Bank Reserve Requirements Waived

On October 21, I posted this. The Fed recently offered the Primary Dealer (PD) network reverse repos up to $100 billion and the Primary Dealers didn’t bite. Apparently the banks are finding better ways to use their reserves, possibly facilitating a carry trade in the dollar that in turn is keeping various markets inflated. So meanwhile the Fed is considering reverse repos with the money market funds (MMF) industry. It is a much larger capital pool, and it supports non-banking corporations by rolling their debt.

But now they’ve given that up, apparently. According to Stephen K. Beckner,

After growing somewhat frustrated with the feasibility of doing large-scale reverse repurchase agreements with non-traditional counterparties, the Federal Reserve has begun to focus more on doing these reserve-draining operations with the primary dealer community when the time comes. …

The Fed has been informed by dealers that they would be willing to enter into very sizable amounts of reverse repos with the Fed, if asked to do so, provided they could get some relief from Tier I capital constraints …

Some officials believe the Fed need not resort to large reverse repos or asset sales, arguing that its ability to pay interest on excess reserves will set a floor under the federal funds rate and also enable the Fed to disincentivize banks from lending the reserves into the economy if necessary. …

Fed … asset purchases promise to continue expanding the balance sheet. This has raised concern among other Federal Reserve presidents who argue that the Fed needs to manage down the size of reserves (as well as) the monetary base.

And so the Fed has been looking closely at (reverse repos). And it said “the focus of recent work has been to expand our existing capability to conduct reverse repos with Primary Dealers to include ‘triparty’ settlement. This has involved working with the triparty clearing banks and Primary Dealers to implement the necessary changes and updates.” …

The New York Fed (had) entered into discussions with money market funds and government sponsored enterprises as potential counterparties. But Market News understands that the technical and legal challenges of transacting with such non-traditional counterparties has proven somewhat daunting, leading the Fed to return its focus more on the dealer community.

Then the Fed sells securities to the dealers as part of a reverse repurchase agreement, it has the effect of reducing their capital to asset ratio below regulatory minimums, limiting the amount of reverse repos the dealers are able or willing (able?) to do.

But if the Fed and other bank regulators were willing to grant an exemption from Tier One capital requirements for the reverse repos, the Fed has been informed that the dealers would be willing to do much more than they originally said — perhaps up to $1 trillion.

The Fed is said to be very receptive desperate. (Fed Debating Need for Reserve Draining vs. Interest on Reserves as posted in Zero Hedge)

CIT Shockwave

So CIT went bankrupt. Last week’s news. Or not …

Retail ‘Killer Wave’ Coming Due to CIT Failure

Rick Ackerman, Thursday, November 5th, 2009

… CIT provided financing to 60 percent of the apparel industry. All told, CIT was lending to 2000 firms that supplied merchandise to more than 300,000 stores. …

CIT was a major financier of Dunkin Donuts and payrolls for thousands of other small businesses providing low-wage jobs in the service economy. …

Publicized reports that the feds decided CIT would not materially impact anybody may be false bravado designed for calm assurance. It seems Europeans had CDO Collateralized Debt Obligations on CIT in size, amounting to two-thirds of European CDOs. So did American regional banks. CIT credit market failures could take Europe and American banks down and out again. This could lead to an emergency scramble for dollars with unwinding of the short dollar carry trade at internet speeds. …

Picture $50 trillion of foreign exchange (flight capital) suddenly trying to crowd into the dollar. … Surplus nations Brazil, China, India, Japan and Russia do not have enough currency market size to absorb up to $50 Trillion of flight capital. Nor does gold. … The world has $50 Trillion in Forex, $4 Trillion in cash and five billion ounces of gold.  … $250 Billion of IMF International Monetary Fund SDR Special Drawing Rights may still be Forex fantasy. So dollars may once more become the currency of last resort. …

We are prepared for deflationary implosion first, then rapidly rising inverted interest rates as the scramble for cash everywhere overwhelms FGT Fed, Government and Treasury printing presses and promises.

