Financial Crisis

[midas]

Oh my god!!

Borrowing Billions From Pop Bottle Returns - Democrats Latest Scheme to Avoid Balancing California's Budget

State Assembly Speaker John A. Perez on Tuesday outlined an alternative path to balancing California's budget that would raise oil taxes, delay corporate tax breaks and borrow billions from the nickel-and-dime deposits consumers make on recyclable bottles -- and would not require any Republican support.

http://globaleconomicanalysis.blogspot.com/

Song from the Great Depression

"Brother, Can You Spare a Dime," lyrics by Yip Harburg, music by Jay Gorney (1931)

They used to tell me I was building a dream, and so I followed the mob,

When there was earth to plow, or guns to bear, I was always there right on the job.

They used to tell me I was building a dream, with peace and glory ahead,

Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.

Once I built a railroad; now it's done. Brother, can you spare a dime?

Once I built a tower, up to the sun, brick, and rivet, and lime;

Once I built a tower, now it's done. Brother, can you spare a dime?

Once in khaki suits, gee we looked swell,

Full of that Yankee Doodly Dum,

Half a million boots went slogging through hel_l,

And I was the kid with the drum!

Say, don't you remember, they called me Al; it was Al all the time.

Why don't you remember, I'm your pal? Buddy, can you spare a dime?

[lannarebirth]

Could hold up into end of week but Euro and western equity markets looking pretty "iffy" here.

[12DrinkMore]

The world is still happy to support the USD.

So, which country is the staunchest supporter and buying up those UST's? Come on take a guess. Hah, you all said China?

Well, according to the FED the world's biggest purchaser by a long way of UST's is, wait for it, the UK!!!

http://www.federalreserve.gov/econresdata/...tes20100430.htm

Maybe Abrak can through some light on this, because surely I am interpreting this data incorrectly?

Look at February, the Chinese purchase a measly USD 4,406,000,000 worth but whoah! Just look at what the UK financed, a massive 24,940,000,000; six times what the Chinese "invested", and well above any other Euro country.

And the the UK was the biggest purchaser in 2008 and 2009 by a long way.

And from the US treasury

http://www.ustreas.gov/tic/mfh.txt

The UK has ramped it its holdings of UST's significantly more than any other country.

So, anybody got an explanation for the rapid accumulation of UST's by the UK?

[12DrinkMore]

Catch this guy.

http://www.youtube.com/watch?v=dA1wB9RRiZ8...feature=channel

"Irish lending half a billion to Greece, begorrah!"

[Abrak]

And the the UK was the biggest purchaser in 2008 and 2009 by a long way.

And from the US treasury

http://www.ustreas.gov/tic/mfh.txt

The UK has ramped it its holdings of UST's significantly more than any other country.

So, anybody got an explanation for the rapid accumulation of UST's by the UK?

Yes I do actually. I gave more details and explained it all in some long diatribe earlier in this thread.

During the financial meltdown In 2008 the Bank of England effEctively ran out of forex reserves of dollars. It was not just the boe. Basically they got bailed out by the Fed through a swap arrangement which at it's peak amounted to about US$700bn. The Fed effectively bailed out these CBs by giving them dollars. The Cbs then passed on those dollars to meet domestic demand from their banks.

So effectively the BoE was short long term in US$. It has been settling it's positions by buying USTs which is effectively buying US$. If you go to the Boe website you can basically see it. Effectively the UK went bust in 2008 and was bailed out by the Fed.

under the swap arrangements the Fed agreed to take GBP in exchange for US$ short term in return for repayment long term.

Remarkably little has been said about this.

[AlexLah]

So what is the FED then doing with their Great British Pounds?

Please don't tell they are buying gilts with them or something.

[midas]

For those who dont believe governments falsify the data....please read

The Hire, Fire, Hire Census Game, Or Why the Unemployment Numbers Are ( or appear to be ) Improving

" Last week, one of the millions of workers hired by Census 2010 to parade around the country counting Americans blew the whistle on some statistical tricks.

Labor doesn't check the Census hiring figure or whether the jobs are actually new or recycled. It considers a new job to have been created if someone is hired to work at least one hour a month. One hour! A month! So, if a worker is terminated after only one hour and another is hired in her place, then a second new job can apparently be reported to Labor .

John: I am on my fourth rehire with the 2010 Census.

