As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.
I have noticed two disturbing matters that will most certainly come as a result of the Fed MBS program.
1. The funds from the Fed purchases will rotate to the Too Big To Fail Banks. This debt is already junk bond status due to the nature of the underwater mortgages and delinquencies, hence the reason for the new Fed goon Squad going after borrowers.
This debt will be as bad or worse than the debt of Greece, Spain and Italy, rated CCC-
2. The banks receiving these funds will rotate the money immediately into short term treasury securities that will be priced at NIRP. the reason for that follows:
3. As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.
4. The Social Security Trust fund must make at least 5-6% return to maintain its balance and provide income to the SS recipients. The TF is still guaranteed to go bankrupt by 2033, 21 years from now. The TF is required by law to invest in Treasury bonds. The actuarial problem now facing the TF is that they will be rolling old bonds yielding 5.6% into a yield pool averaging 1.4%, a 75% drop in income. This dramatic yield drop coupled with a 60% increase in SS recipients from 50 million to 91 million in the next 10 years will assure the TF will go bankrupt in about 10 years.
This irreducible math is going to prove an insurmountable obstacle to those who are recently retired, have long live genes or plan to retire in the next 10 years. If the SS TF goes bankrupt then benefits will be cut by 25% . Inflation adjustments were never able to front run the lost in income. The inflation rate of 8% today and 15% tomorrow will destroy the senior investment pool.
Another few unintended consequences of QE 3. Thanks Ben. May you rot in hell!
When in 1994 Business Week exclaimed “They’re back!” about teenagers,
the United States was a different place. Their baby boomer parents
could afford teenagers buying pizzas, going to concerts, purchasing
clothes, cosmetics, CDs, cars and computer games like never before.
Today, the country is stricken by poverty, as 50% of the population
sits at or below the poverty line. Since the market collapse in 2008,
while pundits and “authorities” pushed dope-like propaganda about
“Greenshoots” and the “Recovery” incomes fell more than ever in American history.The teenager in 1994 was an advertiser’s wet dream – a consumer group with loads of free time and the disposable income of their parents to pursue a life leisure. In 2012, it had fallen to the wayside, a battered corpse of diminishing returns as the teenager went from worrying about social norms to lamenting public education and work as a teenager..
Although the teenager declined in numbers from 1977-1992, starting in the mid nineties it began to ride a population crest that guaranteed young adults the spotlight in American consumer culture. After all, the teenagers’ most valuable purpose is to be a blank slate and a consumer or so popular mythology sways us to believe.
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