World Financial Systemic Risk

The Risks of a Catastrophic Deflationary Collapse

by Lawrence Tout | November 3, 2009

… In his 29th Oct newsletter Russell comments: “The recent weakness in the stock market has an important significance. The weakening market implies that the Obama administration is failing to halt or reverse the primary bear trend. If the Bernanke-Geithner-Obama team fails to halt the bear market, it means that the forces of world deflation will dominate.”

Ultimately deflation will cleanse the system but it also comes with a lot of pain. In the meanwhile any inflation merely serves to delay the day of reckoning and make the downside more vicious. The bottom line is we will most likely get bouts of both inflation and deflation and in varying amounts, but from the viewpoint of this article they are BOTH equivalent. Why? Because regardless of which ‘flationary’ environment we experience they will BOTH add to the systemic weakening that is already in place. And they will do so until such time as the system finally has enough and suffers a catastrophic failure. One which will be so rapid (one week?) that the FED will simply not have time to re-inflate against rapid downward market momentum…

Economics may be based on a number of things but it is ruled by confidence. The worldwide stock markets and most especially the DOW are our confidence barometers. … No matter which trigger, a single one will activate all the others, as the interconnectedness within markets means no hierarchy is required. One will push all the others, so it is just a matter of which is the weakest link in the system.

Going to be a tough winter. The squirrels are hoarding!!

Ben Bittrolff is back! Welcome back Ben Bittrolff!

Passing Thru the Eye of the Storm Monday, November 2, 2009

… The Banks are Still Furiously Hoarding – Bloomberg: “Citigroup Inc. and JPMorgan Chase & Co. are hoarding cash as if another crisis were on the way.”

They know that the next crisis will be in CRE and that it will dwarf the residential mortgage crisis. Bloomberg: “Billionaire investor Wilbur L. Ross Jr,, said today that U.S. is in the beginning of a “huge crash in commercial real estate.”

It’s the Dollar, the Dollar, the Dollar

As the dollar drops, commodities and stocks rise. As the dollar rises, commodities and stocks fall. As it is falling, everyone borrows dollars to speculate on risky assets and (later) pay back cheaper dollars. This is the dollar carry trade.

So what drives the dollar these days? Well I’ve read How The Federal Reserve Bailed Out The World Tyler Durden 10/19/2009, at Zero Hedge. It was a tough read (for me), but here pretty nearly I think, is the gist.

Durden says that when the world financial system began to fail due to dollar shortages in the fall of 2008 the US issued unprecedented amounts of US dollar swaps to provide temporary dollar liquidity to the central banks (CBs) of the world. Apparently, according to the Bank of International Settlements (BIS) foreign exchange swap lines were a major part of what had been providing US dollar liquidity for world central banks but collapsed, so the Fed stepped in.

Central bank balance sheets had grown, largely by taking on US dollar denominated claims on non-bank entities (such as dollar-denominated structured finance products) and were balancing these assets by borrowing US dollars via swap lines with commercial banks and money market funds at low rates. When financial conditions unexpectedly deteriorated, these banks were unable to roll over their swaps and needed to find dollars to make up the difference or sell their assets at a loss. Since this trade had been universal among central banks, these losses would have been catastrophic. Durden say, “In a nutshell what happened is that short-term sources to sustain the massive dollar funding mismatch disappeared virtually overnight, and CBs were suddenly facing a toxic spiral of selling increasingly more worthless assets merely to satisfy currency funding needs in an environment where all of a sudden nobody was willing to provide FX swap lines.”

According to the BIS, “In providing US dollars on a global scale, the Federal Reserve effectively engaged in international lending of last resort. The swap network can be understood as a mechanism by which the Federal Reserve extends loans, collateralised by foreign currencies, to other central banks, which in turn make these funds available through US dollar auctions in their respective jurisdictions. This made US dollar liquidity accessible to commercial banks around the world, including those that have no US subsidiaries or insufficient eligible collateral to borrow directly from the Federal Reserve System.”

Bringing this into the present, Durden says, “The 6 countries that make up the core of the Eurozone all have foreign dollar denominated claims which are well over 100% of their respective GDPs! These countries took on an amount of Dollar exposure that would take on a country’s entire GDP to fund and then some.” BIS estimates the exposure worldwide to was then and still is around $6.5 trillion.

