Daily Digest

Daily Digest 3/11 - Why Silver Is The Investment Of The Decade, A Middle East Revolt Guide, Mining With Bacteria

Friday, March 11, 2011, 10:47 AM
  • Crashiversary Week Continues
  • 8 Reasons Why Silver Is the Investment of the Decade
  • Chinese Inflation Heats Up Again As PBoC Takes Another Step To Establish Yuan As Reserve Currency
  • A Handy Guide to the Revolts in the Middle East—And Their Likely Effects On Us
  • Survey of Oil Exports from North Africa
  • Rocks On The Menu: Biotechnology
  • Brain Scan: Betting On Green
  • Price Of Wheat May Be Behind Mideast Uprisings

Our 'What Should I Do?' guide has steps to cook, see & stay warm in times of power outage

Economy

Crashiversary Week Continues (Ilene)

There was a ton of negative news in our intra-day notes yesterday and, as I mentioned in the morning post - we're very concerned that the consumer has been pushed to the edge of a cliff so, of course, we took the opportunity to get much more bearish during the day with several disaster hedges and, of course, the same DIA $120.75 puts at the same price we had so much fun with on Tuesday. We also had fun shorting oil at the $105 mark - over and over and over again as it moved between $105 and $104 but 5th time is a charm as they finally broke hard this morning and fell all the way to $102.32 on the last drop.

8 Reasons Why Silver Is the Investment of the Decade (Ivo M.)

Is there cause for alarm today? Are silver and gold, along with equities and commodities, destined to see yet another massive correction or collapse, as they did when the markets bottomed out in late 2008 and early 2009? The trigger for the last asset crash was blamed, in part, on rising oil prices and food costs, and we are very clearly approaching similar territory today. If gas prices reach that $4.50 mark like they did before many experts, both mainstream and contrarian, have voiced their opinions that the economy will revert back to no-growth or negative growth, completely disintegrating any semblance of recovery that has been perpetrated on the American people and global populace.

The end result, as in 2008, will likely be a collapse in asset prices.

Chinese Inflation Heats Up Again As PBoC Takes Another Step To Establish Yuan As Reserve Currency (pinecarr)

What is the big news is that a short week after the PBoC made it clear it would start allowing CNY in all cross-border transactions, a direct affront to the dollar's reserve status, it just stepped up its rhetroic materially with the following press release on its website...

A Handy Guide to the Revolts in the Middle East—And Their Likely Effects On Us (pinecarr)

If oil prodution is disrupted because of the problems going on in the Middle East—which is completely within the “possible-to-likely” category at this time—or catastrophically, if there is a disruption of oil production in Saudi Arabia—then we would have a repeat of 1979.

Oil prices would spike quickly to $200 and beyond—how far beyond is anyone’s guess. But the immediate nightmare would be the ripple effect of that rise in oil prices: Food prices would be soon to follow. In other words, the inflation Bernanke has been exporting will come back at the United States like a boomerang, and clock him upside the head.

Energy

Survey of Oil Exports from North Africa (Crash_Watcher)

As we reach March 11, 2011, the designated “day of rage” in Saudi Arabia, and perhaps in other countries in the region, speculation is running rampant that oil will reach $200/b on fears that civil unrest will curtail the ~9 mbd of Saudi Arabia production, thereby causing oil exports to Europe, Asia and North America to sharply decline.

This article rounds out my survey of petroleum export trends for the countries of the Middle East and North Africa. In a previous article, I surveyed the 14 countries of the Middle East; this article surveys the 14 countries of North Africa. This survey examines the effects such a curtailment might have on oil exports from North Africa, and the Middle East.

Rocks On The Menu: Biotechnology (jdargis)

Rock-eating bacteria such as Acidithiobacillus and Leptospirillum are naturally occurring organisms that thrive in nasty, acidic environments. They obtain energy from chemical reactions with sulphides, and can thus accelerate the breakdown of minerals. Base metals such as iron, copper, zinc and cobalt occur widely as sulphides, and more valuable metals such as gold and uranium are also present in the same bodies of ore. With a little help from the mineral-munchers, these metals can be released in a process called bioleaching.

This approach has its pros and cons. To recover large quantities of metals quickly from ores with a high metal content, smelting remains the most profitable route. Bioleaching is slower, but it is also cheaper, making it well-suited for treating ores and mining wastes with low metal concentrations. It is also generally cleaner. Material containing poisonous elements such as arsenic is unsuitable for smelting because of the risk of pollution.

Environment

Brain Scan: Betting On Green (jdargis)

“Environmentalists are fiddling while Rome burns,” says Vinod Khosla, founder of Khosla Ventures, a Silicon Valley venture-capital firm. “They get in the way with silly stuff like asking people to walk more, drive less. That is an increment of 1-2% change. We need 1,000% change if billions of people in China and India are to enjoy a Western, energy-rich lifestyle.” Forget today’s green technologies like electric cars, wind turbines, solar cells and smart grids, in other words. None meets what Mr Khosla calls the “Chindia price”—the price at which people in China and India will buy them without a subsidy. “Everything’s a toy until it reaches that point,” he says.

Price Of Wheat May Be Behind Mideast Uprisings (TG)

Fred Kaufman is a contributing editor at Harper's Magazine, who's published a number of long articles about what he calls the "food bubble".

He points out that when food prices peaked in 2008, there were riots in more than 60 countries. Prices have now gone past that peak again.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

22 Comments

saxplayer00o1's picture
saxplayer00o1
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1) China should steer clear

"China, the largest US creditor, should stop buying US Treasuries because the "cost" of lending to a nation that may face a default on its debt is too high, said former Chinese central bank adviser Yu Yongding.

The US may reach its congressionally-mandated debt limit of $14.3 trillion in a few months, which could lead to a default, Yu said on Thursday. If the US were a euro-zone nation, a default or bailout would have happened long ago, said Yu, who is president of the China Society of World Economics and a former adviser to the People's Bank of China. "

"The U.S. Federal Reserve's balance sheet expanded to a new record size in the latest week, as the central bank continued to purchase bonds, Fed data released on Thursday showed.

The increase came as the central bank bought U.S. Treasuries as a part of its $600 billion program in an effort to help the economy.

The balance sheet -- a broad gauge of Fed lending to the financial system -- expanded to $2.561 trillion in the week ended March 9 from $2.528 trillion the prior week.

The central bank's holding of U.S. government securities jumped to $1.266 trillion on Wednesday from last week's $1.236 trillion total."

 

  • Other news, headlines and opinion:

U.S. municipal bond market now at $2.9 trillion: Fed

San Diego School Board May Warn 900 Teachers Of Layoffs

Silver May Rise to $40/oz in March on Tight Supply: Bloomberg Chart of the Day

Italy sells 4.8 bln euros of bonds, yields rise

Hawaii deficit nears $1B

Greek budget deficit widens, straining fiscal targets

St. Louis Adjusted Monetary Base (BASE)

Poet's picture
Poet
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Posts: 1891
Rep. Joe Barton, "Free Market" Advocate For Oil Companies


No Apologies: Rep. Barton Defends Tax Breaks For Big Oil
"Barton said subsidies for the oil industry should remain unchanged 'so long as you believe that you believe in the free market capitalist system and they should be headquartered in the United States.'"
http://blogs.abcnews.com/thenote/2011/03/no-apologies-rep-barton-defends-tax-breaks-for-big-oil.html

Poet

affert's picture
affert
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Posts: 100
Big earthquake in near Japan

Big earthquake off the coast of Japan.  

http://www.bbc.co.uk/news/world-asia-pacific-12709598

Stocks are jittery due to the earthquake

http://money.cnn.com/2011/03/11/markets/world_markets/index.htm?hpt=T2

idoctor's picture
idoctor
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Jim SinClair QE to infinity

Jim SinClair QE to infinity & beyond.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/11_Jim_Sinclair.html

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SagerXX
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Greek 2-year bonds at 17%!

And in the "What Might We Miss While Japan Is Burning?" Department, today the rate of Greek 2-year bonds went up to 17%.  

That's a similar spot to last Spring, when the Eurozone spent a couple months circling the drain.  Gonna be 'nuther exciting Spring-into-Summer, folks...

Viva -- Sager

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Poet
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17%? That's Credit Card Rates!
SagerXX wrote:

And in the "What Might We Miss While Japan Is Burning?" Department, today the rate of Greek 2-year bonds went up to 17%.  

First stop, credit card interest rate territory. Next stop, PayDay Loans and Check Into Cash! :P

Poet

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Poet
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Japanese Nuclear Power Plant at Kyodo Leaking

Radiation Leakage...
"A Japanese nuclear safety panel says radiation levels are 1000 times above normal in a reactor control room after a huge quake damaged a plant's cooling system."

Evacuations ordered for thousands of people living within 10 kilometers...
http://www.smh.com.au/world/radiation-detected-at-japan-nuclear-plant-20...

Here's some information from GreenPeace on Japan's nuclear safety record (from 2002):
http://www.greenpeace.org/international/en/news/features/japanese-nuclea...

So we've got an earthquake, a tsunami, leaking radiation at a nuclear power plant... Next up, Godzilla emerges from the waters and Mothra will hatch out of an egg and we will have a giant epic battle while the Greek bonds go supersonic.

Poet

 

plato1965's picture
plato1965
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 re QE -> aleph1 and

 re QE -> aleph1 and counting..

As we approach the end of the Fed’s quantitative easing program many are prepared to shout, “QE is dead!” Few realize the old royal salute is more appropriate – “QE is dead, long live QE!” Because an heir to the throne is here and will be with us for a long time. QE has now become a permanent part of the financial landscape of the United States.

The reason is that the size of the Fed’s balance sheet is now so vast that the reinvestment of principal payments from the existing assets will be enough to monetize a large portion of the Federal deficit without having to increase the total size of the balance sheet. The Fed’s balance sheet is to the bond market as Thomas Hobbes’ Leviathan was to society – a monarch beyond the capacity of its subjects to change. Apart from the obfuscation of words like “stocks and flows” coming from Brian Sack at the New York Fed and Ben Bernanke, there’s nothing hidden going on, it’s just a matter of math. The key fact is that while the Fed will not expand the balance sheet, they will not let it shrink either. Keeping the balance sheet unchanged means reinvesting the entire maturing principal on the existing assets. And when the assets are big enough, that reinvestment becomes enormous. This is what is behind the talk of “stocks and flows.” When the stock is large enough, it is the flow.

 Jim Rickards

- full article at:

 http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/3/11_Jim_Rickards_-_QE_is_dead%2C_long_live_QE!.html

 

 (aside.. bonds confuse the hell out of me.. and I'm full of the joys of  homebrew at this minute..

. but I have a gut feeling this is interesting/significant.. )

 

also:  Noticed an interesting talk about the special nature of the Zero bound at the cheviot sound money conference..

theorem - at 0, the Fed has effective control of the whole curve.. no bond vigilante fears.

 http://www.cheviot.co.uk/sound-money-conference/presentations/confessions-of-a-former-bond-bug

 

Poet's picture
Poet
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SailAway's picture
SailAway
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The DOW is up 60pts .... I

The DOW is up 60pts .... I guess there is nothing to worry about around the world today! Frown

guardia's picture
guardia
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Re: Japanese Nuclear Power Plant at Kyodo Leaking
Poet wrote:

Radiation Leakage...
"A Japanese nuclear safety panel says radiation levels are 1000 times above normal in a reactor control room after a huge quake damaged a plant's cooling system."

Evacuations ordered for thousands of people living within 10 kilometers...
http://www.smh.com.au/world/radiation-detected-at-japan-nuclear-plant-20...

Here's some information from GreenPeace on Japan's nuclear safety record (from 2002):
http://www.greenpeace.org/international/en/news/features/japanese-nuclea...

So we've got an earthquake, a tsunami, leaking radiation at a nuclear power plant... Next up, Godzilla emerges from the waters and Mothra will hatch out of an egg and we will have a giant epic battle while the Greek bonds go supersonic.

Poet

LaughingBut seriously.. I remember attending one of those brainwashing session where you have those guys from the Nuclear Research Whatever repeating like 200 times, "but it's 100% safe, nothing bad can happen, you have all those safety mechanisms, blah blah blah, unmanned failsafe, blah blah blah". So I asked them: "What happens if an earthquake of magnitude 8 hits the plant, everybody panics and leaves? Have you actually certified all your equipment under that kind of stress?" One of the old men looked at me like as if something like that would never happen in Japan, while the other guy starts repeating the same BS...

Now, I hope they remember the weird gaijin that asked that question. Will we ever learn?

Samuel

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SailAway
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Nuclear Expert: "Fukushima Has 24 Hours To Avoid A Core Meltdown

"They have 24 hours or so to avoid a core meltdown, he says. But if one occurs, two scenarios could follow: The good outcome would mirror what happened at Three Mile Island, while the bad one could involve what he called a “Chernobyl scenario, where the damage to the reactor was such that the integrity of the structures were damaged."

“There was an explosion and other things happened in there, that opened up the reactor so the inventory of radioactive material . . . went into the atmosphere and generated this deadly plume that we know happened in Chernobyl.

“So that is the ultimate worst-case scenario. Nobody is saying that’s going to happen. Nobody is even saying we’re going to have a core meltdown. But we have a window of time now. We don’t know how much is left — but the Japanese authorities and the government and all the agencies that they can muster are working overtime to get cooling systems on that site powered and working.”

http://www.zerohedge.com/article/nuclear-expert-fukushima-has-24-hours-avoid-core-meltdown-scenario

 

Arthur Robey's picture
Arthur Robey
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And while things are hotting up, why things are hotting up.

This will be brought to your attention.

You might as well git in ahead of the pac.

As for the costs, we foresee 1 cent per kWh for the electric energy, 0,3 cents per thermal kWh, 2.000 Euro per kW of power.

and

Rossi: Absolutely yes. We, as Leonardo Corporation, are searching a Partner industry to install a 1 MW plant. We are open to install the plant at our expenses, if the plant remains our property and we sell to the Customer the thermal energy. This way the Customer risks nothing and we earn from the energy we produce.

My bold.

Question: How much nickel powder is used and for how long can it run before it needs to be replaced? / Jörgen Andreasson

Rossi: In a charge we put about 100 grams and we change the charge every 6 months.

 

Read the rest here.

http://www.nyteknik.se/nyheter/energi_miljo/energi/article3124295.ece

 

 

 

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Arthur Robey
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Thrown onto the street.

I was thrown out onto the street for trying to bring Rossi's device to the attention of the Oil Drum.

It makes me proud.

A man should be judged by his enemies.

I hope they eat Crow.

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RNcarl
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Posts: 382
The next "Big Thing"
Arthur Robey wrote:

I was thrown out onto the street for trying to bring Rossi's device to the attention of the Oil Drum.

It makes me proud.

A man should be judged by his enemies.

I hope they eat Crow.

I hope we all eat crow. I will have mine served cold thank you.

There are physical laws that cannot be broken. My ears tingle when I read that article and see "secret catalyst" Kinda reminds me of an Amway presentation. You know, we all have been suckered in by "friends" to watch the presentation that claims wealth beyond imagine as long as you "believe" enough... and can find more suckers like yourself.

Most of these "break-through" devices are not scalable.

One should never say never.

I hope it works.

 

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AinSophAur
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Posts: 18
8.9 magnitude earthquake and tsunami

 

The devastating 8.9 magnitude earthquake and tsunami that struck northeastern Japan today is bound to affect financial markets around the globe, economists and analysts said.

http://abcnews.go.com/Business/japan-earthquake-tsunami-lawrence-summers-economists-fallout-negatively/story?id=13113670

 

http://www.advisorone.com/article/economic-effect-japan-quake-largely-hit-insurance-companies-regional-exposures

osb272646's picture
osb272646
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Rep. Joe Barton, "Free Market" Advocate For Oil Companies

That's hilarious.  Subsidies are integral to the Free Market mechanism?

I'm so glad we have these geniuses in place to guide our Nation's future.

 

 

 

 

Damnthematrix's picture
Damnthematrix
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nickel energy..??
Arthur Robey wrote:

 

Question: How much nickel powder is used and for how long can it run before it needs to be replaced? / Jörgen Andreasson

Rossi: In a charge we put about 100 grams and we change the charge every 6 months.

100g hey.......  I'd be surprised if you could do that with URANIUM!

Mike

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Arthur Robey
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What are you Americans doing to each other?

This would not be the first time you Americans have talked yourselves out of something new.

Solid state electronics off the top of my mind. Invented in america, realised in Japan.

I think this natural skeptism is a symptom of excessive free market capitilism. You have been exposed to too many snake oil salesmen. Don't worry, Rossi is doing it with his own money you won't be asked to hand over anything.

I understand your attitude, but am dismayed by the negativity.

100g of E=MC^2 is a lot of power. Nuclear is 30 Million times more powerful gram for gram than anything chemical.

My God is not the God of the Gaps,

My God is the God of the Yawning Chasms.

There is a lot we just do not know.  When I hear people tell me that we can calculate everything I know they haven't read The Road to Reality.

http://en.wikipedia.org/wiki/The_Road_to_Reality:_A_Complete_Guide_to_th... By Sir Roger Penrose.

Reality is  wierd.

 

guardia's picture
guardia
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Re: What are you Americans doing to each other?
Arthur Robey wrote:

This would not be the first time you Americans have talked yourselves out of something new.

Solid state electronics off the top of my mind. Invented in america, realised in Japan.

I think this natural skeptism is a symptom of excessive free market capitilism. You have been exposed to too many snake oil salesmen. Don't worry, Rossi is doing it with his own money you won't be asked to hand over anything.

I understand your attitude, but am dismayed by the negativity.

100g of E=MC^2 is a lot of power. Nuclear is 30 Million times more powerful gram for gram than anything chemical.

My God is not the God of the Gaps,

My God is the God of the Yawning Chasms.

There is a lot we just do not know.  When I hear people tell me that we can calculate everything I know they haven't read The Road to Reality.

http://en.wikipedia.org/wiki/The_Road_to_Reality:_A_Complete_Guide_to_th... By Sir Roger Penrose.

Reality is  wierd.

Arthur, let me ask you a question. If cold fusion with nickel or whatever is so great, why hasn't any animal, any baterium, any plant taken advantage of it in the last few billion years?

Samuel

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Thinkor
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re QE -> aleph1 and
plato1965 wrote:

the Fed’s balance sheet is now so vast that the reinvestment of principal payments from the existing assets will be enough to monetize a large portion of the Federal deficit without having to increase the total size of the balance sheet.

...

 (aside.. bonds confuse the hell out of me.. and I'm full of the joys of  homebrew at this minute..

. but I have a gut feeling this is interesting/significant.. )

 

I thought so too, but the more I think about it, the more I think Rickards has made an elementary error at least in his description of what is going on, if not necessarily in the substance of it.

His basic concept, I think, is that the Fed owns $3 trillion of treasuries and other stuff (MBS mostly).  Some of this rolls over every month and the treasury or whoever pays the principal to the Fed for the rolled-over securities.  The Fed can then use these principal payments to finance the Federal deficit.  So, the deficit gets monetized anyway.  The Fed's balance sheet is not reduced.  We have perpetual QE, which means endless monetary expansion.

But that just doesn't seem right. You can't have endless monetary expansion without a net purchase of securities, which expands the Fed's balance sheet.

The Fed expands the (base) money supply by buying securities with money created out of thin air directly in the account of the seller, and it decreases the money supply by selling securities, reversing the process.  This is basic and well known. 

The principal repayment should be the same thing as the resale of the debt represented by the security (or part of it) back to the issuer.  It should be just like the sale of a security and therefore it should reduce the money supply.  When the Fed then uses that principal repayment to reduce the deficit, the money supply is increased by the SAME amount.  Hence, there is no net effect on the money supply. 

Another way to look at it is this:  The treasury has two types of debt, old (incurred in previous periods) and new (incurred this period to handle the deficit).  The old debt has to be rolled-over unless you run a surplus (fat chance of that).  The Fed can apply the principal payment to monetize the deficit, but then it can't apply the principal payment to monetize the reissue of the rolled-over debt.  

