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Archive for the ‘market’ Category

The U.S. Treasury has given ten banks, including Goldman Sachs Group Inc. and Morgan Stanley the go ahead to buy back almost $68 billion of government shares, which will effectively free them government oversight and political interference.

Other banks which are said to have met government approval are
JPMorgan, American Express Co., Bank of New York Mellon Corp., BB&T Corp., Capital One Financial Corp., Northern Trust Corp., State Street Corp. and U.S. Bancorp.

The repayments come almost eight months after the Treasury provided nine banks with the first $125 billion from the $700 billion TARP fund.

Amongst banks which didn’t win approval are Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.

Treasury Secretary Timothy Geithner said, “These repayments are an encouraging sign of financial repair, but we still have work to do”, and Jennifer Thompson, who is an analyst at Portales Partners LLC in New York said, “They’re in some ways picking winners and losers. There might initially be somewhat of a cloud lifted off the banks that are able to repay TARP”.

The Treasury announced today, June 9th, that combined with repayments that have already been received from twenty other firms, the government will have gotten back about $70 billion so far, and added that dividend payments on the shares issued to the government under the Capital Purchase Program total about $4.5 billion to date, including $1.8 billion from the ten banks that have now been released.

The treasury statement also noted that, “Proceeds from the TARP repayments will help reduce the federal government’s borrowing and the national debt”. “The repayments also boost the cushion to respond to any future financial instability that might otherwise jeopardize economic recovery”. “Firms buying back the government’s preferred shares also have the right to repurchase warrants the Treasury holds at fair market value”.

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By flooding the financial system with money, Federal Reserve Chairman Ben S. Bernanke is seemingly betting that the country’s highest jobless rate in 25 years, combined with the most idle factory capacity on record, will hold down inflation, and it’s textbook Keynesian economics.

If Bernanke’s gamble pays off, then he and the whole Obama administration will be viewed as saviors, but if instead, Milton Friedman’s theories prove correct, and the country lurches from the present financial crisis into rampant inflation, then they will not be so kindly remembered.

Several statements that have recently been made by experts suggest that Bernanke is batting on a very sticky wicket, and many of them have stated on record, their belief that reflation is still in its early stages, and they have pointed out that there are already signs of growing inflation.

John Brynjolfsson, who is the chief investment officer of the hedge fund Armored Wolf, said in a recent TV interview, “We’ve got at least nine innings of reflation ahead of us, ultimately ending with probably double-digit inflation”.

Allan Meltzer who is the Fed historian, and a professor of political economy at Carnegie Mellon University in Pittsburgh says, “If history is any guide, then the effort will end in tears and inflation will get higher than it was in the 1970s”.

Consumer prices rose at a year-over-year rate of 13.3% at the end of the ‘70s, mainly because political pressure from Richard Nixon’s White House prevented Chairman Arthur Burns from removing liquidity as quickly as was then necessary.

Former Fed economist John Ryding, who is the founder of RDQ Economics LLC in New York, concurs with Melzer and says that the central bank will be slow to withdraw all the excess cash it has injected into the financial system. “They pay lip service to inflation being a monetary phenomenon, but they’re too much concerned with the Keynesian explanation of inflation”.

The signs that are said to be pointing strongly to inflation are;

• A swelling Fed balance sheet that has climbed $1.2 trillion in the past year to $2.09 trillion.

• M2, which is a broad measure of the money supply that includes checking accounts and money-market mutual funds, rose in the last six months at an annual rate of 14% which is up from 6.3% a during the last decade.

• Copper is now at a five-month high and platinum reached a six-month peak on April 9th and there are those that expect oil prices to double from the present price of $52 a barrel now.

Moreover, Ken Mayland, who is the president of ClearView Economics LLC says he sees, “oil prices increasing to “$80, $90, $100 before the end of next year. All that money is going to find a home”.

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