The Deflation Scam 102 comments
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The media has been going on and on about deflation. Long-term bond prices have also been trending up and long term yields have been dropping, which means that the market thinks there will be long-term deflation. Even the Consumer Price Index numbers that came out claim that inflation is under 2% annually!
(Of course, if you’re one of the unlucky 533,000 people who lost their jobs last month, you really couldn’t care less about deflation).
Let’s first look at the Government reported numbers.
Let's start with the largest expense for most people, housing.
Yes, house prices have decreased. However, if you’re already a home owner or a renter then you’re probably not seeing any benefit. The only people who’re benefiting are those people who can actually qualify for a home loan and have enough cash for a down-payment. The 100% financing loans have disappeared as a result of the tightening of the lending standards. As I mentioned in the last post, it’s not the cost of credit, but the availability of credit that is important.
Energy prices actually have dropped down from $147/barrel to under $40/barrel in the past 5 months. However, I heard billionaire T. Boone Pickens on the radio today say that OPEC is going to keep cutting production until oil is back up at $75/barrel. In the long run, I agree with him. While a global recession might reduce the demand for oil, there are 3 billion people in Asia who are getting a little richer every day and want air conditioning, cars, motorbikes and other luxuries that consume oil. Without alternate energy sources, oil prices have to rise. The current price drop is likely to be short-lived.
According to official numbers, education costs have only gone up 1.6%-3.4% in the past year. However, my MBA program has seen a much higher percentage increase in tuition than last year, and it might see another increase next year (according to a letter I received from the Dean of my Business School).
Likewise, medical costs have also gone up only 2.7%, but my health premiums and medical costs seem somehow higher than that.
And while food and beverage prices have only seen an official 4.2-6% inflation, prices of food items that I consider my staple diet, like Tyson Chicken Wings and Sirloin Steak Burgers at Costco (COST) have gone up about nearly 50% in the past 2 years.
Meanwhile, the Federal Reserve is printing money like it's going out of style. (And at this rate, it actually might). In theory, increasing the money is inflationary. That’s one reason why a house that cost $30,000 in the '70s costs $300,000 today. More money in circulation means every existing dollar is now worth less. At least that's the theory. Increases in productivity and technology have managed to improve our standard of living despite this inflationary pressure, but there must be some point at which you start seeing inflation. Maybe we’re at that point now.
The government has committed to more money on financial bailouts than it's ever spent in its history. According to an article in the SF Gate, the Financial Bailout may end up costing the taxpayer $8.5 trillion dollars. (Click chart to enlarge.)
According to an article on CNBC, that’s more than the cost of almost everything else the US government has spent on even adjusting for inflation!
Here are estimates for the major US government expenditures (all figures inflation-adjusted):
Hoover Dam: $782 million
Panama Canal: $7.9 billion
Gulf War: $98 billion
Marshall Plan: $115.3 billion
Louisiana Purchase: $217 billion
Race to the Moon: $237 billion
Savings & Loan Crisis: $256 billion
Korean War: $454 billion
New Deal: ~$500 billion
Iraq/Afghanistan/War on Terror: $597 billion
Vietnam War: $698 billion
NASA Budget since inception: $851.2 billion
World War II: $3.6 trillion
Total = $7.63 trillion
I thought this was the most interesting section of the SF Gate article:
The Fed’s activities to shore up the financial system do not show up directly on the federal budget, although they can have an impact. The Fed lends money from its own balance sheet or by essentially creating new money. It has been doing both this year.
The problem is, “if you print money all the time, the money becomes worth less,” Rogers says. This usually leads to higher inflation and higher interest rates. The value of the dollar also falls because foreign investors become less willing to invest in the United States.
Today, interest rates are relatively low and the dollar has been mostly strengthening this year because U.S. Treasury securities“are still for the moment a very safe thing to be investing in because the financial market is so unstable,” Rogers said [That’s Diane Lim Rogers, chief economist with the Concord Coalition, not Jim Rogers!]. “Once we stabilize the stock market, people will not be so enamored of clutching onto Treasurys.”
At that point, interest rates and inflation will rise. Increased borrowing by the Treasury will also put upward pressure on interest rates.
In the past 10 years gold is up 300%+. That’s about 300% better than the return on the S&P500 over the same time period! This is not an indication of deflation.
And what does veteran investor Jim Rogers think about this? In a recent Bloomberg interview he predicted that the dollar is “going to lose its status as the world’s reserve currency,” adding, “It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.”
“They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term,” said Rogers.
Paul Watson of the Prison Planet states:
The head of the International Monetary Fund, Dominique Strauss-Kahn, warned that advanced nations will be hit by violent civil unrest if the elite continue to restructure the economy around their own interests while looting the taxpayer. Strauss-Kahn’s comments echo those of others who have cautioned that civil unrest could arise, specifically in the U.S., as a result of the wholesale looting of the taxpayer and the devaluation of the dollar.
How long will it be before Americans realize the looming specter of hyperinflation spells disaster for their life savings? How long will it be before we see rioting in the streets on a par with the scenes witnessed in Iceland over the weekend, where the Icelandic krona has lost half its value in a matter of weeks?
I’m not buying the deflation argument. In fact, I wouldn’t be surprised to see 10-12% inflation for the next several years. I’ve been buying gold coins since gold was $500/ounce and I’ve been adding to my position on pullbacks. Maybe in a few years' time, $850 gold and $12 silver may look like a bargain!
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This article has 102 comments:
The consumer based economy is over. Consumer prices will continue to fall. Retail will continue to suffer. Private colleges and universities are going to have to rein in their costs or eventually they are going to get hit also. American consumers will soon start acting more like their grand-parents. Right now is not the time to invest in consumer goods-especially pricier items like computers and cell-phones. Consumer prices will continue to fall until they have reached parity with the rate of wage deflation experienced by the working poor over the course of the last ten years (And that includes losses suffered because of rising health-care costs).
We are on the cusp of an economic change so dramatic that-by looking on the posts here and on a few other websites-I don't believe most economists or investors can even begin to fathom the change.
You are soo correct ! The masses simply don't comprehend " what's coming down the pike " The standard of living in the US is plummenting fast + will continue to do so . The new administration 's efforts will be like " pissing in the ocean ". I wish I could say otherwise . See article on website 24h GOLD entitled ," A Shock to the System by Micheal Panzner . Will give one clear , no BS insite to " what's coming ".
Consider commodities down over 60% across the board; over $7 trillion in wealth destruction; 25% of mortgages underwater and further real estate declines to come; and ton after ton of ugly debt still floating around the financial world (a must-play game of musical chairs with no one willing to get out of their seats).
Wait and see how the E in PE falls off the side of the table, folks. There will certainly be new lows in the markets in 2009.
Sniffing around the edges for some areas of pricing power is fool's gold. So is the talk of going long real gold itself. Sure, ever dog (and investment) has it's day, but gold's was in the past and likely someday, out there, in the future. But, here's the thing: drum roll please. When? What kind of time horizon works in your portfolio? Important question. Inflation will return, sure. But not for a good while and not until the excesses of over a decade get worked off.
Strong dollar, weak earnings, deferred expenditures, increased savings (enough to offset any government stimuli), and possibly devalued currencies. Deflation.
I too am concerned that we're setting a course for strong inflation, which is exactly what Bernanke wants IMHO. Inflation bails out the borrower and screws the lender, but in an invisible way. My only hope is that we focus as much of the inflationary stimulus on things that have the most residual value to the economy (bridges & roads, R&D, broadband infrastructure), limited amounts on things like $1000 checks to consumers and similar, and as little as possible on foreign oil and bombs.
But, at this point deflation seems to be targeted and not across the board. Will it reach into the broader economy? Have oil prices begun to reduce food prices? I am not sure, yet.
Hard to imagine deflation with 0% interest rates and other aggressive stimuli. But, this is no run of the mill recession. This one is firmly rooted in the financial sector and was nudged by falling home prices. And a recession can bring down other PE ratios and feed the credit crunch (but, I guess they are relative, aren't they?)
seekingalpha.com/artic...
Inflation as a monetary phenomenon can be considered an increase in the nominal value of all transactions. In other words, if all transactions in one period of time have a nominal value of $100 and the same transactions in a later period of time have a value of $120, there has been a 20% inflation between the two time periods.
Milton Friedman made popular (created?) the following equation:
nT = V M
where nT represents the nominal value of aggregate transaction, V is the velocity of money and M is the quantity of money in circulation. In the simplest view, velocity can be considered a multiplier representing the number of times a dollar is exchanged between parties (each exchange is a transaction) in a specified time period.
Going back to our simple 20% inflation example, that can occur with no change in the amount of money in circulation if V increases by 20%. Or that can occur with a 20% increase in the money in circulation if the velocity of money is not changed. In practice, both V and M change and the new product of V times M is 20% higher to produce 20% inflation.
What has happened in the past couple of decades, and accelerated in the last few years? There has been a steady increase in M, but the big change was in V. The velocity of money involved in creating a humongous pile of finacial paper became very large, allowing the inflation of a huge bubble of credit. Why didn't this show up as inflation? Only because we do not measure inflation by following the prices of such things as stocks, highly leveraged debt obligations, credit default swaps, etc. True, the cost of houses also increased in price and that is included in inflation measurements, but that was only a small factor in the list of measured factors. So we saw only moderate inflation (as measured and reported) over the past decade. The real inflation was in an area of commerce (finance) not measured and reported.
So now we come to 2008. The value of V has collapsed dramatically, and the nominal value of aggregate transactions has fallen in step. There has been massive deflation in financial assets because V has become so small. If you print enough money to double M (the currency in circulation) and V falls by 75%, the value of aggregate transactions falls by 50%, or the economy suffers a 50% deflation.
Now the race is on. Can we print money faster than velocity slows? If we can, deflation can be slowed, then stopped and, finally, reinflation started. If we don't print money fast enough deflation is not stopped. Persistent deflation is self-feeding and can become entrenched in the economy. Everyone holds tight to every dollar because it will buy more tomorrow than today. Consumption dries up. Investment in new facilities dries up. Deflation freezes out growth and economic contraction spirals downward.
