Bush and Obama Work to Restore Confidence 17 comments
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The US is now in a technical recession but that has not stopped the equity and currency markets from rallying. The GDP number was not as bad as the market had feared but what really drove the markets higher was the Federal Reserve’s new Term Asset-Backed Securities Loan Facility (TALF).
Both the outgoing and incoming Presidents are stepping on the gas and that is helping to restore investor confidence. President-elect Barack Obama has formed his Economic Team and is outlining his Economic Stimulus plan. The Bush Administration bailed out Citigroup (C) Monday and has now made a colossal announcement aimed at putting a bottom in the asset market.
Their 35% increase in the Fed balance sheet represents another $800B worth of stimulus and will cause the Fed’s balance sheet to balloon to $3 trillion. For investors that have been concerned about the funding crisis, this is an even bigger reason to sell dollars.
Here is what the Fed announced minutes before the GDP number:
- New $200B facility to support ABS
- Buy up to $500B in mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae
- Buy up to $100B in direct obligations of housing related Government Sponsored Enterprises
- The Treasury will use $20B of TARP funds to provide credit protection to the Fed
Expect GDP Growth to Worsen
The 0.5% drop in GDP is mild when compared to past recessions and raises the risk of a sharp decline in fourth quarter GDP. Many people believe that the current downturn is the worst since the Great Depression and if that is true, we could easily see GDP fall by 4 or 5 percent in one quarter. In 2001, GDP contracted by 1.4 percent in the third quarter. In 1990, GDP fell by 3 percent in the fourth quarter and in the first quarter of 1982 GDP dropped a whopping 6.5 percent. There is no reason why the worst case scenario this time around is just a 0.5 percent contraction in GDP.
Remember That This is a Crisis of Confidence
However, despite the pessimistic outlook for growth, it is important to remember that this was a crisis of confidence. So priority number one for the outgoing and incoming Presidents is to restore confidence. Since Friday they have done a good job with that. As Obama outlines more plans in his speech Tuesday, we could see the rally in the currency market continue. Don’t forget that further monetary stimulus is also in the pipeline with the Fed expected to cut interest rates again next month.
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Sorry Ms Lien, but let me take you to school (and by the way it will be a LOT less expensive than that worthless Ivy League or equivalent diploma mill you went to)
You said..."The US is now in a technical recession"...
Madame, we have been in recession since October of 2007. That's when the collapse began, it has only accelerated since. Stop looking at just the "officical governement numbers" for they are lying to you in order to make things look better so they won't have to pay out more money which they do not have for fixed income devices like Social Security.
You said..."The GDP number was not as bad as the market had feared"...
So what? If the "god-like" market was so smart in the first place they never would have invested into the housing bubble right after the tech bubble. They would have never bought into the mountain of bulls**t that was being fed them by their financial advisors.
You said..."Both the outgoing and incoming Presidents are stepping on the gas and that is helping to restore investor confidence."
Just read the above comment....investors are fools. Tell me one thing...just one thing President Bush has done to shore up investor confidence. This is the most inept President since Hoover. And Messiah Elect Obama isn't any better. More words, but very little to back them up with facts and figures. If investors can gain confidence from vapourware then issue the entire market some laughing gas. That will have a more immediate and substanital effect.
You said,"However despite the pessimistic outlook for growth, it is important to remember that this was a crisis of confidence. So priority number one for the outgoing and incoming Presidents is to restore confidence. Since Friday they have done a good job with that. As Obama outlines more plans in his speech Tuesday, we could see the rally in the currency market continue. Don’t forget that the further monetary stimulus is also in the pipeline with the Fed expected to cut interest rates again next month."
All of this is patent bullsh**t. Neither Bush nor Obama have done anything to restore confidence. If they were you would see CEO's, CFO's, Hedge Fund Managers, Lending Institution Execs, etc. going to Guantanomo Bay. Every time either Bush or Paulson (and increasingly I and many others thing Paulson is the acting President right now) the markets GO DOWN!
