energyecon writes:
Bernanke May Run Low on `Ammunition' for Rates, Balance Sheet
By Scott Lanman and Rich Miller

March 17 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may be running out of room to pump money into the financial markets and cut interest rates to rescue the economy.

The Fed has committed as much as 60 percent of the $709 billion in Treasury securities on its balance sheet to providing liquidity and opened the door to more with yesterday's decision to become a lender of last resort for the biggest Wall Street dealers. The central bank has cut short- term rates by 2.25 percentage points since September and will probably reduce them again tomorrow.

[snip]

``There's a limit to how much the Fed can do,'' said Brian Sack, a former Fed research manager, and now senior economist at Macroeconomic Advisers LLC in Washington. ``They've been incredibly aggressive with their balance-sheet policies over the past several weeks, and that has very quickly put this capacity issue in play.''

[snip]
energyecon | 03.17.08 - 4:35 pm | #

Barley writes:
60 percent of the $709 billion in Treasury securities on its balance sheet...and making non-recourse loans wont help with future cash flow, now will it?
Barley | 03.17.08 - 4:37 pm | #

Jas is right writes:
60 percent of the $709 billion allocated in weeks that took them nearly 100 years to accumulate! After the 100bps tomorrow they'll only have a few bullets left. Too bad the zombies keep coming...
Jas is right | 03.17.08 - 4:41 pm | #

Kp writes:
You guys....they'll just issue more Treasuries.
Kp | 03.17.08 - 4:43 pm | #

jg writes:
OT -- today's volume of S&P 500 futures purchases was second only to Friday's, which was the all-time high within the past year.

The schmucks/shysters/I-banking cabal are using up their bullets, alright.
jg | 03.17.08 - 4:44 pm | #

Kp writes:
It's gonna be nothingburger for everyone!
Kp | 03.17.08 - 4:44 pm | #

jackk writes:
there's a good article in the economist about how these indeces are meaningless, or at best just as good as confidence indicators. there is no way to arbitrage them, so the actual levels are arbitrary. the only thing they tell you is "damn, a lot of people out there think that real estate market sucks right now". which should come as no surprise to anyone who watches 60 minutes or reads the yahoo homepage.
jackk | 03.17.08 - 4:45 pm | #

elkal writes:
You guys....they'll just issue more Treasuries.
Kp

At some point, don't they become "buried treasuries"?
elkal | 03.17.08 - 4:46 pm | #

andiron writes:
why isn't 06 vintage showing such turmoil?
we would expect 06 to be down big too
andiron | 03.17.08 - 4:46 pm | #

andiron writes:
according to Hamilton@econobrowser, fed after chewing up 700-800 bil in their balance sheet, can literally print money.. If it comes to that..Bernanke had talked about that press in his speech in 02..
INflation @4% yoy is not a big deal even thhough all around the world inflation is rampant..thing is foreigners want to sell their wares at a discount to US..
andiron | 03.17.08 - 4:50 pm | #

andiron writes:
jacck that's true.....but valuation as per complicated model aren't up to snuff either as we can witness
andiron | 03.17.08 - 4:53 pm | #

Anonymous writes:
Gotta give O-Joe credit. He said we'd end in the green today and we did. I don't know why, though.

To all you still playing - have fun and be careful. The volatility has driven me out for the time being.
Anonymous | 03.17.08 - 4:53 pm | #

Pondering the Mess writes:
Man, we need some more "containment" here! 100 basis point cut - stat! Gotta keep housing unaffordable! Gotta keep the Goldilocks economy alive! Oh, wait, she was already eaten by bears... nevermind...
Pondering the Mess | 03.17.08 - 4:54 pm | #

ac writes:

``There's a limit to how much the Fed can do,'' said Brian Sack, a former Fed research manager, and now senior economist at Macroeconomic Advisers LLC in Washington.

