Tuesday, October 06, 2015

Dumping Reserves and New QE

Saudis and oil exporters are dumping reserves. China dumps record reserves. Anyone going to buy US Treasuries? Of course there are buyers, but are there buyers at the rate needed to keep interest rates down? A good scare in the markets would send buyers to USTs, but are we allowed to have that? Maybe we need a temporary scare to then push the FED into buying USTs again, so everyone on the market can get back to trading fictitious assets and stacking wealth that will not affect Main Street.

Two years ago, when the FED chairman nomination looked interesting, I wrote how a FED financed tax cut was in the cards. The media was laying groundwork, we were going to have a new chairman, QE for Wall St was getting old and hated, and it is right in the Bernanke playbook for "beating deflation". Seems each new FED chairman gets to try something new as they clean up the mess left by the prior chairman. Volcker fixed the stagflation mess. Greenspan papered over the '80s debt bubble and S&L mess. Bernanke papered over the Greenspan bubbles. It made sense for Yellen to clean up Bernanke's mess. Has not happened yet.

A new QE will come and it'll probably be a FED financed tax cut, but finagled in some way to help the banksters out. The machine needs oil. The reduction in our Federal annual deficits is a nice combination of slightly slower growing spending, slightly improved tax collection and the bubble capital gains taxes rolling in. Look at the historical chart, and you will see the deficit improvements of the late Clinton and Bush years correlate to the stock bubbles that inflated capital gains tax receipts.

The Donald proposed what looks like a broad tax cut, Jeb has a tax cut that looks good for the wealthy, and others will follow suit. We should all prepare for the Left's middle class tax cut that will be heralded as revolutionary, new and completely different from anything the right has done in the history of the world. Can the FED hold off on QE until early 2017? No, most likely they cannot hold off until 2016. There are laws on the percentage of treasuries the FED can hold, but those can be massaged after everything they have done. If others keep dumping USTs, it may force the FED's hand earlier than they would like, but switching the cause for buying USTs is just a media campaign away.

9 comments:

R. Wilbur said...

Do you follow @ektrit? He always comments on @20committee's stuff.

He goes through vague but interesting explanations that rates will rise, sharply and quickly, because the Pentagon (Red USG) can't afford a weak dollar, which is what State & POTUS & Fed (Blue USG) want. Pentagon is permament power, POTUS temporary, so he sees Pentagon forcing hand.

I have no idea what he bases anything on, it's an interesting counterpoint.

madmended said...

O.T.:

Corporate-sponsored propaganda:

http://www.nytimes.com/2015/10/06/opinion/the-immigration-dividend.html?action=click&pgtype=Homepage&module=opinion-c-col-right-region&region=opinion-c-col-right-region&WT.nav=opinion-c-col-right-region&_r=0

R. Wilbur said...

I ask because I need to know which right-wing fringe commentator who to listen to in order to plan my mortgage refinancing.

Anonymous said...

USG is crashing.

Son of Brock Landers said...

R. Wilbur - I am waiting to refinance as well.

罗臻 said...

Those countries aren't dumping reserves because they are in a position of strength, they are dumping reserves because they cannot finance their economies and are facing the prospect of currency collapse. The Saudi peg will fail, the Chinese currency will tumble. Unless the US is willing to destroy the dollar to save EM debts, the value of the dollar is likely in a cyclical bull market that will peak sometime near the end of the decade, or earlier if it rises to unsustainable heights in a panic.

peterike said...

Speaking of banksters, have you seen any of the Syrian Girl Partisan videos? Very interesting stuff. I wasn't aware that Syria was outside the bankster universe with their own central bank that isn't part of the BIS, and that Syria has never taken IMF money. No wonder they're a target.

There's a lot more at this fascinating video.

https://youtu.be/TP3mXVRd89Y

Alexandros HoMegas said...

Its all about the banks.

Son of Brock Landers said...

Asian guy - Yeah I know China and the petro states are dumping to protect their currencies, it still places tons of pressure on interest rates so someone has to buy them. A new QE will come, and the next deficit will probably be caused by a tax reform of some sort.