MinAkkar20

On Bailouts and Moral Hazard

An even better question - is how illusory are those profits? If the money supply was doubled to purchase ABS off banks' balance sheets, isn't each dollar effectively worth 50% of what it was before? So if it bought ABS for $50 when the money supply was X, and sold them for $75 when the money supply is 2X, in nominal dollars that is a profit, but in real dollars that is still a loss. When medium of exchange can be arbitrarily created, you need to account for its devaluation when assessing profitability. Velocity is irrelevant in this instance.

Money & credit are very simple concepts that are frequently stated in complicated terminology to lead you believe otherwise.

On Nov 19 10:39 AM Wildebeest wrote:

> "Most people have no idea that the Treasury will be able to sell
> its preferred stock and warrants received from banks, likely at a
> profit."
>
> Bob, would they, or will they, be able to do that if proper accounting
> standards are resumed?

On Bailouts and Moral Hazard

"Moral hazard did get us into this mess. The making and securitizing of subprime mortgage loans and selling those mortgage bonds all over the world was the mother of moral hazards, since mostly independent unregulated mortgage brokers made the credit decisions and unsuspecting owners of the bonds—misled by their AAA ratings—bore the risk."

With all due respect, do you think the mortgages packaged by Fannie & Freddie would have been trading at AAA if they weren't implicitly backed by the Federal Government (moral hazard - no)? You don't think that sense of impunity had an effect on the ratings of the entire industry? How can you "give a passing mark" to taking money out of taxpayers' pockets and giving it to a bank to boost their balance sheet? For a legal system rooted in property rights, there is no bigger violation than devaluing citizens' savings that was earned through labor and risk. For someone who claims to be a free-marketer, I wish you could balance your loyalty to the federal reserve system with your stated core of beliefs.

The Economic Recovery That Isn't

CC - they have their columns transposed. Based on recent gold & silver prices, the columns for july-09 (and Aug corresp) should probably read:
17.7, 16.5, 1317, 90.5, 1.21, 310

That would put gold trades averaging $932/oz and silver $13.37 in July which seems accurate depending on the weight of trades in early v late july


On Oct 05 07:43 AM CC_Gold wrote:

> I need some help deciphering the London Bullion Market Clearing stats
> page. I know this is off topic, but I see most of the brain power
> reads Peter's articles. Please go to this website:www.lbma.org.uk/stats/...
>
>
> Look at the July 09 and August 09 silver clearing numbers and level
> them against the numbers going back to 96. Also, look at the July
> 09 and Aug 09 Gold numbers. Did they totally mess up these numbers
> or is there something else to it? Thanks for your help.

The Economic Recovery That Isn't

"too extreme" you mean...and some good points? As compared to Chris Dodd? You must be one of those average Joes.

In response to you telling people they can get the frick out - there is a third option. And that is to try and overcome the naive, ignorant voters like yourself. This country is great in spite of its government, not because of it. You forget, this was once a government of the people. Can you say that now?


On Oct 04 12:39 PM NickelMan wrote:

> Never Going to Happen in a million years! He is to extreme and though
> he has "some" limited, good points, he has many more points that
> are to extreme for the average Joe to vote for him.
>
> Nick KrahS

The Economic Recovery That Isn't

Peter, hurry up and get elected already. GDP needs to stop being the focal point of economic indicators. GDP can easily be manipulated by government spending. The government has done a terrific job of sacrificing our long term growth for a short bump in GDP. The components of GDP that promote sustainable economic growth are still lagging (mainly domestic investment). econompicdata.blogspot... As Peter noted, we should be looking at job data, which allows citizens to save and supply domestic investment, which in turn boosts exports. We have nothing of the sort right now.

The marginal value of government debt is becoming more precarious each day. If we insist on "stimulus" then it should be leveraged as efficiently as possible. Cash for clunkers is a prime example of spending that provides no long-term growth benefits.

10 More Reasons Why the Recession Will Last Forever

Numbers 9, 8, 6, 5 & 2 are actually signs to me that there is hope. Those events are occurring despite every government intervention to stop them. They are the necessary unwinding of all the prior malinvestments that our insane policies created.

Weak credit growth, falling housing market, declining consumer credit all recognize the fact that we currently don't have the wealth generation in this country to support that consumption. If left on their own, they might have been reversed by now. The government will try and perpetuate it as long as possible, softening the blow at the expense of future growth.

Keynes Prescription for the U.S.: Balanced Trade

Keynes advocated government debt to facilitate domestic demand. All government debt is either paid through taxes or monetary inflation through monetization. It all comes out of the same bucket in the end, the only difference is who directs the spending. Obviously a government will promote Keynesian policies when it puts control into their hands. In addition to directing spending, it allows governments to direct who pays back the debt through tax policy and specified recipients of monetary injection.


On Sep 22 09:14 AM Asbytec wrote:

> Oh, I don't believe even Keynes would advocate huge consumer debt
> to facilitate domestic demand and trade.

Keynes Prescription for the U.S.: Balanced Trade

How ironic, because it's Keynes who also advocated for forced consumption at the bequest of central planners as a way to economic prosperity. In fact, the recent purchases of Japanese & Korean autos by US consumers, funded with debt by "mercantilist" countries, is based on the idiocy of Keynes.

The posters have it right, trade will balance itself out without government intervention. In relationships where currencies are allowed to float (more) independently, ie Euro and Dollar, you see the ex-im relationship adjust to currency valuations. It is only when governments actively manipulate markets and trade barriers that distortions are sustained.

As a sidenote, the IMF is an institution designed to balance global wealth. Keynes was an ardent Fabian, and many of his proposals were not founded in economic efficiency, but wealth transfer and central controls.