This looks more and more like a repeat of 2001 where the Fed made the situation far worse by not understanding its limits.

ac | 03.17.08 - 4:59 pm | #

SteelCurtain writes:
The guy from PIMCO was on CNBC saying the gov. has to act to put a floor under housing. NO NO NO

Not unless its at 2.5X the buyers gross family income.
SteelCurtain | Homepage | 03.17.08 - 5:01 pm | #

Elliot Spitzer writes:
Karma....I wonder if the kind folks at Bear Stearns were cheering last week when I resigned?
Elliot Spitzer | 03.17.08 - 5:01 pm | #

byzantine_ruins writes:
According to Hamilton@econobrowser, fed after chewing up 700-800 bil in their balance sheet, can literally print money.. If it comes to that

Sure, and they will. Now that we're all too big to fail, the dollar will be partially transformed into the Weimar mark in substitution for each failure forgone. Lather, rinse, repeat until the US dollar's value as a store of worth is gone and it's merely a transactional scrip for a bumpkin nation where all real wealth has been exported.

But just think what a tremendous sop this generation of the artificial impression of value will be for the national ego... well, except for gas being 20 dollars a gallon.
byzantine_ruins | Homepage | 03.17.08 - 5:03 pm | #

energyecon writes:
kp,

I am counting on it...what is the response to an oversupply of US Treasury notes/bills what have you?
energyecon | 03.17.08 - 5:06 pm | #

s writes:
how do we know it is 60% - with the window now fully open to "investment grade" anyone can dump on the fed. Lehman has a $700 billian balance sheet. Citi. Etc... this is unreal.
s | 03.17.08 - 5:06 pm | #

12th Percentile writes:
Eliot, I know it has been a rough week but you should at least remember how to spell your name.

1 L in Eliot.

2 O's in Hooker.
12th Percentile | 03.17.08 - 5:09 pm | #

ac writes:

The guy from PIMCO was on CNBC saying the gov. has to act to put a floor under housing.

I would almost agree if there were a way to do it without pulling the floor out from under something else.

You can't fake hard work and intelligent use of resources with rate cuts and bailouts...

Alas, that seems to be the basic premise behind our economy today.

ac | 03.17.08 - 5:13 pm | #

texalope writes:
Todays events have finally persuaded me how rigged the markets are. I was always an optimist but when the fed sacrificed BSC employees and shareholders for the greater good, it revealed the truth.
texalope | 03.17.08 - 5:15 pm | #

Paul writes:
Wow - the market went up today? What happened to the meltdown and collapse? I think Calculated Risk comment sentiment is becoming a contrary indicator. My confidence in analysis in the comment section was shaken today.

I'm sure it is just a matter of time... Maybe the problems really are contained.
Paul | 03.17.08 - 5:16 pm | #

Anonymous writes:
The Federal Reserve's cash life-line to financial markets has set a dangerous precedent with lasting costs, but it was probably necessary to prevent economic ills from spreading.

The Fed on Sunday announced it would extend $30 billion in credit against Bear Stearns' shaky assets to persuade JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) to buy the troubled investment bank for $2 a share.

One former policy-maker said the Fed had "crossed a bright line" by putting TAXPAYERS money in danger and was flirting with moral hazard by shielding investors from loss.

http://www.reuters.com/article/ g...761075920080317
Anonymous | 03.17.08 - 5:17 pm | #

my poor savings account writes:
why the market up? everyone loaded up on shorts! duh!
my poor savings account | 03.17.08 - 5:18 pm | #

Kp writes:
energyecon:

Prices on treasuries tanks, yields go through roof...and if the ECB doesn't follow us down the Euro gets even stronger...as does the currency of every country who isn't holding a butt load of our treasuries.

....Oil goes to moon....cats and dogs start making out....israelies and palestineans start hugging and kissing and making babies....TEOTWAWKI
Kp | 03.17.08 - 5:20 pm | #

energyecon writes:
Kp,

Don't forget the Staypuft Marshmellow Man! ;-)
energyecon | 03.17.08 - 5:21 pm | #

bZb writes:
Oh, no! Abby Joseph Cohen sacked! End of an era!

http://www.bloomberg.com/apps/ne...M6ys& refer=home
bZb | 03.17.08 - 5:22 pm | #

energyecon writes:
Naw Abbie didn't get sacked, she just got moved to a slot with less facetime... until the next bull ain't just bull...
energyecon | 03.17.08 - 5:23 pm | #

energyecon writes:
Kp,

Oh yeah, the countries holding buttloads of our .gov paper...they going to hang tough or dump? I don't know but I wish we weren't going to find out through direct experimentation...
energyecon | 03.17.08 - 5:27 pm | #

Troy writes:
fed after chewing up 700-800 bil in their balance sheet, can literally print money

mechanism being issuing funds to government accounts balanced against corresponding new issues in treasuries, ie. directly monetizing Gov't debt issuances.

