Bailout Bill Passes; What Happens Now? 74 comments
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Congress passed a $700 billion bailout package today. It was a total and complete waste of $700 billion. It further depletes the pool of real funding.
Yes, the Fed has started a monetary printing campaign. Yes, the SEC will suspend mark to market accounting. So what happens now?
Pretending Is Not Reality
What happens now is that pretending does not alter reality. I can pretend all I want that Madame Merriweather's Mud Hut is worth $1 trillion and I can pretend my pet rock is worth the same. The reality (sorry, Madame) is that neither is worth the book value I place on them.
Suspension of the mark to market rules will accomplish nothing but further mistrust of banks and bank stocks. Everyone will know banks are lying. No one will know by how much. What we still know is that Citigroup (C) alone holds $1 trillion in off balance sheet SIVs.
Pretending those SIVs are worth $1 trillion will not make it so. Yes, $700 billion is a lot of money. But let's see just how fast it comes and let's see if all of it comes.
The countless trillions in total bank assets that are not marked to market and will not be purchased by the Treasury are realistically still going to see credit contraction (on a marked to market basis, and that is what counts).
Foolish Effort To Spur lending
Bernanke and Paulson think that the Fed buying toxic garbage will spur institutions to start lending. It won't. Banks will still be holding more garbage than the Fed can possibly buy. The market will be able to smell that garbage, even if the rules allow banks to pretend that garbage is a rose.
Banks have no reason to lend in a world of overcapacity, rising unemployment, and increasingly sour consumer attitudes. It was disingenuous at best to suggest this would free up lending for Main Street as it was packaged.
Rescue The Market?
All hopes were that action by Congress would "rescue the market". It can't and it won't. No jobs are being created by this bill, salaries are not going to rise, outsourcing is not going to stop, and foreclosures are going to rise.
If there was a $700 billion jobs package passed instead of this monstrosity, especially if Davis-Bacon was scrapped like I wanted, tens of thousands of jobs would have been created and at least the US taxpayer would have gotten something for their money. Note: I am not arguing for $700 billion for jobs per se, I am merely pointing out that we would have at least gotten something out of it.
It was not to be. Stupidity won out as it usually does, but I am holding my head high for the effort that readers of this blog and others put in to kill this boondoggle.
Will Printing Lead To Hyperinflation?
Many have asked if the actions of the government would lead to hyperinflation. Others mockingly told me that it would. Nope. The answer is the same: Deflation.
There has never been hyperinflation in history with falling home prices. And home prices will continue to fall. Wasting $700 billion will not do the stock market any good either. The bottom is not in. Today's close proved it. There are new lows on the S&P 500, the Nasdaq, and the Dow.
Yes the Fed will print, but the money will sit, just as it did in Japan. Wasting $700 billion will only make things worse. Banks will still hoard cash.
Hyperinflation Dreams Are Way Down The Road
I am not the only one who has come to this conclusion. Please consider this audio with Austrian Economist Frank Shostak on Mises.
Shostak refers to Money AMS in the audio. An complete explanation of Money AMS can be found in Money Supply and Recessions.
A more recent update of Money AMS is in TMS: A Truer Money Supply?
Proper Definitions of Inflation and Deflation
Those who believe inflation is measured by the CPI, the PPI, or price increases of any kind desperately need to read Inflation: What the heck is it?, Interview with Paul Kasriel, and Deflation American Style.
The definition of inflation I am using is "A net increase in money supply and credit". Deflation is the opposite: "A net decrease in money supply and credit".
Looking at deflation in terms of money supply (money that is actually lent) and credit (marked to market), the proper conclusion is the bailout bill does not change the picture, and that picture remains deflation.
I have said many times the fed can print but it cannot force banks to lend or consumers and businesses to borrow. We are about to find out who is right.
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This article has 74 comments:
As to the US baby boomers coming to retirement, they will probably see their 401k's severely depleted...
Nationalisation of homes in foreclosure and another check to average Joe (with a defined spending rules: pay mortgage and debt and of course spend some otherwise Chinese and other Asian nations will refuse to buy the newly issued US gov. debt) would in our opinion be a much better solution.
For a guage of what the real economy globally is doing Baltic index (BDI) is still appropriate measure and it is showing severe slowdown (not just lower oil prices).
