Excerpt from Bernanke’s testimony


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BROWN: Specifically, what worked that Roosevelt did? What did we learn from that? What worked that applies to now?

BERNANKE: Well, there were two things that he did almost within months of taking office that were extremely important. One was the bank holiday and the subsequent measures, like the deposit insurance program that stabilized the banking system.

Yes, deposit insurance allowed banks to fund themselves on an unsecured basis via federal deposit insurance.

The lesson was the liability side of banking is not the place for market discipline.

Which is why I’ve been proposing all along that the Fed needs to get immediate permission from Congress to lend to member banks on an unsecured basis. This would instantly clear up the interbank lending issues.

The problem is the FOMC doesn’t understand reserve accounting and how the monetary system actually works.

And it’s a point I’ve been making all morning, that we need to stabilize the banks.

And they need borrowers to have sufficient net incomes to make their payments. Hence my payroll tax holiday.

The second thing he did was to take the U.S. off the gold standard, which allowed the Federal Reserve to ease monetary policy, allowed for a rise in prices, which, after three years of horrible deflation, allowed for recovery.

Yes, it removed the supply side constraints on the ‘money supply’ with the gold standard this constraint makes it problematic for even the Treasury to fund its deficit spending, as competition to borrow a finite amount of reserves drives up interest rates.

When the currency is instead allowed to float interest rates are then instead set by the government rather than market forces. This allows the Fed to cut rates and the Treasury to deficit spend without risking the loss of gold reserves.

So those were the two perhaps most important measures that he took.

He did some counterproductive things, like the National Recovery Act, which put the floors under prices and wages and prevented necessary adjustment.

Excuse me??? His new Keynesian roots are showing. They believe lower wages will allow labor markets to ‘clear’ when deficits are too small to support demand.

The most controversial issue recently, of course, has been fiscal policy and I think there are two sides to that.

The classic work on this by an old teacher of mine from MIT, E. Cary Brown, said that fiscal policy under Roosevelt was not successful, but only because it wasn’t tried, and he argued that it wasn’t big enough relative to the size of the problem.

True!

Other people, other writers have argued that this wasn’t the right medicine.

So that one is more controversial, but if you ask me what I think the most important things were, I think they had to do with stabilizing monetary policy and stabilizing the financial system.

Which he hasn’t yet been able to do.


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BMA/LIBOR mids


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Closing at the tights of the day.

One of the only ways to hedge higher tax rates.

BMA/LIBOR mids

Start Term Frequency Gross Net MBA Fwd Hedge Cost Floor Wgt Cap Wgt
5.00 5.00 12 98.74% 90.56% -8.18% 3.996% 60.5 -62.6
5.00 10.00 12 102.13% 92.92% 4.032% -9.21% 65.1 -70.5
2.00 8.00 12 96.91% 86.52% 3.653% -10.40% 58.1 -58.4
7.00 8.00 12 103.55% 93.98% 4.087% -9.57% 66.9 -73.8
5.00 15.00 12 103.83% 93.02% 3.957% -10.81% 67.3 -74.5
10.00 10.00 12 107.48% 93.70% 3.931% -13.78% 72.2 -83.0
15.00 15.00 12 110.80% 90.35% 3.686% -20.45% 76.6 -90.8
20.00 10.00 12 112.13% 88.71% 3.637% -23.42% 78.4 -93.9
15.00 5.00 12 108.82% 90.67% 3.764% -18.15% 74.0 -86.1

Using cap and floor hedge ratios from existing trades:

5.00 5.00 12 98.74% 92.94% 3.996% -5.79% 33.0 -13.0
10.00 10.00 12 107.48% 99.11% 3.931% -8.37% 38.0 -24.0
1.00 15.00 4 99.80% 88.40% 3.637% -11.40% 20.0 -15.0

**1×15 including 12% rate hedge

Feb-26-09 Change from Feb-25-09 Change from Feb-19-09 Change from Dec-31-08
3M 77.37500 -1.12500 -0.62500 -10.12500
6M 79.75000 -1.25000 -0.75000 -9.25000
1Y 83.62500 -1.25000 -0.50000 -6.87500
2Y 86.12500 -1.25000 -0.50000 -5.37500
3Y 88.25000 -1.25000 -0.50000 -4.25000
4Y 90.12500 -1.25000 -0.50000 -3.37500
5Y 91.50000 -1.25000 -0.50000 -2.75000
6Y 92.43750 -1.12500 -0.37500 -2.56250
7Y 93.37500 -1.00000 -0.25000 -2.37500
8Y 94.00000 -1.08330 -0.33330 -2.41670
9Y 94.62500 -1.16670 -0.41670 -2.45830
10Y 95.25000 -1.25000 -0.50000 -2.50000
12Y 96.75000 -1.25000 -0.50000 -2.25000
15Y 98.5000 -1.25000 -0.50000 -2.50000
20Y 100.37500 -1.25000 -0.37500 -3.37500
25Y 101.62500 -1.18750 -0.43750 -3.75000
30Y 102.87500 -1.12500 -0.50000 -4.12500
40Y 103.87500 -1.37500 -0.50000 -4.3750


