译者评论：伯南克著有《通胀目标制》，应该就是定量宽松的理论注脚。这次Eric根据美联储网站提供的数据计算出来的定量是15倍，伯南克将他的通胀目标定为15倍？从历史上看，这比1923年德国魏玛时期和今天的津巴布韦的不定量的恶性通货膨胀要安全一些。但令人担忧的是，伯南克的定量，能不能真的定住，因为通货膨胀有一种神奇的自我加速功能。
2009年3月27日 Eric_deCarbonnel
美联储正计划通过一些重大举措将资产负债表规模扩大一倍以上，从1.9万亿美元增加到9月的4.5万亿美元。无论是赞同或关注美联储的意图，大多数评论家并不明白真实的美国货币基础的规模扩大了多少，因为他们没有考虑到在国外循环美元。
至少有百分之七十的美国货币为外国持有，这意味着美国的货币基础远远小于美联储的整体资产负债表。例如，2008年9月初，在美联储开始定量宽松之前的真实的美国国内货币供应量。美联储网站公布的流通中的货币量为8330亿美元。这意味着5830亿美元在国外流通（70%），2500亿美元在国内流通（30%）。由于银行在联邦储备银行的存款准备金为120亿美元，因此到2008年9月为止国内货币基础是2620亿美元。到2009年9月注入美国国内的基础货币是38180亿美元〔45000－5830（国外流通的美元）－990（其它美联储负债部分的货币供应量）〕。美联储资产负债表的扩张计划导致了15倍的基础货币供应量的增长（38180亿除以2620亿）。
这对美国货币来说是一个惊人的贬值！这意味着，2008年9月时在美国的一美元，现在联储将创造14倍多的美元！
15倍的货币增长将无法逆转
到今年9月，当美联储意识到它已经走得太远并试图扭转其资产负债表的扩张时，这将是覆水难收。下面的现实情况将阻碍美联储控制货币供应量：
1）有毒资产充斥其资产负债表
扩大货币供应量是容易的。美联储所能做的就是印刷美元去购买资产，却没有办法对其印刷和支出多少美元进行有效的限制
收缩货币却复杂得多。为了收缩基础货币供应量，美联储要出售其资产并回收流通中的美元。美联储能够收缩货币供应的额度受其资产负债表中资产的市值的限制。由于美联储在试图恢复金融部门的健康的过程中买入了有毒证券，现在坐拥数十亿美元的未实现损益。这些未实现损益意味着美联储几乎没有弹药可以使货币供应量处于可控的范围内。
到今年9月，如果美联储希望逆转资产负债表的扩张，将货币基础从2620亿美元收缩到38180亿美元，那么将需要卖出35560亿美元的的资产。然而，其资产的市值将只值得其一小部分。
2）对美联储行为的政治约束
即使美联储努力收缩货币，很可能导致对其行动的政治约束：
A) 打折卖出毒资产将使得美联储面临巨大的尴尬并破坏其权威。例如，去年美联储拿出290亿帮助摩根大通收购贝尔斯登的毒资产时，它向美国人民保证，持有这些证券直至到期，将纳税人的成本降到最低限度。如果美联储以一个灾难性的折扣卖出贝尔斯登的毒资产，它会引发选民和国会议员的极大愤怒。
B) 以低于账面价值卖出资产将迅速导致美联储的所有者权益变负。美联储将需要来自财政部的新债来充实资本金，这将增加美国的债务。
3) 如果美联储开始出售资产，其资产负债表扩张所得收益将尽失
美联储正在积累有毒的抵押贷款支持证券，长期国债和其他资产，以解冻信贷市场和刺激经济增长。出售这些资产将导致信贷市场和金融体系的崩溃，而这正是美联储一直拼命阻止的。
利率上调的压力
上述问题中最重要的是，美联储将面临复杂的困境，即美国国债和其他美国债券的收益率向上的压力。这种向上的压力可能会迫使美联储将国债货币化，这个额度将远远超过它已经宣布购买的3000亿美元，这将使美联储控制货币供应量的任何努力更加复杂化。
以下是导致收益率走高的九大因素：
1) 海量供应的国债
财政部为了2009年的巨额赤字进行融资所出售的国债将毫无疑问地迫使收益率走高。根本没有足够的买家来吸收这种国债供应。
2) 作为一种储备资产，国债在2009年将面临巨大的抛盘压力
人们错误地认为国债可以作为避风港，因此看好国债。事实并非如此。这种逻辑忽略了一个事实，即储备资产，如国债，在景气时储备，在不景气时卖出。联邦和国家机构将出售国库储备。例如，联邦存款保险公司将出售国债偿还破产银行的储户存款，失业信托基金将出售国债支付给失业人员。
国家和地方政府将出售国库储备。由于预算问题恶化，国家已经开始动用储备。这些储备的大部分仍然存在，今年他们将被出售一空。
银行和保险公司将出售其国债损失准备金。金融机构已就去年同期的违约增长预期，建立其国债贷款损失准备金。
外国央行将抛售其外汇储备库。沙特、俄罗斯、印度、日本等国为了弥补其赤字或避免本币贬值，均预计会卖出他们的美国国债。
甚至中国为了调整其美元储备，也将成为美国国债的卖家。中国政府已经发出了明确信号，它正从被动转为主动管理其储备，并正在探索更有效的方式以动用储备来支持其国内经济发展。
3) 退休基金已不再流入美国国债
30多年来，由政府退休基金支持的国债不断积累，帮助吸收了国债的供应。这种政府债务的积累确保了婴儿潮时代人们的退休压低了美债收益率和基金赤字开支。截至2008年9月，最大的四大基金共持有3.3万亿国债。
今天，由政府退休基金累积的国债已经结束了。婴儿潮一代开始退休，资金外流增加，失业率上升，流入国债的资金被切断。更重要的是，这些基金积累的3.3万亿美元国债产生了一个巨大的防止国债价格崩溃政治动机。面对国债的运行，政治家将指示美联储将国债货币化，而不是去解释婴儿潮一代的退休储蓄都消失了，单这点就将阻止美联储逆转其目前的资产负债表的扩张。
4) 信用违约掉期（CDS）市场去杠杆化将推高风险溢价
53万亿的CDS市场正威胁着金融体系的偿付能力，其主要威胁是所有债务有巨大的风险溢价。
风险溢价抬高的原因在于以下的恐怖事件：
1.25-6万亿美元的合成CDOs，
15倍杠杆比率的恒定比例债务CPDOs，
80倍杠杆比率的信贷衍生工具产品公司CDPPs，
