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Old 03-18-2009, 01:12 PM
 
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Fed to buy up to $300B long-term Treasury bonds - Yahoo! Finance (http://finance.yahoo.com/news/Fed-to-buy-up-to-300B-apf-14680154.html - broken link)
ASHINGTON (AP) -- The Federal Reserve announced Wednesday it will spend up to $300 billion over the next six months to buy long-term government bonds, a new step aimed at lifting the country out of recession by lowering rates on mortgages and other consumer debt.


That will more than replace consumer credit from the numbers I see which was a 50 billion dollar decline from the usual 100 billion dollar growth.

FRB: G.19 Release--Consumer Credit--March 6, 2009
2004 2005 2006 2007 2008 r Q4 Q1 Q2 Q3 r Q4 r Nov r Dec r Jan p
---------------------------------------------------------------------------------------------------------------------------------------
Percent change at annual rate 2
Total 5.5 4.3 4.5 5.5 1.7 4.1 4.8 3.9 1.5 -3.2 -4.2 -3.5 0.8
Revolving 3.8 3.1 6.1 7.4 2.2 7.7 7.6 3.5 4.5 -6.7 -7.1 -9.5 1.2
Nonrevolving 3 6.4 4.9 3.6 4.4 1.4 2.0 3.1 4.2 -0.4 -1.1 -2.5 0.1 0.6

Amount: billions of dollars
Total 2191.6 2285.2 2387.7 2519.0 2562.6 2519.0 2549.0 2574.1 2583.5 2562.6 2570.1 2562.6 2564.4
Revolving 799.8 824.5 874.6 939.5 960.4 939.5 957.3 965.8 976.7 960.4 968.1 960.4 961.3
Nonrevolving 3 1391.8 1460.7 1513.1 1579.5 1602.2 1579.5 1591.7 1608.3 1606.8 1602.2 1602.0 1602.2 1603.0



So that leaves the business sector. So now the question is, will new money creation from the wretched FRB system move toward real capital or will it
restart consumer credit where we don't have a prayer at real recovery? So unless new debt rotates into productive capital this only postpones dooms day. However it was the correct thing to do given this system....finally.
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Old 03-18-2009, 02:08 PM
 
Location: Great State of Texas
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Without job and/or job security not many people will start getting into debt again via "cheap credit".
I don't think it will work. They are feeding the symptoms not solving the problem.
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Old 03-18-2009, 02:16 PM
 
Location: Backwoods of Maine
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Quote:
Originally Posted by gwynedd1 View Post
will it restart consumer credit where we don't have a prayer at real recovery? So unless new debt rotates into productive capital this only postpones dooms day.

This is exactly what they are trying to do...reinflate the debt bubble. They figure that the "American Way of Life" now automatically involves consumer and business debt, and that "normal" will return if they can just get banks lending and people borrowing.

Not gonna happen. People don't want any more debt right now, and won't for a long time. It's destined to fail. Welcome to the "new normal"!
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Old 03-18-2009, 02:17 PM
 
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Quote:
Originally Posted by HappyTexan View Post
Without job and/or job security not many people will start getting into debt again via "cheap credit".
I don't think it will work. They are feeding the symptoms not solving the problem.

Hi HappyTexan,

Oh I tend to agree which is why I have ultimate skepticism. However 300 billion will now be purchased by the Fed which means 300 billion in government spending will not be raised from the existing money supply. This was a mere component of what I would have done. To replace low quality credit why did they not just lower taxes and even give tax rebates from 2008 to tax payers to create a large deficit and then have the treasury buy up the debt? That would have replaced the bank credit money shortage. Now this is grown through the government spending program.

As I continue to say take your pick from interest free government credit or interest bearing commercial credit which is now severely constricted. Someone needs to be in debt if we intend to use debt as money.
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Old 03-18-2009, 02:43 PM
 
Location: Great State of Texas
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So in this act of desperation, the Fed will buy Treasuries. Does that mean China has stopped or plans to not "feed this beast" anymore ?