The bailout bill is enough for GS and MS to stay afloat and if we drop the charade this is what the intention of Mr. Paulson was in the first place. Be sure GS and MS (if they survive) will reload equity positions from retired people who will sell their 401k holdings near bottom and this will mark the bottom of the cycle. This is the plan however the eternal question whether it is really different this time still hangs over us.
It is different and as risk models showed in Aug07 once every 200 million years events can happen. So what we should really think about is how to avoid the global capitalism avoid transition into chinese style capitalism in order to survive. This is not a once in a 100 years event, it is an event unseen so far.
People feel this is a cold, others say pneumonia, few of them say 87 crash was heart stroke and this is cancer. When average Joe realises this is cancer and looses the trust in fiat money, the system will have to change. Let's just hope PEOPLE put the pressure on politicians and really PRESSURE them (PUBLIC PROTESTS) so they will for once listen and not just think about their personal position.
Chinese style of capitalism if not that bad for the Chinese actually at this point in their development cycle. However it would be disastrous in the western world and should be avoided at all cost.
"Looking at deflation in terms of money supply (money that is actually lent) and credit (marked to market), the proper conclusion is the bailout bill does not change the picture, and that picture remains deflation."
I'm not sure I agree with the conclusion in the short term. Here's why. You suggest the money supply has not been increased. But if the fed printing presses pay for the 700B then the money supply is increased, it buys the bad debt and allows (again in the short term) for banks to supposedly be more appropriately leveraged. Here is the question. Do the banks turn around and lend that money (increased by the money multiplier of going through the bank system). Short term that cash infusion (whether printed or by foreign investment in T-bills), will cause an increase in the money supply if the banks loan the proceeds of the sales out. Which if I recall is the intention of the bailout in the first place, allow banks to get back to lending.
Medium to Long term I agree with you, the USA is overinflated and the only way back to equilibrium is deflation (assuming the US and its citizens ever decides to pay back their debt).
I'm interested in your thoughts in response to this Michael.
Cheers.
It doesn't have to. Banks will lend - that is what they do - and consumers and businesses will continue to borrow. Try to stop them.
The bottom may not be in, but the bailout should provide a foundation of sorts, psychologically and economically. Fear will leave the markets next week or soon thereafter. The hyperbolic fear-mongering employed to sell the bailout by everyone from Cramer to Reid will stop. That will help.
America has enjoyed the "artificial" prosperity enabled by a spendthrift Federal Government and emulated at the State, local and personal level. The party has sadly ended, and we haven't seen what's coming next from our enemies or those who have been waiting to kick America when it is down. What happens when oil production is cut back 20% by Russia, Venezuela, Iran, etc? What happens if China, Japan and others "call our debt" as America is no loner creditworthy? Who will find the $11 Trillion Current Account Deficit? How will the $55 Trillion Unfunded Liabilities for Entitlements be honored?
The Day of Reckoning is here, and you'll never hear it from your politicians. They have returned home to blow smoke up your butts, and you gullible citizens will reelect the same entrenched encumbants who brought you here, like you do 95% of the time...........
God Bless America............We now really need it!!!!!!!!!
IMHO
1) On money supply and inflation: assume subprime assets were bought against payment in treasuries: the money supply would not rise!
2) If under the package, banks lose risk assets for treasuries, they not only get rid of illiquid assets, but also get collateral for interbank lending. Leverage (in risk assets) and liquidity improve.
3) Furthermore, capitalisation of banks will improve due to price recovery in risky assets. Everyone is focusing on the USD700bn. However, if these 700bn in hypothetical demand create something like a psychological price floor for what is currently sold at fire sale prices, the package is suitable to trigger the market entry of private equity investors in larger scale. As prices of risk assets recover, so will the capitalisation of banks.
4) This package will hence improve bank balance sheets from the asset and the capital side, and provide liquidity / collateral to banks. Money markets are likely to calm.
5) As far a lending to main street is concerned, a lot is gained by securing the functioning of credit markets going forward. Nothing wrong with your analysis of the American desease and that more saving is required. We hopefully agree that the complete collapse of the banking system is not the preferred way to get there.
6) As concerns market to market and trust: Market to market is fine when prices reflect value. You are not however not honestly arguing that investors have higher trust into US banks for as long as there is need for two bailouts per week when accounting on market to market and fire sale prices? I guess we agree there is need to return to market to market when markets have calmed.
7) How short are some of you? And what is your attitude towards social responsibility?
Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs (published Oct. 3)
www.rgemonitor.com/rou...
