Thoughts on the Electronic Printing Press

“While different countries and regions suffer divergent ill-effects, financial and economic systems everywhere are today dependent      on uninterrupted aggressive monetary stimulus. One would have to go back to the 1920’s to see any comparable period with such extreme maladjustment and imbalances on a global basis.”

“History is replete with examples of how once the printing presses get revved up there’s no turning them down…”

“The contemporary electronic “printing press” is an altogether different animal [vs." traditional printing press inflation"]. It essentially feeds liquidity directly into the financial markets – first and foremost inflating securities prices. There is little generalized inflation…[A]sset inflation and Bubbles potentially have significantly more pernicious effects than traditional consumer price inflation.”

Indicators of serious market excess abound.

The yen was hit for 2.6% this week, with the dollar/yen breaking above 100 to the highest level since 2008. Gold was down 1.5%, silver 1.5%, and platinum 2.0%. Japan’s Nikkei jumped 6.7%, increasing 2013 gains to 40.5%. Japan’s 10-year government bond (JGB) yield jumped 13 bps to the highest level since February, as sovereign yields generally moved higher across the globe. Global equities generally added to recent gains. Meanwhile, currency markets have turned increasingly unsettled. The dollar index gained 1.2%. So called “commodities currencies” came under pressure. The South African rand fell 2.3%. The Australian dollar dropped 2.9%, falling below parity to the U.S. dollar for the first time in almost a year. The New Zealand dollar sank 2.7%. Other notable currency declines this week included the Swiss franc down 2.2%, the Indian rupee down 1.6%, and the Russian ruble 1.2% lower.

May 9 – Bloomberg (Simon Kennedy and Jennifer Ryan): “Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland. As Group of Seven finance chiefs gather in the U.K. tomorrow, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains. ‘Most central banks in our coverage universe still have a bias to ease,’ Morgan Stanley economists led by… Joachim Fels said… ‘South Korea’s rate cut today was the 511th reduction worldwide since June 2007… While the tide of liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth. ‘Central banks are our best friends not because they like markets, but because they can only get to their macro objectives by going through the markets,’ Mohamed El-Erian, chief executive officer at Pacific Investment Management… said.”

Global central banks around the world continue to push monetary easing like never before. The Fed and Bank of Japan currently combine for almost $180bn of monthly quantitative easing, an historic experiment in monetary inflation. And as economies respond little to unprecedented monetary stimulus, global central banks resort to only more dramatic measures. In the face of virtually unlimited global liquidity, commodities prices trade poorly. It seems an appropriate market juncture to take a little deeper dive into contemporary “money printing.”   Read more»

Radio Notes for 05/09/2013

Results of Fed’s prolonged ZIRP (zero interest rate policy)

I.) Damaged Real Economy

It’s clear that the US economy has significant burdens apart from the Fed’s misguided monetary policy:

(1) One of the worst corporate tax policies in the world, including double taxation of dividends which recent tax changes have made worse for high-net worth individuals;

(2) An increasingly hostile regulatory climate, starting with the Obama EPA and a notoriously pro-labor union Dept of Labor;

(Neither of these headwinds for US business are all that new,

but they’ve clearly deteriorated under the current regime.)

(3) Add to these now the uncertainty about the real cost of health care. Costs might be one thing for starters in 2014, but who can say what the true burden will be on companies, and the economy in a few more years.

So, risk tolerant investors are less likely to consider direct capital investments, and more likely to direct dollars to the money game on Wall St. This is where the best and brightest are drawn, as this is the locus of personal wealth creation for those with reasonable talent, but no special genius, or brilliant creative breakthrough. Investment capital is most definitely flowing in the same direction.   Read more»

When Zero Is Not Low Enough

[Excerpt, Weekly Market Update]

“Most people with [a modicum of economic] knowledge know why it wouldn’t make sense to have a committee set the price of eggs, and yet they seem incapable of seeing that it doesn’t make sense to have a committee set the price of credit.”