Above I discussed what happens if we lose the money printing race. What happens if we win? All of a sudden a point comes when the product of V times M starts to increase. If we could identify that point and stop printing money in a timely manner, the growth in aggregate transactions (V times M) might continue to grow in a moderate way and inflation coming out of the deflationary period could then be controlled without drastic actions such as very high interest rates. The problem is, it is unlikely that the proper point in time to slow down or stop the printing of new money will be recognized. The most likely result is the deflationary period is followed by a period of above normal inflation.
The choice of policy makers is to risk a deflationary spiral into another Great Depression or risk the over production of money and accompanying inflation down the road. Our policy makers have chosen to risk the future inflation rather than the economic death spiral.
Now, as investors, we must try to follow this fiscal and monetary adventure as it unfolds and hope that we can be more nimble than the government. Based on the contempt some commenters seem to have for the government's ability to do much that is useful, I expect there are some who feel qualified to be more nimble.
To conclude, the government can print vast amounts of money and we can remain in deflation if the money is kept in a warehouse (bank balance sheets) and not on the street (used in exchange for goods and services). Eventually, though, one of two things must happen:
1. Deflation persists until all economic activity grinds to a halt and people live at a subsistence level (think hunter-gatherer). OR
2. Money starts coming out of the warehouse, deflation stops and the risk of inflation returns.
With no cheap foreign goods........inflation... When the shoe drops we will all feel it.
Of course we could raise interest rates to protect the dollar. But then the other shoe would be dropped........inflati... our debt costs.
Who gives a crap about gold? Or oil, or copper, or corn? Everyone spouts gold as a savior. Go ahead, invest...make it or break it. I don't give a rat's arse....
But, you have to know the fundamentals...V is down and will stay down until M is sufficient to create some V...the Fed plan! Got it? Clear? And V is coming, just not soon...jeezus!
Does anyone know what's going on? Except, don't argue with the gold guys?
Who bought into $200pbl oil? Not me...!!!
There are so many areas that we waste money - even on a local level. In my area, the 3rd Grade teacher earns $64,000 per year plus benefits. Now, be realistic here... how smart do you really have to be to follow a lesson plan and teach a 3rd grader? Maybe when the Fed is done downgrading the wages and unfair contractual conditions of the UAW they should take on the Teacher's Union and rid it of some of the obscene wages and work rules. Isn't the Teacher's Union clause regarding "Tenure" akin to the UAW's rules on "Job Banks"? We should be able to save Billion$ with just this one area.
Don't even get me started on the local governments waste of money with Book Mobiles, city parks, etc.
> jack
So, I agree with the author it's dumb to prime the pump when the we are de-leveraging, but even so, it just means that the government is quickly reaching the threshold where they simply can't issue more treasuries (no one will want them) and the Fed will have to expose their ploy that they are essentially making money without any congressional oversight or controls (they have been for decades). When they overdo their hidden money making process (currently they are asking Congress for the right to buy other debt which basically is created by them issuing money from Treasuries to banks which makers a nice inflinite circle since they also can ask the bank they issued money to to deposit it with them for interest. Silly isn't it). That will be the time to buy about anything else but US dollars. I hope that doesn't happen in my working lifetime. I can't get a good feeling for holding Ameros or any other silly newly contrived currency to replace the dollar.
If you are confused you have a right to be. Money wasn't ever supposed to be made this way. It is 100% arbitrary as is who it goes to. Just look at TARP to see how such money tends to be spent.
On Dec 20 03:04 AM Asbytec wrote:
> Velocity of money is at a snail's pace.
>
> Who gives a crap about gold? Or oil, or copper, or corn? Everyone
> spouts gold as a savior. Go ahead, invest...make it or break it.
> I don't give a rat's arse....
>
> But, you have to know the fundamentals...V is down and will stay
> down until M is sufficient to create some V...the Fed plan! Got it?
> Clear? And V is coming, just not soon...jeezus!
>
> Does anyone know what's going on? Except, don't argue with the gold
> guys?
>
> Who bought into $200pbl oil? Not me...!!!
If anyone could actually see the turn to inflation, hyper or not, then buy stuff. Food that has a long shelf life, cases and cases of cheap liquor ( that will always barter ), and other tangible things. And get into as much debt as they'll give you- other peoples money is great in high inflation.
On Dec 20 09:34 AM chal wrote:
> So what does one invest in ?
Supporting inefficient industries by authorized agents is inflationary.
GM and Chrysler are bankrupt. Not declaring bankupty does not change this fact. Borrowing from your neigbors when you can't pay them back is charity. It is honorable to be charitable but it is not prudent to "...cast your pearls before swine".
These companies' assets should be sold to the highest bidder. The proceeds of the sale should be paid first to the bond holders and any remains paid into the workers pension fund.
America needs a certain number of auto workers and that does not depend on the name of the company that employ them. The principles of economics such as supply and demand, cause and effect, does not change to suit the needs of the ignorant. Ignoring these basic economic principles in a democratic capitalist economy produces inefficiencies and puts an unjust burden on the american citizens. Those who support these inefficiencies are endangering our basic freedoms and contributing to the corrruption of our great nation.
...James E Gambrell
Contraction in consumer spending should eventually lead to a collapse in commercial RE prices.
Deflation in goods may continue until fuel prices rebound, which they eventually will. Then you will see a return of inflation in prices of goods.
But the 800 lb gorilla in the global economy is the $1.3 quadrillion face value of derivatives. Will CDS's become payable as businesses fail and debt goes bad ? Yes. Are there any companies that wrote CDS's that have the balance sheet to pay ? Silence. And many other derivatives were based on real estate prices (see above).
I expect to see a cascading flow of derivatives going from good debt to bad debt to non-performing assets. Again, name the company or companies that have the balance sheet to support losses of that magnitude. More silence.
The mess we're in was caused by DEBT. Cheap credit created a mountain of debt, which is only sustainable if earnings and income keep rising. As earnings and income drop, the debt goes bad. We are facing am extended period of time in which bad debt will wipe out many pension plans, most large corporations many local governments, etc.
And it's all based on debt service. Others, above have noted they expect earning to drop. As they do, manageable debt will go to bad debt.
And the idea that we can "grow the economy" enough to manage our mountain of debt is the emperor's new wardrobe.
I apologize for my outburst...I should have taken a break after reading bad economic news, eh?
On Dec 20 09:27 AM chal wrote:
> So where should one invest?
If you look at the historical charts monetary velocity always drops during recession. When velocity drops it is necessary to increase the monetary supply by a like amount just to maintain a static economy. Worldwide some measures show a 40% reduction in velocity, and it probably worse today. This implies that we need to dramatically increase monetary supplies just to stay static.
On top of that, we need to make sure that money moves, and doesn't remain static in savings. This is where basic fiscal policy comes into play. When markes recess, it is necessary to get the currency moving - increase the velocity. Spending money on infrastructure is one way the government can help.
Are you spending less? Zero? Stopped eating? I think it's accurate to say that credit has dried up, not consumption. No one is holding tight to every dollar. Rather the home equity ATM is broken, and people are shocked, alarmed, outraged that they have to live within their means and pay cash!
I share your concern about the quality and cost of education. I would like to express my concern with a slightly different approach.
You say that $64,000 plus benefits and pension is too much to pay someone for following a lesson plan. You are absolutely right. But it is not too much to pay someone who can motivate their students not only to learn, but to think. My view of the problem is not the number of teachers making $64,000 (plus...), but the number of teachers who are worth the $64,000. Unfortunately, too many teachers have been learners in their training at the exclusion of thinking. To me it is obvious that those who can not think can not teach others to think.
All students must learn, but, if education stops there, we create a nation of automatons. They read, they write, they add and subtract, multiply and divide but never analyze the pros and cons of ideas. They believe a mortagae broker that tells them they afford a house that is out of their economic capability. They smartest believe they are intelligent because they have somehow mastered logic to think linearly. Only a few recognize they exist in a fabric of relationships in a multidimensional world that places most interactions on complex multidimensional surfaces, not on staight lines.
There is a variation in intellectual capacity across human beings. Not everyone will be an Einstein. But I believe that many have the innate biochemistry of being and the subjective capacity of soul that gives them, at birth, the raw materials to be an Einstein. The fact that only one of millions reaches that level of intellect is much more a product of environment than raw material available at birth. A basic skill that can be taught from an early age, even pre-school, is intellectual curiosity. Once that seed is planted and nourished, many Einsteins can develop.
So, I do not object to paying a teacher $64,000 plus benefits and pension. I object that so few teachers are worth it.
By the way, there are many areas in this country where very few teachers are paid the $64,000 figure under discussion. That pay scale is reached in some areas, but not in many.
On Dec 20 03:04 AM Asbytec wrote:
> Velocity of money is at a snail's pace.
>
> Who gives a crap about gold? Or oil, or copper, or corn? Everyone
> spouts gold as a savior. Go ahead, invest...make it or break it.
> I don't give a rat's arse....
>
> But, you have to know the fundamentals...V is down and will stay
> down until M is sufficient to create some V...the Fed plan! Got it?
> Clear? And V is coming, just not soon...jeezus!
>
> Does anyone know what's going on? Except, don't argue with the gold
> guys?
>
> Who bought into $200pbl oil? Not me...!!!
I did not mean that we are currently in persistent deflation. That is a condition that the current monetary policy is trying to forestall as a future outcome.
I concur with your forecast of the end of the era of the consumer. (I might add mindless consumer).
Inflation would be a blessing, but deflation is the likely outcome. If one can envision the money supply as M3 at a size of say 10 plus a LOT of consumer credit at a size of say 100. The total of the new definition of money supply is 110. If the credit componet of 100 falls to 50, increasing M3 to 20 is not going to be inflationary. The money supply has gone from 110 to 80. Not good; deflation, recession, depression. Cash will be king.
We will indeed relive our parents (or grandparents) worst nightmare, 1932.