"I have been hired, trained for a week, given a few hours of work, then laid off. So my unemployed self now counts for four new jobs[/b]. "

http://www.economicpolicyjournal.com/2010/...ame-or-why.html

[Naam]

So what is the FED then doing with their Great British Pounds? Please don't tell they are buying gilts with them or something.

the swap arrangement does not mean that the FED holds any GBP

[12DrinkMore]

And the the UK was the biggest purchaser in 2008 and 2009 by a long way.

And from the US treasury

http://www.ustreas.gov/tic/mfh.txt

The UK has ramped it its holdings of UST's significantly more than any other country.

So, anybody got an explanation for the rapid accumulation of UST's by the UK?

Yes I do actually. I gave more details and explained it all in some long diatribe earlier in this thread.

During the financial meltdown In 2008 the Bank of England effEctively ran out of forex reserves of dollars. It was not just the boe. Basically they got bailed out by the Fed through a swap arrangement which at it's peak amounted to about US$700bn. The Fed effectively bailed out these CBs by giving them dollars. The Cbs then passed on those dollars to meet domestic demand from their banks.

So effectively the BoE was short long term in US$. It has been settling it's positions by buying USTs which is effectively buying US$. If you go to the Boe website you can basically see it. Effectively the UK went bust in 2008 and was bailed out by the Fed.

under the swap arrangements the Fed agreed to take GBP in exchange for US$ short term in return for repayment long term.

Remarkably little has been said about this.

Thanks for the reply.

On the BoE site I can find

http://www.bankofengland.co.uk/markets/oth...rrepo/index.htm

(Interestingly enough, as of 10 May they are at it again

http://www.bankofengland.co.uk/publication...s/2010/040.htm)

Which states that there was a shortage of USD's in the markets (and I thought the world was awash with trillions of the feckers, obviously the distribution was and still is a little off balance), and so a few CB's took some USD's from Bernanke's printers and presumably put up some worthless Squib assets in return. But surely that is not the same as going bust? I mean, the country is bust anyway, but running out of Dollar liquidity is not quite the same thing.

This whole CB smoke and mirror stuff I don't quite understand. Why should the BoE have to find USD liquidity? Why can't the guys that need it just go and knock on Ben's door? He's the guy in control of the USD and should provide the liquidity. And how does the purchase of UST's balance the books? Merv would have to find some USD's out there and then buy back the Squib's from Ben? Surely by buying UST's from young Tim with Squibs and then handing over the UST's to Ben in repayment for the Squibs that Ben has been carrying on his books has simply transferred the Squibs from Ben to Tim, who possibly doesn't want them, and resulted in a form of cross-Atlantic QE?

But according to

http://www.ustreas.gov/tic/mfh.txt

the UK still has 280,000,000,000 USD's worth of UST's; so Ben has not been repaid?

Jeeze, this is either complicated, or very simple, or I'm way off the track.

[12DrinkMore]

So what is the FED then doing with their Great British Pounds? Please don't tell they are buying gilts with them or something.

the swap arrangement does not mean that the FED holds any GBP

According to

http://www.bankofengland.co.uk/publication...ws/2010/040.htm

The US dollar term repo operations use the Wider OMO Collateral pool, details of which can be found at http://www.bankofengland.co.uk/markets/mon...ocollateral.htm

Which is a list of bonds and securities all rated at AAA plus platinum extra non plus,

ie

TOO GOOD TO FAIL

:D :D

[12DrinkMore]

Here's another one from that mystic guy

http://www.youtube.com/user/TheModernMysti...u/1/8qSLs9oCC2k

His description of the economy of Spain creased me up.

The conclusion is very sobering, and it's all happening before our eyes. Can our Great Leaderz fix it?

[Abrak]

And the the UK was the biggest purchaser in 2008 and 2009 by a long way.

And from the US treasury

http://www.ustreas.gov/tic/mfh.txt

The UK has ramped it its holdings of UST's significantly more than any other country.

So, anybody got an explanation for the rapid accumulation of UST's by the UK?

Yes I do actually. I gave more details and explained it all in some long diatribe earlier in this thread.

During the financial meltdown In 2008 the Bank of England effEctively ran out of forex reserves of dollars. It was not just the boe. Basically they got bailed out by the Fed through a swap arrangement which at it's peak amounted to about US$700bn. The Fed effectively bailed out these CBs by giving them dollars. The Cbs then passed on those dollars to meet domestic demand from their banks.