Start accumulating Gold and Silver, because it is real money.
Semper Fi, the sandspider
And if the politicians of the world turn to the historically accepted method of defeating an economic slowdown, war, that inflation will be in spades.
Can government confiscation of gold and silver defeat the protection they offer the common man? Such confiscation would require a lot of eggs to become unscrambled. Simply "calling in" a few billion dollars in gold coins is not possible today as it was in the 1930's.
One can only hope that a Democratic administration will end the manipulation of the gold and silver futures markets and focus on the bottom up revival of the US economy. Hopefully, the bail out was the final grasping, choking act of the national socialists that are being kicked out of Washington this November.
John Maynard Keynes,
you've had your fun.
Now we find we're living
in your "long run."
Since our economy is so based on "confidence", why not just put anti-depressants in the water supply? Oh, you say, a sober recognition of reality is still necessary? Do tell.
In the meantime, prices on everything have skyrocketed and now the government is printing hundreds of billions out of thin air and dumping them into the banking system.
That money will find its way into the cost of everything you need to live and prices will continue to rise.
Deflation in a Fiat money system with an infinite ability to electronically create dollars simply can't and won't happen.
The Fed balance sheet has already expanded by 30% in just a few weeks and the monetary base and gone vertical.
I fully expect stocks and commodities to stage a dramatic rally.. How many morons thought Deflation was coming when the internet boom went bust?
Case Closed.
Here's the Roubini link again - it is a must read
www.rgemonitor.com/rou...
www.bloomberg.com/apps...
i'm with mish on deflation...anna rest!
money will not move because the consumer has had trillions removed from their net worth. they are going to hunker down because they have a lot of lost ground to make up. they will only spend on what they need.
the economy is in a tail spin. there will be more unemployment. the equity market will remain sluggish. real estate will flounder. who in hell is going to be needing a loan. oh, maybe the poor bastard who owns the laundry down the road who can barely make payroll.
no baby, print money until your face falls off - but if it is not spent we are deflating in a real sense. i do not have to make up a special meaning for deflation - things will be cheaper tomorrow than today.
Now that it has ,critics are disseminating a lot of economic garbage.
The700 billion dollars package is a collateralized loan.
True ,the collateral at this time appears to be shaky.
Behind the collateral (CDOs and others) we have a real estate .
In truly inflationary enviornment the real estate appreciates
significantly.
In this case the collateral is deeply discounted .Once we stabilize economy (and we will) ,the collateral could easily double or triple in value from the current levels .
The tax payers will likely reap a significant rate of return on this "loan".
This "aid " package will have (allow for the 1-2 month slag) ,an explosive impact on the economic /market rebound.
The 700 billion dollars injected into American banking system will create almost 5 trillion dollars stimulus(using multiplier of 7 ).
That is equivalent of of approximately 40% of the current GDP.
This is an explosive economic catalyst which will bring U.S economic growth to above average trend level. by 2009.
In fact we will see significant economic improvement by December.
Yes ,the banks will lend aggessively ,once liquidity is injected because
lending is their "life line",although I am sure the loan criteria will be tightened.
Toxicity? of this collateral-there is no such thing.
It is simply a misrated product as the rating agencies had underestimated the embedded risks in the CDOS and other structures collateralized by "real estate"
Then again,the author of this article could have issued a warning two years ago.Then ,that warnig would have a credibility value.
I have warned investors about the risks in June of 2005 in an interview with Bloomberg(Mark Gilbert).
I have issued the warning again on September18 ,2007 on the(Bloomberg TV-Brian Sullivan).
It took a while for the market to comprehend the risks which I have enumerated .
Now,we have identified the risks and are effectively addressing them.
Friday's pacakge ,allowing for a minor lag ,will be an effective antidode for the past errors.
In fact as the Treasury purchases the illiquid collateral at a minor premium,the banks will be able to reduce the required reserves,further adding liquidity into the system.
The FED should provide addition stability be easing incrementally by perhaps 50 bps(twice).
Further market /economic stimulus should eminate from mega dollar inflows as the European and Emerging market economies become
more unstable (and they will).
It will be more complex issue for the ECB to address their problems becuase of diverse multinational objectives and opinions.
These mega dollar inflows will be channeled into the equities and the real estate as the economy stabilzes providing further stimulus.
The GDP expanding at 5% by the second half of 2009 is a reality.
