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Old 05-13-2014, 03:31 PM  
Stewie Stewie is online now
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The great deceiver: The Federal Reserve

The great deceiver: The Federal Reserve


by Dr. Craig Paul Roberts



Is the Fed “tapering?” Did the Fed really cut its bond purchases during the three month period November 2013 through January 2014? Apparently not since foreign holders of Treasuries are unloading them.


From November 2013 through January 2014 Belgium with a GDP of $480 billion purchased $141.2 billion of US Treasury bonds. Somehow Belgium came up with enough money to allocate during a 3-month period 29 percent of its annual GDP to the purchase of US Treasury bonds.
Certainly Belgium did not have a budget surplus of $141.2 billion. Was Belgium running a trade surplus during a 3-month period equal to 29 percent of Belgium GDP?


No, Belgium’s trade and current accounts are in deficit.


Did Belgium’s central bank print $141.2 billion worth of euros in order to make the purchase?


No, Belgium is a member of the euro system, and its central bank cannot increase the money supply.


So where did the $141.2 billion come from?


There is only one source. The money came from the US Federal Reserve, and the purchase was laundered through Belgium in order to hide the fact that actual Federal Reserve bond purchases during November 2013 through January 2014 were $112 billion per month.


In other words, during those 3 months there was a sharp rise in bond purchases by the Fed. The Fed’s actual bond purchases for those three months are $27 billion per month above the original $85 billion monthly purchase and $47 billion above the official $65 billion monthly purchase at that time. (In March 2014, official QE was tapered to $55 billion per month and to $45 billion for May.)


Why did the Federal Reserve have to purchase so many bonds above the announced amounts and why did the Fed have to launder and hide the purchase?


Some country or countries, unknown at this time, for reasons we do not know dumped $104 billion in Treasuries in one week.


Another curious aspect of the sale and purchase laundered through Belgium is that the sale was not executed and cleared via the Fed’s own National Book-Entry System (NBES), which was designed to facilitate the sale and ownership transfer of securities for Fed custodial customers. Instead, the foreign owner(s) of the Treasuries removed them from the Federal Reserve’s custodial holdings and sold them through the Euroclear securities clearing system, which is based in Brussels, Belgium.


We do not know why or who. We know that there was a withdrawal, a sale, a drop in the Federal Reserve’s “Securities held in Custody for Foreign Official and International Accounts,” an inexplicable rise in Belgium’s holdings, and then the bonds reappear in the Federal Reserve’s custodial accounts.


What are the reasons for this deception by the Federal Reserve?


The Fed realized that its policy of Quantitative Easing initiated in order to support the balance sheets of “banks too big to fail” and to lower the Treasury’s borrowing cost was putting pressure on the US dollar’s value. Tapering was a way of reassuring holders of dollars and dollar-denominated financial instruments that the Fed was going to reduce and eventually end the printing of new dollars with which to support financial markets. The image of foreign governments bailing out of Treasuries could unsettle the markets that the Fed was attempting to sooth by tapering.


A hundred billion dollar sale of US Treasuries is a big sale. If the seller was a big holder of Treasuries, the sale could signal the bond market that a big holder might be selling Treasuries in large chunks. The Fed would want to keep the fact and identity of such a seller secret in order to avoid a stampede out of Treasuries.

Such a stampede would raise interest rates, collapse US financial markets, and raise the cost of financing the US debt. To avoid the rise in interest rates, the Fed would have to accept the risk to the dollar of purchasing all the bonds. This would be a no-win situation for the Fed, because a large increase in QE would unsettle the market for US dollars.


Washington’s power ultimately rests on the dollar as world reserve currency. This privilege, attained at Bretton Woods following World War 2, allows the US to pay its bills by issuing debt. The world currency role also gives the US the power to cut countries out of the international payments system and to impose sanctions.


As impelled as the Fed is to protect the large banks that sit on the board of directors of the NY Fed, the Fed has to protect the dollar. That the Fed believed that it could not buy the bonds outright but needed to disguise its purchase by laundering it through Belgium suggests that the Fed is concerned that the world is losing confidence in the dollar.


If the world loses confidence in the dollar, the cost of living in the US would rise sharply as the dollar drops in value. Economic hardship and poverty would worsen. Political instability would rise.


If the dollar lost substantial value, the dollar would lose its reserve currency status. Washington would not be able to issue new debt or new dollars in order to pay its bills.