On Dec 19 08:18 PM LilBob wrote:
> Deflation is a function of cash-strapped consumers trying to rein
> in their debts. In order for consumer prices to rise we have to see
> a corresponding increase in wages, which isn't going to happen when
> the unemployment rate is high and competition for menial jobs is
> fierce. The Fed can print all the money they want but if most of
> it ends up sitting in the vaults of banks that are afraid to offer
> credit then it's a pointless task.
>
> The consumer based economy is over. Consumer prices will continue
> to fall. Retail will continue to suffer. Private colleges and universities
> are going to have to rein in their costs or eventually they are going
> to get hit also. American consumers will soon start acting more like
> their grand-parents. Right now is not the time to invest in consumer
> goods-especially pricier items like computers and cell-phones. Consumer
> prices will continue to fall until they have reached parity with
> the rate of wage deflation experienced by the working poor over the
> course of the last ten years (And that includes losses suffered because
> of rising health-care costs).
>
> We are on the cusp of an economic change so dramatic that-by looking
> on the posts here and on a few other websites-I don't believe most
> economists or investors can even begin to fathom the change.
Read about Argentina.
On Dec 19 08:18 PM LilBob wrote:
>In order for consumer prices to rise we have to see a >corresponding increase in wages
I agree with a lot of the rest of your comment.
Ideas can't be bought and sold and certainly not arguments.
The capitalist advertising agencies and the communist propaganda machines have convinced a lot of people that ideas and arguments are just a matter of rhetoric, repetition and loud talking but thinking people know better.
Second, your argument by appeal to authority (Dominique Strauss-Kahn and Jim Rogers) is a fallacious rhetorical device. www.don-lindsay-archiv...
"The jawbone of an ass is just as dangerous a weapon today as in Sampson's time."
--- Richard Nixon
You might turn out to be right about deflation/inflation but your arguments shouldn't convince a thinking man or woman.
On Dec 20 09:34 AM chal wrote:
> So what does one invest in ?
Velocity is the same thing as leverage, right? What you call a drop in the velocity of money is the same thing as "deleveraging". It helps me to grasp what is happening if I make a distinction between "money" (cash) and "credit-money". Credit-money is born from capital at the fractional reserve leverage ratio. Banks lend out $10 for every $1 of deposits (at least, that's what they're supposed to do). This credit-money goes out into the economy and acts like money, it buys things.
In our fractional-reserve system, paying off a debt destroys this credit-money, which is deflationary. The credit bubble that is collapsing gave birth to credit-money at high leverage ratios, 30:1, 40:1 or even 50:1. It is this high-leverage credit that is disappearing, destroying credit-money at its high leverage rate. The Fed is attempting to replace it, to reinflate the bubble, with new credit money born from regulated banks at the regulated 10:1 ratio. They are giving banks new "capital" to use as the basis for this new lending. They will have to print many Trillions of USD in order to do this, and they don't want to cause a panic by doing it all at once. Their efforts to do it, though, can clearly be seen in the charts of Fed monetary base. Whether or not one sees growth in the money supply depends on what measure one chooses to use.
Thus far, the banks are being coddled by the Fed with interest on reserves and injections of excess reserves. The next move is for the Fed to continue to pump money into the banks, and then promulgating a new policy to force it out the door as loans.
In concert with this, people will be encouraged to borrow and spend by giving them government make-work infrastructure jobs. This is the combination monetary/fiscal stimulus plan that we are all reading about.
The question is whether or not they can do it fast enough without the speed and urgency of their actions causing a panic. Also, whether or not any black swans land.
My question? To what extent did the increase in leverage by financial institutions (and everyone else) have the same effect as an increase in the money supply?
Can the increase in the money supply overcome the effect of this enormous deleveraging?
On Dec 19 10:38 PM austrian63 wrote:
> Good article. The correct definition of deflation however is a decrease
> in the money which results in a decrease in the general price level.
> The money supply is growing so there will be no long term sustained
> decrease in the general price level. As noted in your article, most
> of the products and services Americans buy on a daily basis are increasing
> in price. The only sustainable "deflation" that is here to stay
> is the value of the dollar. Dollars will become worth much less
> over the next few years.
>
chal: "So what does one invest in?" - Buy TBT and hope that the Fed does not print money to purchase T-bonds with in order to keep their interest rates down.
The only safe haven for cash (besides cash) is your spare change stored in coffee cans. Hoard every penny that you can.
I only invest in options. I'm in and out in one day (two at the max).
BTW, anyone remember gold being $900+ many many years ago, then it went down to $300?
You get it! Good post.
Another way to look at what you are saying is that the Fed is printing money that has already been spent. Money is now being printed to replace the debt gone bad on balance sheets, what you call "credit-money".
-Dan
Download the feds own data PDF to see this contraction.
www.federalreserve.gov.../
Page 113.
On Dec 20 04:05 PM chrismak wrote:
> The expansion of the money supply is only one side of the equation.
> The contraction of mortgages and commercial paper is the opposite
> side of the coin.
> Download the feds own data PDF to see this contraction.
> www.federalreserve.gov.../
> Page 113.
on the posts here and on a few other websites-I don't believe most
economists or investors can even begin to fathom the change."
Nothing more true has been written yet.
Imagine if all the news in the last 5 months were to have hit at once instead of hitting us daily so we became numb by the assault??? The world as we know it would be through. Finito.. Makes one wonder if we are just deluding ourselves one day at a time as all of this unfolds...
The Federal Reserve Bank has devalued the value of a 1913 dollar to a nickle. Even with the Great Depression interrupting this inflationary escalation, the momentum long term is for destruction of the dollar.
The current bankster regime does not want a deflationary interlude, which is why they are throwing a omuch fiat money into the hollowed out financial system.
But the current post 9-11 blow off was aided and abetted most recently by very rich people turning their ill=gotten assets over to hedge funds that then borrowed fiat money at 10 to 1 or higher ratios. This then allowed them to push up the price of everything from coal to oil, from gold to shares of fiat stocks - all in a relentless quest to make even more riches for the rich.
But the prices got pushed so high the underlying users of coal, oil and office space became priced out of the market. Thus, collapse.
Producers and holder can ask as high a price as they want but for a while there is no where near enough money in the buying class to meet those prices anytime soon - say six months or so. Maybe six years or so.
A classic book cycles shows there are cyclical up and downs in everything from commodities to snow shoe rabbits, and the fox who feed off them.
The Fed is applying hubris to try and turn cycles into every upward momentum to keep the usury game going.
Deflation will not be easily swept aside. Not this time. The crooks have killed the goose that fed them.
In the past 60 days,the feds just spent (without hearings) 4 times as much covering up the banking / credit default swap scandal as they did for all the wars and all the social programs in the first 75 years of the twentieth century .
The velocity of that change is staggering when presented in graphic form
Source Commodity Research Bureau ISBN 13 978 0 471 78443 2
The Subprime Lending Bias
By INVESTOR'S BUSINESS DAILY | Posted Friday, December 19, 2008 4:20 PM PT
Media: If, as they say, it's journalists who write history's first draft, then future texts will be riddled with errors about the origins of the subprime disaster, teaching future leaders the wrong lessons.
----------------------...
Read More: Media & Culture | Economy
----------------------...
Just how did Americans come to lose $10 trillion in real estate and stock wealth? And why are our children and grandchildren on the hook for as much as $8 trillion in federal bailout money? These are some of the most important questions of our time. Yet the mainstream media, plagued by monopartisan bias, are not providing the public honest answers.
Take, for instance, a recent front-page article in the Washington Post, under the headline, "How HUD Mortgage Policy Fed the Crisis." The piece correctly fingers HUD for helping fuel risky lending at Fannie Mae and Freddie Mac. But the newspaper starts its analysis in 2004 (in fact, the first sentence begins, "In 2004 . . . "), making it seem as if the Bush administration crafted "affordable housing" policy and created the subprime market.www.youtube.com:80/wat...
The Post knows better. The Bush HUD merely continued a politically correct policy launched by the Clinton administration. For the first time, President Clinton ordered HUD to set quotas for Fannie and Freddie to buy huge portions of Community Reinvestment Act loans and other low-income mortgages made to borrowers with poor credit. The Post failed to mention this key fact.
By 2000, fully half of the mortgage giants' portfolios consisted of these risky loans, most of them subprime mortgages. In effect, the Clinton HUD set a time bomb that would explode years later with the collapse of home prices, which happened to occur on Bush's watch.
At the same time, HUD pressured the federally subsidized giants to lower their loan-to-value ratios and other underwriting requirements to accommodate minority borrowers. HUD Secretary Andrew Cuomo even admitted that the administration was mandating a policy of "affirmative action" lending (his words, not ours).
And it was Clinton who initially spread the subprime rot to Wall Street. To help Fannie and Freddie reach their "affirmative action" lending quotas, HUD in 1995 let them get affordable-housing credit for buying subprime securities that included loans to low-income borrowers.
Less than two years later, Freddie partnered with Wall Street investment banker Bear Stearns to issue the first securitizations of low-income CRA loans.
There's even a press release still available on the Web that memorializes the historic deal, which dumped hundreds of millions of dollars in the risky loans on the market — a down payment on the hundreds of billions that were to follow.
The Post left all of that out of its story, even though the deal marked the beginning of the boom in subprime securities.
Of course, providing such background to readers would ruin the impression that Bush and Republicans were responsible for the crisis, an impression the Post and other liberal media elites hope will stick in the public's mind and become conventional wisdom. And conventional wisdom, once galvanized, is a powerful thing in Washington. Whole agendas and coalitions are built around it.
The Post also provided just one side of the data in its story. The paper said that Bush "ratcheted up" the affordable-housing goal for Fannie and Freddie, from 50% to 56%. But it left out the fact that the previous president, the liberal Democrat, institutionalized the quota and ballooned it up to 50%. Which move do you think had a greater impact on the subprime market?
A recent story in the Associated Press was equally tendentious. It blamed Bush for not cracking down on loose lending standards that had become the norm in the mortgage industry, while completely ignoring the systematic dismantling of those standards during the previous decade under Clinton.
"The administration's blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy," wrote AP Washington correspondent Matt Apuzzo.
