03/03/2011 Right before our eyes – How the Wall Street elite minorities robbed us American citizens again with QE 2
I refer to my earlier blog posts about my views and predictions on Quantitative Easing, 11/16/2010 The convenience of profit taking that quantitative easings have provided to the big bond fund players, and 11/04/2010 What do Fed’s quantitative easings and Jerome Kerviel’s big bets have in common? Their last words: My bosses knew it all along and they didn’t stop me.
Since then and now, major influential bond fund managers have successfully sold their long term treasuries in their portfolio holdings of fixed-income securities at historically highest prices to the American taxpayers and made the private club of the Wall Street riches even richer, thanks to the market liquidity using American taxpayers’ money provided to them by their crony connections with those self-professed genius policy makers at the Fed in Washington, DC.
Listening to the Humphrey Hawkins Testimony where Bernanke bewildered the Congressional gathering yet gain with the fancy excuses for the QE 2, I had to give him due credit as the Toastmaster Champion second only to Obama. While there were some questions about whether there are indeed evidences of run-away inflations and debates about how lower interest rates and the flood of liquidity could help create jobs and help the average Joe in America, nobody asked how his QE policy invention had polarized the American people to the extreme, making the rich even richer and the poors are getting nothing left but the bread crumbs.
Since my original blog post on November 16th, many of the SwapRent blog followers who are not very financial market savvy asked the question about how the QE 2 actually helped make this happen. Here is a quick explanation.
Unlike all the previous central bank’s normal activities in providing temporary money into our economic system through temporarily buying short term treasury securities from Wall Street dealers or called doing Repos (Repurchases, i.e. the securities will be purchased back by the dealers from the Fed later on) with major Wall Street dealers, the genius of the QE invention is very different from that. In it the Fed only buys long term securities permanently from bond funds, banks and other financial institutions.
The way the long term bonds behave is very differently from the short term treasury securities that mature earlier. Long term treasuries securities have the highest prices when the market interest rates are low. Their market prices become lower when the interest rates rise.
Among other maturities, 10-year treasuries bottomed some time around October last year with a daily average yield of 2.41% before QE 2 and they peaked with a daily average yield of 3.75% some time in February this year after QE 2 due to the massive dumping of these long term treasuries from the major institutional bond holders to the American taxpayers through the Fed’s QE 2 program at the historically highest prices ever.
Now marking to market of these securities, there would be tremendous losses on the Fed’s balance sheet derived directly from the QE related bond purchasing activities by the Fed. We, the American taxpayers, ended up holding the bag now again as usual and the interest rates will only be going even higher and higher from now on. The losses will only get even worse. It is really funny to think back on how Bernanke aggressively defended his QE 2 program back in November by touting that the QE 2 program would keep interest rate levels low!
Many of the major bond funds managers looked even more like real genius investment gurus these days by having dumped those long term bonds that they held in their portfolios back to the Fed. Without the $600 million liquidity provided by the Fed they would not have been able to do so this easily and at such attractive prices. Many even boasted that they have managed to halve their long term treasury holdings within the past few months. Genius they are indeed and suckers we American citizens have become again, thanks to the Fed.
I have to say there may also have been a case that the Fed itself is in the game using the QE 2 itself as a disguise so that they could help redress the Treasury Department’s or other related parties’ books under the cloak. It would be anyone’s guess since nobody could audit them to let them reveal the truth.
How come there were no questions to Bernanke from any of the Congressmen on these simple facts? As an American taxpayer, wouldn’t you want to find out more about these blatant abuses right in front of our eyes and what had really happened to our money from these Quantitative Easing inventions?