Federal Reserve

Wells Fargo Is Now A Primary Dealer: Why?

The New York Fed’s list of primary dealers gained a new member yesterday: Wells Fargo. For those who aren’t familiar with primary dealers, those are the banks who have a special relationship with the Federal Reserve System and the US Treasury. They are required to bid at Treasury’s auctions of new federal debt, they are required to engage in open market operations, and they are required to provide information to the Fed’s trading desk. Much of the mainstream coverage of Wells Fargo’s admission to the list has focused on its being a major player in bond markets. But is that really why Wells Fargo was added to the list?

Janet Yellen to Meet with President Obama

News outlets are reporting that President Obama is set to meet with Federal Reserve Chairman Janet Yellen tomorrow. Coming two weeks before the Fed’s next FOMC meeting, a meeting that some have speculated might see another interest rate increase, what might be on the docket? Will Obama urge Yellen to hold off raising interest rates until after the election so that the next economic collapse won’t happen until after the November election? Will he urge another round of quantitative easing? Inquiring minds want to know.

Today in History: April 5, 1933

On April 5, 1933, President Franklin D. Roosevelt issued Executive Order 6102, requiring all gold coin, gold bullion, and gold certificates to be surrendered to the Federal Reserve Banks or to banks that were members of the Federal Reserve System. With very limited exceptions, it was now illegal for Americans to own gold. This state of affairs lasted until 1975. It was the movement to legalize gold ownership in the United States that influenced a young doctor in Texas to make his first forays into politics. That young doctor is known and beloved by millions today: Dr. Ron Paul. Even out of something as evil as outright gold confiscation, something good came about.

Full text of the Executive Order is below.

What the Federal Reserve Could Do

The financial media is abuzz with speculation about what the Fed will do next, and whether it will decide to hike the federal funds rate target at its April Federal Open Market Committee (FOMC) meeting. There is a lot of speculation too as to what the Fed might do in the event of another recession or financial crisis. Some recent articles at the Brookings Institution delve into that possibility. And what is the first potential policy action discussed? Negative interest rates.

Hold Onto Your Hats, Price Controls May Be On The Way

If you thought negative interest rates were as bad as it could get with central banks, you might be in for a surprise. Central banks have been so spectacularly unsuccessful with their accommodative monetary policies that they are discussing pulling out all the stops to get the results they want. They fail to realize that the reason prices aren’t rising is because they really want and need to fall. Bad debts weren’t liquidated during the last financial crisis, the debtors were merely bailed out. Overpriced assets weren’t allowed to be reduced in price. Central banks pumped trillions of dollars into the economy to attempt to paper over the recession. Market forces want to drive prices down, while central banks attempt to prop them up. So what to do when central banks aren’t getting their way?

When Will Bullard Flip Next?

Image: St. Louis Fed

Image: St. Louis Fed

If this weekend busted your NCAA bracket, why not start up a new betting pool? Bet on how long it will be before St. Louis Fed President James Bullard changes his mind again. Bullard, if you’ll recall, issued the famous “Bullard Put” in October 2014, stating that the Fed should consider delaying ending its policy of quantitative easing. However, a few short months later he had taken a hawkish bent, advocating for an interest rate increase. A couple months after that, while still advocating for rate increases, he said that the Fed should cut rates if the initial rate liftoff were to shock markets. In August 2015, Bullard stated that turmoil in markets shouldn’t delay the first rate hike, and continued to support a rate hike in October even though he acknowledged that market turmoil might make it difficult to hike rates. Bullard continued his hawkish bent through 2015.

Janet Yellen’s Press Conference Translated from Fedspeak into English

As we occasionally like to do, we have translated Fed Chairman Yellen’s most recent FOMC press conference from FedSpeak into English. If you don’t want to read through the raw transcript, or don’t want to be put to sleep by watching the video replay, the translation below will give you everything you need to know.

YELLEN: Good afternoon. Today we decided to keep our accommodative monetary policy intact. We really have no idea what we’re doing, and markets have decided that they don’t want rates to rise too far above zero. And when they get angry, we get scared. So we’re just going to hold off and do nothing. As usual, we have come up with a bunch of projections for economic growth and the unemployment rate that have no correlation to reality and will be proven to be inaccurate, but not before we majorly screw up the economy, so the joke’s on you guys. We’ll continue to parrot the party line that job growth is great and ignore the fact that most of that growth comes among old people, part-time workers, and service industry jobs like waiting tables. But hey, a nation of waiters is still a great nation, am I right?

Inflation is still lower than we want it to be even though we’ve pumped a ton of money into the system. Of course, that’s because we’ve jiggered the figures to be low on purpose because that gives us an excuse to shovel more money to Wall Street. So just keep looking at these pretty dot plots and ignore how rich my buddy Jamie Dimon is getting. Don’t these dots here look like a fat dreidel? And hey, this dot plot looks like a bishops’s mitre. How fun!

Of course we do have a sinking feeling that things aren’t quite as rosy outside the US. But that’s because we’re not in charge over there. Rest assured, when China collapses and Japan and Europe fall into depression we’ll put on our most important-looking faces and act like we’re doing something other than peeing our pants. We’ll do substantive things and speak substantive words and you’ll know that they’re substantive because we’re doing and saying them. Substantive, that’s us. Oh yeah, and we won’t be raising rates again this year because Wall Street told us it’s not nice, so just forget about that “normalization” thing we’ve mentioned in the past.

But you Potemkin journalists didn’t come hear to hear to me talk, you came to hear yourselves talk, so let’s get on to the questions.