由于这些杠杆投资工具卖出了大量的保险，CDS的保费急剧下降，使得公司的债务似乎更安全，利率更低。53万亿的CDS市场创造了人为的债务低风险溢价。不幸的是，现在钟摆正向相反方向运动，痛苦才刚刚开始。
出于对政府违约的担心，保险成本持续上升将破坏美元的信心。CDS市场告诉我们10年期国债的风险已比两年前高100倍。
5)黄金套利交易平仓
美国货币供应的大规模扩展无疑将推动黄金价格高好出几倍，并迫使黄金套利交易平仓。
为了了解黄金套利交易平仓的威胁，有必要了解美国和英国的金融机构是如何使自己陷在一个巨大的黄金空头头寸的，这些头寸使得他们永远无法逃走。如下五个步骤使得华尔街不断重复走向毁灭。
第1步：华尔街拥抱了虚假的范式
“房屋价格永远不会下降”
“黄金是一个遗迹文物”或“黄金处于一个长期的下跌趋势”
第2步：华尔街制造数十亿拥抱这个虚假的范式...
美国/英国的金融机构通过制造抵押贷款并使其证券化取得了数十亿美元费用。
美国/英国的金融机构通过黄金套利交易赚取了数十亿。
精英金锭银行有机会向中央银行借入实物黄金，租赁利率为1 ％，然后到公开市场上出售，并立即投资高收益的“安全”投资，获得巨大的利润。它似乎并不容易。中央银行必须从他们的金黄挤压收益率。借款人必须出售黄金，再投资于收益率为4 ％左右10年期美国国债，获得套利交易的回报。
第3步：在这个过程中制造一个灾难性的混乱
巨大的房地产泡沫
次级的CDOs平方
资产负债表外的投资工具SIVs
等等
商业银行和投机者成为无处逃遁的黄金空头。约翰.哈撒韦在1999年的文章《黄金金字塔》中描述了这些荒谬的空头。
市场一直在认真地关注短缺的菜单。在市场顿悟之前需要一些收尾。纸黄金和实物黄金之间不会有任何的和解，也没有和解的意图直到逼空。疲软的信用分析和监管，以及纸黄金和实物黄金之间许多含糊不清的联系，只有在黄金永远是保持下跌趋势的超级信心中才能清楚。信托和信心对平衡依赖于三个关键性错误的黄金衍生产品金字塔至关重要：金矿储量=实物黄金，黄金应收款=在手的黄金，金融市场会一帆风顺下去。
信托只不过是一种心理状态。
第4步：可怕的错误
次优抵押贷款借款开始违约
住房价格暴跌
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1999年关于黄金的华盛顿协议签署后黄金价格暴涨（欧盟中央银行同意限制黄金的销售/租赁）。
雷阁.豪在他的关于中央银行面临的深渊的报告中描述了黄金的熊市陷阱。
1999年9月在华盛顿特区举行的国际货币基金组织和世界银行年会结束时宣布的华盛顿协议限制未来五年用于期货和期权的黄金官方销售/租借额度，联系到欧元区主要的中央银行对同年5月英国宣布拍卖黄金的反应，华盛顿协议造成了黄金价格的急剧上扬。
没过几天，空头交割，黄金价格从265美元上涨几乎达到330美元每盎司。黄金租赁费率上升到9 ％以上。这次暴涨令主要黄金被银行完全惊慌失措，当时的英国央行行长爱德华.尔乔治描述了这次恐慌。
如果黄金价格进一步上涨，我们期待又一次的深渊。因此，中央银行不惜任何代价平息和管理黄金价格。控制黄金价格是非常困难的，我们现在已经取得了成功。美联储和英格兰银行都非常积极地让黄金价格下跌。
尽管想方设法“让黄金价格受到控制”，美国/英国伦敦的金锭银行（JP摩根，汇丰银行，等...）一直作为黄金空头存在至今。
第5步：美联储和英国尽一切力量“拯救金融系统”
苏格兰皇家银行纾困
贝尔斯登纾困
房地美/房利美纾困
美国/英国的定量宽松
诸如此类
毫无疑问，黄金价格已经被抑制，但称这个过程是“阴谋”并不准确。美国和英国对黄金价格的抑制可以更好地定性为一个绝望的掩盖。
虽然黄金套利交易和黄金抑制的副作用是降低利率，但从未达到这样的效果。希望维持利率也不足以推动美联储和英国央行操纵黄金价格。唯一的威胁是美国/英国金融系统的彻底崩溃驱动了对黄金的压制。解除黄金套利交易可能（和将会）把一些最大的美国/英国银行拖下水（摩根大通，汇丰银行，等... ），这就是为什么必须不惜任何代价阻止的原因。
远离任何形式的纸黄金：GLD（汇丰银行托管），黄金池和未分配的黄金账户，黄金期货等... 这场危机结束前纸黄金投资是肯定会违约的。
除了远离无处逃遁的黄金空头部位，黄金套利交易也降低国债和其他美国债券的收益率，由于商业银行通过出售从中央银行借来的黄金和其他裸空头部位而获得投资收益。
出脱黄金套利交易，购买实物黄金，平仓黄金空头头寸。
当美联储开始将货币基础扩大15倍（逻辑上黄金价格至少是今天的10倍），平仓黄金套利交易似乎迫在眉睫。
6) 在国外流通的5800亿美元的回流
过去的三十年中，不断流出的5800亿美元有助于降低美元利率。
例如，如果100亿美元流出美国开始在国外流通，美联储需要打印100亿美元以购买国债来补充国内货币供应。因此外国持有的5800亿美元导致美联储购买5800亿的国债，因而美国债务需求在不断增加。
虽然海外积累的美元在过去是有利的，但今天流通在外国人手中的美元却构成了威胁。随着美元替代货币越来越容易得到，海外美元的回流美国在快速增加，主要替代美元的货币有：
A) 正成为国际货币的人民币（译者注：中国央行通过与周边国家或地区的货币互换，对美元储备产生了极大的挤出效应，这些国家或地区的国际储备货币部分换成了人民币。）
B) 卡力吉, 一个可能有黄金支持的海湾国家发起的新的货币（译者注：石油美元将被极大地挤出。）
C) 有部分黄金支持的欧元
D) 黄金
此外，美联储现在已经开始加速货币创造，可能会加剧大量持有美国货币的外国人对通货膨胀的担忧。当持有美元的外国人的信心遭到削弱，他们将会把手中的美元换成等价的替代品（人民币，欧元，黄金等... ），将大量的美元货币送回美国。
如果美联储不能减少货币供应来抵消回流的海外美元，通货膨胀的后果会导致海外美元回流加速。
7) 利率衍生品的噩梦
