Hussman Weekly Market Comment: "Should Come as No Shock to Anyone"
Increasingly, the Fed has decided to forgo the idea of repurchase agreements (which require the seller to repurchase the security at a later date), and is instead making outright purchases of the debt of government sponsored enterprises (GSEs such as Fannie Mae and Freddie Mac). Again, the Fed used to purchase only Treasuries outright, but it is purchasing agency securities with the excuse that these securities are implicitly backed by the
This strikes me as a huge mistake, because it effectively impairs the Fed's ability to get rid of the securities at the price it paid for them, should Congress change its approach toward the GSEs. It simultaneously complicates Congress' ability to address the problem because Bernanke has tied the integrity of our monetary base to these assets. The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.
- Hussman Weekly Market Comment: A Wile E. Coyote Market
The overall effect of the incoming economic data is to suggest that while upcoming earnings reports may be reasonably good from a rear-view perspective of the second quarter, earnings guidance for the second-half of 2011 could tend to be either weak or...
- Hussman Weekly Market Comment: Outside The Oval / The Case Against The Fed
Ever since the Bear Stearns bailout, I've been insistent that the Federal Reserve is increasingly operating outside of its statutory boundaries. As I noted in the March 31, 2008 weekly comment (What Congress and Investors Should Understand about the...
- Hussman Weekly Market Comment: Bubble, Crash, Bubble, Crash, Bubble...
Last week, the Federal Reserve confirmed its intention to engage in a second round of "quantitative easing" - purchasing about $600 billion of U.S. Treasury debt over the coming months, in addition to about $250 billion that it already planned to purchase...
- Hussman Weekly Market Comment: Bernanke Leaps Into A Liquidity Trap
Simply put, monetary policy is far less effective in affecting real (or even nominal) economic activity than investors seem to believe. The main effect of a change in the monetary base is to change monetary velocity and short term interest rates. Once...
- Say Goodbye To Fannie And Freddie - By William Poole
Found via The Big Picture. THE Federal National Mortgage Association — known as Fannie Mae — and the Federal Home Loan Mortgage Corporation — Freddie Mac — were poorly structured from the time, 40 years ago, when they were set up as so-called...