This would explain the whopp whopp whopp and the Strauss I'm hearing when I go outside.

Our national debt as % of GDP is "low" compared to Japan, and this gov't is using the BOJ's playbook now.
Troy | 03.17.08 - 5:28 pm | #

will writes:
I was suprised to see BSC go down ike that, but I dont think anything is contained because the market is stuck at 12000, it was stuck above 13000 for a long time until it wasnt.
will | 03.17.08 - 5:30 pm | #

SweetHomeKilla writes:
The Fed can "buy" treasuries any time it wants(Permanent Open Market Operation). When it "buys" treasuries, the monetary base expands, and since they are increasing the demand for treasuries, it will also effectively lower rates.

They can't run out of "reserves" or "capital" unless they choose to.

Why haven't they been increasing the money supply by buying treasuries and at the same time lowering the effective rates? Who knows. Some think that would scare foreign investors, I don't buy that because what could be more scary than all the shit that has already happened. The other idea is that they don't want to lower the rates on treasuries. Or maybe they are just providing all these lending facilities to temporarily keep things from melting down, without the intention of actually inflating enough to get out of this mess alive.

Justification for the next banking system will be the collapse of the current.
SweetHomeKilla | 03.17.08 - 5:31 pm | #

scotty_at_the_helm writes:
Go NAR pumpers, spam the message board with pro Bush bullshit and I love Paulson (heart inserted here, with lungs and veins) stickers and ben is no retard slogans!
scotty_at_the_helm | 03.17.08 - 5:31 pm | #

Optimistic Joe writes:
Well, I got to buy this morning. Although I'm still optimistic that we've seen the lows, I would call it a draw as the broad market lost, but not as much as the oversees markets or overnight panic indicated.

What we need to see to really confirm an uptrend is a rallye above resitance like ~1400 in the S&P. Needless to say, the commodity and currency bubble needs to to be deflated, too. Maybe this week? I've been waiting for some time now.

OT: a CB intervention to prop up the US$ in the coming days would make sense. When the US$ is past its low (Sunday), but sentiment is still holding on to the past plunge, they can really hurt & squeeze currency speculators and demonstrate willingness to draw a line in the sand. We'll see.

O-Joe
Optimistic Joe | 03.17.08 - 5:32 pm | #

Sebastian writes:
It's great to have a community to share good news with.:)

Just got the call from my mortgage broker (he's been shopping rates for a cash-out refinance).

He tells me rates are dropping fast and he can get me a 30-year fixed rate for 5.25%, but wants to sit still for a couple more days because he thinks it'll drop to 5.125%. (5.25% would be good for me, but if rates are dropping anyway...)

And I just got a solicitation in the mail from Wachovia for...wait for it...a "Pick-a-Payment" refi!

Long live easy money with easy terms.:) No way this doesn't jump-start the housing market, or at the very least stabilize it.


Sebastian
Sebastian | 03.17.08 - 5:32 pm | #

doom writes:
What really sucks is that at the end, when all has been tried and failed, the government (the tax-payers) will bail out all the banks and homeowners.

That's what they are trying to do now anyway. But later as this mess gets worse, they will tell you directly that's what has to be done. Point blank: You will have to pay higher taxes for the good of our country.
doom | 03.17.08 - 5:34 pm | #

FFDIC writes:
FDIC Financial Institution Letters
Managing Commerical Real Estate Concentrations in a Challenging Environment for Banks...
http://www.fdic.gov/news/news/ fi...08022.html#body
FFDIC | 03.17.08 - 5:35 pm | #

donna writes:
So.. we've moved from a bear market to a vulture market, then?