I must confess that this time the only toxicity that I find are the articles as the one written by Mr Schedlock's which basically preach economic anarchy wich would lead to unprecedented global economic implosion and misery for the Americans and others.
As of now the Congress has addressed the issue with a "super" bazooka ,and it will work.
Here is why what you are saying is very close to what is happening.
On average, we American are in debt (mortgage and credit cards combined) for $150,000 or so per family. The median income of American family is $50,000 before tax per year and out of that each pays about $15,000 of interest to various lenders.
Any bank, even you, would be out of their or your mind to lend any more money to this bunch of people. I believe this is the root cause of today’s problem. We American are simply not credit worthy. It is not that banks do not want to lend. It is that more than half of us or not fit for borrowing.
Until this situation is corrected, the Fed can print as much money as they want but no prudent banks or persons, including you and me, would be willing to lend a penny. There will be job losses and economy downturn. We need some good and cool heads to get us out of this mess.
By the way, those investment bankers are in a bigger hole than you and I are. This $700 billion is to rescue them, not us. At least Paulson was honest at the beginning. All he said was to buy up bad credits from themselves, I mean the investment bankers. But, after the defeat of the bill in the Congress, the Democrat controlled Congress had twisted the whole thing and said this was a rescue of us average American. That scared everyone including us the voting average American and their mindless representatives. Now, just wait, we will all soon see very clearly that our tax money (whatever the government spent will eventually come out of our taxes) will be used to rescue these investment bankers with scarcely a drop trickled down to the average American.
there must be a name for this situation???
* The fed has printed billions and, it is ready to "give away" billions.
* Real state values are lower (and thus less risky).
* The banks can pick low risk loans and credit worthy individuals.
* The banks as businesses make money on the spread between the fed rate and the loan rates (and, of course the huge fees they charge for next to no work, but that is the subject of another comment), no loans, no revenue...no way to save a business.
* Some bankers claim that, on average, there are no more repayment capability in the American economy. The average (or mean for this argument) is not meaningful, half the people are creditworthy and are unlikely to get loans, the economy is growing (yes it was growing up until last quarter at a healthy rate) adds $ to the economy that convert into goods through currency and credit. All this fails, if the banks hold on to the currency.
I guess the more the people hurt for lack of credit (no purchases, no house, no cars, etc.), the more credible the fear mongering and the more likely an illogical bailout will be approved. And it was!
Now what! Well, let's hand it out to our friends.
I predict that Paulson will overpay for assets and pay large comissions to his investment banker friends. He will also likely overpay in consulting fees to his friends to help him "sort out the assets".
The credit will continue to be very tight, because the bailout is going to line the same pockets.
These are the same friends that collected huge fees and bonuses to get us in this mess.
It is a sad state of affairs where these thiefs have been stealing for years and now will steal the bailout.
We are at this juncture purely because of unbridled, utopian socialism that was created by the nutjobs of ACORN in alliance with their liberal pals Chris Dodd, Barney Frank and Barack Obama. President Bush and many free market conservatives for years attempted to strengthen regulation of Fannie & Freddie only to be tagged as 'racists' trying to destroy home ownership for minorities. We now reap what the irresponsible socialists on the Left have sown.
Unfortunately, the federal government is now the only institution with pockets deep enough to clean up the gigantic mess they made with their socialistic, direct manipulation of the mortgage market. The simple reality is that without Fannie & Freddie and government pressure to make loans to the unqualified those loans would have never been made. If Fannie & Freddie weren't in exist to buy this rotten paper, individual banks would never have accrued the risks in the first place. If Fannie & Freddie didn't "guarentee" this paper MBSs would never have caught fire on Wall Street the way they did and eventually burn down the house. Is Wall Street culpable, of course - they are guilty of greed and stupidity. However, the real criminals were the negligent liberals who in the name of socialism ignored all the red flags of an artificial housing bubble for years and boldly and nakedly took kickbacks from Fannie & Freddie donors and stood in the way of any new regulation - the very same regulations Barney Frank decries we didn't have!!!!
This is all very sickening and it is poetic justice. Now, the government will end up putting on their books all the toxic loans they forced others to make. What goes around comes around I guess. Unfortunately, we will now all suffer for the utopian kumbaya fantasies that Dodd, Barack Obama and Barney Frank and the idiots at ACORN brought to us. Capitalism wasn't the problem, in a sane world it would never had come to this if it were allowed to prevail and destroy the institutions early on that were generating such risk before the risk could become systemic. Instead, Socialism propped up and rewarded the failures and led directly to the impending calamity.
