Financial Crisis

[flying]

01 November 2009

Obama's Economic Policy Has Doomed the US to Stagnation

This was the very moment of Obama's failure, when he allowed Summers, Geithner and Beranke to establish the principle of "Too Big To Fail" and set up a financial oligarchy at the expense of taxpayers. We would have expected this out of the Treasury under Hank Paulson, but to see this kind of policy error favoring Wall Street over the US taxpayers from a government elected on the promise of reform is inexcusable, a disgrace.

Bloomberg

Stiglitz Says U.S. Is Paying for Failure to Nationalize Banks

Nov. 2 (Bloomberg) -- Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis.

“If we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai Oct 31. “They would be lending and the economy would be stronger.”

Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year.

U.S. Treasury Secretary Timothy Geithner, appearing yesterday on NBC’s “Meet the Press” program, said the country’s economic recovery hinges in part on banks taking more risk and restoring the flow of credit to businesses.

“The big risk we face now is that banks are going to overcorrect and not take enough risk,” Geithner said. “We need them to take a chance again on the American economy. That’s going to be important to recovery.”

President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit.

Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend.

Bank Lending

“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”

While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the Columbia University economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand.

The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system. (And it is an inherently unfair plan that creates even additional moral hazard by penalizing sound banking by forcing it to pay for reckless bank management. - Jesse)

Edited November 1, 2009 by flying

[flying]

Its Official.....

Actual scribd petition papers at link

CIT Files for Bankruptcy

This one is bigger than a bakery

Edited November 1, 2009 by flying

[sokal]

Its Official.....

Actual scribd petition papers at link

CIT Files for Bankruptcy

This one is bigger than a bakery

holy <deleted>, that's big news. I figure tomorrow will be a down day.

[Naam]

But I have always respected Merkel and am confident she will make the right decision. It's a pity she doesn't seem in the running for the position.

come on "12"! do you really think "our Angie" gives up the power over the european powerhouse Germany to take an insignificant figurehead job without any powers in Brussels?

by the way, Tony B. Liar (aka White House bootlicker) has no chance!

[flying]

holy <deleted>, that's big news. I figure tomorrow will be a down day.

Looks like today is not doing so good either for the Nikkei 225 -250 already

Edited November 2, 2009 by flying

[12DrinkMore]

holy <deleted>, that's big news. I figure tomorrow will be a down day.

Looks like today is not doing so good either for the Nikkei 225 -250 already

But our friends over at GS will be throwing another party and increasing the bonus barrel.

CIT's move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government and taxpayers will lose the $2.3 billion sunk into CIT last year to prop up the ailing company. Goldman Sachs however, will gain $1 billion because of CIT's bankruptcy, according to a report published Oct. 4 by theFinancial Times:

http://www.huffingtonpost.com/2009/11/01/c...w_n_341567.html

[AlexLah]

But I have always respected Merkel and am confident she will make the right decision. It's a pity she doesn't seem in the running for the position.

come on "12"! do you really think "our Angie" gives up the power over the european powerhouse Germany to take an insignificant figurehead job without any powers in Brussels?

by the way, Tony B. Liar (aka White House bootlicker) has no chance!

No worries, our Dutch superhero/wizzard, master of deception, moral hazard might be dumped come to the EU rescue.

[flying]

CIT's move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government and taxpayers will lose the $2.3 billion sunk into CIT last year to prop up the ailing company. Goldman Sachs however, will gain $1 billion because of CIT's bankruptcy, according to a report published Oct. 4 by theFinancial Times:

We will see soon but I think this CIT bankruptcy is the resuming of the crisis proper. From this the commercial real estate can start the fall many have seen coming. They have tried to divert attention with the swine flu but this one is too big to go unnoticed.

It will remind all how far we have not come.

CIT said in its bankruptcy petition that $800 million of its bonds would mature from Sunday through Tuesday.......