Reality check: "Government intervention" is what planted the seed to this whole crisis. As we've noted, Clinton in 1995 revised CRA regulations to pressure banks into adopting "flexible" lending standards to increase minority homeownership. In a 1,389-word story, AP cited that easily verifiable fact not a single time.
Make no mistake: It was Clinton who forced banks — most importantly, Fannie and Freddie — to go into the subprime market to serve the targeted populations that HUD and other Clinton banking regulators wanted them to serve.
In effect, the media are blaming Bush for Clinton policies. Whoever controls the debate in Washington controls the truth. Right now, it's Democrats and their press courtiers. And so far, they've managed to shade the truth about the root causes of this epochal financial crisis.
hotair.com:80/archives.../
----------------------...
us1.institutionalriska...
" I blame the mutation of the securitization industry into a toxic, damaging thing on Fannie and Freddie. These organizations lost their moral compass and began to do things in the marketplace that eventually caused them to get into such difficulties that the CEOs were removed and all sorts of new restrictions were placed on the GSEs. Wall Street said halleluiah and proceeded to dive headlong into subprime mortgages and all the rest. The banks loved it as did the Democrats on the Hill, who are always looking to make hay about affordable housing. "............
..........If Wall Street had simply stopped and packaged the subprime loans into a conventional pass through security, there would be no problem. It would be the world's most boring business. But no, instead they created pools of dissimilar collateral and derivatives and then, with the full complicity of the rating agencies, sold this stuff to adolescents in the investment community, the new rich of Asia and the Middle East. And they bought big chunks of this stuff as did their banks. But the really incredible thing is that not a few of the dealers in New York themselves did not understand this paper and a couple eventually went bust because this very paper became practically worthless or close to it. They have no idea what it means when the Street cannot reverse engineer a deal
Roundtable with Roger Kubarych and Richard Whalen
www.tavakolistructured...
JANET TAVAKOLI ...watch the 6 minute video on the 'bail out',you'll be glad you did.
The Reckoning - From Midwest to M.T.A., Pain From Global Gamble - Series - NYTimes.com
The Reckoning - How Merrill Lynch Faltered and Fell - Series - NYTimes.com
Firms underwriting the C.D.O.’s generated fees of 0.4 percent to 2.5 percent of the amount sold. So the fees generated on the $316 billion worth of mortgage- and asset-backed C.D.O.’s issued in 2006 alone, for example, would have been about $1.3 billion to $8 billion.
www.nytimes.com/2008/1...
The Reckoning - From Midwest to M.T.A., Pain From Global Gamble - Series - NYTimes.com
"You hear about all these millions of dollars that have been lost, and you think, that’s got to come out of somewhere.”
www.nytimes.com/2008/1...
A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com
“When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets,” said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. “It’s really bad for the markets. Things don’t heal until you take care of that.”
www.nytimes.com/2008/1...
Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls. “We did that with ACA,” she said, referring to ACA Capital Holdings, a bond insurance company that was restructured {out of court} in 2007.
Fair Game - They’re Shocked, Shocked, About the Mess - NYTimes.com
something more may be at work. And that something centers on trust and credibility, which have been lacking in corporate and government leadership in recent years.
www.nytimes.com/2008/1...
Is it any surprise that virulent mistrust seems to own the markets now?
Janet Tavakoli, a finance industry consultant who is president of Tavakoli Structured Finance, said the stock market’s gyrations are a result of a severe lack of confidence in the very officials who are charged with cleaning up the nation’s mess.
What Ms. Tavakoli means by common sense is a plan that will force institutions to get a fix on what their holdings are actually worth.
"It is not enough to throw money at a problem; you also have to use honesty and common sense," Ms. Tavakoli said. "In fact, if you leave out the last two, you are wasting taxpayers' money. If you are going to hand out capital, you have to first revalue the assets or take over so that you can force a mark-to-market. Force restructurings, mark down the assets to defensible levels and let the market clear.
HENRY KAUFMAN on the credit crisis
Says the Fed is responsible for the financial crisis
video.aol.com/video-de...
Untangling credit default swaps
www.youtube.com:80/wat...
I wonder why you are using the government's numbers to prove your point. The government's agencies (Bureau of Labor Statistics,The Fed, etc.) are a tool to promote and propagate the message.
For instance, you quote the the government's minuscule price increases in food costs and you nullify it by your actual food shopping experience that is 10X the published price index.
The numbers only have validity when others publicize them.
Nevertheless, no one can escape the inevitable massive massive inflation that is going to impact all of us and Topsy-Torvey every one of our long term plans.
Fiat currency has always and will always destroy the civilization.
Personal income drops drastically as much as 50% when one spouse loses his/her job. Equity prices evaporate to sub-penny levels (e.g., AIG, FRE, FNM, etc.).
The effects? Most, if not everyone, will suddenly feel inflation's pain. The $4B guy would become a $1B guy and find luxury items more expensive. The couple with a laid-off spouse would "virtually" find household goods almost double in price.
In the end, only the strongest of the strongests could survive. A guy with $5M cash in a conservative bank may then see the intrinsic value of his wealth enlarged, so to speak.
It is a brutal world!
> One solution:Buy land and learn to raise your own food.You can't
> eat gold.
No, but you can take a bath in oil. :)
I guess the thing that get's my goat is when someone bashes the dollar and spouts gold as the save all. It's fine during inflationary periods or as a safe haven. But, man, I remember months ago folks were saying buy gold. Sure enough, it peaked over a $1000 last March then fell, again.
Oil did the same, peaked then plummeted. I was arguing for dollar strength, and they were laughing at me...and buying oil. I wonder if they sold their oil at a price higher than they paid for it, at least. Or if they took a bath by keeping a dogged belief in $200 oil.
I argued it was speculation that caused the gold and oil prices to rise, not wholly on demand. I think I was right, I guess so.
So, anyway, back on topic. If V is way down then money supply is (effectively) down, too, eh? That speaks of deflation, and we might see some of that. Until, as was mentioned, the flood gates open. So, when? Maybe it would be nice to have some gold well in advance of that happening, but of course not all of your eggs in that basket...or oil basket.
One exporter friend asked me when to expect a recovery. I simply don't know. He asked about spring 09. I am pessimistic, that seems a bit early. About the only advice I could offer is to watch the credit markets. Once they begin moving at full velocity, then a recovery is likely...but not without dangers of (hyper?) inflation and volatile exchange rates.
So, this is at the root of my question earlier, are we seeing monetary deflation? if inflation can cause the dollar to lose value, can deflation reverse that trend for a period of time?
And, if so, will the dollar actually be worth something in 2009 before the resumption of inflation? And if so, does that give hope to holders of dollar assets in 09? (Realizing, of course, all currencies should be deflating together but at different rates, and I guess depending on their relative supply globally.)
I am betting real monetary deflation will support the dollar for a short period. What say you?
Anyway, back on deflation. It is my understanding the global liquidity pool is drying up, as witnessed by the collapse of the yen carry (8 to 10%.) Also, huge money made on "creative" financial instruments are no longer feeding the US money supply. Nor does the credit squeeze feed it.
So, it seems less dollars are also floating around the global liquidity pool. They have to become more valuable against assets and commodities. Euros and pounds are also drying up under the same mechanism, but I suppose not at the same rate. There are more dollars than anything out there.
Now, this does not bode well for the global economy or trade, as witnessed by the fall of the Baltic Dry Index. So, is this the source of our deflation and what does that mean for the dollar?
I suspect deflation will bode well for the dollar, in terms of asset and commodity prices, as long as it lasts anyway. And it appears to want to last a long time as long as liquidity is tied up in the banks.
Guys, I argue hard for science, production, and a strong dollar. It seems Obama is on board with science and production (and training a sustainable pool of scientists and engineers.) I know he's a fair trader, too. So, let's see how he can affect the value of our dollar.
Now, on inflation. We have been importing our inflation to China through import of cheap goods. They print tons of yuan to buy up surplus dollars to keep prices low. "Beggar they neighbor." What a wonderful mechanism to employ if we want inflation and normal interest rates...to get China to let it's currency to float. Just think, they could import our toasters.
On the euro, they recently spread their lending and borrowing rates to stem the rise of the euro which would have fueled more deflationary fears, I guess.
Crazy times...LOL
What indeed is occurring is not widespread price declines, but a huge fall in the cost of energy. For most of the year, high energy prices have caused consumer prices to soar, reaching a 17-year high in July. But energy prices have fallen about 70% since then.
BUT, other prices in the core of the price index have remained steady. This is double good news. Significantly lowered energy prices have helped every American with their monthly (if not weekly) budget and the risks of deflation are very slim.
On Dec 20 09:03 PM Asbytec wrote:
> Iowa, thanks for the reminder. Yes, the dollar has declined since
> early 1900's (1913, I'll take you at your word.) And I suspect this
> is because inflation is a "norm" in a normally functioning economy
> under fractional banking. Am I right?
>
> So, this is at the root of my question earlier, are we seeing monetary
> deflation? if inflation can cause the dollar to lose value, can deflation
> reverse that trend for a period of time?
>
> And, if so, will the dollar actually be worth something in 2009 before
> the resumption of inflation? And if so, does that give hope to holders
> of dollar assets in 09? (Realizing, of course, all currencies should
> be deflating together but at different rates, and I guess depending
> on their relative supply globally.)
>
> I am betting real monetary deflation will support the dollar for
> a short period. What say you?
The dollar has been strengthening over the last few months relative to other world currencies. As of late it's weakened a bit.
I think of this as a bit of a see-saw effect between Fed injections of capital in the market place versus the decrease in the velocity of money and the destruction of capital due to write downs, write-offs and the credit engine seizing up. I am betting that the Fed won't be able to get enough money out fast enough to stop deflation. The magnitude of the problem is hard to quantify because it is so huge (factoring in not just CDO's but also risk of defaults due to CDS's needing to be paid). So long as housing continues to drop as the core asset underlying many of the toxic assets, this problem will continue and the multiplier effect could be 1000x or more due to the way traunches were created and sold and repackaged, etc.
My guess is that, if we're lucky, we'll end up like Japan. Huge government debts, "zombie banks", and a flat economy barely chugging along. If we are not lucky, then we will see global depression.
