PDA

View Full Version : Peter Schiff "When QE2 ends .. all the Major Banks WILL Fail Again!"




knarf
05-18-2011, 08:31 PM
http://www.youtube.com/watch?v=163NvYjm_A0

JamesButabi
05-18-2011, 08:39 PM
wtf at the end disclaimer lol

knarf
05-18-2011, 09:07 PM
wtf at the end disclaimer lol

who knows

ababba
05-18-2011, 09:32 PM
QE2 is about buying long-term bonds to lower long-term interest rates. If you end QE2, long term interest rates may go up, but short term interest rates are still set by monetary policy and will still be near zero. Thus, the end of QE2 will be good for people that borrow short and lend long, ie the banks. The notion that the end of QE2 is bad for bank balance sheets doesn't make any sense.

freshjiva
05-18-2011, 10:36 PM
QE2 is about buying long-term bonds to lower long-term interest rates. If you end QE2, long term interest rates may go up, but short term interest rates are still set by monetary policy and will still be near zero. Thus, the end of QE2 will be good for people that borrow short and lend long, ie the banks. The notion that the end of QE2 is bad for bank balance sheets doesn't make any sense.

Not sure what makes you think QE is a program that purchases longterm bonds. To the contrary, they target shorter term maturity Treasuries. Look at the latest yield curve -- it's steeper than it's ever been in decades. Steep yield curves are extremely beneficial for banks for the reasons you already described.

A secession of QE will destroy banks' Net Interest Margins because the Market will drive all rates, especially short term rates, much higher than the current pathetic .04% and .18% for the 3-month and 1-yr Treasury, respectively.

ababba
05-18-2011, 11:34 PM
Not sure what makes you think QE is a program that purchases longterm bonds. To the contrary, they target shorter term maturity Treasuries. Look at the latest yield curve -- it's steeper than it's ever been in decades. Steep yield curves are extremely beneficial for banks for the reasons you already described.

A secession of QE will destroy banks' Net Interest Margins because the Market will drive all rates, especially short term rates, much higher than the current pathetic .04% and .18% for the 3-month and 1-yr Treasury, respectively.

When short term nominal interest rates are zero, short term bonds are very much like money, so a money for short term bonds trade doesn't do much. In order to have an effect, the open market operations have to take place for bonds further out in the yield curve. I couldn't find a lot of data easily but the wiki on QE2 says that most of the purchases were of maturity between 2 and 10 years, which is much further out on the yield curve than the usual 3 months.

The short term rates will be zero regardless of whether quantitative easing is going on, they can be held at zero through conventional monetary policy (not QE2).

The yield curve is upward sloping now in large part because people anticipate interest rates increasing in the future. To the extent that QE2 ends, the short term rates will stay the same, and long term rates may increase. The result would be a steeper yield curve, which should be better for banks.

iamse7en
05-19-2011, 12:59 AM
I'll show you a yield curve.

ClayTrainor
05-19-2011, 01:01 AM
How many different words can they invent for "printing money" ?

ababba
05-19-2011, 01:06 AM
How many different words can they invent for "printing money" ?

QE2 increased bank reserves but not M1 and M2 because the banks kept excess reserves. QE2 primarily was about buying bonds in exchange for these excess reserves.

Austrian Econ Disciple
05-19-2011, 06:09 AM
QE2 increased bank reserves but not M1 and M2 because the banks kept excess reserves. QE2 primarily was about buying bonds in exchange for these excess reserves.

QE2 is fancy talk for debt monetization and the financing of Government largesse. The banks benefit because the vast array of Government funds gets sloshed into their accounts. This is the problem with most orthodox economists is that they cannot seem to understand the cause and effect of money printing and its circulation (E.g. it takes time and those who get the money first benefit).

Now, the problem I have, is not that private banks (Federal Reserve) have their own notes, it is that we are forced to use them and all competition is mercilessly destroyed by Federal goons. Let all private banks coin their own money / notes and let them compete. Repeal all banking laws which prohibit competition and the free association of individuals. Repeal legal tender. The problem with this is that this destroys the IRS and the Income Tax. You have to have a monopolized cartel / socialist State-control of money to have those institutions. Hell, the Fed wrote a paper calling into question their own existence (Minn. Fed) on their paper regarding the Suffolk Free-Banking System.

Like Ron Paul has said -- there is no need to abolish the Fed, merely to introduce the market and competition. The Fed's bad practices will bankrupt it and the market will regulate it out of existence.

Without the Fed the Government couldn't have grown to its behemoth stature. It would be boxed in by the laws of commodity-restraint (you can't print a commodity). They would be bound to tax-receipts and the consequences thereof. This would be to the benefit of us all if the Government were so restrained.

knarf
05-19-2011, 06:18 AM
Schiff is always right on

cindy25
05-19-2011, 06:44 AM
Schiff is assuming that QE will end, and not be followed by QE3 , QE 4, .......................

can't see how they can end it; if interest rates rise even a few percent the deficit could jump another 500 Billion. plus the states/cities would also have to pay billions more for interest. they like sticking it to savers, its easier.

ababba
05-19-2011, 12:04 PM
QE2 is fancy talk for debt monetization and the financing of Government largesse. The banks benefit because the vast array of Government funds gets sloshed into their accounts. This is the problem with most orthodox economists is that they cannot seem to understand the cause and effect of money printing and its circulation (E.g. it takes time and those who get the money first benefit).