Bondholders will receive about 70 cents for each dollar owed them through the prepackaged bankruptcy. CIT said investors would have received as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.

Edited November 2, 2009 by flying

[midas]

We will see soon but I think this CIT bankruptcy is the resuming of the crisis proper. From this the commercial real estate can start the fall many have seen coming. They have tried to divert attention with the swine flu but this one is too big to go unnoticed.

It will remind all how far we have not come.

But they are desperately trying to plug the hole on commercial real estate ........but surely this won't work ?

Banks Get New Rules on Property

http://online.wsj.com/article/SB1256945070...MIDDLTopStories

[sokal]

CIT's move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government and taxpayers will lose the $2.3 billion sunk into CIT last year to prop up the ailing company. Goldman Sachs however, will gain $1 billion because of CIT's bankruptcy, according to a report published Oct. 4 by theFinancial Times:

We will see soon but I think this CIT bankruptcy is the resuming of the crisis proper. From this the commercial real estate can start the fall many have seen coming. They have tried to divert attention with the swine flu but this one is too big to go unnoticed.

It will remind all how far we have not come.

CIT said in its bankruptcy petition that $800 million of its bonds would mature from Sunday through Tuesday.......

Bondholders will receive about 70 cents for each dollar owed them through the prepackaged bankruptcy. CIT said investors would have received as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.

Good point. CIT can get the commercial real estate crash rolling. I think its the biggest bankruptcy since Lehman.

[teletiger]

Assets of $10 Billion at 2Q 09.

Regards.

What did Buffalo Ben say not so long ago? "The American taxpayer has yet to lose 1 dollar".

Edited November 2, 2009 by teletiger

[flying]

Mother of all carry trades faces an inevitable bust

By Nouriel Roubini

Published: November 1 2009

Edited November 2, 2009 by flying

[Abrak]

Mother of all carry trades faces an inevitable bust

So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

....

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

.....

This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

If people can be a little imaginative for a while and simply imagine that Ben Bernanke is not inherently stupid. I know this is a big leap for most people and an impossible one for others.

You also have to realize that he considers a depression/deflation as inherently destructive. So Fed policies were taken I would say to avoid a total collapse of the financial system. Now the very same policies are resulting in an asset bubble. This asset bubble has been allowed to carry on further than I am sure he would have wished but there is non-asset deflationary forces and the economy is incredibly weak. 1Q growth is forecast by consensus at 1.1%. So he can burst the bubble by raising rates which will throw the economy straight back into recession or he can allow it to continue for a while in the hope it pump primes consumer spending which fiscal policy failed to do.

However, if he is vaguely intelligent he will know that he cannot take these asset bubbles to their logical extremes. Imagine after the property bubble burst they lowered interest rates 5% and there was still a recession. What happens if you have a similar sized bubble and you cant lower rates when it bursts.

Economics 101 teaches that fiscal spending in a recession, renews growth and confidence which in turn leads to an increase in private spending which is artificially depressed - that is pump priming. But it hasnt happened and it wont happen because everyone (apart from the Fed and the CBO) knows that private spending now isnt artificially depressed it was simply artificially high before.

So I think Bernanke knows the bubble he is creating. He could cut it off now by raising rates but he wont achieve 3% growth next year. Or it can grow bigger at which point when it crashes it will be disastrous. I think the biggest problem for Bernanke is not cutting off growth by raising rates it is cutting off inflation (the non-asset sort). A 1% rise in rates will reduce inflation 1.5%.

Edited November 2, 2009 by Abrak

[midas]

If people can be a little imaginative for a while and simply imagine that Ben Bernanke is not inherently stupid. I know this is a big leap for most people and an impossible one for others.

You also have to realize that he considers a depression/deflation as inherently destructive. So Fed policies were taken I would say to avoid a total collapse of the financial system. Now the very same policies are resulting in an asset bubble. This asset bubble has been allowed to carry on further than I am sure he would have wished but there is non-asset deflationary forces and the economy is incredibly weak. 1Q growth is forecast by consensus at 1.1%. So he can burst the bubble by raising rates which will throw the economy straight back into recession or he can allow it to continue for a while in the hope it pump primes consumer spending which fiscal policy failed to do.