So effectively the BoE was short long term in US$. It has been settling it's positions by buying USTs which is effectively buying US$. If you go to the Boe website you can basically see it. Effectively the UK went bust in 2008 and was bailed out by the Fed.

under the swap arrangements the Fed agreed to take GBP in exchange for US$ short term in return for repayment long term.

Remarkably little has been said about this.

Thanks for the reply.

On the BoE site I can find

http://www.bankofengland.co.uk/markets/oth...rrepo/index.htm

(Interestingly enough, as of 10 May they are at it again

http://www.bankofengland.co.uk/publication...s/2010/040.htm)

Which states that there was a shortage of USD's in the markets (and I thought the world was awash with trillions of the feckers, obviously the distribution was and still is a little off balance), and so a few CB's took some USD's from Bernanke's printers and presumably put up some worthless Squib assets in return. But surely that is not the same as going bust? I mean, the country is bust anyway, but running out of Dollar liquidity is not quite the same thing.

This whole CB smoke and mirror stuff I don't quite understand. Why should the BoE have to find USD liquidity? Why can't the guys that need it just go and knock on Ben's door? He's the guy in control of the USD and should provide the liquidity. And how does the purchase of UST's balance the books? Merv would have to find some USD's out there and then buy back the Squib's from Ben? Surely by buying UST's from young Tim with Squibs and then handing over the UST's to Ben in repayment for the Squibs that Ben has been carrying on his books has simply transferred the Squibs from Ben to Tim, who possibly doesn't want them, and resulted in a form of cross-Atlantic QE?

But according to

http://www.ustreas.gov/tic/mfh.txt

the UK still has 280,000,000,000 USD's worth of UST's; so Ben has not been repaid?

Jeeze, this is either complicated, or very simple, or I'm way off the track.

To be honest 12Drinkmore my replu - or at least 50% of it - was complete rubbish (not intentionlly). It is no surprise that you dont understand CBs actions based on that explanation. It is not well thought out and wrong and genuinely so pathetic that, to the extent people understand the underlying issues it is really not a post worth commenting on.

I will make a more intelligent post on the subject simply because I do not want the underlying assumption that I am a complete moron. But to some extent I do agree with you that Bernanke is playing games that are so innovative and difficult to understand that it is very difficult to know all the facts and rationality.

[midas]

To be honest 12Drinkmore my replu - or at least 50% of it - was complete rubbish (not intentionlly). It is no surprise that you dont understand CBs actions based on that explanation. It is not well thought out and wrong and genuinely so pathetic that, to the extent people understand the underlying issues it is really not a post worth commenting on.

I will make a more intelligent post on the subject simply because I do not want the underlying assumption that I am a complete moron. But to some extent I do agree with you that Bernanke is playing games that are so innovative and difficult to understand that it is very difficult to know all the facts and rationality.

Yeah I am also totally confused on this issue

His words are not supported by his actions ?

The Worst Money Supply Plunge Since The Depression Means A Double Dip Is Now A 'Virtual Certainty'

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The danger, critics such as Mr. Congdon say, is that Bernanke as a Keynesian may fail to appreciate the signifance of the recent money supply drop, failing to avoid a new recession.

Read more: http://www.businessinsider.com/money-suppl...5#ixzz0pBpWL5n0

Read more: http://www.businessinsider.com/money-suppl...5#ixzz0pBpRazgo

Edited May 27, 2010 by midas

[Abrak]

The danger, critics such as Mr. Congdon say, is that Bernanke as a Keynesian may fail to appreciate the signifance of the recent money supply drop, failing to avoid a new recession.

You know Midas, that is my favorite post you have ever made because there is an underlying assumption that Bernanke is a Keynesian rather than a monetarist. Actually he is both. So is Krugman (maybe). So is Friedman.

I have known Tim Congdon for many years. He is essentially a monetarist and someone you meet that you know is far more intelligent than you (I am not setting the bar that high here).

[12DrinkMore]

And, at the risk of making myself appear even more of a moron than before:

Crunching through the big numbers....

Let's take the biggest holders of UST's, rounded up a little, I don't think 100% accuracy is required here.