And a big game of Liar's Poker in the real market...
donna | Homepage | 03.17.08 - 5:37 pm | #

energyecon writes:
SHK,

I wish we were not going to test that experimentally...what is the first casualty of contact with the enemy?
energyecon | 03.17.08 - 5:44 pm | #

byzantine_ruins writes:
Long live easy money with easy terms.

http://research.stlouisfed.org/ f...630_378.pngLong

Real smart.
byzantine_ruins | Homepage | 03.17.08 - 5:44 pm | #

brokeback benny writes:
Paul,

You and many here miss the forest despite the trees. Explain to me WTF is contained. Ben is obviously going ZIRP. the dollar is lower than it has ever been. Food and energy is crushing average Americans. We are bleeding money in Iraq. Housing is collapsing taking discretionaries, financials and every other related field with it. Jobs losses are gathering speed. Notice I didn't say anything about the unbelievable recent events at Bear or how it effected other markets. This is a cluster fuck of epic proportions.

Maybe you find a mint in a pile of shit on any given day and call it a good day? I'd rather like to know how eating the pile of shit going forward is going to effect me.

Don't get me wrong. I want you to be right but I fear you are going to get stepped on by an elephant.
brokeback benny | 03.17.08 - 5:44 pm | #

byzantine_ruins writes:
http://research.stlouisfed.org/ f...Max_630_378.png

Sorry.
byzantine_ruins | Homepage | 03.17.08 - 5:45 pm | #

hiker90 writes:
Econ 102 question.

From the article in the below link is this quote: "In another report on Monday, the U.S. Treasury Department said net overall capital flows in the country fell to its lowest level in four months in January. The inflows were not sufficient to cover the month's U.S. trade deficit."
http://news.yahoo.com/s/nm/ 20080...kets_forex_dc_6

When there is insufficient inflow, how instantaneous is the counter balancing move? Is it on the order of 1 month as short term loans and CP cannot get funded? Or is there a longer lag?

Thanks,
hiker90 | 03.17.08 - 5:45 pm | #

Anonymous writes:
"jg writes:
OT -- today's volume of S&P 500 futures purchases was second only to Friday's, which was the all-time high within the past year.

The schmucks/shysters/I-banking cabal are using up their bullets, alright."

Thanks, jg! Do you remember 6mos ago when someone purchased a huge deep in the money S&P put position? This was a several billion dollar bet buying S&P 450 strike along with some close strikes (400, 500, 550,etc).

I was wondering if that was a PPT reversal position. Basically, acknowledging the Fed losses from their PPT futures buys.
Anonymous | 03.17.08 - 5:55 pm | #

scotty_at_the_helm writes:
Re: I'd rather like to know how eating the pile of shit going forward is going to effect me.


Some of the people here from NAR can explain how they feel today, after drinking from the cup which ran over; even though they will tell you they want more....those dumbass masochists! Here drink more koolaid, more bongwater, come on, come on, things are good! Go Bush! Honk for rate cuts!!
scotty_at_the_helm | 03.17.08 - 6:03 pm | #

will writes:
Damn near everthing I was shorting was down. What was up?
will | 03.17.08 - 6:11 pm | #

ajw writes:
JPM was up 10% - took a big bite out of SKF's return today. Argh.
ajw | 03.17.08 - 6:15 pm | #

DonKei writes:
hiker90,

It is immediate, in the price paid for dollars. Trade deficits have to be financed w/ financial surpluses, i.e., we have to borrow from abroad. If they don't want to buy our paper, then something has to give, and historically that has been the currency.

It's just the long overdue dollar devaluation. Running trade deficits do not go together w/ an internationally strong currency. When the dollar costs buys about half a Euro, things are going to be hard here in the US.
DonKei | Homepage | 03.17.08 - 6:18 pm | #

plschwartz writes:
Larry Summers detailed three separate "Vicious Circles" at work today.
One is classical Keynsian'
Second is credit squeeze
Third is interaction of other two.

IIRC Summers did not have much to say about the interaction.
In medicine with an unknown interaction the principal is First do no harm
Keeping with this metaphor, I believe that the credit crisis is acute while the Keynesian one has a slower pace.
The conservative approach would be to continue to deal with the credit problem. I do not know if Bernanke feels that lowering the Fed rate 1% is neutral positive or negative to unwinding the credit problem. I do hope that the answer to this will guide his announcement tomorrow.
plschwartz | 03.17.08 - 6:30 pm | #

Sam writes:
Paul writes:

Wow - the market went up today?...
Maybe the problems really are contained.

Considering how much dough the Fed pumped into the market I wouldn't be bragging about the return. It's still a debt crisis and every attempt to stem it has been more debt. I'm sure you realize this or you wouldn't have used the term "maybe".
Sam | 03.17.08 - 6:40 pm | #

lawyerliz writes:
It ended up in the green because people (govmint, for example) are cheating. See that 41 page screed that I didn't read what you guys call the plunge protection team.