You might say "Well, the Fed can create money out of thin air to buy the reissued debt too."  That's true, but then the Fed's balance sheet will expand as it has created the principal amount twice.  Rickards is implying though that the Fed can enter perpetual QE without an expanding balance sheet, just from using principal payments on rolled over debt to buy new debt.

So, I don't understand what Rickards can be getting at.  The Fed must finance an increasing level of debt unless other buyers step in, which they won't.  The Fed's balance sheet must therefore expand.  I think he got on the wrong track earlier when he supposed that the Fed was really planning $900 billion of QE2 when it was planning only $600 billion, because he erroneously included rolled-over debt as part of the QE2 plan.

OTOH, I think this:  Rickards must be right.  He's always right!  That implies I have a  fundamental misunderstanding of the process, but I don't think this is right either.  Contradiction.

Incidentally, I think the fact that some of this is MBS debt doesn't have much to do with the issue, becauseI think the MBS debt is mostly guaranteed now by the government anyway via assurances it gave to Russians and other creditors about backing securities of Fannie Mae and Freddie Mac.

 

 

 

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Thinkor
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re QE -> aleph1 and
plato1965 wrote:

the Fed’s balance sheet is now so vast that the reinvestment of principal payments from the existing assets will be enough to monetize a large portion of the Federal deficit without having to increase the total size of the balance sheet.

...

 (aside.. bonds confuse the hell out of me.. and I'm full of the joys of  homebrew at this minute..

. but I have a gut feeling this is interesting/significant.. )

 

I thought so too, but the more I think about it, the more I think Rickards has made an elementary error at least in his description of what is going on, if not necessarily in the substance of it.

His basic concept, I think, is that the Fed owns $3 trillion of treasuries and other stuff (MBS mostly).  Some of this rolls over every month and the treasury or whoever pays the principal to the Fed for the rolled-over securities.  The Fed can then use these principal payments to finance the Federal deficit.  So, the deficit gets monetized anyway.  The Fed's balance sheet is not reduced.  We have perpetual QE, which means endless monetary expansion.

But that just doesn't seem right. You can't have endless monetary expansion without a net purchase of securities, which expands the Fed's balance sheet.

The Fed expands the (base) money supply by buying securities with money created out of thin air directly in the account of the seller, and it decreases the money supply by selling securities, reversing the process.  This is basic and well known. 

The principal repayment should be the same thing as the resale of the debt represented by the security (or part of it) back to the issuer.  It should be just like the sale of a security and therefore it should reduce the money supply.  When the Fed then uses that principal repayment to reduce the deficit, the money supply is increased by the SAME amount.  Hence, there is no net effect on the money supply. 

Another way to look at it is this:  The treasury has two types of debt, old (incurred in previous periods) and new (incurred this period to handle the deficit).  The old debt has to be rolled-over unless you run a surplus (fat chance of that).  The Fed can apply the principal payment to monetize the deficit, but then it can't apply the principal payment to monetize the reissue of the rolled-over debt.  

You might say "Well, the Fed can create money out of thin air to buy the reissued debt too."  That's true, but then the Fed's balance sheet will expand as it has created the principal amount twice.  Rickards is implying though that the Fed can enter perpetual QE without an expanding balance sheet, just from using principal payments on rolled over debt to buy new debt.

So, I don't understand what Rickards can be getting at.  The Fed must finance an increasing level of debt unless other buyers step in, which they won't.  The Fed's balance sheet must therefore expand.  I think he got on the wrong track earlier when he supposed that the Fed was really planning $900 billion of QE2 when it was planning only $600 billion, because he erroneously included rolled-over debt as part of the QE2 plan.

OTOH, I think this:  Rickards must be right.  He's always right!  That implies I have a  fundamental misunderstanding of the process, but I don't think this is right either.  Contradiction.

Incidentally, I think the fact that some of this is MBS debt doesn't have much to do with the issue, becauseI think the MBS debt is mostly guaranteed now by the government anyway via assurances it gave to Russians and other creditors about backing securities of Fannie Mae and Freddie Mac.

 

 

 

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