利率衍生品所构成的威胁也许是迄今为止最大的，也是最难理解的。首先要说明有关利率掉期市场的规模，据维基百科的解释：
国际清算银行报告称利率掉期全球场外衍生工具市场的最大组成部分。2006年12月场外利率掉期名义金额是229.8万亿，增长了60.7万亿(比2005年12月增长了35.9%)。这些合同占整个415万亿场外衍生工具市场的55.4 ％，根据同一消息来源，截至到2007年12月该数字上升到309.6万亿。
利率掉期的增长创造了债券的需求，因为许多利率衍生品需要购买债券作为对冲。
罗布.科比在他的文章“虚幻利率”中揭示了这个真实的庞氏骗局。由于因为债券交易隐含嵌入在这些利率掉期的交易中，因此创造了债券的需求。没有最终用户需要这个产品－“为了交易而交易”创造了对债券的人为需求。这个操纵压低了真实的利率水平。
利率掉期最初制定是为了允许对手以利息支付流交换另一方的现金流，管理固定或浮动的资产和负债，以及投机－复制那些暴露于风险利率变动的非基金债券。前两项活动的增长依赖于对这些产品需求不断增长的最终用户。
JP摩根（花旗、美国银行）的利率掉期背书太大以至于已发行或现有的美国政府债券都不足以充分对冲他们的头寸。
这意味着对发行人来说，利率衍生工具无耻地爆炸性增长压低了所有的长期利率，以确保所有的美国政府债券在以往任何时候对买家都有吸引力。
与此同时，黄金价格也被美联储指定的银行以黄金期货空头的形式压制了，这些银行还从事主权中央银行的实物黄金租赁的经纪业务。吉布森悖论认为，历史上，低利率会导致高金价，因此黄金价格必须被操纵。强势金价在历史上就是弱势美元的代名词，而弱势美元意味着更高的融资成本或资本外逃。
与黄金套利交易一样，利率掉期产品的爆炸式增长通过创造债券需求而降低了利率水平，我不确信这是否是阴谋的一部分。
就我从信贷危机期间所看到的来说，华尔街的奇才（制造次级CDO平方以及其它的恐怖产品）和美联储似乎更象孩子玩炸药，而不是一个催生巨大阴谋的主谋。
利率掉期构成更大的威胁
除了创造人工需求债券，利率掉期市场构成的系统性风险超过了CDS市场，因为其规模巨大，且每份利率掉期合同都可能导致无限的损失。
在货币崩溃中（伯南克增加15倍的货币供应量） ，利率紧随通货膨胀达到天文数字的高度。恶性通货膨胀时隔夜贷款和利率达到5-6位数是常见的，而且，如果发生在美国， “做空掉期” 的任何人（在利率掉期中的浮动利率付款人）会被全部遗忘。至少是在CDS市场，对投资者的损失是有一定限制的。
8) 过度杠杆化的欧洲银行持有的8万亿美元的资产清算
在过去十年里，欧洲银行大幅增加了它们的美元资产，这有助于降低美国的利率，吸收大部分的美国越来越多的债务。到2007年年中，他们的美元多头部位增长到8000多亿美元，这8000亿杠杆化之后是持有8万亿美元的美国资产。这些美元头寸的低资本充足率是银行监管机构可以接受的，因为欧洲银行被允许申请更多的杠杆，只要他们购买的是评级为专用AAA级的证券。
不幸的是，在过去18个月中，我们已经知道AAA级并不总是AAA级。
当欧洲银行所购买的大量AAA级证券是国债，其中一些AAA级证券是优先级的证券化贷款仍然明显接近欧洲银行的资产负债表，尽管它们的市值只有70美分。欧洲银行面临的唯一问题就是持有美元的巨大的未实现损失。
另外一种损失就是美元基金。欧洲银行使用巨大的杠杆来购买有毒的AAA级资产，这些资金来自于美国货币市场基金的贷款。雷曼违约后导致了些货币市场基金大规模撤出，欧洲银行失去了数十亿美元的资金。
如果欧洲银行被迫出售他们的8万亿美元资产，这将使信贷市场崩溃，他们也不得不承受巨量损失。由于美联储誓死防止美国金融系统崩溃，它已借给欧洲银行6000亿美元贷款，以使他们不必被迫出售这些资产。与此同时，欧洲的银行接受了这6000亿美元因为他们不愿意承认那些有毒的美国证券造成的损失。
这些过度杠杆化的欧洲银行接下来会发生什么？
如果以历史为参考，美国金融体系的前景是不乐观的。
“当美国经济陷入衰退，美国银行收回贷款，导致德国银行体系的崩溃”。
同样的事情会发生在2009年，除非角色逆转。这次是欧洲银行收回贷款、抛售美元资产，导致美国银行系统的崩溃。
为什么欧洲银行会出售美元资产？
答案很简单：担心美元崩溃。
由于美联储将货币基础增加了15倍，等待受损资产恢复到初值的策略将变得毫无意义：未来一年内美元可能失去十分之九的价值，等待70美分的资产恢复到初值是毫无意义的冒险。
9) 通货膨胀预期
大萧条时期的经验已经令美国被凯恩斯主义思想主导，即担忧通货紧缩。其结果是认为在目前的金融危机中通货膨胀预期是不存在的。然而，对即使是最强硬的通缩主义者，美联储扩大货币基础15倍的最新计划应该停下来。事实上有人担心，因为美联储周三的声明已导致了美元巨大的崩溃：美联储庞大的货币扩张和美元的下跌将很快增加通货膨胀和通货膨胀预期。反过来这将对美债收益率形成向上的压力。
结论
过去三十年中，美国的长期利率持续平稳下降。
过去三十年稳步增长的美国经济基本面现在正在变得更糟糕。例如，2006年美国的经常帐赤字几乎达到GDP的百分之九，经济学家通常认为百分之四便是无法持续的。还有美国的长期预算赤字和预计的大规模社会保障的不足。
更不可思议的，在过去6个月，经济面临解体和国债供应的大规模扩张，长期国债的收益率一直在下降。世界的运作正好相反：当财务状况良好的借款人减少，其利率应该上升。唯一合理的解释是，有些联合的力量人为地驱动利率下降。驱动利率下降的这些力量在今天是威胁和问题，必须在金融危机结束前加以解决：
美国预算赤字
贸易赤字和大量持有的国债储备
CDS市场
黄金套利交易
流通在海外的5800亿美元
欧洲银行积累的8万亿美元资产
利率掉期市场
凯恩斯思想主导的美国经济和财政政策
原文链接：
http://www.marketoracle.co.uk/Article9594.html
Fed Planning Inflationary Dollar Destroying 15-Fold Increase In US Monetary Base
Economics / HyperInflation Mar 22, 2009 - 05:02 PM
By: Eric_deCarbonnel
The fed is planning moves that would more than double its balance-sheet assets by September to $4.5 trillion from $1.9 trillion. Whether expressing approval or concern over the fed's intentions, most commentators fail to understand the real magnitude of the projected expansion of the US monetary base because they don't take into account the amount of dollars circulating abroad.
At least 70 percent of all US currency is held outside the country , and this means the US monetary base is considerably smaller than the fed's overall balance sheet. Take, for example, the true US domestic money supply at the beginning of September 2008, before the fed started its quantitative easing. From the Federal Reserve's website , we know that currency in circulation was 833 Billion. This translates as 583 Billion dollars circulating abroad (70 percent), and 250 Billion dollars circulating domestically (30 percent). Since the bank reserve balances held with Federal Reserve Banks were 12 billion, that gives us a 262 Billion domestic monetary base as of September 2008. Now compare that to the projected US domestic monetary base for September 2009 which is 3,818 billion (4,500 billion – 583 billion (dollars circulating abroad) – 99 billion (other fed liabilities not part of the money supply)). The fed's planned balance sheet expansion results in a 15-fold increase in the base money supply.
262 Billion = US monetary base as of September 2008 (minus dollars held abroad)
3,818 Billion = projected US monetary base in September 2009 (minus dollars held abroad)
3,818 Billion / 262 Billion = 15-Fold Increase in US monetary base
This is a staggering devaluation of the US currency! It means that for every dollar in America in September 2008, the fed is going to create fourteen more of them! Below is a rough sketch of what this Increase in US monetary base would look like:
This 15-Fold Increase will be impossible to reverse
Next September, when the fed realizes it has gone too far and tries to reverse its balance sheet expansion, it will be unable to do so. The realities which will hinder the fed's control of the money supply are:
1) The toxic assets filling its balance sheet
Expanding the money supply is easy. All the fed has to do is print dollars and then use them to buy assets. There is no effective limit to how much the fed can print and spend.
