"The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures." full article copied below.
This cannot end well. First principles tells us so. Common sense screams it.
Ben Franklin warned that:
They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.*
Central banking epitomizes this fateful trade. Central banking promises safety yet it requires we give up the liberty inherent in sound money systems. Central banking is antithetical to sound money.
The Fed was established in 1913 ostensibly to help prevent the recurrence of Panics, like the Panic of 1907. We traded liberty for safety. And what happened? The Fed fueled a massive credit bubble in the US and global economy in the 1920s which led directly to the Crash of 1929 and the Great Depression.
We traded Panics for a Great Depression.
The mainstream narrative for the Great Depression blames too little government for the Great Depression. It blames the Fed for not being pro-active enough following the Crash of 1929.
Policy makers (including Bernanke) spent the last generation working diligently promising that they would never let another Great Depression happen. We learned our lessons. The result of lessons learned is QE2.
The problem with the conventional wisdom of what caused the Great Depression is that it doesn't take into account what are the unintended consequences of active Fed intervention. Sure, the Fed may be able to prevent a Great Depression with active monetary interventions. But, then what?
What comes next? What happens when the Fed does intervene to prevent the next Great Depression.
This is exactly the experiment which policy makers have thrust us into.
The Austrian School of economics looks for the causes of a historic Crash (like the Great Depression or Great Recession of 2008) not in policy errors after the credit / asset bubble bursts, but rather in the policies that fueled the credit bubble in the first place.
We will learn a very painful lesson from QE1 and QE2. We will learn that the Fed can stop a Great Depression, but it can't stop a bunch of other unintended consequences that will play out in some other constellation of crises that will be called something else. Maybe it will be called the Great Unravelling or the Great Malaise or the Great Volatility.
We'll look back at the "mistakes" and again promise: never again.
What we should promise is never to believe the promises of policy makers.
Bernanke promised on 60 minutes with 100%certainty that the Fed had the tools to unwind its purchases of US Treasuries. This is the same enlightened policy maker who promised that the sub prime crisis was containable. Until it wasn't.
Shame me once shame on you, shame me twice shame on me.
What we should promise is to hold fast to our commitment to liberty no matter what storms are raging.
If we believe in the sanctity of liberty; if we believe in the sanctity of limited government and of private property, then we cannot but believe the Fed's QE2 experiment will end in anything but economic impoverishment, especially for the most economically vulnerable -- those who Big Government promises to be looking out for first and foremost.
The New Center is a political space where liberty is an absolute concept, not a relative concept. Liberty is not to be traded casually -- or even with great thoughtfulness -- for temporary safety.
Liberty is the north star of the New Center politics. Don't trade if for any gold plated promises by politicians who promise the moon.
the Fed in general and QE2 in particular is the opposite of liberty. the Fed and QE2 are the epitome of the Big Government trade that promises safety if you just give up a "little" liberty.
giving up a little liberty is a slippery slope. we have seen it over and over and over again throughout history. Federal income taxes were established in 1913 with the highest rate set at 7%. by the 1960s the top rate was over 90%. it is also possible to claw back liberty -- the top marginal rate is well below its historical highs. But we are headed for higher taxes again. Giving up a little liberty is begging for a losing, Sisyphean battle.
Central banking in general and the Fed in particular is tyranny personified and justified by upside down, ends justify the means morality. In what kind of ethical world do the ends justify the means? It is the world of the Big Government Center that promises good results -- no matter the methods employed. Don't worry look behind the curtain ... everything is fine .... we have everything under control.
Bernanke literally is the embodiment of the Wizard in the Wizard of Oz. he is all powerful in his own mind, but completely powerless in the real world.
It is not all doom and gloom. The future is bright. But, the hand wringing and finger pointing and the economic stagnation will continue in America until we stop looking to government for answers and hold government responsible for one thing: protecting individual liberty and freedom.
That means sound money and limited government. It means rule by law and principle, not rule by good intentions and arbitrary whim of enlightened policy makers.
Sound money and limited government are one and the same. That is the only way to a bright future. Not a perfect future.
