Ransome

Is Criticism of the Bernanke Fed Justified?

There is only one reason to have interest rates at 0% and that is to help the banks recapitalize. Main Street banks are not lending because of the lack of qualified borrowers and fear of adding to their current default rates both commercial and residential since they are barely solvent. They don't have a source of income and an increase deposit payments would be a cost. Deposits are increasing and adding to their costs. Until the economy stabilizes, they will not lend. If Bernanke puts pressure on them to lend by raising rates, they will engage in risky behavior. Bank foreclosures are going to continue. Citi will be the first too big to fail that will be deconstructed.

We had low rates for a very long time during the subprime and little inflation other than housing and commodities. Our supply channels are infinitely full. If we begin spending, 600,000 out of work Chinese will go back to earning 70 cents an hour and China's GDP will hit double digits. We will see no inflation. Keep commodities off limits to speculators otherwise the recession will be prolonged for no good reason.

All the money the Fed has been "printing" is tied up in the bad securities produced by the banks and will never see Main Street. Eventually those securities will need to be resolved and the Fed will get it's money back.

Supply can only satisfy demand so producers must noticeably lower prices while America goes on sale, creating demand like a worm on a hook. Any found stimulus money will be banked. A decided tax decrease for the middle class would help sort out household budgets.

People spend when they move into a new house so housing needs to be stabilized. Jobs need to be created to sustain demand which will happen very slowly as we adjust to the new normal. Most of the demand benefits will be felt in Asia.

We should terminate all health care, food stamps and unemployment benefits so the small government folks can get a good taste of life without government safety nets. We can decrease the deficit with their entitlements.

Interest rates will rise rapidly, not because of inflation. People will borrow if they need the money for value creating business investment at 6%. Below 6% encourages the wrong kind of borrowing and the banks need the lending income. In the 1850's, farmers needed low interest loans (4.5%) over long intervals because their land was minimally productive. Even back then, 6% was considered a good loan for the capitalists. A loan at 3% has the lender wondering if it is worth the risk of not getting the principal back. Housing will be so under valued because of supply, people will take a 5-6% fixed mortgage. Savings rates will go up and reward savers.

Why Has the Securitization Market Dried Up?

I just got a cold call from a broker that wants to build a relationship based on trust but I need to send him $10,000. It's out there if you look for it.


On May 08 11:34 AM wpdragon wrote:

> TRUST
>
> There's a lot of phony feel good chit chat out there, green shoots
> being fertilized by the CNBC bootlickers, but has this one simple
> word returned to vogue on the Street?
>
> I doubt it.
>
>

Excessive Systemic Debt: The Primary Cause of Our Current Crisis

Not sure if it is legitimate but it seems that if debt adhered to sound lending practices, it would be limited by the money supply. My position is the I-Banks and others have inflated the money supply by digital counterfeiting, using leverage and complex synthetic securities fueled by cheap money. Borrow short and lend long. Our economy is reacting to the unknown amount of digital counterfeiting. The first symptom would be the freezing of money flow. Anything you read plays up the dangers of counterfeit money and the harm to the economy. Counterfeiters were hung.

The Fed and the Treasury were convinced that they needed to prop up the counterfeit money with injections of cash and loans. But it won't work, someone has to pay for the injections. The banks go right to the consumers wallet to pay for their loans or the tax man goes to the consumers wallet to compensate for bad loans, like-wise businesses. The consumer wallet has been drained.

Banks make money by lending or facilitating lending using various devices. The debt graph simply indicates something is wrong with the money supply. You have unsound lending backed by CDS protection that is fictional, leveraged 100 to 1. There are deals in the shadow system that have yet come to light.

The Treasury and the Fed are now trying to to protect Main Street by by-passing the big banks. No one trusts the big banks, it is not business as usual, so the government is the only game in town when it comes to generating banking fees. Right now those fees are connected with low interest rate mortgages. Instead of giving banks money, they are making them earn it. This is one plan that may actually work. The big banks will be forced to divest or downsize to respond to demand for their services. The big banks proved to be such lousy risk managers that by having the government manage the risk, the banks can crawl out of the hole they dug. The mortgage loans better be sound.