Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

US Government Ramps Up the Money Printing Presses

Interest-Rates / Credit Crisis Bailouts Oct 04, 2008 - 02:44 PM GMT

By: Money_Morning

Interest-Rates

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: After some of the most tumultuous trading in history - not to mention the most pathetic political posturing we've ever seen - my e-mail box has overflowed with questions, comments and suggestions.

This week, I want to answer one of the most frequently asked questions that I've received: "Where does all the bailout money come from?"


Clearly, Uncle Sam doesn't have a safety-deposit box - or even a greenback-stuffed Chock full o'Nuts can buried out in his back yard - but right about now I'm betting that he wishes he did.

To pay for the new $700 billion bailout bill , or even to cover the ever-growing federal debt, the U.S. government sells securities - lots of securities. The money is literally created from thin air by authorization and subsequently lent to institutions, individuals, foreign governments and others for what basically boils down to the mother of all IOUs. A portion of it, of course, is physically printed by Team Bernanke and the U.S. Federal Reserve on its turbocharged printing presses - and put into circulation as currency.

With regard to the bailouts, theoretically the Fed accepts an institution's assets as collateral. Warts and all. In exchange, the Fed's money is regarded as "senior" to even other senior debt holders, meaning that the Fed gets repaid ahead of paying everybody else including other debt holders.

Earlier this month, for example, the U.S. Treasury Department sold $40 billion in short-term debt that it would buy back in 35 days as part of a special program that will allow the central bank to keep pumping cash into the system on top of hundreds of billions it is making available through other channels.

Most Treasuries are auctioned off more regularly by so-called " primary dealers ," which are those financial institutions engaged in buying and selling U.S. government securities and which have established business relationships with the Federal Reserve Bank of New York , the biggest and most important of the 12 Fed banks. Individual investors can buy smaller amounts directly from the Treasury Department at auction or in secondary markets.

All of this is pretty plain vanilla stuff. But here's something that's actually very interesting: I'm hearing reports that at some of these auctions in recent weeks, several investors have literally bid zero - as in $0.00.

On the surface, that could be interpreted to mean that Treasuries are worthless. But in reality, this is one of the smartest moves I can think of for a professional trading house to make right now with cash it can't afford to lose.

What these guys are doing is simply lending money to the Treasury - knowing full well that they'll get it back in just over a month - instead of risking it in the stock market, or loaning to some other bank that has even more " toxic waste " on its balance sheet . In some cases, they're even reportedly paying for the privilege of knowing their short-term money is safe.

This reminds me of something that I saw in Japan in the early 1990s, at the start of that country's " Lost Decade ," when there was actually a premium associated with the " short-term investment funds ," or STIFs, that were held overnight.

In fact, the situation got so bad during the early days of Japan's collapse that banks were basically paying each other - and the Japanese government - to take overnight deposits. Many refused … and we know the rest of the story .

Admittedly, the comparison I'm drawing is sort of apples to oranges, but the idea is similar, as are the underlying circumstances. Financial institutions want to transfer risk from their books to Uncle Sam so that they can ride through this unscathed - or at least to minimize any additional damage they might incur.

What all this says about our own immediate financial future is open to debate. But one way to look at this is that these institutions - which are running hundreds of millions of dollars they can't afford to lose - believe the overall financial situation could get worse before it gets better. And that's why they are going to extraordinary lengths to protect their assets, just as their counterparts in Japan did nearly two decades ago.

Having personally lived through those events in Japan 18 years ago, my instincts tell me we'd be wise to pay attention. Now isn't the time to take anything for granted - and I do mean anything .

Best regards,

Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report

P.S: After one too many long nights in front of my trading screens, my staff and I were struck by the ridiculousness of it all and created some fun T-shirts that poke fun at the whole situation. Get yours today!

[ Editor's Note : With the U.S. financial markets in such disarray, Money Morning is looking for profit opportunities beyond U.S. borders: For instance, just check out this new report on a Wisconsin-based company we've discovered that's posting quarter after quarter of earnings surprises - while the rest of Wall Street tanks. Not only does this company have a lock on China - the fastest-growing market on the planet - this corporate gem is also riding the profit wave of the most-powerful global trend that we're following right now. If you act on this opportunity now - as an added bonus - you'll also receive a free copy of CNBC analyst Peter D. Schiff's New York Times best-seller, " Crash Proof: How to Profit from the Coming Economic Collapse ."]

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Disenfranchised N. Betrayed
06 Oct 08, 15:08
Both political parties are guilty of "HIGH TREASON"

It's amazing how so many men and women in the U.S. government have been able to mass murder, and rip off unprecedented amounts of capital, and torture, and not one has been charged nor tried for HIGH TREASON yet.

isn't about time that happened?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules