Financial Crisis

[Naam]

excerpts from "dailyreckoning.com experts" who only criticise but cannot present a single fàcking alternative how to tackle the variety of existing problems. in other words: "big mouths, all hats, no cattle but a rusty weed-whacker in the shed with whom they try to attack Obama, Bernanke, Geithner et al".

i forgot to add that the same applies to some of the resident Thaivisa "experts"

[churchill]

The Big Collapse Could Be Very Near

The Federal Reserve appears to be increasingly nervous about the long term bond market. This is serious. How panicked are they? After leaking a story on Friday, they are back at it on Sunday.

The Federal Reserve leaked to CNBC's Steve Liesman on Friday that they weren't targeting long rates. Why such a leak? Probably because the Fed did not want to appear impotent in controlling the long rate. So they put out the word through Liesman that they weren't targetting the long rate. Can you imagine what would happen to the markets if it sensed long rates were beyond the control of the Fed?

The Fed can of course print money to buy up every Treasury bond in existence, but the inflationary ramifications would be Zimbabwe like, and crush the dollar on international currency markets. Are we near the phase where all hel_l breaks loose? I have never even answered, maybe, to this question before. It's always been, "no." Now it's maybe.

What really has me spooked is another article out this afternoon (on a Sunday) that Drudge has even picked up. It's a Reuters story by Alister Bull. The headline: Federal Reserve puzzled by yield curve steepening.

Translation, the Fed doesn't know what is going on, but they are really scared.

Here's more from Bull:

The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.

But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.

Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.

Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities...

An obvious culprit for the move in bond yields is the country's record fiscal deficit, which will generate a massive amount of new government issuance.

The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit, resulting from falling tax revenues, an economic stimulus package and sundry bank bailouts.

It's the Chinese, and any other Treasury bond buyer who follows the markets, that have pulled away, to varying degrees from buying Treasury long securities. No one wants to be the last one holding bonds, where the new debt about to be issued is in the trillions.

Bull continues with the part of the message the Fed really wanted to get out: With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely.

"I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said. It's the same message as Friday. The Fed does not want to spook the world into thinking that it can't push long term rates down, so it says it is not trying. But if rates continue to climb, a panic out of Treasury securities is a very likely scenario. And Bernanke has only one play to force long rates back down, buy every long bond in sight, which of course is highly inflationary and puts upward pressure on rates. How's that for a dilemma?

The end of the current financial system, as we know it, may be iminent. If you would have asked me even two weeks ago if collapse was imminent, I would have said it was highly unlikely, now I am saying it is possible. Bernanke may be able to patch things up short-term, if he is lucky, but long term the U.S. financial structure is in serious trouble. There is just too much Treasury debt that needs to be raised. An international panic out of Treasury securities, even a slow controlled panic, means the Fed will be the major buyer. This will ultimately mean record inflation.

And keep this in mind, we have never seen a collapse of a currency like the dollar. Even the hyperinflation during Germany's Wiemar Period can not serve as an example. Since the dollar is the reserve currency of most of the world, a panic out of the dollar means more dollars will return to the U.S. shores than any country has ever experienced.

Other countries have had collapsed currencies, but never in the history of world of finance has so much currency been held outside a country of issue that could come flying back, almost on a moments notice. If the panic out of the dollar starts, even if Bernanke stops printing money (unlikely), all the dollars flying back into the U.S. could cause a huge price inflation all on its own.

http://www.globalresearch.ca/index.php?con...a&aid=13826

[yabaaaa]

excerpts from "dailyreckoning.com experts" who only criticise but cannot present a single fàcking alternative how to tackle the variety of existing problems. in other words: "big mouths, all hats, no cattle but a rusty weed-whacker in the shed with whom they try to attack Obama, Bernanke, Geithner et al".

"And that puts the Fed on the spot. Do they choose to cap Treasury yields by explicitly stepping up QE operations and buying more Treasury bonds in the open market (or possibly more mortgage-backed securities, to thereby decouple mortgage rates from rising Treasury yields)? Or do they just let Treasuries find their own equilibrium, accepting the risk the economy may relapse again as 10-year US Treasury yields sail through 4%?"

-based on prevailing facts there is no way to avoid 10y-UST climbing to 4% or most probably above.

-there is no real reason why that should cause a relapse of the economy. the potential reasons which might endanger a recovery are numerous. interest rates play a small part only.

"fàcking alternative" hahahahaha Love it, I can almost see you Naam strutting round ze pool.

[flying]

i forgot to add that the same applies to some of the resident Thaivisa "experts"

Dont know if I am one of the chosen but..............

I did write my congressman twice & even got a response.

But at the end of the day they voted the way I asked them not to.

Somewhere way back in this thread I believe? Or maybe the capitalism gone wild one.... I put in my 2cents on what I thought. If I remember right LaoPo gave it to me & said nooooooooo.

Perhaps by luck many now agree.....

But all that aside I do not agree when you say

who only criticize but cannot present a single fàcking alternative how to tackle the variety of existing problems.

My mom always taught us when we were young to....

1) Get it yourself

2) If you make a mess you clean it up.

So I figure the bankers & politicians should not only clean this one up their da_m selves. But then they should be taken out & water boarded...LOL

Edited June 3, 2009 by flying

[Abrak]

Yes, Naam , it is easy to criticize but there are amazingly few people who have come up with credible alternative policies.

As I see it the US either

1) is set for a sort of long Japanese style adjustment with high fiscal deficits and low growth over a long period or

2) they reinflate much of the bubble which would be good for growth but simply promote the underlying structural problem.

In other words they are caught between a rock and a hard place.

It is pretty obvious which choice Helicopter Ben would go for....

In terms of credible policy options to implement about the best I have read of is to give every immigrant who buys a house over US$100,000 a green card.

[12DrinkMore]

In terms of credible policy options to implement about the best I have read of is to give every immigrant who buys a house over US$100,000 a green card.

Can I take out a mortgage, please? And does that qualify me for a credit card too?

:D

[AlexLah]

Its OK ChaiMai, No Problem

Anyways I was looking at the exchange rates of EUR against Yen, USD and GBP and can I say I see a trend?

You can play around yourself here: http://www.ecb.int/stats/exchange/eurofxre...aph-usd.en.html

Some as high as 90% if measured from 2000 to peak in July 2008.

[Abrak]

In terms of credible policy options to implement about the best I have read of is to give every immigrant who buys a house over US$100,000 a green card.

Can I take out a mortgage, please? And does that qualify me for a credit card too?

:D

You may laugh but I will give you one very good reason why its a good idea. That is the world demographics are such that essentially a smaller (or no bigger) working population will be supporting an ever increasing non working population. For a country to grow its GDP in many cases it will have to attract immigrants and there WILL be substantial competition amongst countries to attract the best immigrants. So the US would simply be getting ahead of the game as well as supporting its beleaguered housing system.

[flying]

Immigrants who can afford a 100k house dont need no stinking green card

[Abrak]

Immigrants who can afford a 100k house dont need no stinking green card

Which really only goes to prove Naam's point that any policy option given will simply be criticized without coming up with a credible solution (not that flying is expected to do that on an internet forum). Krugman is particularly bad at sitting back and telling you I told you so.

Shiller who predicted the housing crash has written a book called 'the sub prime solution' so I guess we cant fault him (unfortunately although I have the book I cant tell you what the 'solution' is as I havent read it.)

[AlexLah]

So where is Naam's suggestion to solve this?

[Abrak]

So where is Naam's suggestion to solve this?

Well he wont come up with one because the problem is unsolvable and that is, I imagine, his point. Given this, there little to be gained by pointing to the downside of any policy options when all policy options have downside.

Consider this. If there was a debate on this forum about whether the outlook was inflationary or deflationary it would be split 50:50. Even the markets cant decide - although they are currently in inflationary mode. Doesnt that inherently mean that Bernanke is doing a pretty good job. Rising interest rates are simply a factor of a rise in inflationary expectations which given the move in commodity prices would seem substantially higher than the move in interest rates thus promoting spending and growth. He has stuck his neck out on several occasions and said he can create an inflationary environment out of an inherently deflationary one, and when he does, he will be criticized for causing inflation. If you didnt want his solution to this problem namely ZIRP combined with QE then he should never have been elected because he has made it clear that is his policy stance his whole academic life.

[Chaimai]

Chaimai.

