Ukraine ... Enlighten yourself

[gregb]

So I've been reading through Bernacke's recent speech trying to get an understanding of what financial devastation might befall us in the coming year. I am having real difficulties with the following paragraph:

This facility will provide three-year term loans to investors against AAA-rated securities backed by recently originated consumer and small-business loans. Unlike our other lending programs, this facility combines Federal Reserve liquidity with capital provided by the Treasury, which allows it to accept some credit risk. By providing a combination of capital and liquidity, this facility will effectively substitute public for private balance sheet capacity, in a period of sharp deleveraging and risk aversion in which such capacity appears very short.

This sounds exceedingly scary to me, from the simple standpoint that he is talking about "recently originated" loans. Currently, as we are all aware, credit has become extremely difficult to obtain. This has had the effect of decreasing the velocity of money moving through the system (since it stays locked up in financial institutions), even while the monetary base has been greatly expanding. So far, this has kept inflation at bay, and even led to a period of deflation. People may not like it, but at least deflation creates a negative feedback loop that breeds stability. (It is stable because prices can't drop below zero, and there is a fundamental value to tangible items independent of the money supply. Once deflation destroys all the paper assets, the remaining tangible assets provide a very firm foundation which can not be further debased.)

Should this new plan work, and the way he describes it I don't see a reason why it won't since it doesn't require any private risk or investment, this will have the effect of kickstarting inflation again. As I understand what he is saying from this speech and other sites providing analysis, the Fed is going to provide low interest loans to private investors who will purchase high yielding loans with the assets, and the whole thing guaranteed by the US Treasury. Basically, I interpret this as he is going to pay his friends to make loans to people at no risk to themselves. What private institution wouldn't take him up on this offer? I would if given the chance and didn't have to risk any of my own money. Several things will happen under this scenario. Certain funds will start dumping US Treasuries making 0% to purchase commodities which will be rising and showing strong indicators. The Fed has previously stated they will be the purchaser of last resort for the Treasuries using newly printed money. Thus, money which is now locked up in Treasuries will be replaced by newly printed money from the Fed, and the freed money will flood the economy at the same time that the velocity of money is increasing due to these novel, risk free lending practices.

Uh oh. This doesn't sound good to me already. Because there is always inertia involved (and because deflation scares the hel_l out of them) the Fed will be slow to change from stimulus measures to inflation fighting, leading to a positive feedback loop of more and more people dumping bonds for the yields available in tangible goods. Certain sectors of the economy will start to recover with money moving again, driving up oil prices and further, and we see a repeat of 2007 - 2008. With the economy limping along again instead of in its death throws, the short squeeze on the USD due to derivatives will abate, leading to a falling USD and increasing costs of imports for the US.

I personally know at least a dozen people with alot of US Dollars right now who are just waiting for the tide to turn and will dump their dollars at the first sign of trouble and jump into gold and commodities. If I know that many, there have to be millions out there with the same idea. If Bernacke's plan succeeds, I don't see it leading anywhere except to somewhere in the vicinity of severe to hyperinflation for the USD due to all of the positive feedback effects. Nowhere do I see him discuss negative feedback and controls for all of these stimulus policies. He really shrugs off the ramifications of these actions and says once money is flowing again that the market will just take care of itself. I found it his exit strategy very unconvincing.

Of course, I'm sure the Plunge Protection Team believes they can control the commodities upswing, but I don't have faith in their abilities. They are going to unleash a monster beyond their imagination.

So my questions are:

1) Do I understand his new 3 year loan policy correctly? This is the one that really scares me.

2) Assuming my analysis of the situation is correct and we see at the very least a repeat but more likely an amplification of 2007 and early 2008 towards the end of this year, what will happen to the Thai Baht? Will it track down with the dollar, or will it considerably strengthen? Any guess as to how much?

P.S. The whole speech is available here. It's worth a read.

http://www.federalreserve.gov/newsevents/s...ke20090113a.htm

[cclub75]

So I've been reading through Bernacke's recent speech trying to get an understanding of what financial devastation might befall us in the coming year. I am having real difficulties with the following paragraph:

It's hard to understand because the speech was designed for that purpose.

You need a bullshit decoder to understand what Bernanke, Mister "Our Banking System Is Sound", is trying to say (just trying).

And here is the decoder :

http://globaleconomicanalysis.blogspot.com...my-in-much.html

[Khun Jean]

Bernanke is a simpleton. The solution to every problem is spend more money. Preferably that of the taxpayer, because these are the ones that earn real money.

For investors it is like having a 'time portal' to see what happens in the future.

The problem is not gone yet, what will happen? Yes more money being put in the system.

Take your positions accordingly.

Edited January 14, 2009 by Khun Jean

[12DrinkMore]

Bernanke is a simpleton. The solution to every problem is spend more money. Preferably that of the taxpayer, because these are the ones that earn real money.

For investors it is like having a 'time portal' to see what happens in the future.

The problem is not gone yet, what will happen? Yes more money being put in the system.

Take your positions accordingly.

Add in Brown and Darling.

They would convert all the trees in the world to money if it meant they could stay in one more term.

[misterman21]

Simple ole me could see this shit before it hit the fan - yet this guy, being one of the worlds top banksters, was taken by surpise.

If you believe this then I have some land on the moon for sale - please email me @ i-believe-in-fairies@santascottage

[taxexile]

I have some land on the moon for sale

they say its nice up there , but theres not much atmosphere.