From what I can tell, inflation risks are low and will be for a long time since velocity isn't going to jump up all of a sudden, lenders aren't going to just start lending again, credit card limits are being cut, asset prices (housing is still dropping), more mortgage resets scheduled through 2011, etc., etc., etc.
Andrew
CPI does not include food or energy and the Fraudual Government adjusts CPI by many factors. And while the CPI has dropped John Williams still tracks it around 9%. Chart is here: www.shadowstats.com/al...
It is theoretically possible to have a depression (deflation of available currency/credit on the streets) and at the same time conjure up hyperinflation through debasement of the currency by creating too much credit going into the derivatives and banks. see article: www.shadowstats.com/ar...
tinyurl.com/economy200...
I don't need Food, PM, or Ammo. Hussein Obama is gonna save me! ;)
Er, no. That would be 12-18 months too late. The Fed boxed itself into a horrible pickle, because they can't raise rates or stop rolling over TAF, TSAF, TARP, BBQ HOLD THE MAYO because worthless Tier 3 rubbish is still worthless and banks are still underwater with CDO, MBS, CDS etc.
Like BOJ they've dug a hole so deep they can't climb out.
And those pay outs you mentioned are what cause the banks to hoard cash, cuz every bank is itself a credit risk...and so are consumers saddled with falling asset values and job losses.
The banks all have toxic books and are strapped with pay outs. I guess that's the goal of QE, to free that up. Interest rates didn't do the trick. I think the ECB knows this better than the Fed. I still expect the ECB to ease, though.
But, the banks not lending and with hedge funds and the like winding down, global liquidity, in terms of dollars, has to fall. The yen carry is already near death. So, the dollar should buy more oil, despite (deceitful) cuts in production, eh? It's getting stronger vs commodities and assets. That's (at least targeted) deflation...fewer dollars.
Pete, if the CPI did include energy, where would it stand now with a 75% drop in oil prices. 9%? I understand food is not coming down. Nor will Wal Mart prices. In fact, they should be rising. as the Yuan does try to appreciate a tiny tiny bit.
Lane, it might be a bit of fear mongering based on nothing to fear but fear itself. These things are happening for real. What you say is correct, though. The Fed has many tools other than interest rates to reduce the money supply and hopefully keep it under control.
As Burner eluded to, inventive financial instruments have allowed the money supply to soar while China ate our inflation. Those instruments winding down is now is what, I believe, is giving us the threat of deflation...and Fed easing, of course, the threat of hyperinflation...as Alan warns.
I've lived well within my means. I've not leveraged my future into oblivion. Thus the prospect of deflation, whether Austrian or common, is long awaited, as it stretches the value of my savings.
Inflation financed fables. It empowered the insatiable. It funded massive government intrusions. It enabled a host of social and political "evils". It destroyed the value of saving for one's future.
Deflation rewards unleveraged savers at the expense of the profligate... and that is not a bad thing.
Deflation unwinds accumulated financial nonsense... and there is a lot to unravel.
Deflation denies funding for the insatiable, the untenable, and the intrusive.
Surely a round of deflation is in order, no?
You've touched on a subject very intense in my mind and heart. What
Strauss-Kahn warned about-looming violence-parallels the karma due
here in the United States. You see, this story had a begining a long time
ago. When a group of aristocrats, many the sons of rich british mer-
chants and american plantation owners, decided unfair taxing by the British Crown was more than they could bear. They decided to separate the bonds that connected them to Europe and of course the rest is
history, or at least the American educational system would have us be-
lieve! In addition to being recently ranked 25th among the world's edu-
cational systems the system in this country has quite a record of dele-
tion and whitewashing its history books. Those aristocrats ( Mr. Wash-
ington's general staff at least ) offered to storm congress and declare
him emperor of America! (Did they teach you that in history class?)
The congress later authorized Mr. Washington (still a general at this
point) to take military action against those involved in the rebellion against the liquor tax that they had passed very much as their former British rulers had taxed them, albeit without 'representation'! These men for the most part were horrified with the very idea of democracy which they viewed as 'mob rule' in the making. Not once did they signature
any documents where the term democracy appeared! A republic is no more a true democracy than credit is money. In fact, according to Mr. Webster though both democracy and republic allow for direct or indirect representation of the people, in a republic an allowance is made for a 'chief of state' who, as Mr. Bush has demonstrated, can initiate hostile activities against another sovereign state (which is something Roosevelt did only after asking congress for a declaration of war when Japan had attacked at Pearl harbor!). Of course Mr. Bush has reputedly comment-
ed that the Constitution is nothing more than a piece of paper anyway!
Many of us have-I notice-gone quite heavily into gold in order to avoid
an ever depreciating dollar. However, it would'nt surprise me if our
'benevolent' government stages some type of take-over tactic to steal
even honest purchase of precious metals from tax payers!
However, I feel a great deal of the blame rests with our brainwashed american majority who run from the left wing of the 'republicrat' party
to the right wing ignoring 3rd party canditates who in some cases offer
substantive alternatives to the vagrant criminals who presently hold
political office in this country!
In fact, several historical anyalysts and commentors on various websites
(one in particular featured recently on energy bulletin.net) warned
that in any civil unrest here there is the distinct possiblity of 'mergers'
between organized crime orgs, former law enforcement personnel, and
even disgruntled military. It appears that a real revolution and not just
the rebellion of american aristocracy against the crown of England is a
serious danger. It will not be a very pleasant revolution, to put it midly!
Adolph Hitler once commented "it is a wonderful thing for governments
that the people don't think". What looms on the horizon as shown in what
is taking place in Greece-as I write-pretty much seals the coffin on the
fate of hypocrital government and fiat currency; how can the United States be the exception to what has happened in history time and time
again since the beginning of civilization, if you would call it that!
EDT
Chicago, Illinois
My biggest problem is----How the unions will react to the big money guys that are out to bust up the unions, which started back when Regan fired all the airport tower union people and these past 8 year of illegals being hired and some were imported by big corporate farms and related industries, to bust up the farm workers union, started by Chaves.
In other words, big money and their greed.
"BUY AMERICAN"
On Dec 20 12:10 PM Bobco23 wrote:
> My approach has been to barbell my portfolio. I have 55% in CDs and
> treasuries (bought a while ago) and 25% in safe yield stocks (PM,
> MO, pipelines and regulated electric utilities) in the event we deflate;
> and 20% in commodities that pay distributions, TNH, BPT, SJT, PCU,
> ARLP, etc. I probably could do better being more agressive, but I
> want to preserve capital, get a modest cash flow, and gain some inflation
> protection in the event my view that deflation is the likely outcome
> is wrong.
On Dec 19 07:25 PM sickofthehype wrote:
> Exactly. Deflation is temporary and the gov't intervention will
> prove that. The deflationary theories might be true if we were never
> ever going to recover again. But the sun rises again.
Your very apt description of many of the actual desirable aspects of deflation illustrate the exact reasons why deflation will be fought to the last gasp by central banks worldwide. Inflation, via fractional reserve central banking, enables all manner of government mischief, including wars, expansion of the state, theft from savers and support of the "profligate". Those are the reasons why I expect deflation to be fought with every fiber the central banks can muster. If they fail, it will be rightly perceived as a failure of big government and central banking, and that cannot be allowed by them. So, like it or not, we are going along for the ride.
I firmly believe this. Here at SA we can argue about inflation or deflation; we can talk about what would happen in a non-interventionist system. But the intervention is huge, undeniable, and pertinent to every economic discussion taking place anywhere. Economic realities don't matter anymore, all that matters is the commitment of the interventionists. Whether one believes intervention / reinflation will work or not is, I believe, largely irrelevant. The fact is, IMO, that they're gonna do it, that they have to do it, and that there's not a damned thing we can do about it.
If you accept that reasoning, then there are two possible outcomes:
1) reinflation succeeds; i have already speculated elsewhere that they will need to print (click) into existence many trilions of new dollars and euro, engineering a massive and coordinated debasement of major currencies. And the monetarists here will say "well, once it succeeds, they can just mop up the excess and there will be no high / hyperinflation." Given the massive and unprecedented scale of the printing that has already occurred, and that which is certain still to be done, I think that is misplaced faith. The historic record is not good, and political will to slow an economy after a nasty recession will be found lacking. So IMO if reinflation succeeds, we will see massive inflation.
2) Reinflation fails, but not for lack of trying. Dollar is destroyed, dollar crisis. Frankly, I think this is the more likely outcome, and it brings me no joy saying it. I just don't believe that these morons at Treasury and Fed know when to quit. The marker for this eventuality will be significant changes in the legal system in the US as regards money: overt capital controls, bank restrictions, threats to IRA and 401(k) accounts, creation of a new class of "financial terrorism", MSM starting a build a case against precious metal owners, massive talk about "shared sacrifice".
On Dec 21 04:17 AM Kiisu wrote:
> For years, inflation robbed "widows, orphans, and retirees" or anyone
> else who lived on a fixed income of purchasing power, substantially
> eroding their living standard.
>
> I've lived well within my means. I've not leveraged my future into
> oblivion. Thus the prospect of deflation, whether Austrian or common,
> is long awaited, as it stretches the value of my savings.
>
> Inflation financed fables. It empowered the insatiable. It funded
> massive government intrusions. It enabled a host of social and political
> "evils". It destroyed the value of saving for one's future.
>
> Deflation rewards unleveraged savers at the expense of the profligate...
> and that is not a bad thing.
>
> Deflation unwinds accumulated financial nonsense... and there is
> a lot to unravel.
>
> Deflation denies funding for the insatiable, the untenable, and the
> intrusive.
>
> Surely a round of deflation is in order, no?
I think I'll hide out in cash (ensured CDs and treasuries and secure dividend payers) until the dust settles on all the debt and derivitive problems. When that time becomes apparent, I don't know and am not prescient enough to speculate on.
If that isn't enough, double it everyday until you see normal buying in all the stores.
Can't happen? Just watch.
I know how far they'll go, believe me; anything is possible, the unthinkable is already commonplace. I think the amounts needed to reignite inflation will be so huge that we'll have an international currency crisis first. One of the central banks will blink first and start a "beggar-thy-neighbor" currency devaluation, and it will be initiated by fear of, or actual civil unrest. I hope I'm wrong, I truly do.