The European Central Bank (ECB) cut its main Refinancing Rate, which is the rate at which euro-zone (EZ) banks can borrow overnight money from the ECB, from 0.75% to 0.50% last Thursday [05/02]. This move was widely expected and didn’t provoke much reaction in the currency market. However, Mario Draghi, the ECB President, then announced at a press conference that Europe’s central bank was open to making a future cut in its Deposit Rate, which is the rate that commercial banks receive when they park money at the central bank. Since the Deposit Rate is presently zero, this means that the ECB is prepared, if conditions are deemed to warrant it, to set a NEGATIVE nominal interest rate. This provoked more of a reaction from the currency market, although the reaction was still small considering the implication. The implication is that if economic conditions don’t show a marked improvement — and how could they possibly show a marked improvement with central banks and governments implementing one stupid market-distorting policy after another — then charges will start being levied on ‘excess’ cash. It looks like another shot has just been fired in the war on saving.

Perhaps someone should point out to Draghi that if economic weakness persists after years of near-zero interest rates, then a too-high interest rate is not a constraint on the economy. On second thoughts, that would be a waste of time. You don’t go into central-banking unless you have total belief in, or are at least prepared to pay unswerving lip service to, the proposition that the economy can be strengthened via the artificial lowering of interest rates.    Read more»

Too Much Asset Inflation

“When the mortgage finance Bubble burst in 2008/09, policymakers essentially confronted two alternative courses of policymaking…[With Option #1], [t]here would have been difficult, trying years, although the upshot would have been a sounder economic structure… Policymakers, of course, chose scenario #2, resuscitating Credit Bubble dynamics and asset inflation.”

“The Fed and global central banks have made an incredible mess of things. Global asset markets today enjoy robust inflationary biases, while stagnant real economies suffer from deep structural deficiencies and maladjustment.”

“The inflationists fail to appreciate Monetary Disorder’s myriad negative consequences. It’s the nature of liquidity to gravitate to where it believes it will most benefit from prevailing inflationary forces and dynamics. And with global central banks backstopping the securities markets, liquidity is today further incentivized to play securities inflation as opposed to seeking risky real economy investment returns.”

Stock prices surge to record highs, while Credit market risk premiums collapse to multi-year lows.

We’re now well into the fifth year of unprecedented monetary and fiscal stimulus – with, incredibly, no end in sight! Predictably, economic results have been disappointing. Also, and just as predictable, the most outspoken proponents of aggressive “Keynesian” measures are these days claiming the limited success is due to stimulus not being administered in sufficiently powerful doses. This is regrettably consistent with the history of monetary inflations. They corrupt money, minds, markets and economies.

Thoroughly relishing his “I told you so” moment, Paul Krugman titled his Friday New York Times piece “Not Enough Inflation”: “Ever since the financial crisis struck, and the Federal Reserve began ‘printing money’ in an attempt to contain the damage, there have been dire warnings about inflation — and not just from the Ron Paul/Glenn Beck types. Thus, in 2009, the influential conservative monetary economist Allan Meltzer warned that we would soon become ‘inflation nation.’ In 2010, the… Organization for Economic Cooperation and Development urged the Fed to raise interest rates to head off inflation risks… In 2011, Representative Paul Ryan… raked Ben Bernanke… over the coals over looming inflation and intoning solemnly that it was a terrible thing to ‘debase’ the dollar. And now, sure enough, the Fed really is worried about inflation. You see, it’s getting too low.”

Well, I’ll follow Dr. Krugman’s “told you so” lead. In CBB writings more than four years ago, I pleaded that the Fed not orchestrate a Credit Bubble resurgence and warned of the major risks associated with the unfolding “global government finance Bubble.” Rising consumer price inflation has never been the major risk from deficits and Fed monetization. Rather, the risks were of a similar nature to those that fashioned the 2008 crisis and so-called “great recession”: gross over-issuance of mispriced finance, speculative excess and destabilizing asset Bubbles. We’re now in a full-fledged unwieldy Bubble environment on a global basis.   Read more»

Two Sides of the Same Debased Coin

[This article originally appeared in the January 2013 edition of The Free Market.]

In the beginning of The General Theory, John Maynard Keynes says that his ideas will no doubt be rejected because they are so novel and revolutionary. Toward the end of the same book, he seems to have forgotten this because now he says he is reviving the same centuries-old ideas that he had once dismissed as the most absurd fallacies. At least he acknowledges that he is changing his position, although he does not explain how his ideas can be new, revolutionary, and also centuries old.

This is of a piece with his describing himself as a member of “the brave army of rebels and heretics down through the ages” even as he recommends policies that appeal to the basest and most self-serving instincts of politicians — and even as he enjoys all the immense privileges that accrue from being at the top of the existing financial and political establishment.

