譯者評論：伯南克著有《通脹目標制》，應該就是定量寬松的理論注腳。這次Eric根據美聯儲網站提供的數據計算出來的定量是15倍，伯南克將他的通脹目標定為15倍？從歷史上看，這比1923年德國魏瑪時期和今天的津巴布韋的不定量的惡性通貨膨脹要安全一些。但令人擔憂的是，伯南克的定量，能不能真的定住，因為通貨膨脹有一種神奇的自我加速功能。

2009年3月27日  Eric_deCarbonnel 

美聯儲正計劃通過一些重大舉措將資產負債表規模擴大一倍以上，從1.9萬億美元增加到9月的4.5萬億美元。無論是贊同或關注美聯儲的意圖，大多數評論家并不明白真實的美國貨幣基礎的規模擴大了多少，因為他們沒有考慮到在國外循環美元。

至少有百分之七十的美國貨幣為外國持有，這意味著美國的貨幣基礎遠遠小于美聯儲的整體資產負債表。例如，2008年9月初，在美聯儲開始定量寬松之前的真實的美國國內貨幣供應量。美聯儲網站公布的流通中的貨幣量為8330億美元。這意味著5830億美元在國外流通（70%），2500億美元在國內流通（30%）。由于銀行在聯邦儲備銀行的存款準備金為120億美元，因此到2008年9月為止國內貨幣基礎是2620億美元。到2009年9月注入美國國內的基礎貨幣是38180億美元〔45000－5830（國外流通的美元）－990（其它美聯儲負債部分的貨幣供應量）〕。美聯儲資產負債表的擴張計劃導致了15倍的基礎貨幣供應量的增長（38180億除以2620億）。

這對美國貨幣來說是一個驚人的貶值！這意味著，2008年9月時在美國的一美元，現在聯儲將創造14倍多的美元！

15倍的貨幣增長將無法逆轉

到今年9月，當美聯儲意識到它已經走得太遠并試圖扭轉其資產負債表的擴張時，這將是覆水難收。下面的現實情況將阻礙美聯儲控制貨幣供應量：

1）有毒資產充斥其資產負債表

擴大貨幣供應量是容易的。美聯儲所能做的就是印刷美元去購買資產，卻沒有辦法對其印刷和支出多少美元進行有效的限制

收縮貨幣卻復雜得多。為了收縮基礎貨幣供應量，美聯儲要出售其資產并回收流通中的美元。美聯儲能夠收縮貨幣供應的額度受其資產負債表中資產的市值的限制。由于美聯儲在試圖恢復金融部門的健康的過程中買入了有毒證券，現在坐擁數十億美元的未實現損益。這些未實現損益意味著美聯儲幾乎沒有彈藥可以使貨幣供應量處于可控的范圍內。

到今年9月，如果美聯儲希望逆轉資產負債表的擴張，將貨幣基礎從2620億美元收縮到38180億美元，那么將需要賣出35560億美元的的資產。然而，其資產的市值將只值得其一小部分。

2）對美聯儲行為的政治約束

即使美聯儲努力收縮貨幣，很可能導致對其行動的政治約束：

A) 打折賣出毒資產將使得美聯儲面臨巨大的尷尬并破壞其權威。例如，去年美聯儲拿出290億幫助摩根大通收購貝爾斯登的毒資產時，它向美國人民保證，持有這些證券直至到期，將納稅人的成本降到最低限度。如果美聯儲以一個災難性的折扣賣出貝爾斯登的毒資產，它會引發選民和國會議員的極大憤怒。

B) 以低于賬面價值賣出資產將迅速導致美聯儲的所有者權益變負。美聯儲將需要來自財政部的新債來充實資本金，這將增加美國的債務。

3) 如果美聯儲開始出售資產，其資產負債表擴張所得收益將盡失

美聯儲正在積累有毒的抵押貸款支持證券，長期國債和其他資產，以解凍信貸市場和刺激經濟增長。出售這些資產將導致信貸市場和金融體系的崩潰，而這正是美聯儲一直拼命阻止的。