Its wars and hundreds of overseas military bases could not be financed.

The withdrawal from an unsustainable empire would begin. The rest of the world would see this as the silver lining in the collapse of the international monetary system brought on by the hubris and arrogance of Washington.




Dr Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal.

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Old 05-17-2014, 10:24 PM   #46
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Originally Posted by Stewie View Post
This headline is all over financial media:

Foreigners Sell A Record Amount Of Treasuries Held By The Fed In Past Week

Something is afoot. Who's buying? Belgium? heh.
And if you read reputable sources, you would see that it's most likely due to Russia changing their custodian for their Treasury holdings and not some great conspiracy.
http://www.ft.com/intl/cms/s/0/51c55...44feab7de.html

Quote:
A record weekly drop in US Treasury debt held at the US Federal Reserve by foreign institutions has triggered speculation Russia has switched the bulk of its holding to a third-party custodian, in case its assets are frozen as the crisis over Ukraine escalates.

The Fed reported that its weekly custody holdings of Treasuries held by foreign entities plunged a record $105bn for the week ending March 12 to a 15-month low of $2.855tn from $2.960tn. The previous weekly record drop was $32bn in mid-2013. The total Treasury market is nearly $12tn.

The scale of the decline in custody holdings shocked bond traders on Friday, given that Treasury debt has attracted robust demand from buyers over the past week due to fears over slowing growth in China and the tension between Russia and the West over Ukraine.

The benchmark 10-year yield, which moves inversely to price, dropped to 2.61 per cent on Friday, down sharply from last week’s peak of 2.82 per cent in the wake of better than forecast US jobs growth for February.

“This is a transfer of holdings and not a sale,” said Ian Lyngen, strategist at CRT Capital. “A $105bn sale of Treasuries would have shocked the market and pushed 10-year yields higher by at least 30 basis points.”

A US official said: “If this was indeed Russia who moved their holdings, they are clearly feeling the pressure.”

The threat of economic sanctions against Russia or a freeze on its dollar holdings by western governments was seen by traders as being behind the large drop in custody holdings at the Fed. Placing dollar assets outside of the US is seen preventing the freezing of dollar-based assets.

Russia warned on Friday that it was prepared to intervene in eastern Ukraine, as US secretary of state John Kerry and Russian foreign minister Sergei Lavrov began crisis talks in London.

At the end of 2013, Russia held $138bn of Treasuries, according to official data.

“The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, strategist at Brown Brothers Harriman. “The intervention by emerging market central banks, including Russia, seems far too small to account for $100bn-plus move in a week.”

Lou Crandall, economist at Wrightson Icap, said: “If Russia was one of the many foreign nations that left its Treasury securities at the New York Fed, the escalating talk of sanctions over the Ukraine conflict would give it every reason to move those holdings to an offshore custodian.”

A third-party custodian could be either one of the two large US banks, JPMorgan or Bank of New York Mellon, or – more likely – a non-US player such as UBS, said Mr Lyngen.

Mr Chandler said there was a precedent for such a move given how in 1957 after the Soviet Union invaded Hungary, the Russia-based Narodny Bank shifted dollars from the US and deposited them in its branch in London. That led to the birth of the Eurodollar market, or dollars held outside of the US.
“We can only speculate about who might have decided to move their securities out of the Fed and into a third-party custodian, but one obvious candidate is Russia,” said Mr Crandall.

The Fed declined to comment on custody holdings.
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Old 05-17-2014, 10:25 PM   #47
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http://www.businessinsider.com/nobod...asuries-2014-3
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In the week through Wednesday, March 12, the amount of U.S. Treasury securities held in custody for foreign official and international accounts (i.e., central banks) at the Federal Reserve dropped by a staggering $104.5 billion, marking what was far and away the biggest weekly drop on record.

These custody holdings have fallen almost every week since mid-December, as weakness in emerging-market (EM) currencies has caused EM central banks to raise dollars by liquidating their U.S. Treasury holdings, and then turn around and sell those dollars on the open market in order to prop up their own currencies.

This has prompted some speculation that central banks selling Treasuries were behind the record drop in Fed custody holdings. However, such activity doesn't come close to explaining what happened in the last week.

For example, the Central Bank of Russia — which has been in the spotlight due to escalating military tensions in Ukraine and has thus seriously underperformed against other EMs as of late — only bought 154.97 billion rubles in the week ended March 12.