China 900 Billion

Japan 800 Billion

UK 300 Billion

This data comes from http://www.ustreas.gov/tic/mfh.txt

So what is their GDP? Wiki has the answer, so I'll use http://en.wikipedia.org/wiki/List_of_count...y_GDP_(nominal)

China 5,000 Billion

Japan 5,000 Billion

UK 2,000 Billion

And the US, of course, just makes it to the top at 14,000 Billion.

And now lets look at some percentages

In terms of their own GDP the following countries have invested in TOTAL

China 18%

Japan 16%

UK 15%

This is not, in the case of China, 18% of it's annual GDP, but the accumulated TOTAL of many years' investing.

In terms of the US GDP, how much is actually financed by the purchase of new UST's?

http://www.federalreserve.gov/econresdata/...tes20100430.htm gives us the data.

In the year 2009 540 Billion Dollars worth of UST's were sold outside the US. Around 4% of the US GDP in 2009 was financed by foreign countries buying UST's. China's contribution was about a quarter, 125 billion, China financed just 1% of the US GDP in 2009.

To check this, let's look at the trade (im)balance with China?

http://www.census.gov/foreign-trade/balance/c5700.html#2010

China sent an excess of 226 Billion USD's worth of goods across to the US compared to what the US exported to China, somewhere 100 Billion of this surplus was spent on other things and not invested in UST's, maybe oil, commodities whatever.

What is the point of all this?

Well, I am trying to work out what Peter Schiff et al are on about using figures I can see. Is China really financing the US consumer by providing debt to buy Chinese goods? Based on the figures that I can see

1. China has financed just 1% of the US GDP in 2009.

2. China has, IMO sensibly, invested some of its profits in the world's reserve currency, now totalling 18% of it's GDP. What would you do?

Where did the US consumer get all the debt from? I think this is now clear, it was from the banks, credit (they should call themselves debt) companies, Freddy and Fannie, as evidenced by the huge numbers of insolvencies and bailouts; not from the Chinese. Why are so many fingers being pointed at the Chinese when, as it seems, the problem lies within?

Any comments?

After I have squeezed this through my inadequate cranial matter, I come to the question of how much difference it would make if China let the Yuan appreciate by say 100%. In terms of the Yuan, they would lose 50% of the value of the UST's they have and the income, but the US would still have to pay the same in USD's in interest. So no benefit for Tim there. But it would put up the price of Chinese imports considerably. Now, would that then make it more economical for the US to manufacture the products itself? Hmm, in 2009 Chinese imports were 300 Billion, or just 2% of the US GDP.

http://www.census.gov/foreign-trade/balance/c5700.html#2010

And don't forget that all these imports from China deliver a large percentage of the profits to the US transporter and retailer in the US.

Putting this together has raised a lot more questions about the picture painted by the Leaderz, media and people like Schiff and really answered none.

[12DrinkMore]

Further on the purchase of UST's by the UK. I emailed the BoE and surprisingly received an answer.

Whilst the UK Government's holding of US Treasuries, as part of the UK's holdings of international reserves, have increased over the last two years, this is only a small part of the overall reported increase. The main cause of the increase, is due to increased holdings of US Treasuries by UK domiciled banks and funds.

Hmm, now that is interesting. Why are the unfaithful UK domiciled banks and funds deserting the sinking ship? Maybe HMS Britannic is foundering faster than we thought?

[Abrak]

Hmm, now that is interesting. Why are the unfaithful UK domiciled banks and funds deserting the sinking ship? Maybe HMS Britannic is foundering faster than we thought?

Actually I am trying to come up with a more detailed answer but the response you received was correct. At least half of US$assets are held abroad. There has been a) a move away against the banking system mostly a couple of years ago and a move against risk towards short term USTs.

I say this realizing that if you think about it there is actually both a fever to buy risk (say equities) and buy no risk (say short dated USTs).

One of the underlying dilemmas is to the extent you believe that you should match your assets with liabilities, you should have dollars even if you are say a Thai.

[Gambles]

hold the phone.....

Naam joins the doom and gloom brigade and then Abrak acknowledges the possibility of civil unrest and its such a romantic notion after all.

When i told Theo he said "αιματηρή εκπληκτικό"

As Gambles quoted " Nobody told us there'd be days like these.....strange days indeed "

Your right Midas.

But given the current debt/GDP problem I simply assumed that Governments would bailout the banks and then inflate away the problem.

Trying to deflate your way out of a debt problem is risky. More importantly the concept of the Euro countries trying to persuade countries to achieve austerity backed by huge lines of credit for not achieving it is absurd.

It is essentially inciting economic protest.

but they can't get it to fly, A.

The more they print the less the peasants spend. What's a central bank to do when the levers to get you out of any problem that you couldn't foresee getting into suddenly stop working....well can always try bribing the peasant classes (again) I suppose....

Please find below the latest update from MBMG International.

In the best Hallmark traditions, today’s DU is part one of a gripping mini series:-

Economic historians know all about the tragic year. Back in 1932 everyone believed that the measures taken by Hoover’s administration had beaten the recession. Stock markets and optimism soared. Jeremy Grantham describes a similar situation in his latest newsletter;

“The market has had a near record rally, sprinting far past our estimated fair value of 875 for the S&P 500. Bernanke is, in fact, begging us to speculate, and is being mean only to conservative investors like pensioners who cannot make a penny on their cash.”

Just like in the early days after the Wall St Crash of 1929 the masters of the universe have taken change as the massive bailout program prevented the meltdown of the financial system and engineered at least a temporary economic recovery. The obvious cost of this bailout has been the unprecedented deterioration of the Federal balance sheet. Grantham recently focused on the less obvious costs incurred by taking away the rewards of caution by saving the reckless and incompetent:

“Weak enterprises, financial and other, were not gobbled up by the stronger, more prudent, and more competent natural survivors, and there is a long-term cost in that. So now, Bernanke begs us to speculate, and we are obedient. Despite being hammered down twice in 10 years and getting punished for speculating, we again pick ourselves up off of the canvas and get back into the good fight. Such persistence is unprecedented – 20 years for each really painful experience has been the normal recovery time – but Uncles Ben and Alan have treated us so well in these two disasters that, with hindsight, they don’t feel so bad after all. Yes, the market is still down a lot in over 10 years and on our data is likely to have a second consecutive very poor decade, but we have had two wonderful recoveries in which the more speculative you were, the more money you made. So why not break the historical rules and try a third time? Perhaps this time it will be lucky.”

He talks of the Fed helping us up and then leading us off the cliff again:

“To do it twice seems like sadism. And for us to play the game once more seems like lining up behind hot stoves and begging, “Please, can I burn my hand a third time?” Investors used to be more pain averse. It used to be “once bitten, twice shy.” This time, surely it should be “twice bitten, once bloody shy!” The key shift seems to be the confidence we now have in Bernanke’s soldiering on with low rates and moral hazard to the bitter end, if necessary, cliff or no cliff. The concept of moral hazard has changed. It used to be a vague expression of intent: ‘if anything goes wrong, I will help you if I can.’ It seems to have been transmuted into a cast-iron commitment. The Fed seems to be pledging that it will bail us out after every flood. All that is lacking is a rainbow…..This time, the recovery for the total market was 80% in one year, second only to 1932, and the really speculative stocks are almost double the market, as they also were in 1932.”

Grantham believes that conditions almost 80 years ago were more conducive to such a rally. It’s taken different conditions this time. “I’m convinced that this excessive market response has occurred because stocks are far more sensitive to both low rates and the Fed’s promises than is the economy. The economy is limping back into action, but faces some tough long-term headwinds that I collectively call “seven lean years.” Mortgage defaults in housing, steady repayments of consumer debt, and refinancings in commercial real estate and private equity, are all problems that linger, as do many others, on what is becoming a long, boring list. We may get very lucky and have a strong broad-based economic recovery. The economy’s durability and flexibility is usually undersold by the bears, and I have generally been leery of underestimating its potential. But we can probably agree that the economy is plagued by unusual problems this time. It is therefore perhaps more likely that the economy will recover in fits and starts, and that over several years it will underperform its historical record.”

Enjoy your day!

Once again, very best regards,

MBMG International

Please Note: While every effort has been made to ensure that the information contained herein is correct, MBMG International cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG International. Views and opinions expressed herein may change with market conditions and should not be used in isolation.

[Gambles]

12Drinkmore,

The fundamental philosophy behind how Keynes believed in a fiat central currency or to an extent the 'Triffin Dilemma' is that ultimately the surplus countries will compromise themselves.

Imagine two countries. One being the US with the central reserve currency and the other being China who pegs its currency to the central reserve at an undervalued rate,

So the US has a deficit based on debt and the China has a surplus whose payment is made in fiat central bank currency. The more this happens, the more debt the US has and the more fiat currency China achieves. Undervaluing their currency against the US clearly undermines the US economy but it also destroys the gains you are making as their paper becomes increasingly worthless.

Now if the currency is inherently worthless who is subsidizing who? Ultimately loads of Chinese are simply working in return for Americans who do not work in return for worthless paper.

My point being that the Chinese do not hold all the cards. While they have all those US$, America which you regard as having substantial debt, you should realize that the US controls the printing press.

or as GMA's John Sheehan said - "a global game of chicken - who will blink first?" - raising the spectre of strategic US default on China, Chinese invasion of Taiwan. As anyone in Bangkomrecently is all to well aware, it's sometimes easier to turn the taps on than to turn them off

[Gambles]

And the the UK was the biggest purchaser in 2008 and 2009 by a long way.

And from the US treasury

http://www.ustreas.gov/tic/mfh.txt

The UK has ramped it its holdings of UST's significantly more than any other country.

So, anybody got an explanation for the rapid accumulation of UST's by the UK?

Yes I do actually. I gave more details and explained it all in some long diatribe earlier in this thread.

During the financial meltdown In 2008 the Bank of England effEctively ran out of forex reserves of dollars. It was not just the boe. Basically they got bailed out by the Fed through a swap arrangement which at it's peak amounted to about US$700bn. The Fed effectively bailed out these CBs by giving them dollars. The Cbs then passed on those dollars to meet domestic demand from their banks.

So effectively the BoE was short long term in US$. It has been settling it's positions by buying USTs which is effectively buying US$. If you go to the Boe website you can basically see it. Effectively the UK went bust in 2008 and was bailed out by the Fed.

under the swap arrangements the Fed agreed to take GBP in exchange for US$ short term in return for repayment long term.

Remarkably little has been said about this.

and the emergency Dollar supply lines are now open again for the first time since '08 as once again Dollar liquidity has dried up. Money circulation could be the rod that they all perish on....

[Gambles]

The danger, critics such as Mr. Congdon say, is that Bernanke as a Keynesian may fail to appreciate the signifance of the recent money supply drop, failing to avoid a new recession.

You know Midas, that is my favorite post you have ever made because there is an underlying assumption that Bernanke is a Keynesian rather than a monetarist. Actually he is both. So is Krugman (maybe). So is Friedman.

I have known Tim Congdon for many years. He is essentially a monetarist and someone you meet that you know is far more intelligent than you (I am not setting the bar that high here).

I never met an intelligent monetarist

I've met some extremely knowledgable ones, some erudite ones, some educated to the very extent of man's capacity to absorb learning

but in the real world of practical intelligence there are no monetarists. By definition monetarists belong in ivy towers or Groves of Academe

[Gambles]

Further on the purchase of UST's by the UK. I emailed the BoE and surprisingly received an answer.

Whilst the UK Government's holding of US Treasuries, as part of the UK's holdings of international reserves, have increased over the last two years, this is only a small part of the overall reported increase. The main cause of the increase, is due to increased holdings of US Treasuries by UK domiciled banks and funds.

Hmm, now that is interesting. Why are the unfaithful UK domiciled banks and funds deserting the sinking ship? Maybe HMS Britannic is foundering faster than we thought?

good stuff here one-two

what's really happening relates to the liquidity requirements of global banks under Basle II

If you hold a US treasury or similar (incl. UK treasury) on your balance sheet it's a risk free asset

the US and to a lesser extent UK banking systems have been making merry by dropping crud onto the central bank's balance sheets and buying treasuries

the crud has been impaired but they've been getting top Dollar

the T-bills (or Gilts) pay yields at better rates than the banks' cost of funds for borrowing through central bank windows

In other words you can get rid of some of the riubbish off your balance sheet (almost as though the Fed were acting as RMBS packager of last resort) and get real money for it

You can take your real money and borrow some cheap money and go and buy T-Bills that pay an OK yield

and then when you put those back on your balance sheet they count as good as holding the cash that was yielding zero

Banking profits look great

Just don't go to a bank and ask them to lend you any money - why would they do that? they tried it, they got burned, they've still got plenty of more crud on the balance sheets that the Fed/BoE haven't taken away yet (MGI reckon that the world's leading 25 banks need another $ 600Bn in recap in the next 5 years) and anyway they can get good risk free returns playing the Fed and the BoE and if they want to speculate then according to Jeremy Charlesworth, they're playing the equity markets (with 100% profitability last quarter!)

If that all seems hard to follow it's because it makes no sense. The description makes no sense (my fault) but that's also because what I'm describing makes no sense either (Ben's fault). As Abrak hinted this might be brilliant. We don't know. We've never tried before. But every sinew of my body tells me that it's doomed to failure because not all interests are aligned and the real world doesn't replicate lab conditions.....

[Abrak]

I never met an intelligent monetarist

I've met some extremely knowledgable ones, some erudite ones, some educated to the very extent of man's capacity to absorb learning

but in the real world of practical intelligence there are no monetarists. By definition monetarists belong in ivy towers or Groves of Academe

You are contradicting yourself. You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

You actually know that Gambles because when you see the budget deficit plans in the US, your immediate reaction was, 'that can only be achieved by a massive inflation rate' that is a monetarist talking. You saw the only solution to a deficit as monetary inflation. My point being there is no such thing as a monetarist or Keynesian in real economics. Maybe there is an Austrian caught between morality and mathematics.

[flying]

You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

Why not? Are the presses always right? Is there a guarantee of success? Is practical right...always? In whose terms? Those that profit from it or those that see their savings depreciated?

[Abrak]

You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

Why not? Are the presses always right? Is there a guarantee of success? Is practical right...always? In whose terms? Those that profit from it or those that see their savings depreciated?

The argument for practicality is very simple. The US can pay off all its debts tomorrow by printing. So yes you can guarantee success.

I specifically argued that it was a solution - not the best case solution. Although as you have huge amounts of your debt held by foreigners, the chances are that screwing them is a net beneficial solution for the US. Ultimately any end game is that the US will achieve the biggest default on loan obligations in history and this will be achieved without default. It is an inherently counterbalancing interaction between the accumulation of reserves being subject to undervaluation and the increase in inherent borrowing being made increasingly worthless.

You cannot escape the underlying dichotomy of a domestic currency being the global reserve currency until it is essentially rendered worthless.

If you think about it, at what point do we go from thinking, short term treasuries are the safest investment to the riskiest, it is only a matter of time.

[flying]

You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

Why not? Are the presses always right? Is there a guarantee of success? Is practical right...always? In whose terms? Those that profit from it or those that see their savings depreciated?

The argument for practicality is very simple. The US can pay off all its debts tomorrow by printing. So yes you can guarantee success.

I specifically argued that it was a solution - not the best case solution. Although as you have huge amounts of your debt held by foreigners, the chances are that screwing them is a net beneficial solution for the US. Ultimately any end game is that the US will achieve the biggest default on loan obligations in history and this will be achieved without default. It is an inherently counterbalancing interaction between the accumulation of reserves being subject to undervaluation and the increase in inherent borrowing being made increasingly worthless.

You cannot escape the underlying dichotomy of a domestic currency being the global reserve currency until it is essentially rendered worthless.

If you think about it, at what point do we go from thinking, short term treasuries are the safest investment to the riskiest, it is only a matter of time.

As a tax paying US citizen living in the US I do not agree it is any form of a solution/success.................

The measure of success does not end with printing infinite amounts to satisfy debt anymore than it would if a citizen did the same with their debts. There is a massive loss in such irresponsible behavior whether the too big too fail acknowledge it or not.

Expedient creation of ever more debt does not suggest a solution at all.

In fact we are increasing the problem.

While the ultimate possibility may sound simple for the US to walk on its debt the reality will more than likely be far worse.

We need not even consider a nuclear war but let us at least stick to the basic lack of morality that route suggests.

This whole line of thinking is part of the moral financial decay that has set this country to rot.

As far as "at what point do we go from thinking, short term treasuries are the safest investment to the riskiest" I would say the point has long been passed...But who am I ?

Edited May 27, 2010 by flying

[MAJIC]

the trouble is there isn't a churchill or thatcher on the horizon,and do the people have the balls to rise up,no money,no food should do it though.

Well thats good news then, no "Thatcher on the horizen" considering she closed down most of our Industries or sold the

Public owned ones off to her own greedy kind,cost the country 7000bln in the Falklands war of her own making and

almost 300 deaths,amongst many other atrocious decisions of which the UK is still suffering from many of them today.