However, if he is vaguely intelligent he will know that he cannot take these asset bubbles to their logical extremes. Imagine after the property bubble burst they lowered interest rates 5% and there was still a recession. What happens if you have a similar sized bubble and you cant lower rates when it bursts.

Economics 101 teaches that fiscal spending in a recession, renews growth and confidence which in turn leads to an increase in private spending which is artificially depressed - that is pump priming. But it hasnt happened and it wont happen because everyone (apart from the Fed and the CBO) knows that private spending now isnt artificially depressed it was simply artificially high before.

So I think Bernanke knows the bubble he is creating. He could cut it off now by raising rates but he wont achieve 3% growth next year. Or it can grow bigger at which point when it crashes it will be disastrous. I think the biggest problem for Bernanke is not cutting off growth by raising rates it is cutting off inflation (the non-asset sort). A 1% rise in rates will reduce inflation 1.5%.

Oh come on Abrak he is not acting with the welfare of the people of USA on his mind He is ducking and

weaving to protect the interests of his Wall street bosses.

And its not about him being stupid or not.........its about hime being a dishonest thug ( Bank of America and Merrill Lynch debacle ).

There was more honour in the Gambino family than these cretins in the Administration but here the citizens are paying for this joker.

[Abrak]

Oh come on Abrak he is not acting with the welfare of the people of USA on his mind He is ducking and

weaving to protect the interests of his Wall street bosses.

And its not about him being stupid or not.........its about hime being a dishonest thug ( Bank of America and Merrill Lynch debacle ).

There was more honour in the Gambino family than these cretins in the Administration but here the citizens are paying for this joker.

Well I slightly take exception to the 'thug' comment as he always looks to me like the person you beat up at school rather than the other way round. (especially as he was about 2 years younger than his class mates as I remember)

I dont think I can argue with the 'dishonest' bit. His salary is so low that people like him dont even both getting out of bed, so you have to believe that he might be getting something on the side.

[12DrinkMore]

Brown is about to go berserk again.

http://www.timesonline.co.uk/tol/news/poli...icle6898195.ece

The prime minister is keen to use the autumn pre-budget statement to announce a new “fiscal stimulus”, with billions of pounds of extra money for housing, infrastructure projects and training.

There is no hope until he has been kicked out and the floodgates closed. This lunatic Scottish git will never realise that THERE IS NO MORE MONEY TO SPEND. It all comes out of the kids' future, our future, jesus MY future pension.

http://www.bloomberg.com/apps/news?pid=206...id=axI5wFtSpCl0

The Bank of England may choose to risk doing too much rather than too little this week as Britain starts to fall behind the rest of the world economy.

This is now really getting quite nasty.

The UK is not out of the doldrums and a continuation of the "emergency policies" is not going to fix things. If a massive "bugger thy neighbour" devaluation of the currency, coupled with a destructive slashing of interest rates to zero and then 175,000,000,000 Quid of this dam_n stimulus bullshit has not moved the GDP into the green range after all this time, then it is now time to think about a new strategy.

Getting rid of Brown and Darling ranks at the top of my list. They have not managed to balance the books in the good times, and are certainly not competent to manage the country in the ensuing bad years, which the UK is now facing.

[AlexLah]

Dishonest that is a nice way of saying he is (in my opinion a very bad) liar just like Timothy boy and Hank pinky Paulson.

I have no doubt that these people are smart in some way, only their actions and body language show what they really are namely, some type of psychopath.

I have linked to this article a few times now but maybe you missed it so therefore here it is: http://www.spiegel.de/international/busine...,635051,00.html

A few snippets:

It was probably the biggest failure of the world's central bankers since the founding of the BIS in 1930. They knew everything and did nothing.