Although it may be true, as the art historian Kenneth Clark said, that Keynes “never dimmed his headlights,” it cannot be said that he knew how to drive on a single side of the road. Keynes, would become the principal apologist for “crony capitalism,” which is perhaps the best term to describe our current system. As you probably know, much of Keynes’s writing is intentionally obscure, although the threads can be unraveled and rebutted, as Henry Hazlitt so brilliantly proved in The Failure of “The New Economics.”

What is the very essence of Keynesianism? Can we describe it in the briefest and simplest terms, so that anyone can understand what is wrong with it, and thus strip away the intellectual fog that surrounds and protects crony capitalism?   Read more»

The Global Reflation Trade

“Major Bubbles at some point inevitably turn susceptible to the marginal risky borrower losing access to cheap finance.”

Global markets are nothing if not unstable.

April 26 – Financial Times (Michael Steen): “Germany’s Bundesbank has criticised the bond-buying programme designed by the European Central Bank to save the euro, questioning whether it is really necessary and suggesting it represents a great risk to taxpayers. Bundesbank president Jens Weidmann has been public from the outset in his institution’s opposition to the Outright Monetary Transactions programme launched in September by Mario Draghi, ECB president, after pledging to do ‘whatever it takes’ to save the euro. But revealed in an opinion written by the Bundesbank for the German constitutional court are a series of detailed objections to the plan…”

April 26 – Bloomberg (Jana Randow): “The Bundesbank criticized the European Central Bank’s bond-buying plan in an opinion for Germany’s Constitutional Court, saying diverging interest rates within the euro region aren’t necessarily something the ECB should fix. ‘Even though monetary policy is having different effects within the euro area, it is questionable whether these differences constitute a malfunctioning to be addressed by monetary policy,’ the Bundesbank wrote in an opinion… dated Dec. 21… Rising sovereign bond yields ‘cannot be used definitively as an explanation for a disturbance of monetary- policy transmission,’ the Bundesbank opinion says. Germany’s top court has scheduled hearings for June 11 and 12 to look into cases challenging the nation’s participation in the European Stability Mechanism and ECB policies… ‘It’s not possible to say whether a ‘distortion’ in yield developments for sovereign bonds is due to fundamentally justified causes or whether there are potential exaggerations, irrationalities or other forms of inefficiencies… Higher refinancing costs for the private sector could also reflect higher national fiscal risks… That wouldn’t be a development for monetary policy to address, but rather a direct consequence of national fiscal policy.”

Draghi’s OMT (Outright Monetary Transactions) Plan has been heralded as “one of the most successful central bank operations in history”. After trading above 7.50% last summer, Spanish yields ended the week at 4.26%. Italian yields closed out the week at 4.05%, down from July 2012’s 6.50%. Since last summer, Spain’s economy and fiscal standing have deteriorated significantly. Italy’s economy has weakened and its political situation has become more unstable. Yet fundamentals have mattered little in the market for pricing Spanish and Italian debt, not with Draghi’s market backstop “bazooka” ready for action (and the Japanese apparently lined up to buy and the speculators lined up to front-run the Japanese).   Read more»

Bundesbank Declares ‘War’ on Mario Draghi Bond Bail-out at Germany’s Top Court

Germany’s Bundesbank has issued a devastating attack on the bond rescue policies of the European Central Bank, rendering the eurozone’s key crisis measure almost unworkable.

The hardline central bank – known as the temple of monetary orthodoxy – told Germany’s top court that the ECB’s pledge to shore up Italian and Spanish debt entails huge risks and violates fundamental principles. “It is not the duty of the ECB to rescue states in crisis,” it wrote in a 29-page document leaked to Handelsblatt.

The Bundesbank unleashed a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies – or Outright Monetary Transactions (OMT) – unveiled last summer to stop Spain’s debt crisis spiralling out of control.

The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The credibility of the pledge rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question.

“The report borders on economic warfare,” said Harvinder Sian from RBS. “We think there is going to be fear and dread in the market that the court will reject OMT.”

The document said OMT entails the purchase of “bad bonds”, violates ECB independence and entails a high risk of heavy losses in the “not unlikely” event that debtor states are forced out of EMU.

It said Greek debacle had shown that conditions cannot be enforced, and, in any case, is “very questionable” whether it is desirable to drive down the borrowing costs of profligate states.