利率上調的壓力

上述問題中最重要的是，美聯儲將面臨復雜的困境，即美國國債和其他美國債券的收益率向上的壓力。這種向上的壓力可能會迫使美聯儲將國債貨幣化，這個額度將遠遠超過它已經宣布購買的3000億美元，這將使美聯儲控制貨幣供應量的任何努力更加復雜化。

以下是導致收益率走高的九大因素：

1) 海量供應的國債

財政部為了2009年的巨額赤字進行融資所出售的國債將毫無疑問地迫使收益率走高。根本沒有足夠的買家來吸收這種國債供應。

2) 作為一種儲備資產，國債在2009年將面臨巨大的拋盤壓力

人們錯誤地認為國債可以作為避風港，因此看好國債。事實并非如此。這種邏輯忽略了一個事實，即儲備資產，如國債，在景氣時儲備，在不景氣時賣出。聯邦和國家機構將出售國庫儲備。例如，聯邦存款保險公司將出售國債償還破產銀行的儲戶存款，失業信托基金將出售國債支付給失業人員。

國家和地方政府將出售國庫儲備。由于預算問題惡化，國家已經開始動用儲備。這些儲備的大部分仍然存在，今年他們將被出售一空。

銀行和保險公司將出售其國債損失準備金。金融機構已就去年同期的違約增長預期，建立其國債貸款損失準備金。

外國央行將拋售其外匯儲備庫。沙特、俄羅斯、印度、日本等國為了彌補其赤字或避免本幣貶值，均預計會賣出他們的美國國債。

甚至中國為了調整其美元儲備，也將成為美國國債的賣家。中國政府已經發出了明確信號，它正從被動轉為主動管理其儲備，并正在探索更有效的方式以動用儲備來支持其國內經濟發展。

3) 退休基金已不再流入美國國債

30多年來，由政府退休基金支持的國債不斷積累，幫助吸收了國債的供應。這種政府債務的積累確保了嬰兒潮時代人們的退休壓低了美債收益率和基金赤字開支。截至2008年9月，最大的四大基金共持有3.3萬億國債。

今天，由政府退休基金累積的國債已經結束了。嬰兒潮一代開始退休，資金外流增加，失業率上升，流入國債的資金被切斷。更重要的是，這些基金積累的3.3萬億美元國債產生了一個巨大的防止國債價格崩潰政治動機。面對國債的運行，政治家將指示美聯儲將國債貨幣化，而不是去解釋嬰兒潮一代的退休儲蓄都消失了，單這點就將阻止美聯儲逆轉其目前的資產負債表的擴張。

4) 信用違約掉期（CDS）市場去杠桿化將推高風險溢價

53萬億的CDS市場正威脅著金融體系的償付能力，其主要威脅是所有債務有巨大的風險溢價。

風險溢價抬高的原因在于以下的恐怖事件：

1.25-6萬億美元的合成CDOs，

15倍杠桿比率的恒定比例債務CPDOs，

80倍杠桿比率的信貸衍生工具產品公司CDPPs，

由于這些杠桿投資工具賣出了大量的保險，CDS的保費急劇下降，使得公司的債務似乎更安全，利率更低。53萬億的CDS市場創造了人為的債務低風險溢價。不幸的是，現在鐘擺正向相反方向運動，痛苦才剛剛開始。

出于對政府違約的擔心，保險成本持續上升將破壞美元的信心。CDS市場告訴我們10年期國債的風險已比兩年前高100倍。

5)黃金套利交易平倉

美國貨幣供應的大規模擴展無疑將推動黃金價格高好出幾倍，并迫使黃金套利交易平倉。

為了了解黃金套利交易平倉的威脅，有必要了解美國和英國的金融機構是如何使自己陷在一個巨大的黃金空頭頭寸的，這些頭寸使得他們永遠無法逃走。如下五個步驟使得華爾街不斷重復走向毀滅。

第1步：華爾街擁抱了虛假的范式

“房屋價格永遠不會下降”

“黃金是一個遺跡文物”或“黃金處于一個長期的下跌趨勢”

第2步：華爾街制造數十億擁抱這個虛假的范式...