Clunkers and Home Buyer Tax Credit: All the Same Thing

Bruce, this was a great read. Its the new American way - borrow from the future for today's consumption. All of our "stimulus" is aimed at one-off benefits that increase consumption. In that sense, I don't know how they can be viewed as working, since most agree that consumer spending shouldn't comprise 70% of our GDP and many of the government programs are aimed at sustaining that.

An overlooked consequence of the clunker program is the effect its had on the entire used car industry. My cousin is a used car dealer that sells cars in the $1,000 - $10,000 range to low income buyers. His sales have evaporated. His mechanic has no work, and he said he stopped ordering auto-parts to fix up the cars. This was essentially the government shifting money from that sector of the economy to the auto manufacturers.

How The Federal Reserve Is Monetizing Debt

I'll do the cute pick apart line by line thing you do, then I have to get back to work...

"Unfortunately for folks like you who prefer theories to reality, we have actual pricing data which shows that all of these extreme measures undertaken by the Fed over the last year have resulted in a price level which is pretty darned close to where it was a year ago."

It's nice to cherry-pick points in time to find price correlation. I might want to look at a longer time period. Let's take housing prices (shiller) from 2000-2009. I guess going up 70% then down 50% is your idea of stability?

"By the way, the Fed didn't boost excess bank reserves. Banks did that on their own, in the face of losses they couldn't quantify. And for the record, it was very much DEflationary."

Really? The banks raised all those reserves from private capital? This statement is so ignorant that I'm beginning to think you were lying when you said you don't need to read anything. You should start with an understanding of what counts as bank reserves, and how open market operations by the Fed affect reserves. And for the record, wouldn't a response to credit deflation be re-inflation?

"I know you won't believe me since it doesn't fit into the storybook world in which you live, but the boom-bust cycle was MUCH worse before the Fed than it has been since, especially since the U.S. began to abandon the gold standard in 1933."

I don't believe you, but primarily because I've read a lot of Rothbard and his analysis of the business cycle before and after the existence of the Fed. That said, I might have believed you based on your one sentence assertion to the contrary until you lost credibility by saying the Fed didn't boost bank reserves.




On Aug 26 01:46 PM Vox Rationalis wrote:

> On Aug 26 01:29 PM MinAkkar20 wrote:

How The Federal Reserve Is Monetizing Debt

You educate yourself with this basic article on why governments prefer inflation in a fiat-currency regime. www.virginiainstitute....

Then you can use logic to see that maintaining interest rates at zero % and boosting excess reserves at banks to $1 trillion dollars, Congress passing new home-buyer credits, increasing purchases of GSE bonds all promote inflation. Inflation increases financial sector profits, growth of government and tax receipts (both directly through capital gains and indirectly through monetization).

Or you can believe that the boom-bust cycles that have been created since the existence of a central banker in the US occur in the pursuit of price stability and only believe what you read on government websites.

On Aug 26 12:03 PM Vox Rationalis wrote:

> On Aug 26 11:18 AM MinAkkar20 wrote:

How The Federal Reserve Is Monetizing Debt

I think the real estate bubble and resulting collapse, followed by the official goal of reinflating asset prices is evidence enough. I don't need a Fed policy statement as proof - actions speak louder than words.


On Aug 26 11:09 AM Vox Rationalis wrote:

> No, the difference is that Zimbabwe abandoned price stability as
> a goal. There is no evidence -- not the tiniest bit -- that any relevant
> government official has even considered such a thing.

How The Federal Reserve Is Monetizing Debt

Great article, you presented good backup for each of your points. While a weak dollar could be beneficial under certain circumstances, we must view it in the world we live in.

Faced with at least $10 trillion in debt over the next decade the most important export the US will have is the US Dollar and Dollar denominated treasury debt. When foreigners refuse the dollar for higher growth opportunities we will be in a world of hurt. Every official projection put forth assumes low borrowing costs, which will not be the case.

In addition, we import the majority of our consumer staples, except for food. A weak dollar acts as a tax on every import we consume. I know in macroeconomics class we learn that will make domestic companies more competitive and steal market share - but who will domestically produce textiles, oil, & electronics?

Chap08, I wish I could agree that it will force our government to curb spending, but lets be realistic. They will keep driving towards the cliff until they fall off. A declining dollar will only lead to more direct monetization by the Fed, which has proven throughout history to be the final hour for many great civilizations.

Freddie Mac ESOP: Looks Like a Conflict of Interest

Bruce, thanks for posting the Form-4s. Right now there is legislation to duplicate the Freddie/Fannie model in the student loan business as well by eliminating private lenders. This is merely an indirect way of providing universal secondary education through taxes. The problem that this creates is the supply/demand curve for Bachelor's degrees will be flatlined without any market inputs.
online.wsj.com/article...

Control over any type of lending that can influence social engineering will be sought by Congress, notably housing and education. Economics and accountability aren't even considered in pursuit of such power.

Fiscal Stimulus: The Evidence Based View, As Opposed to the Keynesian View

You don't need an economist to tell you that giving people money for nothing in the short run will boost economic activity. If you look at our stimulus bill the majority of it is for unemployment, welfare, and state & local government payroll. These all provide for consumption, not investment. When two components of GDP are government spending and consumer spending of course GDP will increase under a stimulus like ours. That doesn't mean it "works". It merely means we are borrowing from future growth for current consumption. Your three conditions listed at the bottom of your article are telling because none of them exist in our stimulus plan.

Also, there is a difference between certain countries in the chart. One is that China can fund stimulus from government reserves. In doing so, it is foregoing purchasing treasuries to invest in domestic production. Meanwhile, the US is borrowing/creating fiat money to fund its stimulus. Our politicians understand nothing about the marginal utility of debt...