The White House on Saturday challenged the ruling by Standard & Poor's to downgrade U.S. long- term credit rating form top rank of AAA to AA+, citing the agency' s decision relied on faulty math and in haste.
Disappointingly, instead of reflecting on themselves and sitting down to fix problems in a cooperated way, the Democrats and Republicans in Washington are questioning the creditability of the downgrade ruling and blaming each other for the ever-first shame of slipping out top credit rating club.
The alarm has rung. It is time for the naughty boys in Washington to stop chicken games before they cause more damages. It is time for the policy-makers in Washington to settle down, to show some sense of responsibility and fix their fiscal problems.
Just when you think you've had enough, here comes Italy. The European Central Bank is buying Italian and Spanish government bonds on a massive scale. From the ECB press statement:
The Governing Council of the European Central Bank (ECB) welcomes the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.
The Governing Council underlines the importance of the commitment of all Heads of State or Government to adhere strictly to the agreed fiscal targets, as reaffirmed at the euro area summit of 21 July 2011. A key element is also the enhancement of the growth potential of the economy.
The Governing Council considers essential the prompt implementation of all the decisions taken at the euro area summit. In this perspective, the Governing Council welcomes the joint commitment expressed by Germany and France today.
The Governing Council attaches decisive importance to the declaration of the Heads of State or Government of the euro area in the inflexible determination to fully honour their own individual sovereign signature as a key element in ensuring financial stability in the euro area as a whole.
Of course we're paraphrasing. Regardless, this is in essence what the Federal Reserve, the FDIC, the NCUA and the Comptroller of the Currency said, translated, in a jointpress release, issued way into the night on a Friday.
Who says the Federal Reserve isn't good for something? They just made $80.9 billion dollars in 2010.
The Federal Reserve Board on Monday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $78.4 billion of their estimated 2010 net income of $80.9 billion to the U.S. Treasury. This represents a $31.0 billion increase in payments to the U.S. Treasury over 2009 ($47.4 billion of $53.4 billion of net income). The increase was due primarily to increased interest income earned on securities holdings during 2010.
On the other hand, what they made the money on are securities from Freddie Mac and Fannie Mae, or GSEs, U.S. Treasuries and those infamous mortgage backed securities or toxic assets them purchased.
The long awaited day is here. In the spirit of QE2, aka quantitative easing part II, the Federal Reserve has announced $600 billion in U.S. Treasury purchases:
The Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
Also, the thing every one knows, they will keep the Federal Funds Rate at effective zero and sure doesn't look like they will raise it anytime soon:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
Kansas City Fed President Thomas M. Hoenig voted against this.
But wait! There's more. From the New York Federal Reserve press release is appears they are actually buying up about $900 billion U.S. Treasuries de facto.
The TIC reports has some damning news on Foreigners dumping U.S. Treasuries, especially China.
Firstly, what is the TIC? TIC stands for Treasury International Capital Data and it is a monthly report on who has bought and sold all stocks and bonds coming in and out of the country.
The Treasury International Capital (TIC) reporting system collects data for the United States on cross-border portfolio investment flows and positions between U.S. residents (including U.S.-based branches of firms headquartered in other countries) and foreign residents (including offshore branches of U.S. firms)
The flight to safety is reaching fever pitch again.
(Bloomberg) -- Treasury one-month bill rates turned negative for the first time in 10 months, as issuance declines while investors seek the most easily-traded securities amid a renewal of risk aversion.
The rate on the four-week security dropped to negative 0.0101 percent, the lowest since it reached negative 0.015 percent on March 26. The Treasury sold $10 billion of four-week bills on Jan. 26 at a rate of zero percent, the second auction of the securities in three weeks at zero percent. Winning bidders will receive no interest on their investment.
Why is this happening? What are the markets afraid of?
It helps to read global newspapers because according to Shanghai Daily:
It is getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.
People that bought long-dated treasuries, those betting on deflation, in the first quarter of 2009, lost BIG this year.
Long-term Treasury bonds are on track for their worst year in at least three decades. The Barclays 20-plus-year Treasury index has posted a total return of -20% in 2009.
...
The U.S. household sector bought a net $178 billion of Treasury securities other than savings bonds during the acute phase of the crisis, between last October and this past March, according to Federal Reserve data.
Households and nonprofit organizations were actually net sellers during the fourth quarter of 2008, when Treasury prices were soaring as financial institutions around the globe scooped up safe U.S. government obligations.
Who says the Federal Reserve isn't good for something? They just made 
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