To cap it all, the Bundesbank said the ECB has no mandate to uphold the “current composition of monetary union”. Its task is to uphold price stability and let the chips fall where they may.   Read more»

Fault Lines

“In my old ‘booming town along the river’ analogy, the speculative  Bubble in flood insurance worked miraculously – that is until  torrential rains incited a panic to reinsure and offload risk that ended  in market illiquidity and failure.”

“Since the new governor of the Bank of Japan shouldered his ‘big  bazooka’ two weeks ago,…yields have risen at every point along the  country’s 30-year sovereign debt curve,…threatening the ability of   the world’s most indebted government to keep funding itself at the  world’s lowest rates.”

“The European financial sector has a plethora of unresolved issues…”

“China is a historic Bubble in the midst of what I refer to as the  ’terminal phase of blow-off excess.’”

“The more ‘money’ central banks inject into the global system, the  more this liquidity inflates and distorts securities markets…The more  intensively policymakers in the U.S., Europe, Japan, China and     elsewhere work to sustain (‘terminal’) late-cycle global Credit excess,  the more prominent the inequitable redistribution of wealth to a  relatively small group of beneficiaries. We’re deeply into the phase where massive liquidity injections receive little real economy bang for the buck.”

More pressure on commodities, commodity currencies, commodity economies and equities. Yet another fascinating week – and one more week of anecdotes confirming the global Bubble thesis.   Read more»

Things Have Gone Too Far

It seems a case of too much liquidity for too long having chased a limited amount of global risk assets.  Instability.

“The Fed has been talking about asset bubbles since the ‘irrational exuberance’ speech which was 1996. So it’s nothing new. We had a big bubble in the nineties. A big bubble in the two thousands. Those two bubbles ended very differently. The Fed’s been talking, talking, talking about this. So it’s certainly been a concern. It is a concern today. But it’s like nothing new. This has been going on for 20 years. Frankly, there aren’t good answers because we don’t have great models of financial instability.” Federal Reserve Bank of St. Louis President James Bullard (February 21, 2013, in reference to a question on Fed governor Jeremy Stein’s paper)

The Fed’s been talking, while I’ve been doing my best to study bubble and Credit dynamics. I know we’ve again reached the stage of the cycle where those warning of Bubble risks have been discredited. This type of analysis tends to be humbling, a dynamic I became comfortable with some years ago. And at risk of sounding arrogant, I am comfortable stating that Federal Reserve officials remain for the most part dangerously uniformed when it comes to Credit, speculative market dynamics and Bubbles. At the heart of the problem, the Fed lacks an analytical framework for understanding the causes and consequences of financial instability. And especially with how global markets have been behaving, these issues deserve keen ongoing focus.

As difficult as it may be for most to believe, the world’s preeminent central bankers are a select group of highly intelligent public servants that suffer from a huge void in their understanding of contemporary finance. And the issue goes much beyond the lack of “great models of financial instability.” They subscribe to an erroneous and outdated doctrine of how finance operates and seem to share a flawed perspective with respect to the interplay of contemporary finance, financial markets and economies. Worse yet, Dr. Bernanke is wedded to a (Milton) “Friedmanite” revisionists view that the “Roaring Twenties” was the “Golden Age of Capitalism” brought needlessly to an end by negligent central bankers unwilling to print and inflate. His fixation has been with policy mistakes in the 1930s – with little apparent interest in those from the 20s, 70s, 80s, 90s or 2000s.

To be sure, finance fundamentally changed during the ‘90s. And while this trend had been in play for some time, the explosion of market-based finance took the world by storm throughout the 1990s with the huge growth in securitizations, the GSEs, derivatives, “repos,” “Wall Street finance”, and the hedge funds. Importantly, the Greenspan Fed moved to a market-friendly regime with transparent pre-commitments to pegged short-term interest-rates, market liquidity backstop assurances, and asymmetrical policy responses.   Read more»

China’s Credit Boom Krakatoa

…Bernanke and Co are handing out syringes left, right and centre. The market is completely juiced up. The ‘market on drugs’ metaphor is an apt but crude one…

Speaking of torrent, did you see the data on Chinese credit growth released yesterday? It was truly a sight to behold. We could be wrong, but we don’t think there has ever been a surge, torrent, or avalanche of credit as strong as you’ve seen in China over the past few months, EVER.