美國/英國的金融機構通過制造抵押貸款并使其證券化取得了數十億美元費用。

美國/英國的金融機構通過黃金套利交易賺取了數十億。

精英金錠銀行有機會向中央銀行借入實物黃金，租賃利率為1 ％，然后到公開市場上出售，并立即投資高收益的“安全”投資，獲得巨大的利潤。它似乎并不容易。中央銀行必須從他們的金黃擠壓收益率。借款人必須出售黃金，再投資于收益率為4 ％左右10年期美國國債，獲得套利交易的回報。

第3步：在這個過程中制造一個災難性的混亂

巨大的房地產泡沫

次級的CDOs平方

資產負債表外的投資工具SIVs

等等                

商業銀行和投機者成為無處逃遁的黃金空頭。約翰.哈撒韋在1999年的文章《黃金金字塔》中描述了這些荒謬的空頭。

市場一直在認真地關注短缺的菜單。在市場頓悟之前需要一些收尾。紙黃金和實物黃金之間不會有任何的和解，也沒有和解的意圖直到逼空。疲軟的信用分析和監管，以及紙黃金和實物黃金之間許多含糊不清的聯系，只有在黃金永遠是保持下跌趨勢的超級信心中才能清楚。信托和信心對平衡依賴于三個關鍵性錯誤的黃金衍生產品金字塔至關重要：金礦儲量=實物黃金，黃金應收款=在手的黃金，金融市場會一帆風順下去。

信托只不過是一種心理狀態。

第4步：可怕的錯誤

次優抵押貸款借款開始違約

住房價格暴跌

----- -----

1999年關于黃金的華盛頓協議簽署后黃金價格暴漲（歐盟中央銀行同意限制黃金的銷售/租賃）。

雷閣.豪在他的關于中央銀行面臨的深淵的報告中描述了黃金的熊市陷阱。

1999年9月在華盛頓特區舉行的國際貨幣基金組織和世界銀行年會結束時宣布的華盛頓協議限制未來五年用于期貨和期權的黃金官方銷售/租借額度，聯系到歐元區主要的中央銀行對同年5月英國宣布拍賣黃金的反應，華盛頓協議造成了黃金價格的急劇上揚。

沒過幾天，空頭交割，黃金價格從265美元上漲幾乎達到330美元每盎司。黃金租賃費率上升到9 ％以上。這次暴漲令主要黃金被銀行完全驚慌失措，當時的英國央行行長愛德華.爾喬治描述了這次恐慌。

如果黃金價格進一步上漲，我們期待又一次的深淵。因此，中央銀行不惜任何代價平息和管理黃金價格。控制黃金價格是非常困難的，我們現在已經取得了成功。美聯儲和英格蘭銀行都非常積極地讓黃金價格下跌。

盡管想方設法“讓黃金價格受到控制”，美國/英國倫敦的金錠銀行（JP摩根，匯豐銀行，等...）一直作為黃金空頭存在至今。

第5步：美聯儲和英國盡一切力量“拯救金融系統”

蘇格蘭皇家銀行紓困

貝爾斯登紓困

房地美/房利美紓困

美國/英國的定量寬松

諸如此類

毫無疑問，黃金價格已經被抑制，但稱這個過程是“陰謀”并不準確。美國和英國對黃金價格的抑制可以更好地定性為一個絕望的掩蓋。

雖然黃金套利交易和黃金抑制的副作用是降低利率，但從未達到這樣的效果。希望維持利率也不足以推動美聯儲和英國央行操縱黃金價格。唯一的威脅是美國/英國金融系統的徹底崩潰驅動了對黃金的壓制。解除黃金套利交易可能（和將會）把一些最大的美國/英國銀行拖下水（摩根大通，匯豐銀行，等... ），這就是為什么必須不惜任何代價阻止的原因。

遠離任何形式的紙黃金：GLD（匯豐銀行托管），黃金池和未分配的黃金賬戶，黃金期貨等... 這場危機結束前紙黃金投資是肯定會違約的。

除了遠離無處逃遁的黃金空頭部位，黃金套利交易也降低國債和其他美國債券的收益率，由于商業銀行通過出售從中央銀行借來的黃金和其他裸空頭部位而獲得投資收益。

出脫黃金套利交易，購買實物黃金，平倉黃金空頭頭寸。

當美聯儲開始將貨幣基礎擴大15倍（邏輯上黃金價格至少是今天的10倍），平倉黃金套利交易似乎迫在眉睫。

6) 在國外流通的5800億美元的回流

過去的三十年中，不斷流出的5800億美元有助于降低美元利率。

例如，如果100億美元流出美國開始在國外流通，美聯儲需要打印100億美元以購買國債來補充國內貨幣供應。因此外國持有的5800億美元導致美聯儲購買5800億的國債，因而美國債務需求在不斷增加。