[Khun Jean]

Bernanke is a simpleton. The solution to every problem is spend more money. Preferably that of the taxpayer, because these are the ones that earn real money.

For investors it is like having a 'time portal' to see what happens in the future.

The problem is not gone yet, what will happen? Yes more money being put in the system.

Take your positions accordingly.

Add in Brown and Darling.

They would convert all the trees in the world to money if it meant they could stay in one more term.

Even trees would mean a limit. Now it is just typing in some numbers on a computer. Really unlimited amounts of money. It is a computer game where the hero has to save the earth. Only unlike a game you don't get a second change.

GAME OVER soon.

[PeaceBlondie]

Bernacke is no simpleton; he is an accredited genius with an appropriate Ph.D. in his subject. He is like Greenspan, a naked emperor. He is in charge of so much manure he cannot see over his mouth. He is so paniced by the failure of the banking system that he would sell his own mother for 88 trillion dollars.

[Nouf]

I refuse to believe that Bernanke never saw this coming him and his crony dickwad mate Paulson, oh they know what they casued that i am sure of it. Paulson got the congress to revoke the laws on the leverage of investment banks when he was in charge of Goldman, he tried earlier but got told to swivel but asked again and managed to twist congress, (i guess a few sweetners but passed a few, like Dodd, barney all all those crooks)

All the failures like BSC, LEH and the others that were almost going to the shit-er, and fannie/freddie AIG have all been on leverage of 30-1 or more

The fact that Bernanke has never been voted in and was a bush crony and part of the pack form Greenspan, it simply amazes me why there isnt uproar on whats going on

The US has been robbed by the rich, and yet all i see is American citizens sitting in their arm chairs sitting and doing "sh-t" about it

Well done if you are an American citizen who got out and left with his/her feet, i did the same (i am british) but the same games played by my country and the idiots in charge also know what the outcome is going to be (why do you think we have all this these silly alphabet loans and slashing of interest rates)

They can keep trying all the games they want, but a 10yr old will tell you if you are stoked up with too much credit then the last thing you want is more credit when you cant pay of the original credit

its the loaning of credit at silly rates that caused this problem yet they expect to make cheap credit consumers will get into more debt????? i dont see it, and consumers know it and will pay down debt,.

Consumers are loosing jobs at a scary rate, housing is still falling, people are still foreclosing and Bernanke expects the consumer to carry on with the credit binge

ERRRRR hows that work????

Yet somehow these offical dicks dont see that????

trust me they know whats coming only they have to be seen to do something, all praise Obama, yeah right i give it 6 months if that, then you see real issues

Change???? yeah right why is he hiring the idiots that caused this mess??? i guess he realised 1 min since become President elect that he simply cant do what he promised, but isnt that always the way???

They cant stop what going to happen, and its not a ice cream party in the park, some real scary stuff out there, only Bush and his crony`s dont seen to give a crap, they just got there bonuses from the TARP and of to spend holiday time in the Hamptons and bahamas

Where`s the pitch folks????

The keynesian way of doing things is flawed and i really dont see how other than simply writing off the consumer debt are they going to re-ignite the bubble (if they do that they are opening a world of problems for the $US, then you have an issue)

Edited January 14, 2009 by Nouf

[PeaceBlondie]

Same foxes still in charge of the hen house. I say hire the washer woman to be CEO and Fed chairman.

[flying]

Bernacke is no simpleton; he is an accredited genius with an appropriate Ph.D. in his subject.

I refuse to believe that Bernanke never saw this coming him and his crony dickwad mate Paulson,

Simple ole me could see this shit before it hit the fan - yet this guy, being one of the worlds top banksters, was taken by surpise.

Many many many folks feel like this.

This is a classic govt play.....look at the right hand so you do not notice what the left is doing & I agree 100%

There is no way this suddenly came to the front

So.......... I wonder what is the left hand doing?

So far I have no real idea except a redistribution of wealth.

Before the dot.com burst almost zero common folks were in the markets. The internet changed all that. Suddenly everyone was in the markets something needed to happen & get those folks out so they tried............. It was bad but not bad enough?

Back in 1929 Didn't Joe Kennedy get rich shorting because as he said when the shoe shine boys talk stocks that is a good time to get out. At that time everyone & their brother ( shoe shine guy ) was in the market too.

Is that what all this is about? Another shaking out of the small folk to redistribute the currency to the few?

I saw someone on another forum write how perfect this was....A shaking out of folks from shares ...hearding them all where? You know everyone & their brothers new mantra.....CASH....Cash is King is the new slogan so it make me wonder.

Everyone into cash just before cash is diluted.

Beats me

But I sure am curious about that left hand because I know like most of you they are not as dumb as they try to appear to be.

[Lost in LOS]

I got out of America and voted with my feet. the problem is, my money cant get, out as America has bullied the rest of the worlds financial institutions not to open accounts without reporting everything to America, living there or not. Now most don't even want to open accounts with an American passport.

[Naam]

I got out of America and voted with my feet. the problem is, my money cant get, out as America has bullied the rest of the worlds financial institutions not to open accounts without reporting everything to America, living there or not. Now most don't even want to open accounts with an American passport.

unfortunately you missed the boat by just a few years. you can of course get your money out but nowadays it is a huge problem to find a way to invest it without a stream of form 1099s being sent to the IRS.

[wolfmanjack]

"The real truth be told of the mater is that a financial element in the large centers has owned the government since the days of Andrew Jackson."

Franklin D. Roosevelt

Every thing that is going on right now has been planned by the people that control the federal reserve.