“Why is this critical?” Durden asks. “We are now back at a time when the only gains in the stock market are at the expense of dollar destruction, with a concomittant funding for dollar denominated assets. In one short year since the collapse of Lehman we have gone back to the same dollar funding risk exposure as was on the books in these days before” the collapse. “The Fed’s liquidity swaps are now back to almost zero. This means that foreign Central Banks believe they have the FX swap and dollar maturity situation under control.” He continues that while last time the carry trade was in Yen, now it is in US dollars, which can only intensify a any dollar short squeeze in the world credit markets.

Roubini On The Dollar Carry Reversal, And Why He Is Only Half Way There Tyler Durden on 11/01/2009

How The Federal Reserve Bailed Out The World Tyler Durden 10/19/2009

The US dollar shortage in global banking and the international policy response Bank of International Settlements (BIS), October 2009

A ticking time-bomb or the mother of all carry trades? Izabella Kaminska on Nov 02, 2009

So who says there’s no oil/dollar correlation? Izabella Kaminska on May 19, 2009 (notice the date!)

Gold Ready to Rocket

Thursday, October 29, 2009

Gold Market Reaching The Breaking Point

by Eric deCarbonnel

Muni Bond Collapse

The Collapse Of The Muni Bond Market

Submitted by Tyler Durden on 10/28/2009

Iran and Saudi Arabia?

(My words in red.) First Iran opens its Bourse Exchange, trading oil in … we don’t know. Euros?

In the 70’s the US persuaded OPEC to sell their oil exclusively in dollars. All buyers of oil therefore had to stock dollars to use in this exchange. By 2003 the dollar accounted for 2/3s of the world’s official exchange reserves. “Currently, almost all the world’s oil is sold on either the NYMEX, New York Mercantile Exchange, or the IPE, London’s International Petroleum Exchange. Both are owned by US citizens and both sell and buy only in US dollars.” (Future Market) Good for the US dollar. But now,

Iran opens exchange to trade oil, products-ISNA

Mon Oct 26, 2009

TEHRAN, Oct 26 (Reuters) – Iran, OPEC’s second-biggest oil producer, launched its international oil exchange on Monday to buy and sell crude, oil products and petrochemical products, Iran’s student news agency ISNA reported. …

The bourse, based on the Gulf economic free zone island of Kish, has been planned for years … The report did not specify the currency in which trading would take place. …

(Writing by Parisa Hafezi, Editing by Lisa Shumaker)

“It makes sense for Europe , China , India and Japan– as well as all the other countries mentioned above — to buy and sell oil in Euro’s.” (Future Market)

… then the Saudis drop the WTI oil contract.

Saudis drop WTI oil contract

By Javier Blas in London

Published: October 28 2009

Saudi Arabia on Wednesday decided to drop the widely used West Texas Intermediate oil contract as the benchmark for pricing its oil, dealing a serious blow to the New York Mercantile Exchange. … after the price of the price of the benchmark became separatedfrom the global oil market this year. (WTI is) the world’s most heavily traded oil futures contract. It is the main contract traded on Nymex. … Oil companies then covered their exposure to WTI using the futures market on Nymex. …

In January, WTI, which usually trades at a premium of $1-$2 a barrel to Brent, fell sharply, leaving it at a discount of almost $12 – a record gap. This dislocation in the market continued well into the summer. …

From January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company. …

… and this.

Gulf countries now have historic chance to accept unified currency

Thursday, October 29, 2009

Gulf states have a historic opportunity at the moment to approve their unified currency …

… This will come. The NWO is all about regional currencies.

The Russians are Coming

It doesn’t say it below, but apparently APF has withdrawn from negotiations to ”police” Hardin and run its prison facility.

“Ravenwood” Comes To America
by Chuck Baldwin
October 9, 2009

Fans of the CBS-terminated TV series JERICHO will recognize the name “Ravenwood.” This was the ruthless mercenary force used by the illegitimate federal government at Cheyenne to subjugate the citizens of Kansas …

For the most part, the American people are unfamiliar with (such) mercenary forces, because they normally operate in foreign theaters of war. JERICHO put them on the streets of U.S. cities. Now it looks like JERICHO was more prophecy than fiction.