雖然海外積累的美元在過去是有利的，但今天流通在外國人手中的美元卻構成了威脅。隨著美元替代貨幣越來越容易得到，海外美元的回流美國在快速增加，主要替代美元的貨幣有：

A) 正成為國際貨幣的人民幣（譯者注：中國央行通過與周邊國家或地區的貨幣互換，對美元儲備產生了極大的擠出效應，這些國家或地區的國際儲備貨幣部分換成了人民幣。）

B) 卡力吉, 一個可能有黃金支持的海灣國家發起的新的貨幣（譯者注：石油美元將被極大地擠出。）

C) 有部分黃金支持的歐元

D) 黃金

此外，美聯儲現在已經開始加速貨幣創造，可能會加劇大量持有美國貨幣的外國人對通貨膨脹的擔憂。當持有美元的外國人的信心遭到削弱，他們將會把手中的美元換成等價的替代品（人民幣，歐元，黃金等... ），將大量的美元貨幣送回美國。

如果美聯儲不能減少貨幣供應來抵消回流的海外美元，通貨膨脹的后果會導致海外美元回流加速。

7) 利率衍生品的噩夢

利率衍生品所構成的威脅也許是迄今為止最大的，也是最難理解的。首先要說明有關利率掉期市場的規模，據維基百科的解釋：

國際清算銀行報告稱利率掉期全球場外衍生工具市場的最大組成部分。2006年12月場外利率掉期名義金額是229.8萬億，增長了60.7萬億(比2005年12月增長了35.9%)。這些合同占整個415萬億場外衍生工具市場的55.4 ％，根據同一消息來源，截至到2007年12月該數字上升到309.6萬億。

利率掉期的增長創造了債券的需求，因為許多利率衍生品需要購買債券作為對沖。

羅布.科比在他的文章“虛幻利率”中揭示了這個真實的龐氏騙局。由于因為債券交易隱含嵌入在這些利率掉期的交易中，因此創造了債券的需求。沒有最終用戶需要這個產品－“為了交易而交易”創造了對債券的人為需求。這個操縱壓低了真實的利率水平。

利率掉期最初制定是為了允許對手以利息支付流交換另一方的現金流，管理固定或浮動的資產和負債，以及投機－復制那些暴露于風險利率變動的非基金債券。前兩項活動的增長依賴于對這些產品需求不斷增長的最終用戶。

JP摩根（花旗、美國銀行）的利率掉期背書太大以至于已發行或現有的美國政府債券都不足以充分對沖他們的頭寸。

這意味著對發行人來說，利率衍生工具無恥地爆炸性增長壓低了所有的長期利率，以確保所有的美國政府債券在以往任何時候對買家都有吸引力。

與此同時，黃金價格也被美聯儲指定的銀行以黃金期貨空頭的形式壓制了，這些銀行還從事主權中央銀行的實物黃金租賃的經紀業務。吉布森悖論認為，歷史上，低利率會導致高金價，因此黃金價格必須被操縱。強勢金價在歷史上就是弱勢美元的代名詞，而弱勢美元意味著更高的融資成本或資本外逃。

與黃金套利交易一樣，利率掉期產品的爆炸式增長通過創造債券需求而降低了利率水平，我不確信這是否是陰謀的一部分。

就我從信貸危機期間所看到的來說，華爾街的奇才（制造次級CDO平方以及其它的恐怖產品）和美聯儲似乎更象孩子玩炸藥，而不是一個催生巨大陰謀的主謀。

利率掉期構成更大的威脅

除了創造人工需求債券，利率掉期市場構成的系統性風險超過了CDS市場，因為其規模巨大，且每份利率掉期合同都可能導致無限的損失。

在貨幣崩潰中（伯南克增加15倍的貨幣供應量） ，利率緊隨通貨膨脹達到天文數字的高度。惡性通貨膨脹時隔夜貸款和利率達到5-6位數是常見的，而且，如果發生在美國， “做空掉期” 的任何人（在利率掉期中的浮動利率付款人）會被全部遺忘。至少是在CDS市場，對投資者的損失是有一定限制的。

