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  • Fed May Have An Unexpected Surprise In Mind

    My readers know that the global financial world is waiting with bated breath for tomorrow’s Fed decision on whether to start to “taper” QE purchases now or wait until next year. The Fed’s Open Market Committee (FOMC) is holding its last policy meeting of the year today and tomorrow, and Chairman Bernanke will hold a press conference afterward.

    The latest surveys indicate that most Fed watchers believe the FOMC will wait until next year to taper, but that remains to be seen. What is actually more interesting is some language that was buried in the minutes from the October 29-30 FOMC meeting. The minutes were released on November 20.

    Within those minutes, we find that the FOMC is considering lowering or removing the interest paid to commercial banks on money they choose to leave on deposit with the Fed. The minutes reveal that at the late October policy meeting, the Committee members discussed the possibility that the FOMC might reduce or eliminate the 25 basis-points of interest the Fed pays to big banks that leave excess reserve deposits at the Fed. This is potentially very big!

    Why would the Fed do this? The minutes suggest that the FOMC believes that reducing or eliminating the interest paid to commercial banks would spur those banks to draw down those deposits and use that money to make more loans, thus stimulating the economy – and pave the way for the Fed to start its QE taper. This is extremely interesting. I’ll lay it out for you today.

    But before we get into that discussion, I’d like to analyze the latest two-year federal budget that was passed by the House last week, and may pass the Senate as early as tonight. The bipartisan budget deal was hailed as a major victory by lawmakers and the White House. But as I will explain below, the latest budget deal represents a sell-out by both political parties.

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  • Fed Offers Bailout of European Banks

    Last Thursday we learned that the US Federal Reserve has decided to make unlimited US dollar loans (swaps) to the European Central Bank (ECB) and directly to European money center banks that are in trouble, at least through the end of this year. And what will the Fed get in return as collateral? Eurodollars that are quickly falling in value as of late. So even as our own economy may be falling back into recession, the Fed sees fit to bail out the European banks that are sinking in sovereign debt from the likes of Greece, Ireland and Portugal.

    All eyes are on tomorrow's Fed Open Market Committee policy statement. The Fed is expected to announce its so-called "Operation Twist" strategy that is intended to lower medium and long-term interest rates, which may or may not work. Some people expect the Fed to comment on its latest decision to make unlimited US dollar loans to European banks, but I will be very surprised if they mention a word about it. They're keeping it very quiet (which is another good reason to read my E-Letters and blog postings).

    Speaking of blog postings, I will write about tomorrow's Fed policy decision on my blog before the end of the day tomorrow. Go to www.GaryDHalbert.com and subscribe to read my take on the Fed's announcement.

    Following the Fed discussion, I will bring you the highlights of the latest report on US poverty from the Census Bureau. Poverty is now at an all-time high. Ditto for the number of Americans that depend on food stamps, according to the Department of Agriculture. These two reports are very troubling.

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