Fed minutes have lasted years

This afternoon we get the Fed minutes from the September “no rate rise” meeting.

I don’t expect to read any serious debate, although it may be framed that way by some chronicling the episode, since the vote only had one dissention.

This way the Fed can point to how veryclose we are to exiting zero-interest, when nothing is further from the truth.

As I wrote yesterday, the economic modeling the Fed is using is perverted by its own actions in the market.

Why after seven years of pumping over $4 trillion into the economy are we still struggling with near zero growth and negative interest rates moving out the duration curve?

Because most of the $4 trillion has not been sterilized. It’s sitting on banks balance sheets in the form of treasury notes, masquerading as an asset for the bank.

This asset can’t and won’t enter the real economy. It can’t be used to raise wages (the principal action needed for inflation). It can’t be deployed as loans to business or homeowners either.

It needs to be sitting on the balance sheet in the form of “proven reserves” to offset much of the toxicity that still festers there.

You just don’t find many “market mavens” speaking on this, since its Wall St.’s dirty little secret.


Deutsche Bank is taking a $6.8 trillion writedown for the quarter. As it brings on a new CEO, the German bank  — some say — is taking a “kitchen sink” approach to clearing out the toxic paper sitting on its balance sheet.

The “kitchen sink” approach is when a new CEO gets one pass to clean things up so you throw everything — including the “kitchen sink” — into the writedown.

However, this is not the first or second or third time the bank has changed CEOs or taken massive writedowns in the past three years. The bank has also recently failed a stress test on its balance sheet by not having enough “proven reserves” to bolster its Greek exposure.


Lastly to recap the two items above. A rise in rates by the Fed, would in all likelihood raise yields on the “proven reserves” sitting on the banks balance sheets. This action would then lower the price of that “asset,” which would further cripple the bank.

So it’s Catch 22, on the rate rise scenario, which no one again talks about.

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None & done after 80 months for Fed

As I wrote yesterday morning, there was no rate rise but Fed chief Janet Yellen put the bond vigilantes on notice that the October meeting is in play for rate rise.

As I have been writing all year, there will be no rate change this year, since the US banks balance sheets are in such dire straits due to plenty of bad paper still sitting on their books, they can’t sustain a price hit on the  “assets” of US treasuries propping up the banks that was put there by the Fed in the form of excess reserves. I believe this to be true, but no one wants to admit it.

All the banks once-profit centers have been taken away by regulation. The prop trading, gone. Commodities trading, gone. Bond trading and mortgage writing cut to bits.

Since the Fed believes everything else is fine, it must be the black hole sitting on the bulge banks balance sheets.

Yellen said in her statement: Employment is getting stronger and wages are growing, both of which are shades of the truth if not outright lies.

The Fed chief did cited China’s equity plunge and its economic slowdown as major concerns for them standing pat at zero.

Since when do we need an all-clear from China or Greece (which was the cause for the delay in June.)?

Yellen also said in her statement there is little inflation, which is a concern to the Fed, but should not be for any of us. The last thing the Fed can fight is a deflationary cycle at this point.

Besides saving $3.00 on a fill up at the gas station, when most of the items we buy has either gone up in price or became smaller at the same price is inflation. It’s just not tracked by the Fed.

Eighty months at zero interest rates. A crisis rate has now be in place during all of  Obama’s presidency.

Zero rates — as a friend put it — is like watering your lawn with a fire hose.

Well here’s to the Fed. Jawboning its way to nowhere as October looms on the horizon. All trick, not treat.