I weep for America and the idiots it suffers from our dimwitted friends on the Left. I live in Europe and we are taking on characteristics of their society that have absolutely stifled all economic growth and creativity. Why do we want to emulate failing, rotting, socialistic societies? America is better than that and I expect better of its leaders.
zimmyzee
Oct 04 10:54 AM
This moron has been preaching Deflation for at least the last 3 years and probably more.
In the meantime, prices on everything have skyrocketed and now the government is printing hundreds of billions out of thin air and dumping them into the banking system.
"
I can only surmise that "Zimmy" has not purchased a house, car, computer cell phone or HDTV recently.
Even without adjusting for inflation they are all lower. I suspect select other things are as well and more will be added, a slowly growing list.
The autor and the other folks who have posted doomsday messages eher are wrong and are to be found saying the same sort of thing at the end of every economic cycle. As we begin the new cycle these doomsday mavens will be left on the sideline as the economy takes off on yet another up cycle resulting in significant equity and wealth appreciation. I predict that the Dow will have one of the best years in 2009 heralding a stock market boom which over the next 5 years take Dow beyond 15,000. The sectors that will lead the way up in most significant appreciation are Finance and Energy. Some of you may have noticed that there was a bill on tax credits for alternative energy that was approved alongside the monstrous bailout plan. This bill help create an industry that is magnitudes times greater than the Internet. Investors should look at solid plays in alternative energy. Solar is helped more than wind by this tax credit bill.
If the electorate swallows this plan it deserves what it gets.
blogs.wsj.com/marketbe.../
That is absurd on its face. Lets see, specialized machine parts, aircraft, essential management services, leapfrog scientific advancement in all the major fields, a huge proportion of the world's food, medical equipment, pharmaceutics, farm equipment, raw materials (wood, copper, iron, coal, oil (yes, oil), gas...) - just because we don't make paper plates, cups and all things plastic does not mean we don't produce anything! This arguement is absurd, we are the world's 3rd largest exporter! Sure we outsource the production of things that don't make economic sense to produce here, but the highly-skilled assembly and QC still happens in the USA.
Why do so many people on this blog deny reality, don't think things through and sell America short? Of course we have a trade deficit but that is due to our huge dependency on imported oil, that plastic stuff from China. We need to drill at home and in parallel pursue the development of revolutionary batteries to make an electrically-powered future a closer reality.
Yeah, and how about subsidizing ANALOG HD TV as the Japanese government did. It turns out DIGITAL was the way to go.
How about we leave it to entrepreneurs to decide what to develop?
The SEC's alteration of mark to market rules is laughable. Just one more piece of evidence that the game is soooo shamelesslly rigged. Isn't the principle of a "free" market that the market sets the value of a company at any given point in time? Markets aren't entirely rational. But concepts like book value or intrinsic value are based on some idea of rationality. So these concepts go out the window in times of crisis. But that doesn't make the values ascribed by the market in crisis times invalid. But that's exactly what the SEC's intervention and those who support it are saying. But not me.
Enjoy your commentary but no less a person than Warren Buffet has stated that "we are likely to have more inflation in the future as a consequence of the things we do to fight the current situation.”
This statement is toward the end of his interview with Charlie Rose at-
video.google.com/googl...
Cash hoarding by banks is clearly unsustainable. They have to lend or go out of business. Also, as previously mentioned in this thread, the slightest whiff of real deflation will result in the use of previously unimaginable forms of stimulation. Did you ever think that we’d see a time when the government would send out checks to citizens and essentially tell them to “go spend the money.” I think that we’ll see this again and again. Also, what will be the monetary implications of the second and (possibly) third trip to the well for more bailout money?
Sure, things look deflationary at the moment but we haven’t yet felt the reaction to it.
Wasn't advocating subsidizing anything. All for the free market doing it on its own timetable, until then we need oil. Plain and simple. The need for efficient batteries has been demonstrated, their is plenty of endogenous economic insentive now.
the outlook is clear. the US' depression is looking more and more like Argentina's with each passing day. Sell your dollars and invest abroad and in precious metals. More importantly, be prepared for the cultural chaos that comes with a depression (inflationary or deflationary).
query.nytimes.com/gst/...
an insightful&truthfu... commentary on the $700 billion handout.