At an average exchange rate of 36.35 rubles to the dollar over that time period, the CBR's intervention amounted to about $4.3 billion — leaving more than $100 billion of the drop in Fed custody holdings unaccounted for.

The second-largest weekly drop in Fed custody holdings of U.S. Treasuries for foreign official accounts on record took place in the week ended June 26, 2013. Recall that June 2013 was a period of significant, widespread stress in emerging markets on the back of assertions by then-Federal Reserve Chairman Ben Bernanke that the U.S. central bank would likely begin winding down its quantitative easing program later in the year.

During that week in June, JPMorgan's Emerging Markets Currency Index fell as much as 2.5%.

Over the week ended March 12, 2014, on the other hand, the index fell only 0.6%. Moreover, traders on U.S. Treasury desks were unaware of any unusual central bank flows this week — meaning "fire sales" of U.S. Treasuries by EM central banks appears to be an insufficient explanation for the large drop in holdings.

The most likely explanation for the drop in custody holdings is that Russia moved its U.S. Treasuries outside of the U.S., so that if and when the West levies financial sanctions against it as a result of escalating military tension in Ukraine, Russia will still be able to access its money.

BofA Merrill Lynch interest rate strategists Shyam Rajan and Priya Misra make two points to that effect in a note to clients (emphasis added):
1) Although large shifts out of the New York Fed custody are rare, we have seen custodian shifts elsewhere, recently. For example, the December 2013 TIC data showed a massive increase in Belgium's Treasury holdings (higher by $57 billion), matched by a drop in China’s holdings (-$48 billion). Given that Belgium’s reserves total less than $20 billion, the spike higher was likely a shift in custodians by a major reserve manager. The recent shift could be also be a similar large reallocation to a different custodian.

2) The upcoming referendum in Crimea this weekend and the multiple threats of sanctions could have triggered a significant reallocation of Treasuries to a non-U.S. custodian. Note that custodian banks are not allowed to transact with entities listed in the OFAC list, once sanctions are imposed.
What impact does all of this have on the market?

"A mere shift in custodians should not have any impact on yields in the Treasury market," say the BofAML strategists.

"A consistent move out of the New York Fed merely diminishes the reliability of this indicator as a high frequency source for foreign official demand."
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Old 05-17-2014, 10:35 PM   #48
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I'm beginning to think you're just lazy. This isn't the only article written on Belgium and the odd use of the Euro clearing house. The other articles (by financial publications) say something like, "We don't know the mystery buyer of US debt in large quantities from Belgium since China, Japan and Russia are selling US debt. The Federal Reserve is the next logical choice but the waters are muddied."

They don't have the balls to come out and say it and it can be assumed the Fed likes the waters muddied.
Since, I've already destroyed your first paragraph. I'm going to ignore in in this post.

According to SIFMA, the average daily dollar volume in US Treasuries for 2012 is $545.4 Billion. So $100B change is not really material. Color me not surprised you got hung up on a big number again just because it is a big number.

The Fed also doesn't want the waters muddied and has been very clear about their intentions and actions over the last 4 years. The only people who would claim otherwise are idiots.

And finally, if someone was wholesale dumping treasuries like that then rates would increase. Interest rates have fallen since the beginning of the year which indicates that there is a healthy demand for US Treasuries since the yields keep getting bid down.

Now, who is lazy again?
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Old 05-19-2014, 03:04 PM   #49
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I guess the nut bags have to pick another point to scream conspiracy, inflation, and manipulation about.
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Old 05-19-2014, 04:05 PM   #50
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Native's lazy sure, but the worst part is he doesn't even think he should back up any assertion he makes. He knows the truth but doesn't like revealing it to all his loyal subjects (so he thinks) on the board. Not going to bother even wasting 1 single keystroke explaining what he knows to fools on this board.


What he's really saying is: "I can't really explain my positions. And I really don't want to invite the challenges that it brings."
He's a shill for the Federal Reserve that's why.
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Old 05-19-2014, 08:55 PM   #51
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Will this be in every thread or just randomly interspersed?
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Old 05-19-2014, 10:02 PM   #52
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Originally Posted by Stewie View Post
I'm beginning to think you're just lazy. This isn't the only article written on Belgium and the odd use of the Euro clearing house. The other articles (by financial publications) say something like, "We don't know the mystery buyer of US debt in large quantities from Belgium since China, Japan and Russia are selling US debt. The Federal Reserve is the next logical choice but the waters are muddied."