Their gigantic machinery of analysis kept spitting out new scenarios of doom, but they might as well have been transmitted directly into space.

The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings.

"Central bankers can sometimes be prima donnas," says former BIS Secretary General Gunter Baer. He remembers the commotion that erupted at one of the annual events when it became known that a certain vintage of Mouton Rothschild was unavailable.

These traits make the BIS one of the world's most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law.

It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS,

despite the fact that it manages about 4 percent of the world's total currency reserves.

It is not about money Abrak, it is about POWER.

Remember playing Monopoly? Remember Miss Albright saying the death toll in Iraq was worth it? Worth what?

There are many more examples like this and if you are interested I can post them here, and no they are no conspiracy theories, just facts.

[midas]

Well I slightly take exception to the 'thug' comment as he always looks to me like the person you beat up at school rather than the other way round. (especially as he was about 2 years younger than his class mates as I remember)

I dont think I can argue with the 'dishonest' bit. His salary is so low that people like him dont even both getting out of bed, so you have to believe that he might be getting something on the side.

You can still have mild mannered and cold and ruthless thugs through the abuse power..........this is Bernanke

And after reading this article on whether deflation is all that bad I feel even more that

i want to hang, draw and quarter the ba*tard because I dont any more proof that his policies

are only further protecting Wall Street and are treason for the American people. To give them credit Naam and Jcon were right

when they said " deflation bring it on " !

You should not be afraid of deflation.

You should be afraid of policies attempting to fight it.

Deflation (rather price deflation) is actually the natural state of affairs. As productivity increases, more goods and services are produced relative to the population and prices would therefore be expected to drop.

It is the Fed, along with misguided Keynesian and Monetarist economists who think falling prices are a bad thing. Who amongst us does like falling prices (except of course on things we own like houses, but even then who is not sick of higher property taxes that result)?

The reality is inflation benefits those with first access to money. Guess who that is? The answer is easy: banks, government, and the already wealthy. Inflation is actually a tax on the middle class and the poor who get access to money last. During the housing bubble, by the time the poor could get access to to money easily, it was far too late to buy.

http://www.scribd.com/doc/21663635/Debt-De...on-October-2009

Given that inflation benefits those with first access to money, any targeted inflation at all is morally wrong.

[midas]

5']

Well I slightly take exception to the 'thug' comment as he always looks to me like the person you beat up at school rather than the other way round.[/b] (especially as he was about 2 years younger than his class mates as I remember)

I dont think I can argue with the 'dishonest' bit. His salary is so low that people like him dont even both getting out of bed, so you have to believe that he might be getting something on the side.

Its not about brute force...........

You can still have mild mannered ,cold and ruthless people who are thugs by their abuse of power..........this is Bernanke

And after reading this article on whether deflation is all that bad I feel even more that

i want to hang, draw and quarter the ba*tard because I dont any more proof that his policies

are only further protecting Wall Street and are treason for the American people. To give them credit Naam and Jcon were right

when they said " deflation bring it on " !

You should not be afraid of deflation.

You should be afraid of policies attempting to fight it.

Deflation (rather price deflation) is actually the natural state of affairs. As productivity increases, more goods and services are produced relative to the population and prices would therefore be expected to drop.

It is the Fed, along with misguided Keynesian and Monetarist economists who think falling prices are a bad thing. Who amongst us does like falling prices (except of course on things we own like houses, but even then who is not sick of higher property taxes that result)?

The reality is inflation benefits those with first access to money. Guess who that is? The answer is easy: banks, government, and the already wealthy. Inflation is actually a tax on the middle class and the poor who get access to money last. During the housing bubble, by the time the poor could get access to to money easily, it was far too late to buy.

http://www.scribd.com/doc/21663635/Debt-De...on-October-2009

Given that inflation benefits those with first access to money, any targeted inflation at all is morally wrong.

[midas]

Dont take your eyes off the worlds second largest economy

It is Japan we should be worrying about, not America

Simon Johnson, former chief economist of the International Monetary Fund (IMF), told the US Congress last week that the debt path was out of control and raised "a real risk that Japan could end up in a major default".

"The debt situation is irrecoverable," said Carl Weinberg from High Frequency Economics. "I don't see any orderly way out of this. They will not be able to fund their deficit. There will be a fiscal shutdown, a pension haircut, and bank failures that will rock the world. It is criminally negligent that rating agencies are not blowing the whistle on this."

http://www.telegraph.co.uk/finance/comment...ot-America.html

[Abrak]

And after reading this article on whether deflation is all that bad I feel even more that

i want to hang, draw and quarter the ba*tard because I dont any more proof that his policies

are only further protecting Wall Street and are treason for the American people. To give them credit Naam and Jcon were right

when they said " deflation bring it on " !

Midas I think you are aware that the US has a debt problem - the debt/GDP ratio is very high. Now reducing the denominator through negative prices clearly makes the underlying problem worse. It has the added non benefit of also reducing g or growth. I suspect the number of years with deflation and real GDP growth in the last 100 years can certainly be counted on one hand. So approaching your underlying structural problem debt/gdp by reducing the denominator twice over doesnt seem too sensible. Why does growth fall? Well if prices are falling why buy anything, it will be cheaper next week. So demand collapses, manufacturing production collapses unemployment increases which leads to a very nasty vicious circle. With nominal GDP down and asset prices down of course you simply add a financial crisis as your banks go under in a sea of bad debt.

And give absolutely no credit to Naam for saying 'deflation bring it on'. He doesnt give a monkeys about all of the above because he will have become incredibly rich by holding fixed income instruments that have not only gone up massively as their yield declines, he will still be experiencing 5%+ real yields. Unfortunately he is going to be taxed to pay for the ever increasing deficit and when the revolution comes will be first against the wall. So his pleasure at becoming increasingly wealthy combined with an extra giggle that virtually everyone else will be increasingly impoverished may prove short lived.

Finally if you look at history (before the 1900s) you will find plenty of periods where there was growth and deflation but the key point is there was also no debt. Conceptually how can you deflate your way out of a debt crisis?

It is the Fed, along with misguided Keynesian and Monetarist economists who think falling prices are a bad thing. Who amongst us does like falling prices (except of course on things we own like houses, but even then who is not sick of higher property taxes that result)?

I think you are right in saying that at least 99% of credible economists believe that deflation is a destructive force. Obviously falling prices are great if you still happen to have a job and you are not taxed aggressively but then if they dont increase your taxes the nominator will go up and the debt/GDP problem will be worse and if they increase your taxes you will spend less and depress the denominator only making your debt/GDP problem even worse. I mean I think the US took 20 years to double its debt to GDP ratio by increasing debt accumulation but at least there was some GDP growth while you might successfully double it again by reducing nominal GDP as well as possibly increasing debt in less than 10.

And although it is great to hear new ways of solving the debt/gdp problem I would warn you that it has been tried before. Between 1929 and 1934 the debt/GDP ratio increased at its fastest rate ever largely due to a massive reduction in the denominator through both G and P. The debt/GDP ratio started to decline as inflation returned by the end of 1934. Obviously deflating its way out of a debt crisis has only been tried once in the US but the experiment hasnt been repeated because the results were considered so bad that it would take a miracle to turn it into a good policy. I suspect a car manufacturer experimented with the concept of stopping by crashing into a brick wall as opposed to using brakes but I doubt he repeated the experiment.

P.S. Ben Bernanke is widely respected as the leading expert on deflation in the world (he is quite bright 1590 out of 1600 in his SATS and devoted the majority of his academic career to the study of deflation) so it is quite possible he 'understands' it quite well. It does worry me that if he is as smart as he is supposed to be, he is so impoverished and that he cant even work out his own net worth to any degree of accuracy.

Edited November 2, 2009 by Abrak

[Naam]

These traits make the BIS one of the world's most exclusive and influential clubs, a sort of Vatican of high finance. Formally registered as a stock corporation, it is recognized as an international organization and, therefore, is not subject to any jurisdiction other than international law.

It does not need to pay tax, and its members and employees enjoy extensive immunity. No other institution regulates the BIS, despite the fact that it manages about 4 percent of the world's total currency reserves.

There are many more examples like this and if you are interested I can post them here, and no they are no conspiracy theories, just facts.

once in a while one has to give credit to Alex when he states undeniable facts like those above

[Abrak]

The reality is inflation benefits those with first access to money. Guess who that is? The answer is easy: banks, government, and the already wealthy. Inflation is actually a tax on the middle class and the poor who get access to money last. During the housing bubble, by the time the poor could get access to to money easily, it was far too late to buy.

This paragraph is written by a complete lunatic. First of all when the poor get access to east money it is a tax on everybody else because poor people are poor and cant repay their debts. Also when the poor get access to east money your banking system is out of control. The bottom 50% of households pay just 3% of total tax so guess who has to bail them out. So given that capitalism is designed to keep the poor, poor and make the rich richer, this rare opportunity to throw away richer peoples money should be appreciated.

Inflation is a tax on the middle class (not the poor they dont pat any). The reason is simple inflation results from excess monetary growth which drives up the price of assets relative to GDP and incomes(sorry that was a bit obscure, the concept is the rich are rich because they own all the assets.) Unfortunately you should also realize that deflation is far more a tax on the middle classes. The poor have nothing so nothing really matters. The big problem in the US is that people have acquired a lot of debt. Now rich people really dont have much debt in the bright shiny American dream everyone was going to borrow lots of money and become rich. So deflation sets in, obviously the rich see some decline in their asset prices and possibly delay delivery of the new jet. However it is the middle income family that will be really stuffed, they are up to their eyeballs in debt, asset prices are falling and because real median incomes have fallen over the last 30 years both mum and dad are now working with double the risk of unemployment. In fact deflation is bloody marvellous if you are rich cos even at zero interest rates you are making money and there are bound to be some great opportunities to get some cheap assets off those middle classes who will hopefully no longer litter the golf club.

So Midas, to be honest I am quite happy to see you as Fed Chairman replacing the world's leading expert on deflation and you may just perhaps prove that 99% of economists are complete fools as well. But dont claim Naam as an ally because he only wants to become filthy rich (a good thing of course) but it wont do you much good as an argument to support your theory. And if Naam tells you it is a great idea I guarrantee he will be on his own private island when the revolution comes at 25% unemployment (he's not stupid, I am sure he has an exit plan.)

[Naam]

So Midas, to be honest I am quite happy to see you as Fed Chairman replacing the world's leading expert on deflation and you may just perhaps prove that 99% of economists are complete fools as well. But dont claim Naam as an ally because he only wants to become filthy rich (a good thing of course) but it wont do you much good as an argument to support your theory. And if Naam tells you it is a great idea I guarrantee he will be on his own private island when the revolution comes at 25% unemployment (he's not stupid, I am sure he has an exit plan.)

let's look at thing from the proper perspective and try to be rational.

-i don't share Midas' view that 99% of economists are complete fools. i estimate the percentage of fools max 97.375%

-but i don't think Bernanke is a fool.

-i don't want to become filthy rich

-seen from quite a number of individual perspectives i am already filthy rich

-i don't believe in a revolution although i take that possibility into consideration.

-i have more than one exit plans.

-one of these plans relates to an island as i have bought recently land in Johor from where one can drive over two (and soon three) bridges in 20 minutes to the center of Singapore.

[sokal]

Mother of all carry trades faces an inevitable bust

So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

....

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

.....

This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

If people can be a little imaginative for a while and simply imagine that Ben Bernanke is not inherently stupid. I know this is a big leap for most people and an impossible one for others.

You also have to realize that he considers a depression/deflation as inherently destructive. So Fed policies were taken I would say to avoid a total collapse of the financial system. Now the very same policies are resulting in an asset bubble. This asset bubble has been allowed to carry on further than I am sure he would have wished but there is non-asset deflationary forces and the economy is incredibly weak. 1Q growth is forecast by consensus at 1.1%. So he can burst the bubble by raising rates which will throw the economy straight back into recession or he can allow it to continue for a while in the hope it pump primes consumer spending which fiscal policy failed to do.

However, if he is vaguely intelligent he will know that he cannot take these asset bubbles to their logical extremes. Imagine after the property bubble burst they lowered interest rates 5% and there was still a recession. What happens if you have a similar sized bubble and you cant lower rates when it bursts.

Economics 101 teaches that fiscal spending in a recession, renews growth and confidence which in turn leads to an increase in private spending which is artificially depressed - that is pump priming. But it hasnt happened and it wont happen because everyone (apart from the Fed and the CBO) knows that private spending now isnt artificially depressed it was simply artificially high before.

So I think Bernanke knows the bubble he is creating. He could cut it off now by raising rates but he wont achieve 3% growth next year. Or it can grow bigger at which point when it crashes it will be disastrous. I think the biggest problem for Bernanke is not cutting off growth by raising rates it is cutting off inflation (the non-asset sort). A 1% rise in rates will reduce inflation 1.5%.

I can only judge him on his track record. When has he ever been right ?

Keynesian policies have never worked in history, look at Japan.

[sokal]

Brown is about to go berserk again.

http://www.timesonline.co.uk/tol/news/poli...icle6898195.ece

The prime minister is keen to use the autumn pre-budget statement to announce a new “fiscal stimulus”, with billions of pounds of extra money for housing, infrastructure projects and training.

There is no hope until he has been kicked out and the floodgates closed. This lunatic Scottish git will never realise that THERE IS NO MORE MONEY TO SPEND. It all comes out of the kids' future, our future, jesus MY future pension.

http://www.bloomberg.com/apps/news?pid=206...id=axI5wFtSpCl0

The Bank of England may choose to risk doing too much rather than too little this week as Britain starts to fall behind the rest of the world economy.

This is now really getting quite nasty.

The UK is not out of the doldrums and a continuation of the "emergency policies" is not going to fix things. If a massive "bugger thy neighbour" devaluation of the currency, coupled with a destructive slashing of interest rates to zero and then 175,000,000,000 Quid of this dam_n stimulus bullshit has not moved the GDP into the green range after all this time, then it is now time to think about a new strategy.

Getting rid of Brown and Darling ranks at the top of my list. They have not managed to balance the books in the good times, and are certainly not competent to manage the country in the ensuing bad years, which the UK is now facing.

Brown is all fuct up on Keynes. Reminds me of Danial Hannans rant on Brown about Keynes.

[midas]

Midas I think you are aware that the US has a debt problem - the debt/GDP ratio is very high. Now reducing the denominator through negative prices clearly makes the underlying problem worse. It has the added non benefit of also reducing g or growth.

Finally if you look at history (before the 1900s) you will find plenty of periods where there was growth and deflation but the key point is there was also no debt. Conceptually how can you deflate your way out of a debt crisis?

I think you are right in saying that at least 99% of credible economists believe that deflation is a destructive force. Obviously falling prices are great if you still happen to have a job and you are not taxed aggressively but then if they dont increase your taxes the nominator will go up and the debt/GDP problem will be worse and if they increase your taxes you will spend less and depress the denominator only making your debt/GDP problem even worse. I mean I think the US took 20 years to double its debt to GDP ratio by increasing debt accumulation but at least there was some GDP growth while you might successfully double it again by reducing nominal GDP as well as possibly increasing debt in less than 10.