Shrinking the money is much trickier. To shrink the base money supply, the fed sell assets and takes the dollars it receives for them out of circulation. The amount the fed can shrink the money supply is therefore effectively limited by the market value of assets on its balance sheets. Since the fed is in the process of loading up on toxic securities while trying to restore health to the financial sector, it is now sitting billions of unrealized losses. These unrealized losses means the fed has little ammunition available to bring the money supply under control.
Once September rolls around, If the fed wants to reverse the expansion of its balance sheet and shrink the monetary base back down from 3,818 billion to 262 billion, then it will need to sell 3,556 billion worth of assets. However, the market value of its assets will only be worth a fraction of that.
2) Political constrains on fed's actions
Even if the fed does try to shrink the money, it is likely to run into political constrains on its actions:
A) Selling toxic assets at a loss could become a crippling source of major embarrassment for the fed, undermining its authority. For example, last year when the fed took 29 billion toxic assets to help JPMorgan's takeover of Bear Stearns, it assured Americans that by holding those securities till maturity, the cost to taxpayers would be minimal. If the fed sells those toxic Bearn Stearns assets at a catastrophic loss, it would cause fury and outrage from voters and lawmakers.
B) Selling assets at below book value will quickly cause the fed's equity to turn negative. The Federal Reserve would then need to be recapitalized by new debt from the treasury, which would increase the national debt.
3) The benefits from of its balance sheet expansion would be lost if the fed starts selling assets
The fed is accumulating toxic mortgage backed securities, long term treasuries, and other assets to unfreeze the credit markets and spur economic growth. Turning around and selling those assets would result in the collapse of the credit markets and the financial system, which the fed has been desperately trying to prevent.
Upwards pressure on interest rates
On top of all the issues above, the fed's woes are going to be compounded by upwards pressure on the yields of treasuries and other US debt. This upwards pressure will likely force the fed to monetize far more treasuries than the planned $300 billion purchases it has already announced, and will greatly complicate any efforts by the fed to control the money supply.
Below are the nine factors which will cause yields to move higher.
1) Massive supply of treasuries in the pipeline
The biggest force pressuring treasury yield upward is without a doubt the trillions of debt the treasury has to sell to finance the enormous 2009 budget deficit. There is nowhere near enough buyers to absorb this supply. The graph below demonstrates the challenge facing the treasury in funding this year's budget.
2) As a reserve asset, treasury bonds will face enormous selling pressure in 2009
There is the mistaken belief that the role of treasuries as a safe haven is bullish for treasury bonds. It is not. This logic ignores the reality that reserve assets, such as treasuries, are accumulate in good times and sold in bad times:
Federal and state agencies will be selling treasury reserves. For example, the Deposit Insurance Fund (a.k.a. FDIC) will be selling treasuries to pay back depositors of failed banks, and the Unemployment Trust Fund will be selling treasuries to make payments to the unemployed.
State and local governments will be selling treasury reserves. As an example, states have already begun drawing down reserves as their budget troubles worsen . The bulk of those reserve remain, and they will be sold over the course of this year.
Banks and insurers will be selling off their treasury loan-loss reserves. Financial institutions have been building their treasury loan-loss reserve for the last year in anticipation of growing defaults. In 2009, this process will reverse as loans go bad and insurers make good on claims.
Foreign central banks will be selling off their treasury foreign reserves. Saudi Arabia, for example, is projecting a 2009 Budget Deficit , which it intends to finance by selling off its US holdings. Russia, meanwhile, has already sold over 20% of its $598.1 billion reserves , and India's central bank has been forced to sell off its US holdings to curb its currency's decline, and its total reserves have decreased by $62.2 billion. Japan, which is now running a record current account deficit, can also be expected to sell treasuries.
Even China could become a seller of treasuries as it mobilizes its dollar reserves . The Chinese government has sent clear signals that it is shifting from passive to active management of its reserve and is exploring more efficient ways to use its reserves to boost its domestic economy.
3) Retirement inflows into treasuries are over
The steady accumulation of treasuries by government retirement funds has helped absorb the supply of treasury bonds for over three decades. This accumulation of government debt to secure the retirement of baby boomers helped drive down treasury yields and fund deficit spending. As of September 2008, the four biggest of these funds held 3.3 trillion treasuries:
2150 billion (Federal old-age and survivors insurance trust fund)
615 billion (Federal employees retirement fund)
318 billion (federal hospital insurance trust fund)
217 billion (federal disability insurance trust fund) (for more on these four funds, see where social security tax amounts are deposited )
3300 billion total
Today, the accumulation of treasuries by government retirement funds is over. Baby boomers are beginning to retire, increasing outflows, and unemployment is rising, cutting inflows. More importantly, the 3.3 trillion already accumulated in these funds provides an enormous political incentive to prevent treasury prices from collapsing. Faced with a run on treasuries, politicians, rather than explaining to baby boomers that their retirement savings are gone, will instruct the fed to monetize treasury bonds. This alone will prevent the fed from reversing its current balance sheet expansion.
4) Deleveraging in credit-default swap market will drive up risk premiums
If you have been following the credit crisis in any detail, you might have heard that the 53 trillion credit-default swap market threatening the solvency of the financial system. What you might not have heard is the other dire threat posed by the CDS market: drastically higher risk premiums on all forms of debt.
These higher risk premiums are the result of reversing the process by which credit-default swaps were leveraged up and packaged into investment vehicles . Some examples of these horrors are:
Synthetic CDOs
As opposed to regular CDOs (which contain actual bonds), synthetic CDOs provide income to investors by selling credit-default swaps on hundreds bonds from companies and governments.