.

NO, QE2 is direct talk for an exchange of bank reserves for bonds. It becomes monetization if the bank reserves circulate as money but they haven't yet. If you end QE2 before the excess reserves circulate, there will not be monetization that will result from it.

ababba
05-19-2011, 12:05 PM
Schiff is assuming that QE will end, and not be followed by QE3 , QE 4, .......................

can't see how they can end it; if interest rates rise even a few percent the deficit could jump another 500 Billion. plus the states/cities would also have to pay billions more for interest. they like sticking it to savers, its easier.

Long term interest rates may rise but short term interest rates will stay at zero until the FED says they are raising short term interest rates.

surf
05-19-2011, 12:36 PM
QE2 is about buying long-term bonds to lower long-term interest rates. If you end QE2, long term interest rates may go up, but short term interest rates are still set by monetary policy and will still be near zero. Thus, the end of QE2 will be good for people that borrow short and lend long, ie the banks. The notion that the end of QE2 is bad for bank balance sheets doesn't make any sense.

unless you take a look at the duration of the asset and liability mix you can't make this statement. when "long-term" rates rise the value of the long-term assets declines (> duration means > devaluation in this case). as banks have been extending the duration of their asset side of the balance sheet through mortgage products, etc. banks will see the "total return" of their asset portfolios turn negative.

as a side note: Wall Street used to model these type of assets in such a way that as interest rates rise the duration rises (consider expected pre-payments in mortgages). effectively what increasing long-term rates does is decrease the value of a banks assets and increases the time it will be before these funds can be reinvested. when short-term rates rise to a legitimate level, banks will be uber-screwed. it's all about asset-liability management and there are few banks out there that have the forethought or intelligence or integrity to forego current earnings to be able to thrive in the future.

enoch150
05-19-2011, 12:55 PM
Long term rates will rise first. Short term rates will stay the same for a while. Bad for the government. Good for the banks, in the short term, bad in the medium term. Particularly bad for the banks after the Fed starts to unload the junk it picked up back onto the banks.

Barron's on the end of QE2 (assuming it isn't followed by QE3):


The process will begin when the central bank no longer reinvests the principal payments from its holdings of agency securities, mainly mortgage-backed securities issued by government-sponsored enterprises Fannie Mae and Freddie Mac, not an inconsiderable amount. During QE2, the Fed bought about $300 billion in Treasuries over and above the headline $600 billion to offset principal repayments; failing to do so would effectively constitute a tightening in monetary policy.

After that, the next step would be an increase in the federal-funds target rate, the Fed's traditional policy lever, from its current rock-bottom 0-0.25% range. According to our colleagues at Dow Jones Newswires, the fed-funds futures market is pricing in a 100% probability of an increase in the target rate to 0.5% by the June 2012 FOMC meeting, and a 60% chance of such a move by the April meeting.

Only after the funds rate target is increased will the FOMC begin to shrink its balance sheet actively through securities sales, as opposed to the passive reduction by the failure to roll over maturing holdings.

http://finance.yahoo.com/banking-budgeting/article/112772/QE2-effects-barrons

ababba
05-19-2011, 01:27 PM
unless you take a look at the duration of the asset and liability mix you can't make this statement. when "long-term" rates rise the value of the long-term assets declines (> duration means > devaluation in this case). as banks have been extending the duration of their asset side of the balance sheet through mortgage products, etc. banks will see the "total return" of their asset portfolios turn negative.

as a side note: Wall Street used to model these type of assets in such a way that as interest rates rise the duration rises (consider expected pre-payments in mortgages). effectively what increasing long-term rates does is decrease the value of a banks assets and increases the time it will be before these funds can be reinvested. when short-term rates rise to a legitimate level, banks will be uber-screwed. it's all about asset-liability management and there are few banks out there that have the forethought or intelligence or integrity to forego current earnings to be able to thrive in the future.

Yes, I agree with everything here. The initial increase in interest rates will be bad for holders of long-term bonds. Then the more upward sloping term structure will be good for banks. There are two effects going in the opposite direction.

knarf
05-19-2011, 02:50 PM
In the end, we are all screwed anyway!

knarf
05-20-2011, 06:55 PM
bump

wgadget
05-20-2011, 07:25 PM
Schiff is assuming that QE will end, and not be followed by QE3 , QE 4, .......................

can't see how they can end it; if interest rates rise even a few percent the deficit could jump another 500 Billion. plus the states/cities would also have to pay billions more for interest. they like sticking it to savers, its easier.

Listen to it again. He is saying that QE2 CAN'T end, because if it did, interest rates would have to rise. He's saying that the extension of QE is the Fed's ONLY trick.

knarf
05-21-2011, 06:41 PM
nump