Fat Cats are still running Wall Street

"“They’re still puzzled why is it that people are mad at the banks. Well, let’s see,” he said. “You guys are drawing down $10 [million], $20 million bonuses after America went through the worst economic year that it’s gone through in—in decades, and you guys caused the problem. And we’ve got 10 percent unemployment.”"

Employment Patterns

"Click on graph for larger image in new window. "

Notice that hires (blue line) and separations (red and green together) are pretty close each month. When the blue line is above total separations, the economy is adding net jobs, when the blue line is below total separations, the economy is losing net jobs.

According to the JOLTS report, there were 3.966 million hires in October, and 4.203 million separations, or 237 thousand net jobs lost."

The Shell Game - How the Federal Reserve is Monetizing Debt

Replacing private credit with public credit

Tuesday, August 25, 2009, 9:44 am, by cmartenson

Our entire monetary system, and by extension our economy, is a Ponzi economy in the sense that it really only operates well when in expansion mode

"Executive Summary

• The Federal Reserve and the federal government are attempting to "plug the gap" caused by a slowdown of private credit/debt creation.
• Non-US demand for the dollar must remain high, or the dollar will fall.
• Demand for US assets is in negative territory for 2009
• The TIC report and Federal Reserve Custody Account are reviewed and compared
• The Federal Reserve has effectively been monetizing US government debt by cleverly enabling foreign central banks to swap their Agency debt for Treasury debt.
• The shell game that the Fed is currently playing obscures the fact that money is being printed out of thin air and used to buy US government debt.
• The Federal Reserve is monetizing US Treasury debt and is doing so openly, both through its $300 billion commitment to buy Treasuries and by engaging in a sleight of hand maneuver that would make a street hustler from Brooklyn blush. ..."

Comment by Norton:
1. Send billions of dollars of taxpayer money to banks to make them liquid again and start lending.
2. Also, buy up bank distressed (junk) assets like CDO's, mortgage dirivatives are FULL value instead of "mark-to-market." Legitimize this process by dropping the "mark-to-market rule". All done with taxpayer money.
3. Uups, the banks are hording this money, paying out outsized bonuses to the executive crooks that caused this crisis, and using this cash on their financial statements to make it look like they are liquid and profitable. Keep in mind, they still have the junk CDOs' etc OFF the BOOKS.
4.FED lending rate to banks and interbank loans drops to zero. While the banks lend it out at average 6 %. This enables Bank of America to pay back the TARP funds early.
5. Wait though ... our taxpayer money is loaned out to the bank at ZERO interest. The bank turn around and loan it back to Joe Public or Joe business or buy Emerging Market investments making 10% plus on our money. Then they payback the TARP loan. So they have made money TWICE ON THE TAXPAYER: first by getting our $ at ) interest and then by loaning our money out to us at 6 to 20 to 30 percent and then the bank pays us back. WHAT AM I MISSING HERE?
6. Bank gets the "private "profits and we get the multi-generational "public" debt. MOre of it!
7. Oh yes, the FED promised to make their financial statements transparent; however, they just said NO to our Congress! OUr Congress has tried to sue the FED for not revealing this shell game, what they paid for distressed assets and what they are selling them for.
8. Meantime, the US Treasury is having auctions to sell US Bonds. When they have been too few buyers, so the FED steps in as a buyer using taxpayer money to payoff matured US Bond debt and issue new US Bond instruments. Can we see the money flow by the FED and Treasury for all of this? NO! They have refused the request.

How to Fill the Gaps Left by Dollar Decline

11/05/2009 by By Mohamed El-Erian and Ramin Toloui
(This article was originally published on www.ft.com on November 5, 2009.)

It has become fashionable to speculate on the future of the US dollar as the world’s reserve currency. Amid an average 10 per cent decline in the past six months, analysts have tended to favour one of two conclusions. Some argue that, since you cannot replace something with nothing, the dollar’s global role is secured. Others feel that America’s medium-term prospects are now inconsistent with such a role.

As with many post-crisis issues, the reality is much more complex. This is not just because the dollar will be caught between these two extremes in the muddled middle for the foreseeable future, but also because the dollar is part of a bigger picture that concerns the evolving role of the US as the sole provider of a range of global public goods. At a time when the global system needs such anchors, this uncertainty raises a set of important policy issues.

A couple of decades ago, Charles Kindleberger, the economist best known today as the author of Manias, Panics and Crashes , identified five public goods that support a growth-oriented global economy: (1) acting as a consumer of last resort, (2) coordinating macro-economic policies, (3) supporting a stable system of exchange rates, (4) acting as a lender of last resort, and (5) providing counter-cyclical long-term lending.

In today’s globalised financial world, we would add two more goods to this list: providing the risk-less – a true AAA – asset to benchmark other instruments and activities, and supplying deep and predictable financial markets, which other countries can use to improve their financial intermediation processes.

On the eve of the crisis, the US was the unquestioned provider of all these public goods. But, with the crisis having originated at the core of the global system rather than the periphery, almost every one of them is weaker. As a result, there are two policy questions that need to be addressed: first, which of the public goods can be restored, which can be jointly provided and which need to be replaced; and, second, how will this take place.

On the question of what can be restored, re-establishing the credibility and predictability of US financial markets requires well-designed reform of financial supervision and a credible medium-term programme to rein in the budget deficit and limit the growth of US government debt.

On the question of what can be jointly provided, the expanded new role for the G-20 and reform agenda for the International Monetary Fund underscore the extent to which the management of global macroeconomic policy aspires to become more inclusive. This is positive. However, the jury is still out on whether these fora have sufficient teeth to resolve policy differences and convince governments to assume shared responsibilities.

We should also expect to see more discussion in the next few years on new types of reserve assets. While the discussion will include supranational vehicles (like an expanded role for the special drawing rights), the more interesting question is the broader use of currencies like the Chinese yuan. These options will not replace the central role of the US dollar, but supplement it at the margin.

There is one public good that needs to be replaced: the key role that the US has played as the engine of global growth. This role is now constrained by the debt of US households. A sustainable global economy needs other major sources of internal demand, particularly among economies such as China that have historically been focused on export-led growth.

The manner in which these transitions take place is critical. One risk is that key actors will resist these secular changes and seek to reconstitute an outmoded system that no longer fits post-crisis realities. At the other extreme is the risk that major powers go their own way, forsaking effective coordination of policies in favour of more nationalistic moves, such as aggressive currency management or trade and financial protectionism.

The best defence against these outcomes is early recognition and coordinated action. Key economic powers must shape their expectations and policy strategies to the changed contours of the global economy. They must also actively manage policy changes at the national and multilateral level in a way that broadens the provision of global public goods.

Mohamed El-Erian and Ramin Toloui are, respectively, chief executive and executive vice-president at Pimco.

Comment Norton: This is most thoughtful article I have found on the subject of US Dollar decline and changes in the Fiat Reserve Currency system.