To juice returns, these synthetic CDOs disproportionally insured the riskiest AAA rated debt, such as Lehman's bonds. Synthetic CDOs are estimated to have sold insurance on between $1.25 trillion to $6 trillion worth of bonds.
Constant-Proportion Debt Obligations
CPDOs are specialized funds which work exactly like synthetic CDOs but with one major difference: they used leverage to boost returns. These CPDO funds typically borrowed about $15 for every dollar invested with them. They also contain safety triggers that force the liquidation of their investments if losses reach a predetermined level, and most CPDO funds have begun to hit these triggers. For example, Three CPDO funds launched in 2006 by Dutch bank ABN Amro Holding NV have already been forced to liquidate as credit insurance costs spiked and their credit ratings were downgraded.
Credit Derivative Product Companies
CDPPs are another group of specialized funds which work exactly like synthetic CDOs and CPDO funds, except for one key difference: they used an insane amount of leverage, as much as $80 for every dollar invested. CDPP funds together with subprime CDOs squared are finalists for the title of “most idiotic financial instrument ever created” .
Since these leveraged investment vehicles sold an enormous amount of insurance, the premiums for CDS insurance dropped sharply, making corporate debt seem safer and lowering interest rates. In effect, the process of building up the 53 trillion CDS market created an era of artificially low risk premiums on all forms of debt. Unfortunately, the pendulum is now swinging in the other direction, and the pain has just begun.
As investors attempt to get out of synthetic CDOs and CPDO/CDPP funds try to deleverage, they push up the cost of default insurance. In turn, that raises the risk premium on all forms of debt since most investors use the cost of default insurance as a guide when deciding at what interest rate they will buy bonds. Many banks are also tying corporate loan rates to credit-default swaps, raising borrowing costs and exposing companies to an overleveraged derivative market which is largely responsible for crippling the financial system.
The graph below shows how the cost of insuring the debt of EU nations is being driven up.
The rising cost of insuring debt is impacting treasuries too. The cost to hedge against losses on $10 million of Treasuries is now about $100,000 annually for 10 years, up from $1,000 in the first half of 2007. These rising insurance costs have helped push up treasury yields in the last few months. Worse still, the rising costs of insuring against government defaults will undermine faith in dollar. After all, the CDS market is telling us that 10-year treasury notes have become 100 times riskier in the last two years.
5) Unwinding the Gold carry trade
The massive expansion in the US money supply will undoubtedly drive gold prices several times higher and force the unwinding of the gold carry trade. To see the threat which unwinding the gold carry trade poses, it is necessary to understand how US and UK financial institutions got themselves stuck in an enormous short position in gold from which they have no hope of ever escaping. For that purpose, I have outlined below the five steps Wall Street seems to repeat endlessly on its path to ruin.
Step 1: Wall Street embraces a false paradigm
“Housing prices never fall”
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“gold is a relic” or “gold is in a permanent downtrend”
Step 2: Wall Street makes billions embracing this false paradigm…
US/UK Financial institutions made billion in fees from making mortgage loans and securitizing them.
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US/UK Financial institutions made billions via gold carry trade. Here is an ultra quick explanation how it works from zealllc.com
So, if you can find a cheap enough cost of capital, a safe enough destination, and you have the credit to borrow large amounts of money, you too could make enormous profits in carry trades. The notorious gold carry trade is based on the exact same idea. Elite money-center bullion banks were given sweetheart opportunities to borrow central bank physical gold at 1%, sell it in the open market, and immediately invest the proceeds in higher yielding “safe” investments and reap vast profits.
As Moneyweek further explains :
It seemed like a no-brainer. The central banks got to squeeze a yield from their gold. The borrowers got to sell the gold on, and use the proceeds to fund more exciting investments like 10-year US Treasuries yielding 4% per year or so. Yes, these 'carry trade' returns were tiny. But the cost of borrowing gold was tinier still.
Step 3: …and creates a catastrophic mess in the process
Enormous housing bubble
Subprime CDOs squared
Off balance sheet SIVs
Etc…
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Commercial banks and speculators are left inescapably short gold. These ridiculous short positions are best captured by John Hathaway in his 1999 article, The Golden Pyramid .
The recipe for a shortage has been carefully followed. A few finishing touches may be required before a market epiphany. There is no known reconciliation between paper and physical positions, and none will be attempted until after the squeeze. The weakness of credit analysis and supervisory oversight, as well as the many ambiguities in the linkage between paper gold and physical can flourish only if there is supreme confidence in gold's permanent downtrend. The trust and confidence essential to balance the gold derivatives pyramid depends on three critical errors: that mine reserves = physical gold; that gold receivables = gold on hand; and that financial markets will enjoy smooth sailing indefinitely. Trust is nothing more than a state of mind. When this levitation is finally exposed and its illusions shattered, it is ludicrous to think the imbalances can be corrected by a small rise in the price and within a comfortable time frame. Expect the resolution to be swift, furious, and uncomfortable for those caught short.
Step 4: Something goes horribly wrong
Subprime borrowers start defaulting
Housing prices plummet
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Gold prices shoot up after the 1999 Washington Agreement on Gold (EU central banks agreed to limits on gold sales/leasing).
This gold bear trap is best described by Reginald H. Howe in his report about central banks at the abyss .
The first Washington Agreement on Gold , announced in September 1999 at the close of the annual meetings of the International Monetary Fund and World Bank in Washington, D.C., placed limits for the next five years on the official gold sales of the signatories as well as on their gold lending and use of futures and options. Put together at the instigation of major Euro Area central banks in response to the decline in gold prices caused by the series of U.K. gold auctions announced in May of the same year, WAG I caused gold prices to shoot sharply higher.
