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basically you have the government, which is roughly 20% of the economy, trying to replace the 70% of the economy which was consumer driven so the numbers will never add up. this is a depreciating asset recession as opposed to the usual economic cycle recession over the last few decades. No stimulus relying on renewing consumer lending is going to work... there's a lot of deleveraging to be done.
you have bernanke in charge of the fed stating that dollar devaluation can be a good thing and helped us get out of the depression. well, it may be a good thing for him but it is not a good thing for most americans!
Last edited by floridasandy; 03-18-2009 at 05:09 PM..
basically you have the government, which is roughly 20% of the economy, trying to replace the 70% of the economy which was consumer driven so the numbers will never add up. this is a depreciating asset recession as opposed to the usual economic cycle recession over the last few decades. No stimulus relying on renewing consumer lending is going to work... there's a lot of deleveraging to be done.
you have bernanke in charge of the fed stating that dollar devaluation can be a good thing and helped us get out of the depression. well, it may be a good thing for him but it is not a good thing for most americans!
Hi floridasandy,
I don't entirely agree with this. I do agree a consumer debt recovery is played out. One needs to understand that consumers have become debtors with no capital output. A strong contracting currency is not good for such a society. What needs to happen is the actual debt in those dollars needs to be maintained not artificially increased by deflation.
By creating sub prime credit we created money that drove up prices and thus monetized sub prime debt. Even sound loans in such a contraction can be impacted by this. Now we have demonetized sub prime debt so we have a money contraction problem that needs to be addressed. So we need to replace this money supply. It really does not make any difference what the government does from a monetary stand point. If your debt is the monetary base all you need to do is owe. They could create a monument to absurdity and so long as it prevents a depressing money supply we will prevent creditor take all.
The truth is government debt is far better than bank credit for us but not for banks because they want us to use their bank credit money at interest. That 300 billion will sit in the Federal Reserve and by law all those profits go back to the treasury. Its interest free money.
As far as a new debt carrying capacity I see that government debt will rise but you can be sure they want bank credit, not federal reserve created money in this system. So I expect the national debt rhetoric to come on strong. Hopefully we can somehow pay down the consumer debt but they will try to thwart such attempts. The more we can pay down commercial credit the more we can expand government debt. Along side government debt my guess is some new debt absorbing industry will be created with the same government guarantees that made billions for banks in the housing market. Perhaps a green energy Fannie and Freddie. That is what I would do if I were an Oligarch trying to keep siphoning off the wealth. So perhaps they will make massive loan guarantees into green energy to absorb new commercial credit.
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.
Short term bond rally is only because of the potential for bond flipping, similar to condo flipping in CA during the bubble. Buy Treasuries, the Fed will be a ready purchaser of them when you flip it. Unfortunately, as the money supply grows like a cancer, the Ponzi scheme will end and the Fed will ultimately be the only buyer (or virtually so). That's when bond values will collapse.
You know its funny, as hard as the Fed tries to push rates down, the banks keeping raising interest rates on credit cards and other unsecured loans (I know multiple people who have had rates increase up to 3x in the past few months as an anecdotal example, some with scores over 750). At least this gives the banks a huge margin for trying to recapitalize. This is causing the opposite of what the government wants: to start using credit again. This will continue to collapse the total outstanding debt as people will either A.) pay off their new debt as soon as the accumulate it or B.) not spend as much/at all.
It is funny that the Fed is fighting deflation but the banks act like we are fighting inflation...
On a side note, everything the Fed tries to do to improve the situation, Treasury decides to take a step back. With Geitner now being accused of the AIG loophole, this is going to cause a firestorm that will delay, if not stop, recovery proposals. This may be a good thing or a bad thing depending on your belief.
Madoff, AIG, now the Fed and Treasury. I think things are going to be very interesting the next 2 or 3 years. Gold, workable land, canned goods and guns and ammo. You have to diversify.
Short term bond rally is only because of the potential for bond flipping, similar to condo flipping in CA during the bubble. Buy Treasuries, the Fed will be a ready purchaser of them when you flip it. Unfortunately, as the money supply grows like a cancer, the Ponzi scheme will end and the Fed will ultimately be the only buyer (or virtually so). That's when bond values will collapse.
The interest rates are already at all time lows, problem is over 5 millions potential customers don’t have jobs.
Unless 5 million people are going to get jobs handing out mortgages and credit cards I don’t think this is a long or short term solution only another bubble that will blow up like the last two.
Without the return of good paying manufacturing jobs there is no way the economy will ever recover and grow.
Perversely, it is looking like a Very Good time to start doing that.
Long Term Debt, with very low interest . . . and a payback of Never? could be a very handy thing.
I tend to agree. Now is looking to be the best time in history to take on tons of debt. The Fed will just "buy" it up, along with all existing debt, destroying your life savings. Saving is suicide when you look at all of the deficits and unfunded liabilities. The money will be printed. There is nowhere else it can come from.
Time to bump my thread to mention that the last act of "quantitative easing" has run its course as I said it would?
Yep.
What will it do? What the last one did, lower long interest rates which will benefit the few in a position to restructure their borrowing. So instead of 10 gallons of spaghetti sauce for $20, it will be 1 gallon of spaghetti sauce for a $1. So what good is cheaper when there is a whole lot less of it? What if my recipe calls for 5 gallons of sauce? Doesn't matter that the first one is cheaper now does it?
Think its time to abandon this credit based money system yet?
Where did all those "hyperinflation is on the horizon" people go anyway? Did they finally figure out the "bailouts" were book keeping gimmicks to keep banks "solvent" according to the accounting rules and was not circulatory?
Its kind of hard to have inflation when consumer debt drops. Business credit is following suit.
Until the national debt is increased by the removal of taxation, expect further deflationary pressure as our real estate/asset backed currency continues to make wet flapping noises.
Oh I suppose that some will desperately point out that food prices are rising not accounting for supply. If M deflates 5% and grain supplies shrink by 10% grain prices will rise. It does not change the the problem we have with M and the scum sucking financiers.
Putin bans Russia grain exports due to drought - Yahoo! News (http://news.yahoo.com/s/afp/20100805/ts_afp/russiaheatwavefiresfarmcropscommoditiesgrain_20100 805162243 - broken link)
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