Why is the U.S. Government Still Hiding Financial Crisis Documents?

Here here to former Lazard partner turned Wall St. author/historian William Cohan and his fighting the good fight to obtain public documents from the U.S. government related to financial firms such as Goldman Sachs.

As the Euro Rolls Over, Why Hasn't Gold Rocketed?

In early May of this year, with the euro hovering in the $1.46-$1.48 range, I disagreed vehemently with euro bulls such as portfolio manager Axel Merk who argued that the common currency was no longer vulnerable to a sell-off (see Merk's May 11 FT article titled 'Dollar in graver danger than the euro' and my counter arguments here, here, and here). 

Merk's argument was basically that in 2010, when the euro sank to a low of $1.18, the currency served as a proxy for the sovereign debt crisis. Now, however, investors were shorting sovereign debt directly and, according to Merk, recognized that it is a lot harder for the ECB to print euros than it is for the Fed to print dollars.

For awhile, as you can see from the below chart, it appeared that Merk perhaps had made a good point. From May the euro has shown remarkable resilience; for the last six months one sovereign after another has white knuckled its way through uncertain debt auctions and ever higher interest expense. Meanwhile the ECB kept its 'bazooka' semi-holstered with purchases of sovereign debt apparently capped at €20 billion per week. While the euro did soften from mid-May onwards it was able to keep it's head above the $1.40 mark for the summer and a good chunk of autumn.

Click to enlarge

Continue reading the full article at Seeking Alpha here.

The Fed's $1.2 Trillion in Secret Bank Loans

Interactive chart detailing previously secret Federal Reserves loans to each bank here. Bloomberg deserves an award for their doggedness and reporting on this issue.

Fed President Hoenig Opens-up on Why He (in Fedspeak) 'Went Off the Reservation'

Kansas City Fed President & FOMC Member Tom Hoenig

FOMC-member Thomas Hoenig explains why he has been the lone dissenting vote against the Fed's zero interest rate policy (ZIRP), which is coming up on an extraordinary three years.

Link to audio recording include Q&A here, and below is a brief bio:

Thomas M Hoenig is president and chief executive officer of the Federal Reserve Bank of Kansas City. He assumed the role of president on October 1, 1991, making him the longest serving of the 12 current regional Federal Reserve Bank presidents. He is senior member of the Federal Reserve System's Federal Open Market Committee, the key body with authority over national monetary policy in the United States.

Play the ECB's New Monetary Policy Game

The European Central Bank's previously released web-based game (ironically titled 'Euro Run') must have been a smashing success because it has created yet another game. This latest one allows you play armchair central banker; a virtual Ben Bernanke or Jean-Claude Trichet so to speak.

Question: which of the following would you rather have your central bank investing time/energy in and printing money to pay for:

a. recently released comic book created by the New York Fed
b. the ECB's above video games
c. none of the above

Federal Reserve Public Relations in the YouTube Age

The Federal Reserve and its policy of quantitative easing (aka printing money) both have serious image problems. Significant controversy and disagreement has been generated recently by the Fed's QE2 program, resulting in an ongoing communications battle between the Fed's advocates and critics.

This amusing cartoon video, which 'explains' quantitative easing and the current economic situation in a rather simplified (and in some instances erroneous) fashion, has already generated nearly 3 millions views on YouTube. The video's appeal is undeniable: we were all children once upon a time and are practically hardwired to trust cute, entertaining cartoon characters.

Meanwhile the Federal Reserve is hardly sitting idly by. Its New York branch has taken a slightly more high-brow approach with this comic book, a medium typically reserved for pre-teens and up. Like the cartoon, the comic book attempts to explain how the Federal Reserve system and monetary policy work to someone unfamiliar with macroeconomics.

The comic book builds on Ben Bernanke's 60 Minutes television interview and Washington Post QE2 op-ed in that both reflect the Fed's understanding that it needs to engage in more public outreach. The historically secretive Fed correctly recognizes that business as usual won't work anymore.