They don't have the balls to come out and say it and it can be assumed the Fed likes the waters muddied.
There are other articles on this subject but you chose to post one by Paul Craig Roberts?
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Old 05-20-2014, 07:11 AM   #53
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There are sooo many quotes out there, right up to the present day, but I'd rather focus on these geezers from days of yor with very prescient takes...

"Every Congressman, every Senator knows precisely what causes inflation... but cant and wont support the drastic reforms to stop and repeal the Federal Reserve Act, because it would cost him his job" - Robert Heinlein.

"The Federal Reserve Banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that THIS NATION IS RUN BY THE INTERNATIONAL BANKERS" - Congressman Louis McFadden.

"The Federal Reserve Act as it stands, seems to me to open the way to a vast inflation of currency... I do not like to think that a law can be passed that will make it possible to SUBMERGE THE GOLD STANDARD IN A FLOOD OF IRREDEEMABLE CURRENCY" - Henry Cabot Lodge Sr.

There are just dozens of these kinds of quotes that echo from the ages, and what you see in all caps should hopefully ring a bell because, well, its come to pass a long time ago.

The day that act was passed we gave up our sovereignity in so many ways, the NWO started way back then... we put our national economy in an international stewpot that's being stirred and having ingredients thrown in by people who don't give a shit about you - Mr. Joe American - even IF you have what you consider to be a little bit of money.

The fed sucks, always have and always will... people like this are a big reason why Putin has went nuts, he doesn't want to be swept into their bullshit, IMO.
Well there was at least one Congressman that understood all of this, but he got labeled a nut. I guess people can look back at all of this when our stupid flimsy funny money economy ****ing crumbles and realize they're morons.
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Old 05-20-2014, 09:45 AM   #54
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Old 05-20-2014, 09:57 AM   #55
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gold bugs are funny. Skipped through a couple parts and saw numerous inaccuracies.
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Old 05-20-2014, 10:00 AM   #56
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http://www.bloombergview.com/article...ritholtz-chart.
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Does It Pay to Hold Gold?: Ritholtz Chart
.

The chart above shows the rolling returns for stocks and gold.

Catherine Mulbrandon of Visualizing Economics writes:
For the period 1928-2013, the average annual compound real return of stocks = 6.3% and gold = 2.0%. However, the price of gold was controlled by the government until the mid-70s when the US finally abandoned the gold standard. For the period 1976-2013, the average returns were stocks = 7.2% and gold = 2.0%
The most fascinating aspect of this chart is that nearly all of the long-term returns for equities are positive. Returns are positive about 80 percent of the time for 10-year rolling returns and considerably higher than that for 15-year rolling returns. For stocks, every period of rolling returns greater than 15 years is positive.

Gold, on the other hand, can't make the same claim. There are positive and negative return rates, regardless of the length of time an investor was willing to hold onto their gold. Even some 40-year periods still yield negative rates of return.
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Old 05-20-2014, 10:07 AM   #57
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gold bugs are funny. Skipped through a couple parts and saw numerous inaccuracies.
listen here frodo. don't get short with me.
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Old 05-20-2014, 10:11 AM   #58
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Well there was at least one Congressman that understood all of this, but he got labeled a nut. I guess people can look back at all of this when our stupid flimsy funny money economy ****ing crumbles and realize they're morons.
Calling people "nuts" is use to crush dissent on a matter.
The same is done when the "racist" and "anti-semitic" charge is made.
It's actually what Aklinksy called for his followers to do.
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Old 05-20-2014, 10:23 AM   #59
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Originally Posted by BucEyedPea View Post
Calling people "nuts" is use to crush dissent on a matter.
The same is done when the "racist" and "anti-semitic" charge is made.
It's actually what Aklinksy called for his followers to do.
Sometimes people really are nuts/racists/anti-semites too.
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Old 05-20-2014, 10:30 AM   #60
BucEyedPea BucEyedPea is offline
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And more often they're not--or exaggerated. The ones using them often are the real nuts though.
A good example of ending a topic, at least in the mainstream media was Cliven Bundy.

I was gonna edit to those being "over-used" but you beat me.
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