Oh....we are not forgetting additional "stimulus" coming down the pike. More dollars being printed since we are broke to fix a mutl-decade, multi-trillion dollar Ponzi Scheme....oh, yeah....nothing like a devalued currency and hyperinflation to "inspire confidence".
And to think, not very long ago, this country took on a Superpower known as Great Britiain and fomented Revolution in part because the tax on British Tea imported into this country was too high.
R.I.P. America.
www.wnd.com/index.php?...
You do not restore confidence in a system by having the government bailout every moronic company at every turn using taxpayer money. It is cause for concern and INCREASED worry.
Let me give you an example... Yesterday you had Citi telling the world how *strong* they are... How *sound* are... If all this is true, then why are they soaking up money from Paulson and buddies? They are not sound; they are all insolvent, save massive cash infusions from the U.S. Government.
The United States Government ran a giant Ponzi scheme on the world... How else could an economy, with almost 80 percent of the population, dependent on consumer spending survive? You don't have to be a genius to figure out an economy based on consumption will fail. We've done it by amassing such a huge debt that all of the countries in the world can throw their money into the black whole and not make a dent. Bush, Obama, McCain, the G-7, nobody can fix it.
Just wait until January and February! Where I live the box stores, the grocery stores are empty. Shopping carts with bagged items sit near the checkout stands after people have had their credit or debit cards declined for insufficient funds. Nobody is buying anything...
The Bloomberg chart of the day had projections on things like food riots... The sucker is going down. No government or governments have the ability to turn it around. As we go down, we can keep in mind it was all created by blind greed... We are all going to get what we've got coming to us... There will be nowhere to hide...
At the rate the stock markets, the population sentiment, and the economy keep on sinking; more than enough wealth would have already been destroyed in order for anybody to be able to prevent a severe deflation/depression from taking roots.
The govt is now at the stage of buying equity from companies directly. Problem is the govt has a limited capacity in buying shares and only a handful of companies are benefiting. Likewise, almost all their actions will require several quarters to start taking effect - while the markets and the economy are sinking at phenomenal rate much faster than any of the effects of govt intervention to be of any benefit.
What good is hay for when the horse is already dying or dead?
It is not the business of the govt to buy company shares - it is the business of the investors. However, investors are not going to deploy hard-earned capital unless the economy turns around. Likewise, the economy will only get worse as more investors withdraw their capital from the financial markets.
Best course of action in this "Once in a Century" crises is a once-in-a-century solution - - - guarantee investors' capital investment into the stock markets.
This is going to immediately turn the financial markets around. Companies are going to stop or hold employee retrenchments. Consumers are not going to drastically reduce spending with less threat of unemployment. And the economy will have a breathing room to grow.
Two possible solutions preferably in tandem or in sequence:
1. - - -
Guarantee investor capital investment into the stock market for 3 to 5 years with minimum 1 to 2 years holding period. This is available to everybody including moms and pops and employee 401k contributions. Guarantee is against company bankcrupcies.
2. - - -
Guarantee institutional and big private investors of their capital infusion in troubled but solvent companies for 10 years with minimum 5 years holding period. Insolvent companies should be allowed to fail unless their failure can cause the whole guarantee program ineffective.
Govt must also install volatility restricting mechanism to prevent prices from going up uncontrollably such as allowing a maximum of 3% per day share price increase during the first few months and 1% per day increase on the remaining months of the buy-back program which can last from 3 to 6 months. Stock market will be allowed to fluctuate whichever direction and at normal volatility range, but the guaranteed price will be restricted on the day to day basis on the per stock basis. Brokers should provide the quote for maximum allowed guarantee price for each company shares on the daily basis.
With at least 3 years moratorium, the financial markets, the consumers, and the economy will have enough room to breath.
Govt will then have enough time to formulate more effective programs to jump-start the economy toward a sustainable growth path.
Dumping billions of dollars of stimulus program while the investors, the consumers, and the govt are in panic state involves too much risk of not being effective and is going to take too much time - while giving guarantee to investors will immediately restore confidence and can be a lot cheaper than massive stimulus packages and may not even cost the govt a cent when the economy returns to the growth phase as the guarantees expire.