Within days, as gold shorts rushed to cover, the price jumped from around $265 to almost $330/oz. and gold lease rates spiked to over 9%. The rally caught the major bullion banks completely wrong-footed, resulting in the panic later described by Edward A.J. George , then Governor of the Bank of England (Complaint, 55):
We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.
Despite managing to “get the gold price under control”, US/UK bullion banks (JPMorgan, HSBC, etc…) have been stuck on the short side of gold ever since.
Step 5: The US fed and UK do everything in their power to “save the financial system”
Royal Bank of Scotland bailout
Bear Stearns bailout
Freddie/Fannie bailout
AIG bailout
US/UK Quantitative easing
Etc…
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Leasing out all US/UK gold to bullion banks
Gold swaps with foreign central banks (then leasing out the gold)
Convincing allies to sell gold
Writing naked call options on gold
Britain's 1999 gold sales
Pre-emptive gold sales
Allowing JPMorgan's and HSBC's manipulation of COMEX futures
Etc …
Make no mistake, gold prices have suppressed, but calling this process a “conspiracy” would be inaccurate. Gold suppression by the US and UK is better characterized as a desperate cover-up. Furthermore, while a side affect of the gold carry trade and gold suppression was to drive down interest rates, that was never their intended effect. A desire to hold interest rates would not have been enough to push the fed or the Bank of England to manipulate gold prices. It was only the threat of the total collapse of US/UK financial system which prompted the suppression of gold. The unwinding of the gold carry trade would have (and will) dragged down the some of the biggest US/UK banks under (JPMorgan, HSBC, etc…) and that was what had to be prevented at any cost.
Stay away from any form of paper gold: GLD (HSBC is custodian), gold pools and unallocated gold accounts , gold futures , etc… Paper gold investments are guaranteed to default before this crisis ends.
Besides leaving the financial system inescapably short gold, the gold carry trade also drove down yields on treasuries and other US debt, as commercial banks invested the proceeds from the sale of borrowed central bank gold and other naked short positions. Unwinding the gold carry trade involves the purchase of physical gold, but also the sale of the investments linked to the gold short positions. As the fed begins 15-fold expansion of the monetary base (which logically should eventually send gold prices up at least ten times where they are now), the unwinding and fallout of the gold carry trade seems imminent.
6) The return of the 580 billion dollars circulating abroad
Over the last thirty years, the steady outflow of 580 billion dollars has helped drive down interest rates. For example, If 10 billion dollars leaked out of the US and began circulating abroad, the fed would print 10 billion and buy treasuries in order to replenish the domestic money supply. So the 580 billion dollars held abroad resulted in the purchase of roughly 580 billion treasury bonds by the fed, thereby increasing demand for US debt.
While the accumulation of oversea dollars has been beneficial in the past, today the large pools of dollars circulating in foreign hands pose a threat. With many dollar alternatives becoming available, US oversea currency looks increasingly likely to start flowing back home. The main currencies with the potential to displace dollars are:
A) The Chinese yuan which is becoming an international currency
B) The Khaleeji, a new currency being launched by Gulf states which will be possibly backed by gold.
C) The Euro with its partial gold backing
D) Gold
Furthermore, now that the fed has begun creating money at an accelerating rate, the extensive foreign holdings of US currency might exacerbate the effects of inflation fears. As foreign dollar holders' confidence in the dollar is eroded, they will trade their dollars for alternate stores of value (yuan, euro, gold, etc…), potentially sending a flood of currency back to the US. If the Fed failed to reduce the supply of currency to counteract dollars being unloaded from abroad, the inflationary consequences would be made worse as the mass reversal of currency flows from foreigners to the US becomes overwhelming.
7) Interest rate derivates nightmare
The threat posed by interest rate derivates is perhaps the greatest out of all the ones outlined so far. It is also the one hardest to understand. The first thing to note about interest rate swaps is the size of the market, as explained by the Wikipedia :
The Bank for International Settlements reports that interest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of December 2006 in OTC interest rate swaps was $229.8 trillion , up $60.7 trillion (35.9%) from December 2005. These contracts account for 55.4% of the entire $415 trillion OTC derivative market. As of Dec 2007 the number rose to 309,6 trillion according to the same source.
The growth in interest rate swaps creates demand for bonds because many of these interest derivatives require the purchase of bonds as a hedge. Rob Kirby on 321gold.com explains this in his article, the real ponzi scheme - "unreal interest rates" .
Interest Rate Swaps create demand for bonds because bond trades are implicitly embedded in these transactions. Without end user demand for the product - trading for "trading sake" creates ARTIFICIAL demand for bonds. This manipulates rates lower than they otherwise would be.
…
Interest rate swaps were originally developed to [1] allow parties to exchange streams of interest payments for another party's stream of cash flows; [2] manage fixed or floating assets and liabilities and [3] to speculate - replicating unfunded bond exposures to profit from changes in interest rates. Growth in the first two of these activities are dependent on their being increased end-user-demand for these products - graph 1 above indicated that this is not the case:
In the case of J.P. Morgan in particular [forgetting about the lesser obscenities at Citi and B of A]; their interest rate swap book is so big that there are not enough U.S. Government bonds being issued or in existence for them to adequately hedge their positions.