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2009-02-27 USER


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GDP QoQ Annualized (4Q P)

Survey -5.4%
Actual -6.2%
Prior -3.8%
Revised n/a

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GDP YoY Annualized Real (4Q P)

Survey n/a
Actual -0.8%
Prior 0.7%
Revised n/a

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GDP YoY Annualized Nominal (4Q P)

Survey n/a
Actual 1.2%
Prior 3.3%
Revised n/a

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GDP Price Index (4Q)

Survey -0.1%
Actual 0.5%
Prior -0.1%
Revised n/a

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Core PCE QoQ (4Q)

Survey 0.6%
Actual 0.8%
Prior 0.6%
Revised n/a

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GDP ALLX (4Q P)

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Personal Consumption (4Q)

Survey -3.7%
Actual -4.3%
Prior -3.5%
Revised n/a

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Chicago Purchasing Manager (Feb)

Survey 33.0
Actual 34.2
Prior 33.3
Revised n/a

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NAPM Milwaukee (Feb)

Survey 32.0
Actual 29.0
Prior 33.0
Revised n/a

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U of Michigan Confidence (Feb F)

Survey 56.0
Actual 56.3
Prior 56.2
Revised n/a

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U of Michigan TABLE Inflation Expectations (Feb F)


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2009-02-26 USER


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Durable Goods Orders (Jan)

Survey -2.5%
Actual -5.2%
Prior -2.6%
Revised -4.6%

 
Karim writes:

  • -5.2% m/m; December revised from -2.6% to -4.6%
  • Ex-aircraft and defense -5.4% m/m and -34.4% last 3mths at an annualized rate

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Durable Goods Orders YoY (Jan)

Survey n/a
Actual -26.4%
Prior -20.1%
Revised n/a

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Durables Ex Defense MoM (Jan)

Survey n/a
Actual -2.3%
Prior -7.5%
Revised n/a

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Durables Ex Transportation MoM (Jan)

Survey -2.2%
Actual -2.5%
Prior -3.6%
Revised -5.5%

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Durable Goods ALLX (Jan)

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Initial Jobless Claims (Feb 21)

Survey 625K
Actual 667K
Prior 627K
Revised 631K

 
Karim writes:

  • Initial claims up 36k to new cycle high of 667k
  • Continuing claims up another 14k to new cycle high of 5112k

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Continuing Claims (Feb 14)

Survey 5025K
Actual 5112K
Prior 4987K
Revised 4998K

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Jobless Claims ALLX (Feb 21)

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New Home Sales (Jan)

Survey 324K
Actual 309K
Prior 331K
Revised 344K

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New Home Sales Total for Sale (Jan)

Survey n/a
Actual 342.00
Prior 353.00
Revised n/a

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New Home Sales MoM (Jan)

Survey -21.%
Actual -10.2%
Prior -14.7%
Revised -9.5%

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New Home Sales YoY (Jan)

Survey n/a
Actual -48.2%
Prior -42.7%
Revised n/a

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New Home Sales Median Price (Jan)

Survey n/a
Actual 201.10
Prior 223.20
Revised n/a

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New Home Sales TABLE 1 (Jan)

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New Home Sales TABLE 2 (Jan)


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2009-02-25 USER


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MBA Mortgage Applications (Feb 20)

Survey n/a
Actual -15.1%
Prior 45.7%
Revised n/a

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MBA Purchasing Applications (Feb 20)

Survey n/a
Actual 250.50
Prior 257.30
Revised n/a

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MBA Refinancing Applications (Feb 20)

Survey n/a
Actual 3618.00
Prior 4472.90
Revised n/a

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Existing Home Sales (Jan)

Survey 4.79M
Actual 4.49M
Prior 4.74M
Revised n/a

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Existing Home Sales MoM (Jan)

Survey 1.1%
Actual -5.3%
Prior 6.5%
Revised 4.4%

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Existing Home Sales YoY (Jan)

Survey n/a
Actual -8.6%
Prior -4.8%
Revised n/a

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Existing Home Sales Inventory (Jan)

Survey n/a
Actual 3.600
Prior 3.700
Revised n/a

 
Foreclosure sales peaked?

