Notes From Underground RE-RELEASE: Remember, Ben Bernanke is a ’37er and He Promised Milton Friedman

In light of the FED‘s FOMC STATEMENT and convoluted forecasting yesterday, we’re reissuing an oldie from June 2, 2011. We’ll be back Sunday night but for now, the ’37ER is doing his work.

Notes From Underground: QE Or Not QE? What a Silly Question

It is that time on the calendar when the FOMC gathers to discuss the economic landscape and analyze the output of flawed models to set a course with the a strong sense of absolute certainty of their convictions … at least until the next crisis. Many analysts are spewing the concept of another QE program so as to give the recent improving data some extra lift to insure that the recent growth has legs. It would be a bad decision for many reasons but the top three arguing against any new QE program are:

Notes From Underground: Charles Dallara, Send In the Eunuchs to Prevent Getting Screwed

As the tragedy/comedy of negotiations over the private sector involvement (PSI) in any form of debt relief for Greece continues, it is important to remember that the Institute of International Finance (IIF) has no real leverage in the situation and is merely trying to attain some type of outcome better than the supposed 90% haircut. The IIF represents the interests of large and medium banks as it seeks a compromise that is “fair” to all parties. Let’s remember that while the large banks are pressing for a better deal, many of them are being bailed out by the LTRO program put in place by the ECB.

Notes From Underground: Can the Obama Administration Please Find People Who Haven’t Been Responsible For Failed Policies?

The Obama Administration has taken recycling way too far. There is a rumor that former economic adviser Larry Summers is a potential nominee for President of the World Bank. Is there no one else besides these retreads who have represented and worked for the FINANCIAL-POLITICAL COMPLEX? Summers is a horrible choice as he has been tainted by his work and exorbitant compensation for several Wall Street firms. The idea that the World Bank president has to be an American is a throwback to the times when it was ok to fight anti-colonial wars around the globe and at the same time using the World Bank’s funds to buy friends and influence people no matter how tyrannical the regime.

Notes From Underground: An OPEN LETTER To BOJ Governor Shirakawa, Finance Minister Azumi

Today, IMF MANAGING DIRECTOR CHRISTINE LAGARDE announced that she would try to raise more capital to shore up the IMF‘s balance sheet as to be able to aid the peripheral nations of the European Union. Ms. Lagarde was going to approach the members of the G-20 to provide additional funds to prevent a further assault on the European sovereign debt by securing funds to support the troubled sovereigns. The IMF director will be depending on the BRICS and Japan to increase their contributions so as the IMF may actually be able to help GREECE and PORTUGAL meet immediate funding needs and let the ECB and EFSF do the heavy lifting for Spain and Italy. (At this time, the U.S. said they will not be contributing.)

Notes From Underground: The Bank of Canada Holds Rates Steady, Or, Anything But European Debt

This morning the Bank of Canada (BOC) voted to keep rates steady as 1% as Governor Mark Carney voiced concern over the troubling situation in Europe. The BOC noted that weakness in the EUROPEAN ECONOMY could spread as more austerity is applied to the profligate peripheries. The Canadians are in a difficult situation as the growth in household debt is growing because of continued low rates and this is causing angst with economic policy makers. Finance Minister Flaherty noted that the Canadian government may have to find other ways to halt the increase in household borrowing. I am not a fan of Mr. Flaherty but it is nice to see a government actually thinking ahead of the problem and looking for ways to “LEAN AGAINST THE WIND.”

Notes From Underground: S&P, The Insider’s Trading Edge

It is startling to think that the S&P downgrades could have any sort of effect on the markets. The sovereign debt markets have been telling those who are attentive that not all countries in the European Union are equal. Several of the GIIPS have had interest rate yields far above those of the German benchmark for almost two years. Even the French 10-year note has widened to 150 BASIS POINTS over the German 10-year BUND during the last six months. DO WE REALLY NEED S&P OR OTHER RATING AGENCIES TO CERTIFY WHAT THE MARKETS HAVE BEEN SAYING?

Notes From Underground: Bernanke, Housing Fails to Provide Economic Foundation

In a BLOOMBERG article published today, “Bernanke Doubling Down on Housing Bet Asks Government to Help,” it appears that the Obama administration and the FED are in sync that something needs to be done to lift the moribund residential real estate market. This is certainly not a new development but it shows how the FED is at a loss to explain how the ultra-low interest rate policy for the last three years has FAILED to stem the decline in housing prices and ultimately foreclosures. The FED and others don’t want to admit that this IS A BALANCE SHEET RECESSION.

Notes From Underground: U.S. Treasuries, A Fixed Market That Is Badly Broken

One of the most important elements to the purpose of the financial markets is to be an indicator of flawed policy. If money is too loose, the BOND VIGILANTES will assure policy makers that it is time to tighten by pressuring BOND YIELDS higher. As Bill Clinton’s attack dogJames Carville so elegantly stated: “I want to be reincarnated as the bond market because it intimidates everyone.” The huge FED QE PROGRAM has temporarily castrated the BOND market as FED INTERVENTION means that the BOND VIGILANTES lack the fortitude to signal the markets. Even the EUROPEANS have momentarily silenced the market by the huge liquidity pump via the LTRO program with another LTRO coming at the end of February.

Notes From Underground: Unemployment, No Surprises

The unemployment data released on Friday revealed no great surprises as the nonfarm payrolls were right in line with consensus. The markets also offered up no real divergences from the norm as the S&Ps rallied but by day’s end the U.S. equities closed basically unchanged (although the NASDAQ continued to outperform all other indices.) The EURO currency dropped further and wound up losing 1.7% for the week even while the S&Ps gained 1.7%.