Once you figure that out, the mkt isn't interesting any more.

By the way, the hub got back at me for keeping him up last nite (on a futile deathwatch), by accessing and charting the dow and s & p and NASDAQ, back as far as he could easily get the data. Then he proceeded to produce charts showing that back to 28 it was a near perfect exponential. That is, charted on a log screen, it was a straight line in a near perfect fit--94%. G D I was barely a blip and
the exponential straight line started up again in 1933, long before prosperity came back.

Now I can't possibly do the math, but it set me to wondering: bet you could go back with pretty hard data to the 1890s. Bet you could get weak data in the US and Great Britain back to say, 1650 or so. Bet the chart would stay the same. In fact, I betcha, if you had the data, you could take it back to say, the 1000s--let's pick 1066 for the heck of it, and I bet the growth chart for Great B would be the same; maybe western Europe too.

Now when we are in the realm of the mathematical exponentials don't matter. But in the real world this can't go on. It will be stopped when we reach the carrying capacity of the earth.

To my further wild speculations, for western Europe--say, start in Homeric times, and bring it down to say oh, 350. Bet you would see the same chart. Stopped by the carrying capacity of the resources of the Roman empire, given the technology of the time.

This might be measuring the productivity of the human race, given increasing technology and adequate resources.

It is not a good thing to reach the carrying capacity of the earth. The result is megadeaths. It hardly matters if it is sickness, war, plague or starvation (say isn't that the 4 hoursemen?)

Speculations about Roman corruption are futile. We humans have ALWAYS been corrupt. (The Romans were going up against the carrying capacity that they had available.) It's a constant limiting factor already built into the charts.

So having speculated wildly, something that can't go on, will stop. So, you have to limit something--productivity? population?

Or, we have to discover warp drive and find some more planets to spread to.

If Tanta deletes me, I will understand.
lawyerliz | 03.17.08 - 7:02 pm | #

Paul writes:
Re: My comments about the relative strenght of the market today.

My point is that the world didn't end today. We didn't meltdown and we didn't collapse. It could happen tomorrow or next week, but it did not happen today. Some of the commentary on these crazy Sundays gets rather apocolytic and then the market doesn't crash the next day.

I'm not denying the difficulties in the economy. I'm not even suggesting this is the bottom. But collapse and meltdown?

Bear Stearns (JPM) is going to layoff a few thousand people. So what - this happens all the time in the industrial areas of the USA.
Paul | 03.17.08 - 7:09 pm | #

Paul writes:
This is a cluster fuck of epic proportions.

Don't get me wrong. I want you to be right but I fear you are going to get stepped on by an elephant.
brokeback benny | 03.17.08 - 5:44 pm | #

Don't worry about me. I rent! I wish I could blame the republicans for everything. Check out Bloomberg Opinion for an analysis blaming this on to much growth managment regulation.

http://www.bloomberg.com/apps/ne...onR0& refer=home

We survived 9/11 - we'll survive this. Notice I said survive not prosper.
Paul | 03.17.08 - 7:18 pm | #

dunham writes:
O-Joe,

I tried to go long. I did. Bought Friday afternoon. Good, blue chip companies.

Got spooked by the action today. Sold. Too many surprises still out there. Sitting in cash. Couldn't figure out why I bought a household products company with a 24 P/E (CL).

Do yourself a favor and pull up the S&P chart in 2000-01. At one point the market rallied from 1100 to 1300.

I think you need to get through ~1425 and test it a couple of times before you can safely say that we are through this.

The problem is you do that and you wipe out all the shorts. You don't want to be long in a market without any shorts. Thats how the S&P loses 200 points in a day.
dunham | 03.17.08 - 7:21 pm | #

brokeback benny writes:
No doubt Paul,

We will survive. The question is, what are we leaving for our children?

The problem for me is the mismanagement. Blogs have been calling this for years. Even with Greenspan hawking ARM's. This could have easily been avoided and the "Gosh, we never saw it coming." is total bullshit!

The American public needs to stand up for once. the time for complacency is over. Wallstreet figures we will roll over.