Also banks will have enough time to solve the credit crisis in an atmosphere of calm rather than the daily/weekly panics that keep on erupting for almost a year already.
The global CDOs and CDSs problem will have enough time for all major participants to be able to slowly untangle the mess without imploding the global economy.
House prices will have enough time to settle down slowly to levels affordable to most first time buyers without destroying existing homeowners.
Time needed to solve the miriade of problems such as CEO salaries, mark to market rules, govt housing laws, etc to be solved with level-headed discussions and amicable resolutions.
Basically, I can agree with Peter Schiff, until he refers to the purchase of gold and emerging markets. It is my view that economies are stratified geographically and totally dysfunctional. As we go down, we'll take China down, India, etc. China has a better chance for recovering since they actually have a production sector -- we produce very little. Out nation is toast.
Just think, we were all told that Osama and friends were the boogiemen and the real danger that will destroy our country was right here on Wall Street! Suncker's going down...
You do not restore confidence in a system by having the government bailout every moronic company at every turn using taxpayer money. It is cause for concern and INCREASED worry.
Let me give you an example... Yesterday you had Citi telling the world how *strong* they are... How *sound* are... If all this is true, then why are they soaking up money from Paulson and buddies? They are not sound; they are all insolvent, save massive cash infusions from the U.S. Government.
The United States Government ran a giant Ponzi scheme on the world... How else could an economy, with almost 80 percent of the population, dependent on consumer spending survive? You don't have to be a genius to figure out an economy based on consumption will fail. We've done it by amassing such a huge debt that all of the countries in the world can throw their money into the black whole and not make a dent. Bush, Obama, McCain, the G-7, nobody can fix it.
Just wait until January and February! Where I live the box stores, the grocery stores are empty. Shopping carts with bagged items sit near the checkout stands after people have had their credit or debit cards declined for insufficient funds. Nobody is buying anything...
The Bloomberg chart of the day had projections on things like food riots... The sucker is going down. No government or governments have the ability to turn it around. As we go down, we can keep in mind it was all created by blind greed... We are all going to get what we've got coming to us... There will be nowhere to hide...
Some good ideas, but as this thing goes down, we won't have the time necessary to implement some of these good ideas to effect.
When Obama says 2.5 million jobs may be lost next year, I have seen models that 10 million or more could be put out of work with the cascade starting in January.
The economic downfall will be exponential and will really pick up speed starting early next year.
I speculate, and it is only speculation, is that the political leadership knows that we are going down. Much of the spending may be an effort is to delay the fall until a transfer of power takes place.
Down Jones is projected to reach 4750 by H2 2009 and may even implode to the 700 to 1000 levels of the 1965 to 1980 trading range if a global market meltdown renders any government intervention caput.
Just imagine the psychological impact when investors, which is basically more than 50% of American population, who invested in the 60's, 70's, 80's, 90's and 2000's got wiped out of their hard earned money which they basically "saved" into the stock markets in the hope that the markets will just keep on going up perpetually.
More than 40 years of wealth creation down the drain in a matter of less than 3 years.
On Nov 25 02:46 PM curbs-in wrote:
>
> Some good ideas, but as this thing goes down, we won't have the time
> necessary to implement some of these good ideas to effect.
>
> When Obama says 2.5 million jobs may be lost next year, I have seen
> models that 10 million or more could be put out of work with the
> cascade starting in January.
>
> The economic downfall will be exponential and will really pick up
> speed starting early next year.
>
> I speculate, and it is only speculation, is that the political leadership
> knows that we are going down. Much of the spending may be an effort
> is to delay the fall until a transfer of power takes place.
On Nov 25 01:38 PM Socialism cannot compete! wrote:
> Ms. Lien -- you are right about future GDP weakening and a falling
> dollar. But...crisis of confidence? No...confidence is in the tank
> because fundamentals are in the tank. Lack of confidence is an effect,
> not the cause, of a tanking market. We have built a phony economy
> based on too much debt. And the government is not letting the needed
> correction of that happen. Please go watch some Peter Schiff commentary
> -- dude is one of few who understand how this is going down.
