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The Fed is too tight by George Dagnino 04/11/2008
The Fed is lending money to institutions in financial difficulty. Then, they turn around and sell Treasury bonds and drain reserves form the banking system. The outcome is that the monetary base has been growing very slowly (see graph). The point is the Fed is much tighter than generally believed. The monetary base should be expanding at a pace close to 6%-7% y/y (its long-term average growth -- see graph) instead of the recent 1.5% y/y. They should add much more liquidity to the banking system, not just give a helping hand to institutions with problems. More on https://www.peterdag.com/. George Dagnino, PhD Two Fed chairmen under attack by George Dagnino 04/08//2008 Paul Volcker, the imposing former Fed chief who felled the runaway inflation of the 1980s, chided the current chairman, Ben Bernanke, for toeing "the very edge" of the bank's legal authority in orchestrating the bailout last month of the beleaguered investment bank Bear Stearns. "Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank," Volcker said a speech on Tuesday to members of the Economic Club of New York. His remarks came on the same day that Alan Greenspan, Bernanke's immediate predecessor as chairman, deflected criticism of his tenure, dismissing as "unfair" claims that his policies stoked an untenable housing bubble. What is going on? Are our financial leaders capable of tackling the many issues facing the financial markets? Are they part of the problem? More on https://www.peterdag.com/. George Dagnino, PhD What is troubling America? Read this one!!! Please read the testimony of Bill Gates before the Committee on Science and Technology, U.S. House of Representatives. The address is We need to wake up. We need to recognize the importance of science and engineering. George Dagnino, PhD A late Sunday afternoon thought by George Dagnino 04/06/2008 I just checked the dollar. It is strong against all major currencies. So, I asked myself: what asset classes will perform best if the dollar keeps strengthening? My guess is that financial stocks will be strong. Why? A stronger dollar is a sign the international community is more comfortable with what is going on in our financial system. In other words, it is a sign the worst of the credit crisis is over. It is just an educated guess. We will see. More on https://www.peterdag.com/. George Dagnino, PhD Bullish for the market (Bloomberg) -- New York Federal Reserve Bank President Timothy Geithner said capital markets are still ``substantially impaired'' and policy makers and financial industry leaders must ``act forcefully'' to stem the crisis. ``What we were observing in U.S. and global financial markets was similar to the classic pattern in financial crises,'' Geithner said in testimony to the Senate Banking Committee. He cited ``a self-reinforcing downward spiral'' of asset sales, ``higher volatility, and still lower prices.'' The Fed is scared. They will have to continue to add liquidity. And increased liquidity is bullish for the market. In an environment of low real interest rates, however, some market sectors will be stronger than others. More on https://www.peterdag.com/. George Dagnino, PhD The markets always win by George Dagnino 04/05/2008 (Bloomberg) -- Federal Reserve officials signaled the central bank will keep lowering interest rates because financial markets remain distressed even after the fastest reduction of borrowing costs in two decades. Fed Chairman Ben S. Bernanke told lawmakers yesterday that the central bank is ``ready to respond to whatever situation evolves,'' and cited ``considerable stress'' in markets. New York Fed President Timothy Geithner said policy makers must ``continue to act forcefully.'' The weak economy (not the Fed) has forced the rate of 13-week Treasury bills down to 1.34%. The Fed target rate is still 2.25%. It is still too high relative to market rates. It will have to come down to 1.5%. The markets always win! More on https://www.peterdag.com/. George Dagnino, PhD The road to bigger government The Foreclosure Prevention Act, is a proposal by Representative Barney Frank and Senator Christopher Dodd to expand government mortgage guarantees and the Federal Reserve-backed sale of Bear Stearns Cos. to JPMorgan Chase & Co. Senate leaders agreed on April 2 on the legislation aimed at curbing home foreclosures, dropping a provision that would have allowed judges to alter mortgages for borrowers in bankruptcy proceedings. (Source: Bloomberg) Every crisis is an opportunity for the government to intervene. There is nothing wrong with this idea. The objective is to protect the economy. The problem is new legislation and regulations are added to old ones. New agencies are added to improve the level of protection that this great country deserves. Old and anachronistic agencies, however, keep staying. It is in the nature of governments to get bigger and bigger. Let's hope someone in Washington recognizes the risk. George Dagnino, PhD
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