GREAT ARTICLE&GOOD LUCK TO YOU MICHAEL!!!
Mish, a riveting article that begs to be published so the unwary can get a glimpse of reality. Thank you (again) for your insight. (one slam)
AmericaninEurope: Thank you sir/madam for your heavy dose of reality and common sense. One or both are often lacking in posts here. (second slam).
bearfund (have missed your astute posts lately): My question for you: How does one EFFECTIVELY relocate their PM holdings outside US?
Well, I go to Europe anytime. What do I get from living in Switzerland and paying about the same amounts of tax as in the US? Good social security (where "security" is not meant as a joke), free education that is even high quality, public transport that works, an efficient government, high salaries, health care for everybody, and yes, a political system that is as close to democracy as it can get.
Maybe you should travel more and not look at the world just in white (we Americans) and black (those socialists). But then, people in the US seems to get brainwashed at an early stage. And I guess the American Enterprise Institute did not forecast that the US at the end of the crisis is going to be owned by trusts from China, Singapore and the Middle East. Kind of ironic when one thinks that was thanks to Bush/Cheney.
I've lived in Europe for 2 years (The Netherlands - socialist paradise) don't even get me started on their BS system! You think they pay the same taxes here as we do in the US - you are nuts! Our tax rates are confiscatory and I don't even make that much. The healthcare is terrible and nowadays you have to pay upfront and get reimbursed later! I haven't even seen my measely 200 euros for my last dental appointment and I pay plenty per month to have this shit (obligatory!). Don't even tempt me on education. I'm a Ph.D. student (biologist) and American bio students are far better than their Euro counterparts. Students here are lazy, faculty underperforming and laboratories second-rate. High salaries - hahah! You know what a MD gets paid in a socialist system - they're fleeing in droves and creating a smoking crater in the healthcare system. As for the general economy and competitiveness - anemic doesn't even begin to describe it. Ever go shopping in a food store here, it is food choices and ridiculous prices. No thank you! Please, socialist, come live in your utopia for a while before you speak. You don't know ANYTHING.
Well here's some more information and this one has some facts to back it up. :
A study by two IMF economists, Laevan and Valencia, reviewed the results of government intervention for 42 out of 124 systemic banking crises between 1970 and 2007. This study shows that intervention can help a lot, but that speed is critical.
The cost as a percentage of GNP is the prime measure. The best results came from Sweden, which with heavy and fast intervention limited the cost of the financial crisis to 3.6% of GNP, and was able to recover almost all of this through stock and asset sales.
Japan on the other hand did very little, and the cost ended up being 24% of GNP and recovered none of it. This is particularly interesting because many here advocate doing nothing.
So the lesson's learned are that crisis like the one that we face are painful to resolve, but it is much worse to leave them alone to fester.
You can read the IMF report yourself at the following URL: imf.org/external/pubs/...
Warning - The IMF study is a complicated.
Michael is like many naysayers. They whine and protest but have no real ideas or solutions of their own.
I have a solution. Abolish the Fed, strip Greenspan of his citizenship and deport him. Then negotiate with our foreign creditors. But a more practical solution is to weather the next 4 years and vote for Ron Paul in 2012.
"True, they have tried. But their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish."
Emmm... Looks like during the start of the Great Depression:
"Faced by failure of credit, they have proposed only the lending of more money."
And...
"Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence."
Why, I think I've heard this before... In fact, I think I've heard this recently... All of this things will WORK. CNBC? Bloomberg? WSJ? New York Times?
Sounds like if it didn't work in the 1920's-30's it won't work today. Nice job Bush, Paulson, Frank, Pelosi.
ON THE BRIGHT SIDE! McCain or Obama can go to this link and copy FDR's speech for this January... If you'll read it, you'll find they won't need to change a thing!
www.americanrhetoric.c...
www.youtube.com/watch?...
"other channels will have to be found to support it, and those channels will involve the Fed lending to the Treasury, which will in turn give away money. Don't believe for an instant that they won't do it. TPTB are determined not to allow deflation, and there is extensive precedent for varying forms of "fiscal stimulus", many of which amount to nothing more complicated than borrowing money and using it to cut checks to some subset of the citizenry. It's remarkable that you can't see past your academic biases about how the market works to the obvious conclusion."
I agree with you. Mike's an excellent researcher but is limited to "thinking inside the box".