The only thing that will fix the problem is to allow the economy to work itself out. We need to let the free market work, but there's absolutely no sentiment in the current administration, the new administration or in congress to do that.
Spending like banshees isn't going to fix the problem. Where is the money coming from? They're going to have to print it. Printing money isn't creating wealth. Wealth has to be produced, utilizing capital and labor.
The rest of the world is kicking our collective behind at the moment, building superior products at lower costs, but when the politicians wake up, or when the people wake them up, we'll get back on the right track. America is in for some tough times, but we'll come out of it stronger and better off for it.
But everyone in this forum better hope and pray Obama does shore up our currency, whether recession, depression, empire collapse, or Armageddon cometh.
And by the way, she said "technical recession." Look it up. Despite any great government lie or conspiracy to the contrary, we were not in recession in January 07. Yes, the down turn got the attention of Ben Bernanke and congress at that time. And you can argue we should have gotten in front of this thing, but recession? Not back then. Not yet.
But, I can understand the frustration we all share. So, let off some steam. Take it out on me. Send me to school.
This is most certainly a crisis of confidence. Right now, and into the foreseeable future that confidence is hard hit. Obama's first task will be to restore confidence in in both the US markets and in currency if we're to stand a fighting chance of surviving this recession.
How Obama can do that is as varied as the opinions expressed in every blog around the world. But, for me, he will fail to restore confidence if we get right back to the business of the business of creating unsustainable consumer debt. We are over extended to the point where depression is very likely. We need a new banking system, period. One that does not create limitless money from debt.
But, I dare not hope this will be the case. Our fractional banking system is likely to remain in tact. I just don't think Obama is that bold, despite his promise of change. So, he must regulate the biggest offenders of the money supply: derivatives, the weapons of mass destruction we didn't find 6 years ago.
If he does that, he will reign in the money supply and inflation will temper a bit. The pay outs on guaranteed MBSs have already frozen our credit markets and (I argue) reduced our money supply, despite Fed liquidity injections to date.
If we're gonna have a fractional banking system, it should not be flooded with money in such vast quantities. The money supply must be reigned in and the dollar shored up. If we are going to fund our recovery, we'll need foreign investors with confidence...there is that word, again...in our currency.
Wake up, the entire world banking system is one giant ponzi scheme and its been around for centuries. It brings about crashes, recessions, and eventually depressions. They are inevitable and actually good, in the sense they clean out the junk in our economy...but they are a phenomenon of our monetary system and the poor suffer, unfortunately. The whole world will take a giant bite from this sandwich. Everyone is in trouble, everyone is racking up debt. My bets are on the US recovering first.
Labeling any fund injections a "bail out" implies they will magically pull us back into prosperity. Wrong. They are "soft landing measures" at best. And, yes, I am pissed the rich got theirs while main street got robbed...our tax dollars are being wasted in a ill fated attempt to get back to business as usual. I certainly we have, and Obama has, learned our lesson.
Now, lets see what the Obama team does. Then we can revisit this issue and say "I told you so." Sorry to say, it will take a lot of government action to "soft land" us into recession, at best, or depression despite the arguments against free market intervention.
As many have stated, the storm coming or already here...and the dollar best survive it under our current banking system. Our fate as a nation depends on it. Don't loose sight of that. "No nation has ever devalued itself into prosperity." Bush's debasing the dollar over the last 8 years can attest to that.
Kathy, be careful when you mention Bush in your articles...it ruins everything else you try to say...
And, Paul Volker, a strong dollar proponent, is now the head of a White House economic advisory panel.
It's easier to swim down stream with all the other pessimists. Though, global inflation is certainly on the table along with rising commodity prices.
There is a lot waiting to be seen. Will the ECB worry about inflation, as is it's mandate, when it appears or will it continue to focus on growth?
No matter, a weak dollar spells doom for US wealth, the currency itself, and the US economy...and confidence in the US economy. During such times, Obama just can't let that happen. I guess Bernanke can, however.