This means that the obscene, explosive growth in interest rate derivatives was all about overwhelming the long end of the interest rate complex to ensure that every and any U.S. Government bond ever issued had a buyer on attractive terms for the issuer. Concurrent with the neutering of usury, the price of gold was also "capped" largely through Fed appointed banks "shorting gold futures" as well as brokering gold leases [sales in drag] sourcing vaulted Sovereign Central Bank gold bullion. The gold price had to be rigged concurrently because historically, according to observations outlined in Gibson's Paradox - lowering interest rates leads to a higher gold price. Gold price strength is historically synonymous with U.S. Dollar weakness which leads to higher financing costs or the possibility of capital flight.
Same as with the gold carry trade, while the explosive growth in interest rate derivatives did reduce interest rates by creating demand for bonds, I am not sure about the conspiracy element. From everything I have seen and read during the credit crisis, the wizards of Wall Street (ie: the creators of the subprime CDO squared and other horrors) and the Federal Reserve seem more like children playing with dynamite rather than masterminds capable of pulling off vast conspiracies.
The greater threat posed by interest rate swaps
Besides creating artificial demand for bonds, the interest rate swap market poses a systematic risk exceeding that of the credit-default swap market because of its enormous size and the fact that each interest rate swap contract offers the potential for unlimited losses. The graph below should help show this danger.
In a currency collapse (which is where we are headed with Bernanke's 15-fold increase in the money supply), interest rates follow inflation to astronomical heights. Loans for 24 hour periods and interest rates in the five or six digits are common in hyperinflation, and, should they occur here in the States, anyone “short the swap” (the floating-rate payers in interest rate swaps) will be crushed into oblivion. At least with credit default swaps, there is a limit to how much investors can lose.
8) The liquidation of the 8 Trillion dollar holdings of overleveraged European banks
European banks increased their dollar assets sharply in the last decade which helped drive down US interest rates and absorbed a large portion of America's growing debt. Their combined long dollar positions grew to more than $800 billion by mid-2007. This $800 billion was then leveraged into $8 trillion in US assets. The low capital ratios of these dollar positions were acceptable to regulators because European banks are allowed to apply a lot more leverage as long as they are buying exclusively AAA rated securities.
Unfortunately, as we have learned over the past 18 months, AAA is not always AAA. While much of the AAA rated securities bought by European banks were treasuries and agencies, some of these AAA rated securities were senior securitized loans that are still marked close to par on the balance sheet of European banks despite the fact they trade around 70 cents on the dollar in the markets. The enormous unrealized losses on their US holdings are only one of the problems facing European banks.
The other is the loss of their dollar funding. The enormous leverage employed by European banks to purchase toxic AAA rated assets was funded in great part by loans from US money market funds. After Lehman's default led to massive withdrawals from those money market funds, European banks lost access to billions in dollar funding.
If European banks are forced to sell their 8 trillion US assets , it will crash the credit markets, and they will have to recognize enormous losses. Since the fed is desperate to prevent the collapse of the US financial system, it lent those European banks 600 billion dollars so that they wouldn't be forced to sell. Meanwhile, European banks accepted this 600 billion because they don't want to recognize losses on their toxic US securities.
What is going to happen next with these overleveraged European banks?
Well, if history is any guide, the outlook isn't good for the US financial system :
“When the American economy fell into depression, US banks recalled their loans, causing the German banking system to collapse”
The same thing will happen in 2009, except the roles will be reversed. It will be European banks that will recall their loans and sell off dollar assets, causing the US banking system to collapse.
What could convince European banks sell off their US assets at firesale prices?
The answer is simple: fear of a dollar collapse. With the fed increasing the monetary base 15-fold, the strategy of waiting for impaired assets to recover becomes meaningless: with the dollar likely to lose nine tenths of its value in the next year, waiting for assets trading 70 cents on the dollar to recover is a senseless venture.
9) Inflation expectations
The US's experience during the Great Depression has left America dominated by Keynesian thinking and prone to deflation fears . As a result, inflation expectations are about nonexistent right now despite the current financial crisis. However, the fed's latest plan to expand the monetary base 15-fold should give pause to even the most hardened deflationist. Indeed someone must be worried, because the fed's Wednesday announcement has caused a dramatic collapse of the dollar:
The sheer size the fed's monetary expansion and the dollar's fall will soon increase both inflation and inflation expectations. This in turn will put upwards pressure on treasury yields.
Conclusion
During the last three decades, long-term interests rates have fallen steadily in US, as demonstrated by the chart below
Logically speaking, the chart above makes no sense. The fundamentals underlying the US economy have grown steadily worse over the last thirty years. For example, in 2006, the US's current account deficit nearly hit 9 percent of our gdp, and economists usually consider 4 percent to be unsustainable. There are also the US's chronic budget deficits and the massive projected social security shortfalls. Even more incomprehensible, over the last six months the yield on long-term treasuries has fallen in the face of a disintegrating economy and massive expansion in the supply of treasuries. This is NOT how the world works: as the financial health of borrowers decrease, their interest rates are supposed to go up. The only rational explanation is that some combination of forces has been unnaturally driving rates lower. These forces, (outlined above) which have been driving interest rates down, are today threats and issues which need to be resolved before the financial crisis can end:
The US budget deficit
The crisis in entitlement spending
The trade deficit and large holdings of treasury reserves
The credit-default swap market
The gold carry trade
The 580 billion dollar circulating overseas
The 8 trillion dollar assets accumulated by European banks
The interest rate swaps market
The Keynesian thinking dominating US economic and fiscal policy
By Eric deCarbonnel
http://www.marketskeptics.com
Eric is the Editor of Market Skeptics
© 2009 Copyright Eric deCarbonnel - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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