Helicopter drops like you describe might not be far off. Capital knows this (real capital, not faux printed capital), and it is going into hiding in precious metals, which are experiencing unprecedented demand. Huge and overt helicopter drops will burst the Treasury bubble and ignite wholesale flight into PM's. As I said above, look for economic restrictions becoming necessary to "make" money go where the authorities want it to go. In other words, look for loss of freedom.
If dot gov sent you a debit card for $25,000.00, what would you do with it? The same thing everyone else would do: use your "normal" cash flow to pay off debt, and use the card to buy necessities. If they want us to buy consumerist stuff they'll have to limit the time window for use of the cards, and limit what they can be used for.
The other piece that is needed is fiscal stimulus to make people more secure in their jobs, otherwise no one will take out loans and reignite the fractional-reserve credit system.
On Dec 21 12:18 PM Iowa515 wrote:
> To SW Richmond: you doubt that the Fed can create inflation, that
> money can not be put into circulation. Let's look no further than
> Katrina and what the US government did when the loan money to banks
> was being held by the banks. They issued debit cards directly to
> the local people. Pick an amount of money that needs to be flowing
> in any part of the US, and I'll tell you how much credit to load
> onto the millions of debit cards being issued.
> If that isn't enough, double it everyday until you see normal buying
> in all the stores.
>
> Can't happen? Just watch.
You forgot to mention Social Security and Medicare in your list of expenditures. I think including those two would dwarf the current printing press situation, and would make the Fed's actions a little more rational. Your list looks like you were picking for "major expenditures" that prove your point.
As far as gold is concerned, I must agree with the canned soup comment, except I'll be a little bit more (or less) rational and say that guns, ammo, and maybe a hummer that can stand an RPG shot or three would be king in the goldbug's distopic world. With those, you can take all the canned soup and gold you want. Please don't make me laugh by saying you can use gold to trade for commodities like those if the sky falls.
The dollar has lost 45% of its purchasing power in the last 20 years.
The dollar has lost 71% of its purchasing power in the last 30 years.
The dollar has lost 84% of its purchasing power in the last 40 years.
There is no way we will ever pay back our existing debts, plus the new ones we are piling on, plus all the off-book government obligations, in today's dollars, much less dollars made more valuable by deflation. The only "solution" is substantial devaluation of the dollar, which will be accomplished by more inflation.
“…struggling with pace; too fast a reinflationary response will alert too many people to reality and cause a panic”.
The "smart money" that bet the farm and made all the ‘alpha’ they could during the boom is now manipulating the system to "get well". Why should bankers or others with instruments that no one wants to buy [price discovery = $0] get paid to take these assets off their hands and mitigate the total loss that they would suffer otherwise in a free market? Answer: because the banks are a vital part of a functioning capitalist economy and even though they took huge risks that still threatens everything, their failure would definitely wreck everything. The banks should have been fiduciaries, but they were not, If it is finally clear that the banks and others are gaming the system, then the cruel choice is to give in to the extortion and hope in the future they will not bet the farm again [our current plan, I hope it works] or live with the resulting chaos and collapse [the unthinkable, truly free market]. For the record I am for the first option because I think a capitalistic system in more or less our current form holds the only possibility for a ‘fair’ system.
How can people talk about $64K/yr 3rd grade teachers as if they are the problem in any way when the reduced pay to executives from disgraced, failed financial institutions would still be 100 times more? That is not fair. The USD is the world reserve currency which, like it or not, makes the FED the world lender of last resort. If they manipulate the currency to bail out indebted US interests only, that is not fair.
Nobody said it was supposed to be fair you say? Au contraire; that is the essence of the American Ideal that was sold to Americans and the world. How embarrassing for America if we cannot deliver…
Who says we need banks? The Tresury Dept has always been able to make loans to individuals--directly. They only limiting factor was always Congress limiting their loaning to less than 1/10 of 1%. The Commerce Dept has always been able to loan to small business, ditto
The banks are a scam. Their current cost of borrowing for a loan to you is less than 1/2%. There overhead is related to how big and fancy a building they want and how much they pay to get a bevy of pretty woman to walk around on carpets.
Any type of financial institution can handle checking accounts and deposits; credit unions, etc.
Banks are a form of legalized crime. They have had hundreds of years to perfect how to steal our money via payoffs to the politicians.
Ask the Gov of Illinois what happened to him when he stated that his state was going to stop doing business with the B of A until they provided loans to Republic Window and Door. Six AM next morning he was taken from his home in handcuffs and confronted with some vague wiretap information about wanting to get something from his apointment to Obama's seat; if every other politician in Washington wouldn't have been saying the same thing, one way or another.
Next day B of A changed their mind, made the loans and the workers got some of their sick, annual and overtime pay.
So... B of A is the Illuminati? "They have had hundreds of years to perfect how to steal our money ". As far as I know, no one has lived for hundreds of years….
No offense [really, I appreciate the civil discourse of this blog] I don't buy the grand conspiracy theory. It would be great if it were so; then we would have proof that a determined set of powerful people could actually pull off something grand that they had planned. On the flip side, I do agree that certain moneyed interests are very powerful and do things we don’t know about and the government and others are always to some extent watching us [or some of us, like Mr. Blagojevich]. But to what end? So that finally they can hatch their evil plot of collapsing all the institutions that they supposedly control to hole up in Ayn Rand’s secret money-mountain-gated-r... [a la Atlas Shrugged?]?
Isn't it possible that over millennia we have created, by many hands [visible and otherwise] a human society that has moved forward in fits and starts but that has certainly moved forward?
The linguist Steven Pinker [www.ted.com/index.php/...] in arguing that we live in the LEAST violent time in our species history suggests that one reason that we may perceive that we are in the MOST violent time is that the change in our standards outpaces the change in our behavior so that [he argues] while violence has decreased our tolerance of violence has decreased at a faster rate and it appears that we are more violent. I think this is correct and the same is true with what is happening with our global economy. Notwithstanding the greed and malfeasance of many people in positions of trust, never before has the global economy been so just [even though it appears not fair as I argue above], so robust, so powerful, etc. We have done a good job in spite of many mistakes and although the future has great challenges, we are in the best position to meet them than we have ever been.
On Dec 19 08:18 PM LilBob wrote:
> Deflation is a function of cash-strapped consumers trying to rein
> in their debts. In order for consumer prices to rise we have to see
> a corresponding increase in wages, which isn't going to happen when
> the unemployment rate is high and competition for menial jobs is
> fierce. The Fed can print all the money they want but if most of
> it ends up sitting in the vaults of banks that are afraid to offer
> credit then it's a pointless task.
>
> The consumer based economy is over. Consumer prices will continue
> to fall. Retail will continue to suffer. Private colleges and universities
> are going to have to rein in their costs or eventually they are going
> to get hit also. American consumers will soon start acting more like
> their grand-parents. Right now is not the time to invest in consumer
> goods-especially pricier items like computers and cell-phones. Consumer
> prices will continue to fall until they have reached parity with
> the rate of wage deflation experienced by the working poor over the
> course of the last ten years (And that includes losses suffered because
> of rising health-care costs).
>
> We are on the cusp of an economic change so dramatic that-by looking
> on the posts here and on a few other websites-I don't believe most
> economists or investors can even begin to fathom the change.
cell phones are usually free unless you want the latest technology.
- Execute a "controlled" deleveraging or
- "Manage" the US economy
If US government goal is to "manage" the economy then it will lead to a complete economic collapse (like it happened in Soviet Union and/or other "centrally planned" economies.)
If US government goal is to have a "controlled deleveraging" of US economy then they better must slow down their US$ printing presses. US economy is on "drugs", that is, it is on a huge foreign money & goods infusion.
The US foreign trade deficit is huge. US economy lost its international competitive edge some times ago, and it has to import huge quantity of industrial and consumer goods as well as almost all industrial commodities.
US government can not inflate itself out of the present economic catastrophe without becoming competitive without totally ruining American standards of living.
Any bailout of failed and inefficient US businesses must stopped (with exception for US strategic sector like national defence and security as well as major financial institution but, at the same time, these sectors must be modernized and become efficient). US must start making strategic investments in its economy promoting successful businesses.
Anything else will even more exacerbate the already terrible situation leading to civil unrests.
- Dr. Friedman theories can be inaccurate or even wrong
- Not all Great Depressions are the same.
Just because a person and/or an economy are very sick, it must be treated the same. This is why we go to a good doctor to diagnose an illness and only then be treated with the right medicine. Aspirin is a great medication but will it does not do any good for a cancer or any bacterial infection.
On Dec 20 01:37 AM John Lounsbury wrote:
> A worthwhile addition to this discussion stream would be to recognize the role of velocity of money in inflation.
Inflation as a monetary phenomenon can be considered an increase in the nominal value of all transactions.
Milton Friedman made popular (created?) the following equation...
On Dec 20 11:55 AM SW Richmond wrote:
> This is a fallacy that is often repeated by those schooled in modern
> monetarist economic theory. This idea of a wage/price spiral being
> essential for "inflation" completely discounts the very real possibility
> of a currency collapse, or a serious currency debasement.
>
> Read about Argentina.
>
> On Dec 19 08:18 PM LilBob wrote:
I have been proclaiming the great news of a Clean Coal / Clean Hydrocarbon breakthrough.
This is truly a "One man's trash is another man's gold..." Only the ones that have the trash do not know that they are throwing away gold.
Please take a moment to check out the facts about this discovery at the U S Patent Office.
www.faqs.org/patents/a...
You Sir, and all who are reading this, are about to make the most important decision of your life. One that will help change History forever.
Merry Christmas and a Very Happy, Prosperous New
Year to All.
