

Fed Taking Risky Path

All signs point to another discount rate cut by the Fed's this week.

Fed expected to lower rates despite raging inflation

In a glorious bit of timing, the Federal Reserve is expected to cut interest rates on Tuesday for a third straight meeting, just days before government data are released showing some of the highest inflation rates in decades.

That's all you need to know about the Fed's balance of risks: Policymakers are much more worried about the illiquid credit markets and the possible hit that the credit squeeze could have on the economy than they are about the risks of inflation breaking out.

"Don't look now, but while we're in the midst of an easing cycle, the U.S. is facing a 4% inflation rate," wrote Avery Shenfeld, an economist for CIBC World Markets. "But for now, none of this matters, as both bonds and the Fed are focused on the credit crunch and its growth threat."

In other words, the Fed is worrying about a recession now and will worry about inflation later. It is the classic trade-off of the Phillips curve, which suggests that you can either have low inflation or low unemployment.

I think, however, that this anticipated move by the Fed's is a risky strategy, and is a departure from general Fed policy of the last 25 years.

Prior to the early 80's, the Fed managed monetary policy with a Keynesian view; i.e., used the Fed's policy moves to shift the aggregate demand curve in or out to try to maintain full employment. This unfortunately created some volatility (similar to oversteering a car on ice) which contributed toward the stagflation in the 70's.

With the arrival of Paul Volcker in the 80's, the Fed shifted policy moves to a monetarist view. Specifically, they have managed the money supply to keep a stable price level along the lines of the Simplified Quantity Theory of Money. The macroeconomic performance since that shift in policy view has supported the wisdom of that approach.

However, the current leaning toward more rate cuts to forestall a recession implies a that the Feds are either admitting that they really screwed the pooch with their previous rate increases, or there is a shifting back toward a Keynesian approach for policy making.

Under the Quantity Theory of Money, the only way the Feds should be considering a rate cut right now would be if inflation (mainly energy cost) is flat. But given the current increasing inflation rates, the Fed's should be thinking of standing pat or contracting the money supply to choke off even higher inflation down the road, not expanding money supply further with a rate cut.

Therefore, I have to conclude that Ben Bernanke is taking a big gamble that inflation will slow down on it's own. For that to happen, energy costs have to stop increasing soon, which is very unlikely. The Feds could be igniting a future inflationary period that will be very hard to stop down the road.

So far, I am very disappointed with Bernanke's decision making.

Market Discounting for Further Rate Cuts

The market tells you everything you need to know about what the economy is doing, if you can only read the signs. Such is the case with the drop in the dollar.

Dollar stays near record euro low

The US dollar remained near record lows against the euro in early Friday trading, on growing expectation of a further American interest rate cut.

After disappointing US economic data overnight, one euro was worth $1.4280 by late morning in Europe, just short of Thursday's all-time $1.4311 low.

Analysts said the rise in US unemployment makes the Federal Reserve more likely to trim rates this month.

Since then, a raft of mostly disappointing economic news and soft inflation figures has prompted the anticipation of further rate cuts.

Bottom line is the Fed can either deal with inflation or can deal with recession at any given time.

Given that inflation is still relatively low right now even though energy costs are jumping, the Feds then can turn their attention to the possibility of a recession.

The market's dropping the value of the dollar is anticipating that the Fed will have no choice but to drop the discount rate another step or two in the coming months to grow the economy through the current slow down. I expect another 0.25% bump down in the rate shortly by the Fed.

That also means there are some tasty profits available for those investors who know how to position themselves accordingly.

Wall Street Buzzing Over Rate Cut

Wall Street is abuzz with anticipation of Fed action later today. The only debate is will the Fed cut the discount rate by 25 basis points or 50?

25 or 50? Bernanke's Fed faces a key test

Most economists think the central bank will cut by a quarter-percentage point to 5.0%, but some are attracted to the somewhat strong move of a half-percentage point.

"While the arguments favoring a bold move are compelling, we believe the chances of a 25 basis point cut carry a higher probability," said Michael Moran, chief economist at Daiwa Securities America Inc., in a note to clients.

The Fed's are not exactly what you would call bold decision makers. Therefore, I say they will cut the discount rate 25 basis points while also quietly expanding the money supply via open market operations (which most of the public does not understand), and then they will sit back and see how things go.

Regardless of all the analysis and computer modeling they do, the Fed's will almost always just tweak rates by 25 basis points at a time and then see what happens.

By the way, this also presents a tasty profit opportunity out there for anybody who knows how to set themselves up correctly to take advantage of a rate cut.

Media Recoils at Good Economic News

Here's some economic data that should enrage the anti-U.S. mainstream media.

Inflation remains moderate in July

WASHINGTON (MarketWatch) -- Inflation remained cool while household incomes and spending strengthened in July, before market turmoil in August shook Wall Street and Fed policymakers, according to Commerce Department figures released Friday.

Inflation was milder than expected in July, with total inflation rising 0.1%, matching the 0.1% gain for core inflation excluding food and energy costs.

In the past year, the Federal Reserve's preferred measure of core inflation has risen 1.9%, just within the Fed's unofficial target zone of 1% to 2%.

Total consumer inflation (including all items) was 2.1% over the past year.

I would expect the Fed's to further ease the Fed Funds rate via open market operations to expand the money supply. Yes, there are real concerns out there about failed loans and the housing market, but it's not exactly "buddy can you spare a dime" time yet.

Incomes are still growing, although you don't want to read too much into monthly macroeconomic figures.

All told, the figures suggest that consumers were in generally good shape before the credit crunch in August sent financial markets reeling, forcing the Fed to conclude that risks of slower growth had risen substantially.

Expect a flurry of negative articles from the MSM predicting economic destruction to counter the actual real good news out there.

Fed May Cut Funds Rate

Looks like the Fed's are going to drop their Fed Funds rate target to provide more liquidity.

Most economists believe Fed will cut at or before its Sept. 18 meeting

WASHINGTON (MarketWatch) -- U.S. credit markets remained extremely fragile Monday, and observers said the Federal Reserve may have to lower its federal funds target rate to inject permanent liquidity into the market and provide investors with more assurances that the central bank will act to keep the economy growing.

Yields on short-term Treasurys plunged on Monday, evidence that fund mangers were parking their cash in the safest and most liquid assets rather than risk them in any asset backed by mortgages or even in the normally sedate commercial paper market.

Two things:

First, there is no such thing as "permanent liquidity," so be careful in believing any of that.

Second, when yields plunge on bonds, you get capital gains. Those of us who saw this coming were able to set themselves up to make a nice profit.

I'd look for more of the same in the near future.

Economic Lunacy at HuffPo

Any doubt that the socialists/communists who blog at HuffPo have no concept of how economics works was removed by the thread about the stock market this morning.

Stocks Open Up With Added Liquidity

cognate (See profile | I'm a fan of cognate)
By this action the Fed increased the money supply 15% over 48hrs. What do they suppose this will do to inflation? Back to double digits by 2009?

First, I've not seen any numbers saying the money supply got expanded by anything close to 15% but in any event, I guess the lefties would rather see a liquidity crisis in the financial markets. Then came this response about the concerns about inflation by 2009.

progressivegreg (See profile | I'm a fan of progressivegreg)
See, by 2009 it WON'T be on shrubs watch, he's got the war so screwed up too, that it will continue long after he's gone. His presidential library should be quite a spin factory when it's built to tell us what a great leader he was!

Actually, the Federal Reserve is completely independent of the White House, so President Bush has no impact one way or the other on what the Fed does.

You learn that in any Econ 101 class.

We'll conclude with this bizarre rant:

BenBernanke (See profile | I'm a fan of BenBernanke)
CAPITALISM ONLY APPLIES AS LONG AS THE LITTLE GUY IS A SUCKER FOR THE THE FEW FAT PIGS ON TOP OF THE PYRAMID...

WHEN THE PYRAMID CRUMBLES YOU TAKE THE FED'S MONEY (AMERICA'S MONEY) TO BAIL OUT THOSE WHO BROUGHT ABOUT THIS DISASTER... I SUPPOSE THAT IS CALLED DEMOCRACY...

HERE IT IS... THE "FREE MARKET", DEMOCRACY, CPITALISM, NOTHING BUT MERE ILLUSIONS...

WHEN WILL YOU FOOLS AWAKEN AND REVOLT?

This is the year you will witness the complete ruin if the American economy.

I know, you're gonna say impossible... but please note and get back to me to recheck these predictions... we'll see see who was the crazy one...

DOW... lose more than 10,000 points before Xmas..

I guess the above is what happens to your brain on liberalism

Would Fed Rate Cut Be Effective?

With the upset in the financial market, many people are looking to the Federal Reserve to provide a quick fix. I doubt that is likely, let alone possible.

How effective would Fed rate cut be?

WASHINGTON (MarketWatch) -- Many financial market participants are clamoring for the Federal Reserve to cut interest rates to provide liquidity to markets, but some veteran Fed watchers question how effective a rate cut would be.

Earlier Friday, the Federal Reserve announced it was providing liquidity "to facilitate the orderly functioning of financial markets."

For those not fluent in Fed-speak, that means they will not lower the rates right now, but they will expand the money supply through open market operations. Here's why:

The Fed has long avoided appearing to gear their monetary policy decisions to any particular happenings in the market at the time. To do that is to abdicate the control of monetary policy to the business decisions of others. They are not about to appear to be underwriting some bad loan decisions made by some investment companies. The Fed's main goal is to keep the currency stable and inflation low. So at this time, with inflation low, they will avoid lowering rates if they can.

But at the same time they cannot completely ignore the distress going on in the financial markets. So they will expand the money supply for a bit via open market operations and hope that the markets will settle down.