Radio Free Wall Street 1/27/10

Russ Winter and Lee Adler talk about the debt trap, the market, and the economy.

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5 comments for “Radio Free Wall Street 1/27/10

  1. DefBear
    January 28, 2010 at 10:33 am

    I think the interest payments on US debt to foreigners must be part of the current account deficit and in any case it is a negative factor in GNP. So I see why an increase in world interest rates would increase USA’s foreign accounts deficit and pressure the US$ downward if the Fed fails to raise interest rates to match the world.

    This is the vulnerability, which you guys rightfully point out again this week, even if I think actual default is not more or less likely, compared to owing the debt domestically, instead of to foreigners.

  2. DefBear
    February 2, 2010 at 2:32 pm

    A question for tomorrow’s poddropping or maybe not if it is too off-topic.

    I understand the mechanism for bank money creation. Don’t explain that.

    I want to know if the central bank has the same balance sheet limitations as a regular bank such that they have to expand their balance sheet step-wise. I’ve been reading the original Federal Reserve act of 1913 and it seems to me the member banks buy shares in Reserve banks to provide the central bank’s base capital, like a tennis club membership. I see nothing in that act to grant the central bank any power to buy assets beyond its starting balance unless its starting balance can be multiplied like a regular bank. Its power seems to be from its king of the throne broad diversification from ALL banking in the country and not from breaking actual basic accounting rules. If this true, and I think it is, then Bernanke’s helicopter speech was only true in the context of step-wise multiplication and he might, right now, be sweating the poor quality of MBS assets on his balance sheet and the lack of multiplication momentum. Could he hit a brick wall and be unable to do QE II, while claiming otherwise in his helicopter speech ? I think the Treasury FISCAL deficits are of PARAMOUNT requirement to initiate the multiplication effect. Otherwise, his helicopter speech was a lie.

  3. DefBear
    February 2, 2010 at 2:57 pm

    A little more punchy conclusion:

    Could it be that the Fed might have trapped itself in MBS and they should “printed money” with Treasuries from now on, before they blow a hole in their entire balance sheet and cripple their ability to print money ? (and thus making the helicopter speech true but crippled by a policy error).

    If this is technically true, then Bernanke’s next move is to cut loose housing and hand that house price propping over to Fannie/Freddie/FHLB and the Treasury ALONE, which you have been anticpating, I acknowledge. Obama spun that house propping in a positive way in his speech.

    I’m just trying to connect the dots as to technically why it must be done this way, without the Fed.

  4. Lee Adler
    February 3, 2010 at 1:30 pm

    Not sure I understand the question, but the Fed’s ability to acquire assets is limitless, and not restricted by its capital base until the market says “Enough!” and there’s a loss of confidence in the currency.

    Don’t forget, for every asset, there’s a liability. When the Fed buys paper it creates an equal money liability on its balance sheet, assuming it doesn’t reduce some other asset as an offset.

  5. DefBear
    February 3, 2010 at 1:42 pm

    Yes, that is what I wanted to know. I was wrong.

    Apparently the bank which gains the cash from the asset sale, leaves the cash at the central bank (that is the liability which you mention) and then loans it out anyway, as per capital or reserve requirement limits.

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