An underreported (what’s new?) story out of a little town in Montana has brought real-life drama to the CBS blockbuster TV series. … In the little town of Hardin, Montana (which is about the same size as the fictitious town of Jericho, Kansas, in the TV series), a private security firm, American Police Force (APF), has been contracted to provide all police services and to manage the operation of the town’s jail (sic – this facility is more than a town jail). …

The Hardin jail is an interesting situation, all by itself. Completed in September 2007, the 464-bed facility has sat totally empty (which begs an investigative analysis as to how and why the facility was built in the first place). APF promises to fill the jail (with whom is not clear) and also intends to build a 30,000-square-foot military-style training facility and a 75,000-square-foot dormitory for trainees. Costs are to be covered by Ravenwood’s–excuse me–APF’s “business activities,” which includes security and training, weapons and equipment sales, surveillance, and investigations. …

Whoever is backing APF has deep pockets; that much is for sure. That APF might be connected to Blackwater makes this situation even more problematic. …

APF’s head is a man named Michael Hilton. … Adding to the dubious image of APF is the accusation that their on-the-ground leaders seem to be Russians. According to Hardin residents, the APF officer in charge had a “thick Russian accent.” (Of course, Hilton himself is Serbian, and it appears that many of his personnel are likewise Serbian.) Residents also state that they were told seventy-five percent of the security officers that were to be trained would be “international.” Is this what we have to look forward to: foreign mercenaries–employed by international corporations and backed by the federal government–being used to police American cities?

Local protests against the introduction of APF mercenaries in Hardin have already caused APF to change its name. Late news reports state that the private contractor is now operating under the name of American Private Police Force.

In the meantime, Montana Attorney General Steve Bullock has launched an investigation into the Hardin matter. …

The Hardin saga is both noteworthy and troublesome. It is the latest example–but certainly not the first–of how private security companies are being employed as law enforcement personnel. … In New Orleans, Louisiana, mercenaries openly patrol city streets. Kouri notes Blackwater officials as saying they are on contract with the Department of Homeland Security and have been given the authority “to use lethal force if necessary.”

See Kouri’s column at

http://newswithviews.com/BreakingNews/breaking168.htm

All of the above is disconcerting enough, but when one factors in President Barack Obama’s desire to create a “Civilian Defense Force,” potential problems only intensify. For example, in 1995, the United Nations’ International Police Task Force (UNIPTF) was created. Ostensibly, the UNIPTF was formed to “carry out programs of police assistance in Bosnia and Herzegovina.” Then, in 2003 the Civilian Police International (CPI) was created. This was a joint venture between the U.S. State Department and such notable private companies as Wackenhut and Kellogg Brown & Root (a Halliburton company; and, by the way, so is Blackwater. But this is just a coincidence, right?). The stated purpose was for “international law enforcement and criminal justice programs.” Inertia for mercenary-style (backed by the federal–or even international–government) law enforcement has been growing ever since.

The question must then be asked: “Could the whole APF and Hardin, Montana, affair be a test run for Obama’s budding Civilian Defense Force?” …

I have posted a web page devoted to the Hardin, Montana, story for anyone that wants to review or keep abreast of this situation. Go here:

http://www.chuckbaldwinlive.com/hardin-mt.html

*If you appreciate this column and want to help me distribute these editorial opinions to an ever-growing audience, donations may now be made by credit card, check, or Money Order. Use this link:

http://www.chuckbaldwinlive.com/donate.php

© Chuck Baldwin

This column is archived as http://www.chuckbaldwinlive.com/c2009/cbarchive_20091009.html

Banks New Regime

This is happening worldwide. A new technology is being put in place. Meanwhile US stocks finally seem to be topping; but I don’t think they can top without actually crashing. So … will the PPT pull it out?

BANKS WORLDWIDE GET READY FOR THE OCTOBER SURPRISE!

Saturday October 24, 2009 – 7:30 pm

From an IT guy. “I’m a BofA IT worker and can tell you there is a large event going down this weekend.

They’re implementing what they’re calling the “October Release”.

My understanding is that this is a software and systems upgrade which is somehow tied into the FED and their regulations.

If this is a Federal Reserve activity, that would explain why ALL banks and credit unions are involved. We’ve been on a change lockdown for the past week …