Mr. Bigs Plan
At Seeking Alpha, Asbytec was fathoming my Pimp Daddy reference for the Fed found in The Feds Quandry with Uncle Ed. "Maybe we should call the Fed, Babbo Magnaccio, in Italian slang, Magnaccio means "Pimp", Babbo means "Daddy".
The Nattering One muses... When I refer to "Pimp Daddy", I refer to the Fed in the sense that they handed out "free dime bags of heroin" as in debauched dollars to everyone in the world. Cheap dollars meant profitable arbs or carry trades, as in borrow in dollars to buy bonds (or whatever). The dollar junkies went about their merry way profiting from arbitrage with the cheap dollars.
More dollars circulating, more dollar transactions, more dollar debt, as in they also issue it "offshore dollar debt" and buy it to make their carry trades, more dollar "customers" or junkies. Just when you have everyone "hooked", and have wiped out your competition (other currencies Euro, Yen, Franc)...
you squeeze the supply of "acceptable" collateral in the system by taking $12 trillion in toxic MBS (issued by intermediaries) off the table, then implementing new collateral standards for banking (Basel III), whilst still maintaining that acceptable HQC (high quality collateral) or HQLA (high quality liquid assets) are as stated in no uncertain terms from the TBAC Q2-2013 pg 55: "whatever the central bank dictates".
What happens? There is now a shortage of "acceptable" collateral. The Fed will cheerfully accept crap collateral (MBS) at the repo window in exchange for "moneyness", dime bags of methadone in the form of T-bills. The price of your dime bags goes way up because the next best thing to your currency is now... your bonds and T-bills. This self reinforcing loop is a contributing factor to artificially low interest rates and the rise of the dollar.
In conclusion, you don't need to be an economist or have a Phd (Piled High and Deep) to figure out what The Fed has done. A little common sense and street smarts goes a long way in ascertaining that "Pimp Daddy" has executed Mr. Big's plan from the 70's Bond film "Live and Let Die"... flood the street with free heroin, wipe out the competition (other dealers cant compete with low and no cost), get more customers hooked. When the dust seems to settle, start charging whatever you want for those dime bags because there is no competition left, and you are the only game in town for those dollar junkies. As Nattered about originally here,
The Nattering One muses... When I refer to "Pimp Daddy", I refer to the Fed in the sense that they handed out "free dime bags of heroin" as in debauched dollars to everyone in the world. Cheap dollars meant profitable arbs or carry trades, as in borrow in dollars to buy bonds (or whatever). The dollar junkies went about their merry way profiting from arbitrage with the cheap dollars.
More dollars circulating, more dollar transactions, more dollar debt, as in they also issue it "offshore dollar debt" and buy it to make their carry trades, more dollar "customers" or junkies. Just when you have everyone "hooked", and have wiped out your competition (other currencies Euro, Yen, Franc)...
you squeeze the supply of "acceptable" collateral in the system by taking $12 trillion in toxic MBS (issued by intermediaries) off the table, then implementing new collateral standards for banking (Basel III), whilst still maintaining that acceptable HQC (high quality collateral) or HQLA (high quality liquid assets) are as stated in no uncertain terms from the TBAC Q2-2013 pg 55: "whatever the central bank dictates".
What happens? There is now a shortage of "acceptable" collateral. The Fed will cheerfully accept crap collateral (MBS) at the repo window in exchange for "moneyness", dime bags of methadone in the form of T-bills. The price of your dime bags goes way up because the next best thing to your currency is now... your bonds and T-bills. This self reinforcing loop is a contributing factor to artificially low interest rates and the rise of the dollar.
In conclusion, you don't need to be an economist or have a Phd (Piled High and Deep) to figure out what The Fed has done. A little common sense and street smarts goes a long way in ascertaining that "Pimp Daddy" has executed Mr. Big's plan from the 70's Bond film "Live and Let Die"... flood the street with free heroin, wipe out the competition (other dealers cant compete with low and no cost), get more customers hooked. When the dust seems to settle, start charging whatever you want for those dime bags because there is no competition left, and you are the only game in town for those dollar junkies. As Nattered about originally here,
Comments