Appreciate the comments and knowing you didn't take mine the wrong way.

Good luck.
brokeback benny | 03.17.08 - 7:46 pm | #

Paul writes:
Brokeback benny - oh yeah - the kids are screwed. Teach them Mandarin and Hindi!
Paul | 03.17.08 - 7:51 pm | #

Sam writes:
Paul:

Check out Bloomberg Opinion for an analysis blaming this on to much growth managment regulation.

Here's a passage from that analysis:

But in the 1960s and 1970s, California and Hawaii began a movement that sought to limit this normal supply response with ``Growth Management Planning.'' These states effectively drew a line around a city, and allowed building inside the line, but not outside. Over time, such regulation has spread dramatically.

Do you really think the solution in an SUV economy is more spread? Have you checked oil prices lately? A lack of regulation is laughable:

The Long Demise of Glass=Steagall

http://www.pbs.org/wgbh/pages/fr...ill/ demise.html

Where is the over regulation in this:

In a recent case in Chicago, he said the authorities prepared to file charges against a woman who had fraudulently bought five properties.

The mortgage scam known as identity theft is relatively simple -- the perpetrator uses a stolen identity to buy property with no money down, then rents it to tenants until it goes into foreclosure, collecting rent but never making a mortgage payment.

http://www.reuters.com/article/ d...037615020080305
Sam | 03.17.08 - 8:27 pm | #

Sam writes:
Sorry should have have been too much regulation is laughable @ 8:27
Sam | 03.17.08 - 8:34 pm | #

Paul writes:
Sam,

Sorry if I wasn't clear. I found the article to be another stupid conservative attack government. The reflexive hatred of regulation came through loud and clear. They will say anything to advance their agenda.
Paul | 03.17.08 - 8:34 pm | #

Paul writes:
on government :)
Paul | 03.17.08 - 8:35 pm | #

Wadz Up writes:
Wall Street may be capitulating, with the hedgies and financial deleveraging their balance sheets....... but Main Street (70% of GDP) has NOT....yet....anyway.

And when they do....and they WILL.....you'll know the bottom is near.

IMO.
Wadz Up | 03.17.08 - 8:35 pm | #

freddyinP'town writes:
@anonymous 5:55 pm

Who ARE you?

Someone who knows, as I cannot yet imagine any self-interest in your hindsight (if someone else does, please speak up...)

Please post more often.
freddyinP'town | Homepage | 03.17.08 - 9:05 pm | #

Anonymous writes:
Re: St. Patrick's Day Massacre?

http://www.usnews.com/blogs/mone...y- massacre.html

The quick capitulation by one of the Street's biggest investment banks should tell you how dysfunctional the banking system is right now.

Mix in the Fed's extraordinary Sunday-night decision to cut its discount rate and lend directly to its primary dealers just a day before its scheduled meeting on interest rates, and the threat to Wall Street this week is clear.

Happy St Patty!!
Anonymous | 03.17.08 - 9:24 pm | #

Anonymous writes:
Hey CALCULATEDRISK

Is there any way to make a composite series of charts that have an overlay? We see these charts posted now and then, but it might be interestingg to see how they look stacked on top of each other, as if being transparent.
Anonymous | 03.17.08 - 9:42 pm | #

borkafatty writes:
I think Mish hit the nail on the head with this one...great read...and all so true.

http://globaleconomicanalysis.bl...- deflation.html
borkafatty | 03.17.08 - 9:53 pm | #

Fair Economist writes:
lawyerliz: Yes of course the stock market can't go up 8-10% a year forever if the economy only grows 3-4%. Eventually it must stop. Stocks have been soaring because corporate profits take a larger and larger share of the economy - partly from cutting wages, partly from increased concentration (small businesses don't have stocks), and partly from moving services like child care and elder care into the market so there are profits to be had. However, there are limits to all these processes and IMO we're near them.
Fair Economist | 03.18.08 - 1:17 am | #

factchecker writes:
And still you will not reference the Economist article on ABX series and their inherent flaws
factchecker | 03.18.08 - 4:41 am | #

wally writes:
"Brokeback benny - oh yeah - the kids are screwed. Teach them Mandarin and Hindi!"


Teach them how to sew shirts so they can work for those nice Chinese and Indian people.
wally | 03.18.08 - 8:36 am | #