Forgive me, mike, but you're too rational. The people who run this show will do a anything, including things that will ultimately destroy the currency, to try to retain their hold on power. Currency destruction is where we're headed, and it really doesn't matter whether we name it "inflation" or "hyperinflationary depression" or whatever. The historic deflationary forces in play will be met, can only be met, by an historic inflationary response. Mike, in other postings you've argued that an attempt to massively reinflate will be stopped by quickly rising interest rates. So we will have a Treasury bond apocalypse as a side dish to our Depression. The SWF "US is on sale, everything's marked down!" shopping spree will not be allowed to proceed to its logical conclusion. Deflation cannot be allowed, as it would result in inability to pay off US debt. Foreign ownership of the means of production and the greatly depressed wages that would accompany it wouldn't make it possible for the government to pay off debt. Repudiation of debt by US gov destroys the currency. It doesn't matter that that destruction isn't technically named "inflation". What matters to those of us holding dollars is that the dollars aren't worth anything.
As far as I am concerned, the question remains this: how deep will the world's rejection of paper become? At what point do we begin to repudiate contract claims? Modern economic activity is based on, is made possible by, a legal system that enables non-violent contract enforcement. It should be obvious by now that there isn't enough money in existence to cover all the contracts (CDS) floating around.
Will the swap auctions coming this month provide the basis for repudiation of contracts?
Will these auctions provide yet another opportunity for the government to step in and pick winners and losers?
Will the Fed's contention that its balance sheet is "infinite" be put to the test?
Can we therefore say that this credit crisis is a 'routine' (albeit severe) response to the credit expansion we've had over the last five years or so? If so, then why did Bernanke and Paulson panic? Could it be that as middle-aged men who have never witnessed a severe credit contraction (such as happened in the early 1970s and early 1980s), they overreacted? Of course, more cynical and sinister theories are possible, but this is the benign theory: they were simply over their heads in responding to a relatively normal credit contraction. And we taxpayers have to pay, as well as setting an extremely damaging precedent for the USA.
The USA has just convinced China to buy another 700 million USD of useless assets.
Wasting taxpayers money - sorry guys....the government runs a deficit.
That money has already been wasted.
As long as USA has the most power, there will not be deflation. The amount of inflation depends on how much foreign owned USD can be wasted saving the system in relation to how much USD needs to be printed to save the system.
As things stand the 700 million USD is just be repatriated back to the US in return for an IOU paying interest below the real level of fiat money devaluation. Makes sense to me.
Anyone play Monopoly....
America is the fat kid that is always the banker, everytime he runs low on money he puts his hand in the pot. Now back that fat kid up with the most powerful military in the world and a printing price.
Bobs your uncle, thats Uncle Sam.
Actually the Chinese are the ones getting shafted here.
Anyone that can not see that does not get the USA masterplan.
Yes Gold is a good investment
Your main goal today has to be consolidating your wealth in physical gold held on your person and properly defended, and in remote and inaccessible locations known only to you. You want to trade in other stuff, go for it. Maybe you'll make money. But don't hesitate to convert your profits to gold and get them far, far away from here, and be sure you're ready to leave yourself when the time comes. No one can predict the outcome once the forces of evil (the lying, thieving government) and the other forces of evil (the lazy, self-entitled underclass) decide to kill off the working/saving middle class for good before turning on one another in a sadistic orgy of violence and destruction, but it's a safe bet you won't want to be around when it happens.
As for how best to get one's gold out of the US, that really depends on how much you have. For me, a 400 oz bar or two and a handful of smaller coins and bars in a very heavy backpack will do the job. The United States has thousands of miles of unguarded border, much of it in wild country, to say nothing of the thousands more miles of unguarded coastline. Suffice it to say that when I wish to leave, I will do so and my gold will go with me. A similar plan will work for anyone in reasonable health with a little common sense and basic survival knowledge. If you have too much gold to carry, I suggest you hire someone to figure out how best to get it out of here. You can certainly afford it.
The best evidence for this I can offer is Switzerland. Thanks to international pressure over everything from Nazi gold to money laundering to tax evasion, anyone with a Swiss bank account might as well open accounts with the IRS, the DEA, and the FBI at the same time since they'll be getting daily updates on all your activities. If you can't trust Swiss banks to look after your interests, how can you possibly trust Canadian banks?
The house of cards that is our current Federal government is about to tumble. When it happens, you can full well expect to see the National Guard in the streets...and there are not enough of them to go around.