8) 過度杠桿化的歐洲銀行持有的8萬億美元的資產清算

在過去十年里，歐洲銀行大幅增加了它們的美元資產，這有助于降低美國的利率，吸收大部分的美國越來越多的債務。到2007年年中，他們的美元多頭部位增長到8000多億美元，這8000億杠桿化之后是持有8萬億美元的美國資產。這些美元頭寸的低資本充足率是銀行監管機構可以接受的，因為歐洲銀行被允許申請更多的杠桿，只要他們購買的是評級為專用AAA級的證券。

不幸的是，在過去18個月中，我們已經知道AAA級并不總是AAA級。

當歐洲銀行所購買的大量AAA級證券是國債，其中一些AAA級證券是優先級的證券化貸款仍然明顯接近歐洲銀行的資產負債表，盡管它們的市值只有70美分。歐洲銀行面臨的唯一問題就是持有美元的巨大的未實現損失。

另外一種損失就是美元基金。歐洲銀行使用巨大的杠桿來購買有毒的AAA級資產，這些資金來自于美國貨幣市場基金的貸款。雷曼違約后導致了些貨幣市場基金大規模撤出，歐洲銀行失去了數十億美元的資金。

如果歐洲銀行被迫出售他們的8萬億美元資產，這將使信貸市場崩潰，他們也不得不承受巨量損失。由于美聯儲誓死防止美國金融系統崩潰，它已借給歐洲銀行6000億美元貸款，以使他們不必被迫出售這些資產。與此同時，歐洲的銀行接受了這6000億美元因為他們不愿意承認那些有毒的美國證券造成的損失。

這些過度杠桿化的歐洲銀行接下來會發生什么？

如果以歷史為參考，美國金融體系的前景是不樂觀的。

“當美國經濟陷入衰退，美國銀行收回貸款，導致德國銀行體系的崩潰”。

同樣的事情會發生在2009年，除非角色逆轉。這次是歐洲銀行收回貸款、拋售美元資產，導致美國銀行系統的崩潰。

為什么歐洲銀行會出售美元資產？

答案很簡單：擔心美元崩潰。

由于美聯儲將貨幣基礎增加了15倍，等待受損資產恢復到初值的策略將變得毫無意義：未來一年內美元可能失去十分之九的價值，等待70美分的資產恢復到初值是毫無意義的冒險。

9) 通貨膨脹預期

大蕭條時期的經驗已經令美國被凱恩斯主義思想主導，即擔憂通貨緊縮。其結果是認為在目前的金融危機中通貨膨脹預期是不存在的。然而，對即使是最強硬的通縮主義者，美聯儲擴大貨幣基礎15倍的最新計劃應該停下來。事實上有人擔心，因為美聯儲周三的聲明已導致了美元巨大的崩潰：美聯儲龐大的貨幣擴張和美元的下跌將很快增加通貨膨脹和通貨膨脹預期。反過來這將對美債收益率形成向上的壓力。

結論

過去三十年中，美國的長期利率持續平穩下降。

過去三十年穩步增長的美國經濟基本面現在正在變得更糟糕。例如，2006年美國的經常帳赤字幾乎達到GDP的百分之九，經濟學家通常認為百分之四便是無法持續的。還有美國的長期預算赤字和預計的大規模社會保障的不足。

更不可思議的，在過去6個月，經濟面臨解體和國債供應的大規模擴張，長期國債的收益率一直在下降。世界的運作正好相反：當財務狀況良好的借款人減少，其利率應該上升。唯一合理的解釋是，有些聯合的力量人為地驅動利率下降。驅動利率下降的這些力量在今天是威脅和問題，必須在金融危機結束前加以解決：

美國預算赤字

貿易赤字和大量持有的國債儲備

CDS市場

黃金套利交易

流通在海外的5800億美元

歐洲銀行積累的8萬億美元資產

利率掉期市場

凱恩斯思想主導的美國經濟和財政政策

原文鏈接：

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”

-----

“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.

-----

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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