We’ll get to the details in a moment, but here’s the weird thing about it: it’s not doing anything for the stock market. And the economy is not particularly robust, at least not relative to what it was a few years ago. Have a look at the performance of the Shanghai Stock Exchange:

After rallying strongly from December last year through to February, it’s corrected lower since then. Perhaps it will move higher from here, but the price action during the March credit boom is not encouraging.

So how about the March credit data? Well, the traditional banking sector created 1.06 trillion in new yuan denominated loans during the month, equivalent to about US$170 billion. But when you add in credit created by the shadow banking system, ‘total social financing’ hit 2.54 trillion yuan FOR THE MONTH. That’s US$410 billion, or US$4.9 trillion annualised.   Read more»

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Doug Noland’s Credit Bubble Bulletin

Doug Noland’s Credit Bubble Bulletin

Selected Notes

May 1 – Bloomberg (Alan Bjerga): “When dry weather destroyed Leonard McKissick’s soybeans last year, U.S. government-backed insurance paid him $40,000, the bulk of his loss.   Across the Arkansas Delta this spring, farmers such as McKissick are sowing fields that suffered the worst drought in more than half a century. Even though crops may fail again, landowners are shielded by taxpayers from the full burden of their bad bets. Drought helped drive the cost of crop insurance to a record $17.2 billion…”

May 1 – Bloomberg (Sarah Mulholland): “Automakers are giving subprime buyers the most long-term loans in at least eight years, sparking concern losses will curtail returns in the $149 billion U.S. market for packaging the debt into bonds. The average maturity for car loans to borrowers with blemished credit contained in asset-backed securities surpassed 70 months last year for the first time since at least 2005, according to Moody’s… All loans longer than 72 months more than doubled to 14% as of April 20 from 6% in 2010…   Lenders are loosening loan terms, giving buyers more time to pay off debt and enabling U.S. households to purchase cars at the fastest pace in more than five years. Asset-backed sales linked to auto debt are surging…”   Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes

Federal Reserve Credit surged $29.9bn to a record $3.271 TN. Fed Credit expanded $485bn over the past 29 weeks. Over the past year, Fed Credit expanded $410bn, or 14.3%.

Money Notes:

One-month Treasury bill rates ended the week at 3 bps and 3-month rates closed at 5 bps. Two-year government yields were down 2 bps to 0.21%. Five-year T-note yields ended the week 2 bps lower to 0.68%. Ten-year yields fell 4 bps to 1.66%. Long bond yields were little changed at 2.86%…An index of investment grade bond risk narrowed 5 to a three-year low 78 bps. An index of junk bond risk sank 25 to 382 bps (low since 10/07). An index of emerging market debt risk declined one to 287 bps.   Read more»

Central Banks Load Up on Equities

Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves. Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes

Federal Reserve Credit jumped $35.1bn to a record $3.241 TN. Fed Credit expanded $455bn over the past 28 weeks.

April 16 – Bloomberg (Aki Ito and Joshua Zumbrun): “Two voting members of the Federal Reserve’s policy-setting panel stressed the need to maintain record stimulus to keep the expansion going, and they cited a job-market slowdown as evidence of risks to the economy. The slowest payrolls growth in nine months in March ‘underscores the need to wait and see how the economy develops before declaring victory,’ William C. Dudley, president of the Federal Reserve Bank of New York, said… The need for continued stimulus also found support from Fed Vice Chairman Janet Yellen… she said she doesn’t see ‘pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability.’”

April 16 – Bloomberg (Sandrine Rastello): “The International Monetary Fund trimmed its global growth forecast and urged European policy makers to use ‘aggressive’ monetary policy as a second year of contraction leaves the euro area’s recovery lagging behind the rest of the world. The global economy will expand 3.3% this year, less than the 3.5% forecast in January, after 3.2% growth in 2012…, cutting its prediction for this year a fourth consecutive time. The… IMF sees the 17-country euro area shrinking 0.3%…, with France joining Spain and Italy in contracting.”   Read more»

France plans currency swap line with China

France intends to set up a currency swap line with China to make Paris a major offshore yuan trading hub in Europe, competing against London, the China Daily on Saturday cited Bank of France Governor Christian Noyer as saying.   Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes

Federal Reserve Credit jumped $15.1bn to a record $3.206 TN. Fed Credit expanded $420bn over the past 27 weeks. In the past year, Fed Credit expanded $362bn, or 12.7%…

April 8 – Bloomberg (Amanda J. Crawford): “Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender. Lawmakers in Arizona are poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states… They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma. ‘The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing… There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.’”