On Dec 19 10:16 PM Chad Gray wrote:
> Well written analysis. The Chronicle article, however, was a little
> disingenuous. The "cost" of $7.1T includes a whole lot of loans that
> will get paid back (commercial paper or loan guarantees to GE, for
> instance). There are two kinds of spending: the kind that goes into
> your own economy (stimulus checks, infrastructure projects, and to
> some extent, loans to viable domestic companies) and there's money
> that vanishes (the million dollar tanks you build or the dollars
> you send overseas for foreign oil). Sort of like the difference in
> opening your bedroom door in the winter vs. opening your front door.
> In both cases it feels like heat is escaping, but only one of the
> cases is it lost for good.
>
> I too am concerned that we're setting a course for strong inflation,
> which is exactly what Bernanke wants IMHO. Inflation bails out the
> borrower and screws the lender, but in an invisible way. My only
> hope is that we focus as much of the inflationary stimulus on things
> that have the most residual value to the economy (bridges & roads,
> R&D, broadband infrastructure), limited amounts on things like
> $1000 checks to consumers and similar, and as little as possible
> on foreign oil and bombs.
If you think teachers are underpaid good luck finding someone to teach your mongrel, rat-ba$tard children for less than that, b/c I wouldn't do my wife's job for $75k, let alone what she gets paid.
On Dec 20 08:06 AM ATWshop wrote:
> Gold...bah, humbug. This is the same insanity that the uninformed
> run to every time things get tough. There is No logical reason for
> gold to increase in value as it is Not tied to anything aside from
> trinkets. Only the uninformed buying it make the price rise. You
> want a real inflation or deflation hedge?... buy "canned soup" if
> you really think the world is near an end. Then you will have something
> to barter with when times get as bad as gold worshipers think they
> will. People can't eat gold!
> There are so many areas that we waste money - even on a local level.
> In my area, the 3rd Grade teacher earns $64,000 per year plus benefits.
> Now, be realistic here... how smart do you really have to be to follow
> a lesson plan and teach a 3rd grader? Maybe when the Fed is done
> downgrading the wages and unfair contractual conditions of the UAW
> they should take on the Teacher's Union and rid it of some of the
> obscene wages and work rules. Isn't the Teacher's Union clause regarding
> "Tenure" akin to the UAW's rules on "Job Banks"? We should be able
> to save Billion$ with just this one area.
> Don't even get me started on the local governments waste of money
> with Book Mobiles, city parks, etc.
Why would the author promote a highly volatile investment that he intends to accumulate? Wouldn't that push up the price?
Answer: He's not buying gold, he's selling it. He's one of many people on SA who supposedly subscribe to "alternative" economic theories in order to create volatility in commodity prices. Guess what... the early participants in pyramid schemes actually make money. That track record plus relentless marketing by participants trying to get their money back is what lures everyone else to get in.
Also, assuming there is a fixed amount of wealth in the world demonstrates a childlike understanding of economics. Wealth is created and destroyed every day and people produce and consume products and services.
On Dec 20 08:11 AM john s. gordon wrote:
> private colleges & universities will have to rein in their costs
> or risk being replaced by on-line education providers.
> say that credit has dried up, not consumption. No one is holding tight
> to every dollar.
That depends upon who you are talking to. Who is 'no one'?
Am I spending less? Yes
Zero? No I still pay rent, energy and food.
Stopped eating? Not until the food is gone, but it's looking dicey already.
Holding onto every dollar? Wish I could, but see above.
In case you write me off as an aberration, there are many many more like me - eliminating all health care, education, clothing expenses... surely not spending on any but most basic necessities. The number of folks like me grows.
No, we are raising the next generation to be stonecold sober. They will be hungry and pissed off however.
On Dec 20 01:37 AM John Lounsbury wrote:
> A worthwhile addition to this discussion stream would be to recognize
> the role of velocity of money in inflation.
>
> Inflation as a monetary phenomenon can be considered an increase
> in the nominal value of all transactions. In other words, if all
> transactions in one period of time have a nominal value of $100 and
> the same transactions in a later period of time have a value of $120,
> there has been a 20% inflation between the two time periods.
>
> Milton Friedman made popular (created?) the following equation:
>
>
> nT = V M
>
> where nT represents the nominal value of aggregate transaction, V
> is the velocity of money and M is the quantity of money in circulation.
> In the simplest view, velocity can be considered a multiplier representing
It was pure and simple greed and dishonesty that made them do it, not CRA.
Your are being intellectually dishonest with yourself, if you really believe that it was Clinton's fault.
On Dec 20 06:03 PM RTF 360 wrote:
> www.bloomberg.com/apps...;sid=aGvwttDayiiM&...
>
>
> In the past 60 days,the feds just spent (without hearings) 4 times
> as much covering up the banking / credit default swap scandal as
> they did for all the wars and all the social programs in the first
> 75 years of the twentieth century .
>
> The velocity of that change is staggering when presented in graphic
> form
> Source Commodity Research Bureau ISBN 13 978 0 471 78443 2
> The Subprime Lending Bias
> By INVESTOR'S BUSINESS DAILY | Posted Friday, December 19, 2008 4:20
> PM PT
>
>
> Media: If, as they say, it's journalists who write history's first
> draft, then future texts will be riddled with errors about the origins
> of the subprime disaster, teaching future leaders the wrong lessons.
>
>
>
> ----------------------...
> Read More: Media & Culture | Economy
>
> ----------------------...
>
>
> Just how did Americans come to lose $10 trillion in real estate and
> stock wealth? And why are our children and grandchildren on the hook
> for as much as $8 trillion in federal bailout money? These are some
> of the most important questions of our time. Yet the mainstream media,
> plagued by monopartisan bias, are not providing the public honest
> answers.
> Take, for instance, a recent front-page article in the Washington
> Post, under the headline, "How HUD Mortgage Policy Fed the Crisis."
> The piece correctly fingers HUD for helping fuel risky lending at
> Fannie Mae and Freddie Mac. But the newspaper starts its analysis
> in 2004 (in fact, the first sentence begins, "In 2004 . . . "), making
> it seem as if the Bush administration crafted "affordable housing"
> policy and created the subprime market.www.youtube.com:80/wat...
>
> The Post knows better. The Bush HUD merely continued a politically
> correct policy launched by the Clinton administration. For the first
> time, President Clinton ordered HUD to set quotas for Fannie and
> Freddie to buy huge portions of Community Reinvestment Act loans
> and other low-income mortgages made to borrowers with poor credit.
> The Post failed to mention this key fact.
> By 2000, fully half of the mortgage giants' portfolios consisted
> of these risky loans, most of them subprime mortgages. In effect,
> the Clinton HUD set a time bomb that would explode years later with
> the collapse of home prices, which happened to occur on Bush's watch.
>
> At the same time, HUD pressured the federally subsidized giants to
> lower their loan-to-value ratios and other underwriting requirements
> to accommodate minority borrowers. HUD Secretary Andrew Cuomo even
> admitted that the administration was mandating a policy of "affirmative
> action" lending (his words, not ours).
> And it was Clinton who initially spread the subprime rot to Wall
> Street. To help Fannie and Freddie reach their "affirmative action"
> lending quotas, HUD in 1995 let them get affordable-housing credit
> for buying subprime securities that included loans to low-income
> borrowers.
> Less than two years later, Freddie partnered with Wall Street investment
> banker Bear Stearns to issue the first securitizations of low-income
> CRA loans.
> There's even a press release still available on the Web that memorializes
> the historic deal, which dumped hundreds of millions of dollars in
> the risky loans on the market — a down payment on the hundreds of
> billions that were to follow.
> The Post left all of that out of its story, even though the deal
> marked the beginning of the boom in subprime securities.
> Of course, providing such background to readers would ruin the impression
> that Bush and Republicans were responsible for the crisis, an impression
> the Post and other liberal media elites hope will stick in the public's
> mind and become conventional wisdom. And conventional wisdom, once
> galvanized, is a powerful thing in Washington. Whole agendas and
> coalitions are built around it.
> The Post also provided just one side of the data in its story. The
> paper said that Bush "ratcheted up" the affordable-housing goal for
> Fannie and Freddie, from 50% to 56%. But it left out the fact that
> the previous president, the liberal Democrat, institutionalized the
> quota and ballooned it up to 50%. Which move do you think had a greater
> impact on the subprime market?
> A recent story in the Associated Press was equally tendentious. It
> blamed Bush for not cracking down on loose lending standards that
> had become the norm in the mortgage industry, while completely ignoring
> the systematic dismantling of those standards during the previous
> decade under Clinton.
> "The administration's blind eye to the impending crisis is emblematic
> of its governing philosophy, which trusted market forces and discounted
> the value of government intervention in the economy," wrote AP Washington
> correspondent Matt Apuzzo.
> Reality check: "Government intervention" is what planted the seed
> to this whole crisis. As we've noted, Clinton in 1995 revised CRA
> regulations to pressure banks into adopting "flexible" lending standards
> to increase minority homeownership. In a 1,389-word story, AP cited
> that easily verifiable fact not a single time.
> Make no mistake: It was Clinton who forced banks — most importantly,
> Fannie and Freddie — to go into the subprime market to serve the
> targeted populations that HUD and other Clinton banking regulators
> wanted them to serve.
> In effect, the media are blaming Bush for Clinton policies. Whoever
> controls the debate in Washington controls the truth. Right now,
> it's Democrats and their press courtiers. And so far, they've managed
> to shade the truth about the root causes of this epochal financial
> crisis.
>
> hotair.com:80/archives.../
>
>
>
>
>
>
>
> ----------------------...
>
>
>
>
> us1.institutionalriska...
>
>
>
>
> " I blame the mutation of the securitization industry into a toxic,
> damaging thing on Fannie and Freddie. These organizations lost their
> moral compass and began to do things in the marketplace that eventually
> caused them to get into such difficulties that the CEOs were removed
> and all sorts of new restrictions were placed on the GSEs. Wall Street
> said halleluiah and proceeded to dive headlong into subprime mortgages
> and all the rest. The banks loved it as did the Democrats on the
> Hill, who are always looking to make hay about affordable housing.
> "............
