The Sunshine Report

Veritas Financial Partners
Information about finance, the economy and business. Entertaining and informative. Seeking Alpha Certified Mark Sunshine Chairman & CEO

Category Archive: Federal Reserve

  1. Who’s Gonna Bail Out The Fed?

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    The Fed­eral Reserve is putting its future at risk by ignor­ing its own likely finan­cial results when it raises inter­est rates. Sim­ply put, ris­ing inter­est rates will hurt the Fed by mak­ing inter­est costs higher and asset val­ues lower.

    While the Fed isn’t like any other bank in Amer­ica, it is still sub­ject to the immutable rules of math and inter­est rate risk. If the Fed starts to earn less on its invest­ments than it pays in inter­est on its deposits, it will lose money.

    That is exactly what the Fed is fac­ing when inter­est rates rise — that it will pay more for deposits than it earns on its investments.

    Taken in iso­la­tion the Fed’s bal­ance sheet looks more like an over­lever­aged hedge fund than a shin­ing exam­ple of pru­dent risk man­age­ment. The Fed has almost no cap­i­tal to back up its big macro bet on inter­est rates and the shape of the yield curve. Higher inter­est rates or an inverted yield curve where long-term assets yield less than short-term assets will cause prob­lems. [read full story]

    Posted in: economy, Federal Reserve, Finance, Monetary Policy, Politics, Public Policy, UNITED STATES

  2. Gold Bugs Beware Of Fed Extermination

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    Today I heard it again on the car radio — an adver­tise­ment claim­ing that since gold has topped $1,500 an ounce it’s a “must buy” for every respon­si­ble saver.

    If only it were true that I could pro­tect my fam­ily from eco­nomic Armaged­don by buy­ing gold.

    Unfor­tu­nately, the hard facts are that increas­ingly since 2000 gold has been the oppo­site of an infla­tion hedge. Even worse, when inter­est rates rise in response to infla­tion, gold will fall in value, and maybe by a lot.

    The his­tor­i­cal rela­tion­ship of gold to infla­tion, i.e., that it is a hedge, is no longer true. Gold has been “finan­cial­ized” by Wall Street and its price is being dri­ven by insti­tu­tional spec­u­la­tors that buy it by bor­row­ing money at near 0% inter­est. As long as inter­est rates remain low, the cost of bet­ting on gold is very low and money flows into the gold market.

    As gold prices soar indi­vid­ual investors need to beware. One day inter­est rates will start to rise and gold prices will plum­met. Inno­cent vic­tims that buy gold because of a mass mar­ket sales pitch will be sorry.

    My strong advice to read­ers is don’t be a gold bug. It’s only a mat­ter of time before the Fed exter­mi­nates you. [read full story]

    Posted in: BLS, commodities, CPI, economy, Federal Reserve, Finance, Gold, Inflation, Investments, monetary policy, Public Policy

  3. Federal Reserve Truth in Lending Rules Needs To Go Back To Grammar School

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    I have received a big response to my recent arti­cle about credit card bills and whether or not con­sumers are being over­charged. A lot of frus­trated read­ers have pri­vately e-mailed me with their own very strong over­charg­ing suspicions.

    For­tu­nately, the credit card over­charg­ing prob­lem can be fixed with sim­ple solu­tions that can be imple­mented imme­di­ately. Every day gram­mar school kids learn three basic lessons which if applied to bank credit card billing will instantly solve the prob­lem. The three lessons are…

    Show your work
    No free do overs
    What’s good for the goose is good for the gan­der. [read full story]

    Posted in: BANKS, economy, Federal Reserve, Finance, Politics, Public Policy, REGULATION, Regulatory Reform

  4. And Now For Some Really Bad Economic News…

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     The U.S. econ­omy has a long way to go before the eco­nomic recov­ery will be either sus­tain­able or robust.  Mon­e­tary indi­ca­tors don’t look good and are once again get­ting worse.  I am con­cerned that the finan­cial sys­tem hasn’t recov­ered enough for the Fed­eral Reserve to with­draw from its pro­gram of quan­ti­ta­tive eas­ing.   While most of the […] [read full story]

    Posted in: BANKS, Credit Crisis, Economic Statistics, economy, Federal Reserve, Finance, Liquidity Trap, M1, M2, Monetary Policy, Money Supply, Politics, Public Policy

  5. Bank Compensation Limits – The Federal Reserve Follows Through

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    Last week’s late break­ing news that the Fed­eral Reserve was fol­low­ing through on its plan to change how it reg­u­lates bank com­pen­sa­tion is being fol­low up by this week’s G-20 meet­ing on how bank com­pen­sa­tion curbs can be inter­na­tion­ally coor­di­nated among the large economies. Sur­pris­ingly, how­ever, the media is act­ing as if reg­u­lat­ing bank com­pen­sa­tion is a new issue. It isn’t new at all but rather a prob­lem that they chose to for­get about for the sum­mer. [read full story]

    Posted in: Bank Compensation, BANKS, Credit Crisis, economy, Federal Reserve, Finance, Politics, Public Policy, REGULATION, Regulatory Reform

  6. The Hyper-Inflation Myth

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    Con­ven­tional wis­dom is that the Fed’s print­ing presses are run­ning over­time and the econ­omy is awash with liq­uid­ity.  Just yes­ter­day the National Asso­ci­a­tion for Busi­ness Eco­nom­ics reported that almost half the econ­o­mists they sur­veyed believed that Fed­eral Reserve Pol­icy is infla­tion­ary.  Too bad the NABE sur­veyed econ­o­mists and con­ven­tional wis­dom are wrong. Econ­o­mists, pun­dits and jour­nal­ists […] [read full story]

    Posted in: BANKS, Economic Statistics, economy, Federal Reserve, Finance, Inflation, monetary policy, Money Supply

  7. The New Supersized Fed

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    Fed watch­ers need to stop pan­ick­ing when they look at the new super­sized Fed bal­ance sheet and mon­e­tary base. The Fed’s bal­ance sheet doesn’t nec­es­sar­ily mean run­away infla­tion is in our future or that the Fed is out of con­trol. The Fed got super­sized because Bernanke & Com­pany came to appre­ci­ate the U.S.‘s spe­cial role […] [read full story]

    Posted in: Bernanke, economy, Excess Reserves, Federal Reserve, Finance, monetary policy, Money Supply, Politics, Public Policy

  8. What If The Fed’s Isn’t Printing Money Like A Drunken Sailor?

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    What if con­ven­tional wis­dom about the Fed is wrong and it isn’t print­ing money like a drunken sailor? Well…that would make most of the media cov­er­age of the bond mar­ket and the econ­omy wildly off the mark. As it turns out while media talk­ing heads were rant­ing about how the Fed was run­ning their print­ing presses […] [read full story]

    Posted in: Bernanke, Brad Setser, Economic Statistics, Federal Reserve, Finance, M1, M2, M3, monetary policy, Money Supply, Politics, Public Policy

  9. Don’t Worry About The Debt Tsunami

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    It looks like in the next few years newly issued Trea­sury and agency guar­an­teed res­i­den­tial mort­gage debt may cre­ate a debt tsunami that will swamp the econ­omy. For­tu­nately, looks can be deceiv­ing. While inter­est rates are likely to rise for both long matu­rity Trea­sury notes and bonds and agency guar­an­teed res­i­den­tial mort­gage debt, ris­ing rates […] [read full story]

    Posted in: Credit Crisis, Economic Statistics, economy, Federal Reserve, Finance, monetary policy, Money Supply, Public Policy
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