April 8 – Bloomberg (Peter Levring and Frances Schwartzkopff): “Policy makers steering the global economy have pumped the financial system with so much liquidity that any exit risks popping potential asset bubbles or stunting a recovery, Danish central bank Governor Lars Rohde said. ‘The risk is we stay in this climate too long and that the carpet bombing of liquidity spurs inflation,’ Rohde, 59, said… Though there are no current signs of consumer price inflation ‘there is inflation, perhaps a bubble, in some asset classes,’ he said. ‘Equities are trading close to all-time highs. Segments of property markets across the globe, for example London, also display symptoms of this. How do we exit this without killing whatever nascent recovery there might be at that time? …We’re in a landscape where we’ve never been before, with regard to extreme monetary accommodation over a very, very long period of time… What does that end up doing to a society? It’s been a necessary policy, but I have my concerns about what the long-term risks are.’”

M2 (narrow) “money” supply surged $67.8bn to a record $10.518 TN. “Narrow money” expanded 7.0% ($684bn) over the past year…

April 10 – Dow Jones (Nick Timiraos): “The Federal Housing Administration, a major provider of mortgages to homebuyers throughout the housing downturn, will exhaust its reserves this year, according to White House budget projections… The Obama administration projects the agency’s reserves will run a shortfall of $943 million this year. The FHA’s main mortgage program hasn’t required taxpayer support in its 79-year history.”   Read more»

Volcker: Central banks are too aggressive

Former Federal Reserve chairman Paul Volcker warned Monday about potential dangers from what he calls “unorthodox” and aggressive moves by central banks around the world.

Central banks, including the Fed, could eventually inflict more harm by “what they’re doing with their portfolio to save the world economy,” said Volcker speaking alongside Sir John Vickers, the chair of the U.K.’s independent commission on banking, at NYU Stern School of Business early Monday.

“Central banks are no longer central banks,” said Volcker. “I think it gets dangerous when they lose sight of the basic function of the central bank.”   Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes

Federal Reserve Credit increased $3.3bn to a record $3.191 TN. Fed Credit expanded $405bn over the past 26 weeks. In the past year, Fed Credit expanded $348bn, or 12.2%.

April 2 – Bloomberg (Daniel Kruger and Wes Goodman): “International investors bought more Treasuries last quarter than any other start to a year since 2009, with holdings approaching $3 trillion, as a new crisis in Europe weighs on the euro and Japan debases the yen. The Federal Reserve’s holdings of U.S. government debt on behalf of foreign central banks rose $63.5 billion, or 2.4%, to $2.95 trillion as of March 27… China, the largest foreign lender to the U.S., has been buying Treasuries at the fastest pace since 2011.”

April 3 – Bloomberg (John Detrixhe): “For the first time, central banks are using their reserves to buy about the same amount of currencies from Canada to Australia as they are U.S. dollars in a sign that the pace of diversification is accelerating. Allocations to so-called non-reserve assets rose by $30.1 billion in the last three months of 2012, the most in a year, while those going to the dollar increased by $31.5 billion, according to International Monetary Fund data… The changing makeup of reserve assets reflects the growing clout of second-tier nations as the major developed economies see a shrinking share of worldwide gross domestic product. The U.S., euro region, U.K. and Japan accounted for 52% of global GDP product in 2011, down from 69% a decade earlier, according to World Bank data.”   Read more»

Doug Noland’s Credit Bubble Bulletin

Selected Notes

Federal Reserve Credit jumped $20.9bn to a record $3.187 TN. Fed Credit expanded $402bn over the past 25 weeks. In the past year, Fed Credit jumped $315bn, or 11.0%.

March 28 – Bloomberg (Jennifer Joan Lee): “Credit-default swaps insuring against losses on European financial debt climbed for a 10th day, the longest streak since August 2011, as the bank crisis in Cyprus and political turmoil in Italy alarm investors. The Markit iTraxx Financial Index of swaps protecting the senior debt of 25 banks and insurers rose four basis points to 205, with the gauge heading for its worst month since November 2011. Contracts on Italy jumped to the highest since Nov. 16.”   Read more»