>
> ..........If Wall Street had simply stopped and packaged the subprime
> loans into a conventional pass through security, there would be no
> problem. It would be the world's most boring business. But no, instead
> they created pools of dissimilar collateral and derivatives and then,
> with the full complicity of the rating agencies, sold this stuff
> to adolescents in the investment community, the new rich of Asia
> and the Middle East. And they bought big chunks of this stuff as
> did their banks. But the really incredible thing is that not a few
> of the dealers in New York themselves did not understand this paper
> and a couple eventually went bust because this very paper became
> practically worthless or close to it. They have no idea what it means
> when the Street cannot reverse engineer a deal
>
> Roundtable with Roger Kubarych and Richard Whalen
>
>
> www.tavakolistructured...
>
> JANET TAVAKOLI ...watch the 6 minute video on the 'bail out',you'll
> be glad you did.
>
> The Reckoning - From Midwest to M.T.A., Pain From Global Gamble -
> Series - NYTimes.com
>
>
>
> The Reckoning - How Merrill Lynch Faltered and Fell - Series - NYTimes.com
>
>
>
> Firms underwriting the C.D.O.’s generated fees of 0.4 percent to
> 2.5 percent of the amount sold. So the fees generated on the $316
> billion worth of mortgage- and asset-backed C.D.O.’s issued in 2006
> alone, for example, would have been about $1.3 billion to $8 billion.
>
>
> www.nytimes.com/2008/1...;_r=2&ref=busi...
>
>
>
>
> The Reckoning - From Midwest to M.T.A., Pain From Global Gamble -
> Series - NYTimes.com
>
>
> "You hear about all these millions of dollars that have been lost,
> and you think, that’s got to come out of somewhere.”
> www.nytimes.com/2008/1...;_r=1&sq=janet...
>
>
> A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com
>
>
> “When investors don’t have full and honest information, they tend
> to sell everything, both the good and bad assets,” said Janet Tavakoli,
> president of Tavakoli Structured Finance, a consulting firm in Chicago.
> “It’s really bad for the markets. Things don’t heal until you take
> care of that.”
>
>
> www.nytimes.com/2008/1...;ref=business&...
>
>
> Ms. Tavakoli said she thought that instead of pouring in more and
> more money, the Fed should bring A.I.G. together with all its derivatives
> counterparties and put a moratorium on the collateral calls. “We
> did that with ACA,” she said, referring to ACA Capital Holdings,
> a bond insurance company that was restructured {out of court} in
> 2007.
>
>
>
> Fair Game - They’re Shocked, Shocked, About the Mess - NYTimes.com
>
>
>
>
> something more may be at work. And that something centers on trust
> and credibility, which have been lacking in corporate and government
> leadership in recent years.
> www.nytimes.com/2008/1...;scp=4&sq=tava...
>
>
> Is it any surprise that virulent mistrust seems to own the markets
> now?
>
> Janet Tavakoli, a finance industry consultant who is president of
> Tavakoli Structured Finance, said the stock market’s gyrations are
> a result of a severe lack of confidence in the very officials who
> are charged with cleaning up the nation’s mess.
>
> What Ms. Tavakoli means by common sense is a plan that will force
> institutions to get a fix on what their holdings are actually worth.
>
>
> "It is not enough to throw money at a problem; you also have to use
> honesty and common sense," Ms. Tavakoli said. "In fact, if you leave
> out the last two, you are wasting taxpayers' money. If you are going
> to hand out capital, you have to first revalue the assets or take
> over so that you can force a mark-to-market. Force restructurings,
> mark down the assets to defensible levels and let the market clear.
>
>
>
>
> HENRY KAUFMAN on the credit crisis
> Says the Fed is responsible for the financial crisis
>
>
> video.aol.com/video-de...
>
>
>
> Untangling credit default swaps
>
>
>
> www.youtube.com:80/wat...
On Dec 20 08:06 AM ATWshop wrote:
> There is No logical reason for gold to increase in value as it is Not tied to anything aside from trinkets. Only the uninformed buying it make the price rise.
Gold has been money and a store of value for 3,000 years. Only central banks and national governments have made fiat currency legal tender and displaced it from that role in the last century. When confidence in the fiat currencies falter, interest in gold rises. Simple as that. Why do you think central banks still hold most of the gold in the world, because they are stupid, because the public is stupid? You sound like the one that is uninformed.
>You want a real inflation or deflation hedge?... buy "canned soup" if
you really think the world is near an end. Then you will have something
to barter with when times get as bad as gold worshipers think they
will. People can't eat gold!
Try storing a hundred thousand cans of soup in your garage and see how long you can hang on to it in a famine, and you cannot eat paper money either. But, you can trade gold for paper money or food, you can hide gold, and gold is portable.
> There are so many areas that we waste money - even on a local level.
In my area, the 3rd Grade teacher earns $64,000 per year plus benefits.
Now, be realistic here... how smart do you really have to be to follow
a lesson plan and teach a 3rd grader?
Spoken like one who has never tried it. Teaching is nothing like holding forth with your own children in your living room. It has nothing to do with being smart academically and everything to do with patience, social skills, and management ability.
> Maybe when the Fed is done downgrading the wages and unfair contractual conditions of the UAW they should take on the Teacher's Union and rid it of some of the obscene wages and work rules.
Sounds like ATWshop is angry that his own corporate masters have held his wages down while a few unions have managed to preserve their members standard of living. According to at least one source, since the early 70s, wages have dropped 18% in constant dollars. ATW would do well to study where all the productivity gains since then have gone, into the pockets of the 300 families that own 50% of the assets of the U.S.
> Isn't the Teacher's Union clause regarding "Tenure" akin to the UAW's rules on "Job Banks"?
No, it isn't. Tenure means less experienced teachers are laid off first. Jobs banks mean laid off auto workers aren't really laid off at all, but continue to be paid. It's kind of like unemployment insurance on steroids.
> We should be able to save Billion$ with just this one area.
"We?" Why should you or I have any say in the relationship between a corporation and its union employees? If a union demands too much and puts its employer out of business, then that is just foolish, but it is none of our business.
Public education is another matter. The biggest improvement that could be made to public education would be to fire the worst 10% of teachers at the end of their third year when you can really tell what they can do and replace them with new teachers.
> Don't even get me started on the local governments waste of money with Book Mobiles, city parks, etc.
WTF? How about eliminating sports programs and the arts at schools, public libraries and roads, 4th of July fireworks, while you are at it. I'll bet you are great conversation at the dinner table, ATW.
I don't know if gold is the answer, though, as nobody really needs it.
Who will have the money (or equivilent) to buy your gold when the financial world is collapsing?
I'd rather own things that are actually needed to live.
I don't have 'money' to put in the market anymore than I have money to put into the gambling halls or even the gas tank. What currency I do have (and by currency I include my time, talents and all my resources) I like to invest in the things I want to cultivate in my community, in my country and on this planet. I try increasingly to reflect those values in the products I purchase, the businesses I patronize, the charity I give, even the ideas I propagate.
Whether these endeavors ultimately grow and certainly whether or not they bring a return on my investment are not the reason I approach investing in this fashion. However, by being thoughtful of what I contribute and support I know that I am being responsible with my resources.
When you have other priorities guiding you, you should not be surprised to find you have created a monster.
Personally, I am not a fan of oil so I can continue to cut back my consumption about it without worrying about the price of tea in China, my grandmother's pension fund or how the Fed thinks it will save us all.
The first indication of this reality will be the foreign exchange rate where the Dollar will be shunned by other currencies at its debased value. This, of course, will increase the cost of imports and will have to be acknowledged in prices. This country imports most of its manufactured goods, thanks to administration after administration rewarded the export of manufacturing with skewed tax policies that killed all incentives to produce domestically. The resulting inflation will be unstoppable and huge in magnitude.
I can go on and on. The bottom line is that we used to base the currency on the gold standard. This was too confining to the Keynsian theory as it was very inflexible for fiscal stimulation. What followed was the Bretton-Woods agreement which was a modified gold standard with wider bands that essentially followed the US Dollar circulating as the the world monetary standard. When the US started to expand the money supply in ever larger deficits, the world rejected that system and we were left with a sort of an honor system.
Well, now the Dollar output has gone out of control under the aegis of a nihilist government. The Fed is temporarily sticking its finger to hold off the inflation dike from cascading. This will prove useless as the world will find out soon. Man cannot be trusted, and FIAT money is recipe for economic doom.
On Dec 19 10:16 PM Chad Gray wrote:
> Well written analysis. The Chronicle article, however, was a little
> disingenuous. The "cost" of $7.1T includes a whole lot of loans that
> will get paid back (commercial paper or loan guarantees to GE, for
> instance). There are two kinds of spending: the kind that goes into
> your own economy (stimulus checks, infrastructure projects, and to
> some extent, loans to viable domestic companies) and there's money
> that vanishes (the million dollar tanks you build or the dollars
> you send overseas for foreign oil). Sort of like the difference in
> opening your bedroom door in the winter vs. opening your front door.
> In both cases it feels like heat is escaping, but only one of the
> cases is it lost for good.
>
> I too am concerned that we're setting a course for strong inflation,
> which is exactly what Bernanke wants IMHO. Inflation bails out the
> borrower and screws the lender, but in an invisible way. My only
> hope is that we focus as much of the inflationary stimulus on things
> that have the most residual value to the economy (bridges & roads,
> R&D, broadband infrastructure), limited amounts on things like
> $1000 checks to consumers and similar, and as little as possible
> on foreign oil and bombs.
On Dec 20 01:37 AM John Lounsbury wrote:
> A worthwhile addition to this discussion stream would be to recognize
> the role of velocity of money in inflation.
>
> Inflation as a monetary phenomenon can be considered an increase
> in the nominal value of all transactions. ...
>
> ... Milton Friedman made popular (created?) the following equation:
>
>
> nT = V M
>
> where nT represents the nominal value of aggregate transaction, V
> is the velocity of money and M is the quantity of money in circulation.
> In the simplest view, velocity can be considered a multiplier representing
> the number of times a dollar is exchanged between parties (each exchange
> is a transaction) in a specified time period.
>
> ...In practice, both V and M change ...
>
> What has happened in the past couple of decades, and accelerated
> in the last few years? There has been a steady increase in M, but
> the big change was in V. The velocity of money involved in creating
> a humongous pile of fin