This is bad news and yet the market it up. Although Gold is up too..odd market today..odd.
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Old 03-18-2009, 02:45 PM
 
20,629 posts, read 19,289,703 times
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Originally Posted by Nor'Eastah View Post
This is exactly what they are trying to do...reinflate the debt bubble. They figure that the "American Way of Life" now automatically involves consumer and business debt, and that "normal" will return if they can just get banks lending and people borrowing.

Not gonna happen. People don't want any more debt right now, and won't for a long time. It's destined to fail. Welcome to the "new normal"!
Hi Nor'Eastah,

I have been reviewing traditional MBA business macroeconomic theory with respect to Fractional Reserve Banking . I am an MBA drop out myself( decided to be a Unix guy) but I have recently reviewed the FRB theory. Here is why there is an army of finance major drones, with whom I have my most ferocious battles, don't get it. They are given productive capital equipment models.

The model is an FRB loan is given to say a farmer and when he finances capital equipment his production will go up and thus his capital appreciation will rise and support the interest. Naturally this new money will need to come from new loans but the is more capital to absorb the new loans. Consider that If I have a hundred bushel capacity and now have a two hundred bushel capacity, even if I was loaned up at a hundred bushel capacity I now have 50% equity in the operation because it expanded the capital. So all the finance students who did not fall asleep go "OK".

Now what happens with FRB banking applied to dead housing capital and consumption? The end of the road. We are loaned up, and it cannot perpetually expand. This kind of debt cannot expand very long because no real equity or production occurs. Housing for the most part increased due to asset inflation caused by the positive feedback loop of inflation, inflation hedge asset appreciation. This distorted valuations and income to housing ratios. A healthy housing market is one where there once was 100 houses and now there are 200 houses with stable prices, not a 110 houses now worth double. Instead of expanding the money supply elastically to absorb new productive capital, consumer credit and dead capital expanded as inflation but was concealed by unproductive personal assets of housing and consumer credit. Thats why so many people educated in this junk are like a deer in the headlights. They are always taught ideal models rather than real world ponzi schemes.

Last edited by gwynedd1; 03-18-2009 at 02:55 PM..
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Old 03-18-2009, 02:52 PM
 
20,629 posts, read 19,289,703 times
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Originally Posted by HappyTexan View Post
So in this act of desperation, the Fed will buy Treasuries. Does that mean China has stopped or plans to not "feed this beast" anymore ?

This is bad news and yet the market it up. Although Gold is up too..odd market today..odd.

Hi HappyTexan,

I see no direct relationship at all. China buying treasuries simply takes dollars out of circulation and makes it worse except for Chinese mercantilism and American consumerism. Personally, I would like to see those get worse.
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Old 03-18-2009, 03:33 PM
 
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The bubble won't just deflate, this time its going to pop.
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Old 03-18-2009, 03:52 PM
 
20,629 posts, read 19,289,703 times
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Quote:
Originally Posted by Icy Tea View Post
The bubble won't just deflate, this time its going to pop.
Hi Icy Tea,

It already has deflated. All this will do is slow it down but my question is what will absorb new debt? Who is going to take on debt and in particular bank credit?
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Old 03-18-2009, 04:06 PM
 
Location: Charlotte, NC
2,193 posts, read 5,043,646 times
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Quote:
Originally Posted by gwynedd1 View Post
Hi Icy Tea,

It already has deflated. All this will do is slow it down but my question is what will absorb new debt? Who is going to take on debt and in particular bank credit?
That's what I'm wondering, who will take on the debt?

When the housing bubble started, it was sort of a planned thing. With Clinton and Bush pushing it in all their speeches ("Dream of homeownership"). Then all the ads on TV and all the ads by banks, mortgage lenders pushing mortgages and HELOCs.

It looks like they are still pushing houses though. I just saw an ad by the NAR on TV saying how it's such a great time to buy. LOL.
I also still see flyers around for zero down for homes.
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