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Existing Home Sales ALLX 1 (Jan)

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Existing Home Sales ALLX 2 (Jan)


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2009-02-24 USER


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ICSC UBS Store Sales WoW (Feb 24)

Survey n/a
Actual 0.60%
Prior 0.90%
Revised n/a

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ICSC UBS Store Sales YoY (Feb 24)

Survey n/a
Actual -0.80%
Prior -0.90%
Revised n/a

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Redbook Store Sales Weekly YoY (Feb 24)

Survey n/a
Actual -1.50%
Prior -1.40%
Revised n/a

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Redbook Store Sales MoM (Feb 24)

Survey n/a
Actual 0.90%
Prior 0.90%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Feb 24)

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S&P Case Shiller Home Price Index (Dec)

Survey n/a
Actual 150.66
Prior 154.59
Revised 154.55

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S&P CS Composite 20 YoY (Dec)

Survey -18.30%
Actual -18.55%
Prior -18.18%
Revised -18.20%

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S&P Case Shiller US Home Price Index (4Q)

Survey n/a
Actual 139.14
Prior 150.04
Revised 150.00

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S&P Case Shiller US Home Price Index YoY (4Q)

Survey -17.20%
Actual -18.23%
Prior -16.60%
Revised -16.55%

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Consumer Confidence (Feb)

Survey 35.0
Actual 25.0
Prior 37.7
Revised 37.4

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Consumer Confidence ALLX 1 (Feb)

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Consumer Confidence ALLX 2 (Feb)

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House Price Index MoM (Dec)

Survey -1.7%
Actual 0.1%
Prior -1.8%
Revised -2.0%

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House Price Index YoY (Dec)

Survey n/a
Actual -8.7%
Prior -7.6%
Revised n/a

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House Price Index ALLX (Dec)

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House Price Purchase Index QoQ (4Q)

Survey -2.0%
Actual -3.4%
Prior -1.8%
Revised -2.0%

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Richmond Fed Manufacturing Index (Feb)

Survey -49
Actual -51
Prior -49
Revised n/a

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Richmond Fed Manufacturing Index ALLX (Feb)


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From a memo from Paul Saunders


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Paul runs James River Capital Corp and sent this out today:

Everyone, including our public officials running this country, think in terms of the private sector and not the public sector. They are so used to running their own businesses or their own lives, that they are unable to think in terms of how the government works. The private sector, you and me, needs to borrow money or earn money in order to spend. The public sector never needs to earn money or borrow money. The Government prints US dollars and only the Government is able to print US dollars making the US Government the monopoly producer of US dollars. It is strange that so many smart people struggle with this concept. Every dollar that the government spends ends up in the private sector. The only way that those dollars are reduced is if the government taxes those dollars back from you. If the government taxes more than it spends then the Government runs a surplus and the private sector is depleted of its savings which eventually leads to a contraction in the economy. If they spend more than they tax then they run a deficit and the private sector increases its financial savings and this is stimulative to the economy.


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Bernanke describes jobless recovery


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Yes, and this is a massive political risk.

The deficit is getting large enough to stabilize the economy at high levels of unemployment.

With flat employment growth, and 2% productivity growth, real GDP grows at 2% and unemployment stays north of 8%.

And the equity markets are in a very good place with costs under control and sales stabilized and rising.

So the financial sector booms while the real economy stagnates.

And fuel prices move higher as well.

Bernanke Offers Jobless Recovery as Humphrey-Hawkins Hopes Fade

by Craig Torres

Feb 23 (Bloomberg) — Bernanke Offers Jobless Recovery as Humphrey-Hawkins Hopes Fade delivering semiannual testimony required in legislation written by the late lawmakers, will describe a U.S. economy returning to growth next year without generating many new jobs. Even with credit markets thawing, Fed officials see unemployment persisting at 8 percent or higher through the final three months of 2010.


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Cruzan confusion


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Transcript from a local meeting with our non voting representative to Congress. Must be the Democratic Party’s script:

Christensen: Stimulus Will Help, But Won’t Solve All Problems

by Carol Buchanan

Feb 19 (St. Croix Source) — “In her presentation she mentioned that the money for the stimulus package would be borrowed and the first question from the audience was “Who was the money to be borrowed from?”

Much of the U.S. debt is already financed by China through the sale of federal securities such as Treasury Bills, and Christensen assumes that nation will also be the purchaser of new securities floated to finance the stimulus.

That answer was immediately followed by the question, “What if China cuts us off?”

Christensen said that, from what she has heard and read, China and Japan and other nations who purchase United States securities, financing the debt, would not cut off the United States because the United States would then be unable to buy their products. It is in China’s interest for the U.S. economy to be strong enough to buy the goods it produces.”


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