Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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