I have received close to 700 emails today. I will do my best to reply, yet at this number the task is quite overwhelming.
Truth be known, almost every question has already been answered here on JSMineset.com.
The litany of disasters continues. The Fed has only one alternative to improve its balance sheet – get money from the Federal Government. The government can either borrow from the world through debt issuance, or they can print money. Either alternative exercised is very bad for the US dollar and very good for gold. As always you have called it again and again.
Has the Fed Mortgaged Its Own Future?
By JACK WILLOUGHBY
The Fed’s highly leveraged balance sheet will make it hard to fight inflation.
IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed’s current capital ratio, or capital as a percentage of assets, is 1.9%.
The Fed has provided so many loans and emergency credits — to banks, brokers, money funds and foreign countries — that its balance sheet, viewed one way, is as leveraged as any hedge fund’s: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.
Although the Fed’s role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren’t there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)
Critics say this action could hinder the Fed in achieving its No. 1 priority: keeping inflation in check. To try to get in front of the crisis, many decisions have had to be made on the fly.
"If the Fed had been [a savings-and-loan] ballooning its balance sheet so fast, the supervisors would have been all over it," says Ed Kane, a Boston College finance professor.
In the heart of this derivatives crisis insurance companies are still selling their junk to unsuspecting customers seeking yield. If sovereign bonds are having trouble you can just see these products will blow up in the future, leaving investors hi and dry again and needing more government money.
Keep up the great work,
Ciga Big Tatanka
Insurers cash in on deflation fears
Firms are using the volatility of the stock markets to push poor products
Investors are being lured into discredited products by insurers keen to capitalise on tumbling interest rates and volatile stock markets.
Legal & General (L&G) has reported a 186% surge in sales of with-profits bonds in the first nine months of the year, while Prudential saw a 174% jump in business. Norwich Union has sold bonds worth £1 billion in the first nine months alone.
With-profits bonds, which had fallen out of favour after the mis-selling scandals of the 1980s and 1990s, are an easy sell in the current climate because they are pushed as a “halfway house” between equities and deposit accounts. They invest in a mix of shares, gilts and cash, so claim to be less volatile than the equity markets.
They are also attractive to income seekers because they allow you to take an income of up to 5% a year with no immediate tax to pay. This is particularly attractive following this month’s 1.5 percentage point cut in Bank rate.
Dear Big Tatanka,
When these people depart the mortal coil the only way to keep them departed is to screw them into the ground.
As long as there is someone stupid enough to buy something, someone will manufacture and sell it.