December 12

Interim Update. Van Hoisington and Lacy Hunt.

Operations by the Federal Reserve, including the start of the second round of quantitative easing (QE2), have increased bank reserves by approximately $1 trillion since the latter part of 2008. Virtually all of this gain is held in excess reserves at the Federal Reserve Banks earning very close to 10 basis points. In other words, the Fed has provided substantial new reserves to the banks and they have, in turn, deposited the funds back with the Fed.

Reserves are not money unless banks turn them into loans and deposits. Loans are made based on bank capital, which continues to erode because of loan write-offs due to increasing delinquency and default.

Market still facing major risks. Comstock Partners.

Banks went into the 2008 credit crisis loaded with toxic assets, and, to a large extent, they still have them. While TARP was originally proposed by Treasury Secretary Paulson as a buyout of toxic assets, the program was almost immediately changed to a generalized bailout. The accounting rule-makers were then pressured to do away with mark-to-market accounting, thereby papering over the problem and leaving most of the toxic assets on the banks' books, where they remain today. This is one of the reasons banks are hoarding cash and are so reluctant to lend. They know what they have.

Is America following the same path as Japan? Comstock Partners.

The hidden message of the consumer credit statistical release. Gaius Marius.
lies, damn lies and statistics:

this purchase program -- which amounted to the department of education buying privately-originated student loans that were intended to be securitized but now could not be -- was radically expanded in 2009 and 2010, with a purchase amount target of about (you guessed it) $120bn. (the reporting of the actual purchases is here.)

in other words, what is being included in the g.19 as an expansion of student loans (and thereby consumer credit) is really in fact a bailout of several large banks and finance companies stuck with immovable loans.

China's credit bubble on borrowed time as inflation bites. Ambrose-Evans Pritchard.

Warning - An Updated Who's Who of Awful Times to Invest. John Hussman.


other fare:
Tea'd off. Christopher Hitchens.