The comic book also demonstrates the Fed's understanding that to get its message across it will need to employ a media strategy that goes beyond its usual menu of press releases, speeches, and well-timed leaks to news reporters like the WSJ's John Hilsenranth.

But how effective are the Fed's new openness and media strategy?And at what point does the Fed's communication cross the propaganda line?

Some, including influential Yale Professor Robert Schiller, argue that government policies should be purposely shrouded in what is effectively 'Newspeak'. For example, Schiller makes the case that "bailouts" should now be called "orderly resolutions". This framing, Schiller states, can help to ensure that the public 'gets it' when the economic going gets tough.

Perhaps more so than at any other point in its history, the Federal Reserve is under the public spotlight. Discussion of putting an end to the Fed's dual mandate of price stability and full employment is openly being considered.

Whether or not the Fed's mandate should or will change is an open question. However, it appears unlikely that Fed secrecy, as it has been historically been practiced, will survive.

Has Federal Reserve Secrecy Become Untenable?

The most interesting aspect of the Fed's new 'quantitative easing' announcement (aka QE2 ) was not its $600,000,000,000 price tag.

Nor Fed Chairman Ben Bernanke's op-ed in the Washington Post which stated that a key benefit of QE2 is higher stock prices.

I believe the most interesting, and perhaps significant, questions relate to the impact on the Fed's ability to maintain secrecy in wake of the unprecedented media coverage of QE2.

A Well Telegraphed Event

Regular Fed watchers of course know that an oft used Fed strategy is to communicate upcoming policy shifts through speeches and leaks to the press well in advance of the actual vote and formal policy change announcement. The Fed's thinking here is that this strategy provides time for market participants to acclimate to an upcoming policy change, thereby avoiding a sudden (and perhaps unwelcome) monetary surprise.

Anyone following the general financial press was probably aware no later than September that QE2 was going to be announced at the November Fed meeting. Media coverage of QE2, including my first writeup, began appearing as early as June.

The Fed's Balance Sheet: More Room to Grow?

There is a lot of speculation and debate about what will happen to the Fed's balance sheet going forward. Recently St. Louis Fed President and FOMC voting member Jim Bullard has called to expand it further. Tonight the WSJ reports that the Fed is contemplating using the "cash the Fed receives when its mortgage-bond holdings mature to buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually". This idea has been dubbed 'QE lite', as opposed to full 'QE2'.

Sometimes a good graphic really helps to put things in perspective. Courtesy of the WSJ's Real Time Economics blog is this interactive Federal Reserve assets chart.

The chart headline refers to the Fed's "balance sheet". But in small print you read that it is actually charting just the Fed's assets. The full Fed balance sheet would also include liabilities, which are not shown. (If you're curious about what the Fed's liabilities are comprised of take a look at the green paper in your wallet or purse, and you can learn more here and here.)

Why are the Federal Reserve's assets important? Simply put, the Fed's assets equal the money printed by the Fed. In other words, for an asset like a U.S. Treasury bill to wind up on the Fed's balance sheet it must be purchased by the Fed. And the money to purchase that Treasury bill is created (printed) by the Fed. Welcome to the only place in America where in fact money grows on trees!

Looking at the chart two things jump out:

1. The parabolic 'hockey stick' curve. Fed assets shot upwards from roughly $800 billion pre-financial crisis in 2007 to today's $2.3 trillion.
2. The increase in the different types of assets held on the balance sheet

Prior to the crisis the Fed's balance sheet was pretty simple: basically $800 billion in U.S. treasury securities. Now it contains everything from former AIG and Bear Stearns junk assets, to loans to other government's central banks, to who knows what until the one-time Fed audit is completed (see below video).

Looking at the value of the U.S. Dollar and U.S. government debt, so far the market's reaction to the the tripling in size of the Fed's balance sheet has been relatively benign. But can present values be sustained through another round of Fed "quantitative easing"?