We had many a financial crisis under her Regime too.

[Abrak]

As a tax paying US citizen living in the US I do not agree it is any form of a solution/success.................

The measure of success does not end with printing infinite amounts to satisfy debt anymore than it would if a citizen did the same with their debts. There is a massive loss in such irresponsible behavior whether the too big too fail acknowledge it or not.

Expedient creation of ever more debt does not suggest a solution at all.

In fact we are increasing the problem.

While the ultimate possibility may sound simple for the US to walk on its debt the reality will more than likely be far worse.

We need not even consider a nuclear war but let us at least stick to the basic lack of morality that route suggests.

This whole line of thinking is part of the moral financial decay that has set this country to rot.

As far as "at what point do we go from thinking, short term treasuries are the safest investment to the riskiest" I would say the point has long been passed...But who am I ?

I can only offer the simplest, easiest and most practical solution. It will imply an increasing amount of moral hazard but is an inherent key to the survival of capitalism. Every solution will be what might one call a least cost option. There are no easy cures. Do you think deflating a 12% deficit in Spain against 20% unemployment is much fun.

What you should understand is that printing is a bit like bailing out the banks - totally irresponsible, totally immoral but essentially inevitable. So when you come down to solutions, you really have to realize that many people think giving a huge amount of credit to Greece is a solution. Obviously noone thinks it is a good solution but presumably they think it is the best of the crap solutions. Which by the way is a pretty heroic assumption.

[flying]

I can only offer the simplest, easiest and most practical solution. It will imply an increasing amount of moral hazard but is an inherent key to the survival of capitalism. Every solution will be what might one call a least cost option. There are no easy cures. Do you think deflating a 12% deficit in Spain against 20% unemployment is much fun.

What you should understand is that printing is a bit like bailing out the banks - totally irresponsible, totally immoral but essentially inevitable.

No I am sorry but you have me confused with another....

1) I care not for easy practical immoral solutions

2) At this point I could give a sh!t if capitalism in its present incarnation survives or not.

3) I never thought the solution would be pain free as well it shouldn't be....otherwise how will any learning take place.

4) as for total irresponsibility, totally immoral I do not count those things as essentially inevitable. I hope other do not either.

I would rather see folks voting from rooftops than counting those things as inevitable.

Edited May 28, 2010 by flying

[Gambles]

I never met an intelligent monetarist

I've met some extremely knowledgable ones, some erudite ones, some educated to the very extent of man's capacity to absorb learning

but in the real world of practical intelligence there are no monetarists. By definition monetarists belong in ivy towers or Groves of Academe

You are contradicting yourself. You cannot argue with the monetarists concept of a printing press. You may not like it, you might think it is destructive but you cannot argue against it in terms of practicality.

I often contradict myself but I don't see it here - I can argue and I would to the death with helicopter money supply. In the real world it doesn't work because you can't force people to spend. People like Minsky have been trying to explain to the monetarists that expenditure is a pull string not a push one and that monetarism does not, never has and never will work in the real world and this monetarist obsession with their own navels and with money supply is what has caused the global problems today and is certainly not the answer to them.

You actually know that Gambles because when you see the budget deficit plans in the US, your immediate reaction was, 'that can only be achieved by a massive inflation rate' that is a monetarist talking. You saw the only solution to a deficit as monetary inflation. My point being there is no such thing as a monetarist or Keynesian in real economics. Maybe there is an Austrian caught between morality and mathematics.

My point is that this is the only policy that these cone-heads have left themselves with and I seriously doubt that it can work - they can't control people's expenditure as perfectly as they would like and their mathemtically driven academic theories of what to do are basically managing the global economy the same way that Lehmans was managed. It's pure theoretical gobbledegook that doesn't work in the real world. The fact that my immediate thought was oh no inflation is the only option that they've left themselves and that's impossible to execute is a condemnation of the monetarist system not an affirmation. It's not all about money supply. The Austrian business cycle contains far more sense about the real economy than the entire output of Friedman. Sadly they then get a little bit obsessed about a shiny yellow metal and that's where they lose their grasp on reality. It's not all about fiat money supply nor is it all about gold - these are big factors but not, as each side would have you believe in their respective arguments, each the only factors.