P.S. Ben Bernanke is widely respected as the leading expert on deflation in the world (he is quite bright 1590 out of 1600 in his SATS and devoted the majority of his academic career to the study of deflation) so it is quite possible he 'understands' it quite well. It does worry me that if he is as smart as he is supposed to be, he is so impoverished and that he cant even work out his own net worth to any degree of accuracy.

But Abrak you are defending Ben Bernanke as if he was just an innocent public servant trying his best to manouvre through this mess.

But he is not true a public servant because his employer is at best a murky semi- private corporation and at worst is downright corrupt and evil organization backed by people located on Wall Street with an Israeli origin. We have no knowledge about the true agenda of the US Federal Reserve or Ben Bernanke except I am convinced the US citizens are being played like a

Do you know that in another thread just for asking questions about “ who owns the Fed ’ I was accused of being anti-semetic and the next thing the thread was closed down. How by merely asking this question it can be interpreted that I was being anti-semetic escapes me but naturally you can understand why i am so cynical today

The latest thing is that the Ron Paul bill to audit the Fed has been virtually killed off :-

" The Tom Woods' congressional testimony last week Friday in favor of the 'Audit the Fed' bill had two very curious turns, he set off extremely hostile questioning from two congressmen, by the hearings Committee Chair Barney Frank and Representative Mel Watt.

Most of the top industries donating to Watt are major beneficiaries of Fed money printing. His top industry donors are at

#1 the commercial bankers industry, at #3 the building trade unions (All that Fed money printing benefited the building trade unions probably more so than anyone else), and at #5 the securities and investment industry. The current #1 corporate donor to Watt is Citigroup Inc.

During 2007-08 his top contributors were:

#1 Bank of America

#2 Wachovia Corp

#3 American Express

#4 American Bankers Assn "

http://www.economicpolicyjournal.com/2009/...ts-voltage.html

OK those in power may think they have won the battle but they have not won the war because the distrust regarding the Fed will keep growing and anger will keep building.

Meanwhile don’t even think of trying to convince me that Ben Benanke is acting in best interests of the ordinary people of USA until I know the true nature of the Fed and what information it is desperately trying to hide.

 

[Abrak]

I can only judge him on his track record. When has he ever been right ?

Keynesian policies have never worked in history, look at Japan.

First of all Sokal, not everyone shares your view of the world. I think you for instance believe that economic depressions (as opposed to mere recessions) are a 'good thing'. Now viewed from that perspective I agree Keynesian policies have not worked as for instance the US has totally failed so far to have a depression since they were introduced. While in the 130 years before it experienced no less than 8 depressions. The problem is, to some extent, the essence of Keynesian economics is to avoid depressions so if you look it from that perspective it has been enormously successful.

And as far as I remember Japan has used virtually every economic policy under the sun over the past 20 years monetary easing, quantative easing, ZIRP and fiscal stimulus all of which basically failed largely I suspect due to the fact they had a dysfunctional, bankrupt and broken banking system which they failed to address. Still I dont know much but the writings of an economist named Ben Bernanke are probably best recognized for identifying Japanese policy failures.

I do see good reason why fiscal stimulus is or will be relatively ineffective in the USA over the longer run. The idea behind fiscal stimulus is to make up for shortfalls in the natural level of aggregate demand. A fall of in aggregate demand which leads to unemployment, further fall offs in aggregate demand and money 'hoarding' by the employed. Under these circumstances a recession moves from being a 'correction' to a self reinforcing vicious cycle of depression. The problem with the US recession is that it was a necessary 'correction' of excessive demand not represented by any short fall in the natural rate of aggregate demand. Fiscal stimulus under this circumstances is effectively 'socialism' where excessive government spending simply replaces excessive consumer spending

Edited November 3, 2009 by Abrak

[flying]

.......

Edited November 3, 2009 by flying

[Naam]

.......

good youtube clip!