Gold and silver down?

[P3ter_Griffin]

It is my understanding that the Fed, in setting a .25% interest rate target, will buy the bonds necessary to do so. And then QE is $85Bln a month on top of that for purchasing bonds and MBS from banks.

On a CCTV program today I heard QE described as what central banks do when manipulating bond rates to zero doesn't work.

So I asked John Kicklighter about this today and it seems like my understanding is incorrect.

Me:

If QE ends, fed will still buy bonds as needed to keep .25% interest rate, right? So fed balance sheet may not flat-line?

Him:

They don't need to purchase assets to manipulate the benchmark rate. They simply set it. QE and rate level are separate.

So, by keeping the benchmark rate low they will still provide arbitrage opportunities to institutions who can borrow from the fed, i.e. borrow at .25% and invest in Tbills at 2% (or whatever rate is prevailing), but I've come to see and agree with what you (devil21) are saying; that if the fed is no longer willing to purchase bonds from the banks, and the banks can get higher returns elsewhere, it would make sense that they'd move the money they are borrowing at .25% away from treasuries and into higher yielding investments.

I still can't see how they'd try to justify continuing QE (not that our politicians make them), but at the same time I realize they will do anything to keep Tbill rates from rising. I'm intrigued to see what happens next.

 

[The Gold Standard]

They don't need to purchase assets to manipulate the benchmark rate. They simply set it. QE and rate level are separate.

They can't just declare the rate and it is so. If the market demands higher than .25% interest rates, then the Fed will absolutely have to keep purchasing assets to keep them that low.

 

[P3ter_Griffin]

They can't just declare the rate and it is so. If the market demands higher than .25% interest rates, then the Fed will absolutely have to keep purchasing assets to keep them that low.

That was my thoughts too. But the rate they are setting-- the benchmark rate-- is simply the rate which borrowers from the fed have to pay, its not open for market participants to find a free market rate. You are correct though, if we're talking about interest rates, or treasury rates, then they would have to buy assets to effectively set the rate.

 

[Okie RP fan]

I could see silver bottoming out around $19-$20 this Summer, but, nothing lower. I will be shocked if it goes any lower. It hasn't been $18 since I bought my first silver coin at a political convention about 4 years ago.

Hey, thank the strong U.S. dollar! I'm happy to see gas prices falling during the middle of Spring.

 

[Zippyjuan]

So I asked John Kicklighter about this today and it seems like my understanding is incorrect.

Me:


Him:


So, by keeping the benchmark rate low they will still provide arbitrage opportunities to institutions who can borrow from the fed, i.e. borrow at .25% and invest in Tbills at 2% (or whatever rate is prevailing), but I've come to see and agree with what you (devil21) are saying; that if the fed is no longer willing to purchase bonds from the banks, and the banks can get higher returns elsewhere, it would make sense that they'd move the money they are borrowing at .25% away from treasuries and into higher yielding investments.

I still can't see how they'd try to justify continuing QE (not that our politicians make them), but at the same time I realize they will do anything to keep Tbill rates from rising. I'm intrigued to see what happens next.

Banks borrowing from the Fed is basically zero. If you want to get more than the 0.25% the Fed is offering on excess reserves, you must buy Treasuries of longer than two year terms (three year notes are currently yielding only 0.36%- that is a long time to tie up money at that rate of return). http://www.treasury.gov/resource-ce...interest-rates/Pages/TextView.aspx?data=yield

Total borrowing of financial institutions currently (as of March 2013) is only $394 million- yes, million with an "m".
http://research.stlouisfed.org/fred2/series/BORROW

Total Borrowings of Depository Institutions from the Federal Reserve (BORROW)

2013-03: 0.394 Billions of Dollars

Banks aren't borrowing at 0.25% from the Fed and then investing it in Treasuries or anything else- they aren't borrowing from the Fed period. In fact, the actually have LOANED (via excess reserves kept at the Fed) the Fed $1.6 trillion they are not investing in anything.

 

[oyarde]

Banks borrowing from the Fed is basically zero. If you want to get more than the 0.25% the Fed is offering on excess reserves, you must buy Treasuries of longer than two year terms (three year notes are currently yielding only 0.36%- that is a long time to tie up money at that rate of return). http://www.treasury.gov/resource-ce...interest-rates/Pages/TextView.aspx?data=yield

Total borrowing of financial institutions currently (as of March 2013) is only $394 million- yes, million with an "m".
http://research.stlouisfed.org/fred2/series/BORROW

Banks aren't borrowing at 0.25% from the Fed and then investing it in Treasuries or anything else- they aren't borrowing from the Fed period. In fact, the actually have LOANED (via excess reserves kept at the Fed) the Fed $1.6 trillion they are not investing in anything.

Correct , the Fed is a shit sandwich .

 

[Okie RP fan]

Golly, Provident has kept their prices steady, not a drop from what I can tell, at least nothing significant. They have a serious premium with their purchases but let me say that the service up to this point has been great and quick.

 

[Bossobass]

US gold belongs to the US Treasury. The Fed (acting as banks do) stores the gold for them. The Fed does not own any of the gold they store.

The gold 'owned' by the US Treasury is supposed to be in Fort Knox, not 'stored' CB vaults.

As I posted in the other thread, according to Alan Greenspan, the semantics of ownership of US gold are irrelevant:

On July 24, 1998, Alan Greenspan: “Central banks stand ready to lease gold in increasing quantities should the price rise.”

More recently, as a result of GATA FOIA requests, a Fed Governor responded:

"In connection with your appeal, I have confirmed that the information withheld under Exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you."

You may argue all you want about the official version of gold ownership in the US, but the Fed leases gold, swaps gold and swaps gold for currency all day long... off balance sheet and without oversight. They do so to suppress the cost of gold against the USD (and their friends' fiat currencies at other CBs).

Ron has questioned various Fed officials about this for decades:

Last week, during a congressional subcommittee hearing on Domestic Monetary Policy, Ron Paul asked Fed General Counsel Scott G Alvarez if the Federal Reserve engaged in gold swaps. He followed that up with general questions about the Fed’s position on gold. Most notably, the representatives of the Fed responded by explaining that the Fed did not own any gold but only owned gold certificates from the 1930′s and the U.S. gold reserves are actually owned by the U.S. Treasury.

Ron Paul also has inquired about whether the gold in Fort Knox has been accounted for, responding to rumors that all the U.S. gold may not actually be in Fort Knox.

IOW, RP has repeatedly asked the Fed about the truth of these matters. Ron knows the answers to all of the questions he's asked Greenspan, Bernanke, et al, but he repeatedly asked them publicly so that YOU would become aware, which apparently you have chosen to ignore in favor of the "official versions" of the Fed and US Treasury Department.