*Note from Wikiquote: This quote was written by Franklin, with quotation marks but almost certainly his original thought, sometime shortly before February 17, 1775 as part of his notes for a proposition at the Pennsylvania Assembly, as published in Memoirs of the life and writings of Benjamin Franklin
Fed passes China in Treasury holdings
By Michael Mackenzie in New York
Published: February 2 2011 00:01 | Last updated: February 2 2011 00:01
The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures.
Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips.
According to the most recent US Treasury data on foreign holders of US government paper, China holds $896bn and Japan owns $877bn.
“By June [the Fed] will have accumulated some $1,600bn of Treasury securities, likely to be in the vicinity of China and Japan’s combined holdings,” said Richard Gilhooly, a strategist at TD Securities. “The New York Fed surpassed China in the past month as the largest holder of US Treasury securities,” he noted.
The Fed is buying Treasury debt under two programmes. The largest is QE2, which began in November and is scheduled to involve $600bn of purchases by June.
It is also buying $30bn of Treasuries a month as it reinvests principal payments from its large holdings of mortgage debt and debt issued by government housing agencies – a programme dubbed QE lite.
By the end of June, the Fed plans to buy $800bn in Treasury debt under both programmes. Since November, the Fed has purchased $284bn of Treasuries.
The Fed has devoted 67 per cent of its QE2 purchases to Treasuries with a maturity of four-and-a-half to 10 years. That has helped pull back yields in that part of the yield curve from their highs of December.
By contrast, just 5 per cent of the Fed’s buying has been for Treasury debt longer than 17 years. Last Friday, the yield on 30-year bonds briefly rose to its highest level since last April.
“The end of QE2 will be a big test as rates are likely to rise once the Fed stops buying large amounts of Treasuries,” said David Ader, a strategist at CRT Capital. “We don’t know if that means a rise of 20, 30 or even 50 basis points for key yields.”
In total, foreign central banks hold $2,604bn of Treasuries, according to the Fed. After rising from $2,250bn at the end of last June, foreign central banks have stayed at about $2,600bn since mid-November, when the Fed began QE2. This indicates the Fed has stepped up as other central banks have scaled back their Treasuries purchases.
Before the financial crisis, the Fed held $775bn of Treasuries in Soma. That was reduced by $300bn during the first half of 2008, when the Fed sold Treasuries and focused on supporting the financial system. The first QE program, which began in 2009, saw the Fed buy $300bn of Treasuries.
Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips.
According to the most recent US Treasury data on foreign holders of US government paper, China holds $896bn and Japan owns $877bn.
“By June [the Fed] will have accumulated some $1,600bn of Treasury securities, likely to be in the vicinity of China and Japan’s combined holdings,” said Richard Gilhooly, a strategist at TD Securities. “The New York Fed surpassed China in the past month as the largest holder of US Treasury securities,” he noted.
The Fed is buying Treasury debt under two programmes. The largest is QE2, which began in November and is scheduled to involve $600bn of purchases by June.
It is also buying $30bn of Treasuries a month as it reinvests principal payments from its large holdings of mortgage debt and debt issued by government housing agencies – a programme dubbed QE lite.
By the end of June, the Fed plans to buy $800bn in Treasury debt under both programmes. Since November, the Fed has purchased $284bn of Treasuries.
The Fed has devoted 67 per cent of its QE2 purchases to Treasuries with a maturity of four-and-a-half to 10 years. That has helped pull back yields in that part of the yield curve from their highs of December.
By contrast, just 5 per cent of the Fed’s buying has been for Treasury debt longer than 17 years. Last Friday, the yield on 30-year bonds briefly rose to its highest level since last April.
“The end of QE2 will be a big test as rates are likely to rise once the Fed stops buying large amounts of Treasuries,” said David Ader, a strategist at CRT Capital. “We don’t know if that means a rise of 20, 30 or even 50 basis points for key yields.”
In total, foreign central banks hold $2,604bn of Treasuries, according to the Fed. After rising from $2,250bn at the end of last June, foreign central banks have stayed at about $2,600bn since mid-November, when the Fed began QE2. This indicates the Fed has stepped up as other central banks have scaled back their Treasuries purchases.
Before the financial crisis, the Fed held $775bn of Treasuries in Soma. That was reduced by $300bn during the first half of 2008, when the Fed sold Treasuries and focused on supporting the financial system. The first QE program, which began in 2009, saw the Fed buy $300bn of Treasuries.
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