What effects ( if any ) will this have on your mortgage broking business ?

'Five building societies to fail within a year'

If there is over-supply in the market, market-forces prevail to bring about mergers, acquisitions or closures.

With building societies this usually occurs when a) they have failed to adapt sufficiently to the changing market or tried to re-invent themselves by getting involved in areas that they neither have the capital or expertise for.

It is unexciting. Bigger fish eat the smaller fish. Fall-out is minimal, depositors are protected and mortgages are sold on to other lenders. In the context of the financial crisis it not news-worthy.

Impact on market (and specifically my business) = NIL.

[AlexLah]

Abrak, how about cut the spending?

[Abrak]

Impact on market (and specifically my business) = NIL.

Well to be fair (and you admit you might be bias) there is one impact. A financial crisis destroys secondary financial institutions. These institutions create competition in the market and reduce spreads. After a financial crisis either you have just the big boys left or a customer who is only prepared to deal with the big boys. This means they can increase their spreads so that the differential between deposit rates and lending rates increases. Obviously this has some knock on effects to demand although the real impact is usually felt more by the negative real returns of depositors.

[Abrak]

Abrak, how about cut the spending?

Well I would certainly favour that but both the FED and the CBO consider the downturn cyclical (i.e. demand now is well below its sustainable natural level) and therefore can justify their spending. To be honest if you believe the Fed and CBO forecasts that show growth averaging 3.5% over the next 5 years (excluding this year), then I would consider this years fiscal deficit a justifiable one off spend. Remember there is going to be a 3% contraction with a 12% deficit and 9%+ unemployment. If you cut spending so that the deficit is 5% of GDP you are looking at a horrific contraction. Now I think that Maggie called this 'the short sharp shock' and maybe it is what the US needs but I guarantee that if the Government actually did it, the criticism it would receive would be far greater than it is receiving now.

[Naam]

Yes, Naam , it is easy to criticize but there are amazingly few people who have come up with credible alternative policies.

As I see it the US either

1) is set for a sort of long Japanese style adjustment with high fiscal deficits and low growth over a long period or

2) they reinflate much of the bubble which would be good for growth but simply promote the underlying structural problem.

In other words they are caught between a rock and a hard place.

It is pretty obvious which choice Helicopter Ben would go for....

In terms of credible policy options to implement about the best I have read of is to give every immigrant who buys a house over US$100,000 a green card.

this was actually suggested more than a year ago by the Association of U.S. Realtors! unfortunately there is no chance of implementation. Washington fears that bin-Laden and a bunch of al-Qaeda jihadis would use the opportunity as they are fed up of living in caves being smoked out every now and then

[Naam]

"fàcking alternative" hahahahaha Love it, I can almost see you Naam strutting round ze pool.

a very busy day today. no time to strut or doing my usual 3-4 dips. but it's only a matter of minutes till i take a dive

[Naam]

Abrak, my last PM to you bounced back. no idea why. here's the Bloomie screenshot for Barclays RCI. price unfortunately above par but i consider it still interesting!

[AlexLah]

I was more thinking of cutting the cost of fighting (illegal) occupations of foreign country's which costs are close to 700 Billion until now (Stiglitz estimated that the true cost of the war in Iraq could be as high as three Trillion USD).. Another cost saver would be in reduction of cost in medic care for wounded/disabled soldiers. Close down most of the military bases abroad, reduction of the number of nukes, that kind of spending. Or do some more to reduce the 60 Billion Dollar that is falsely claimed each year in medicare.

I find it a bit strange when everybody/the media/president keeps saying we should live within our means but yet the pentagon requests to increase the budget by 4%.

[churchill]

Latvian bond failure begins

http://v2.ftalphaville.ft.com/blog/2009/06...ins/?source=rss

[12DrinkMore]

Well this started out promising

http://www.bloomberg.com/apps/news?pid=206...id=agmj05AcqWHo

Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

But it ends on

Bernanke said the economy is likely to suffer more “sizable” job losses, which will weigh on consumer spending. Still, Fed officials are looking for a recovery in growth later this year as housing demand stabilizes and companies balance inventories with overall demand.

A recovery in growth later this year? Jeeze, haven't these guys realised we are already in June? Based on many years of experience, the step from June to September and then December and then the next year will zip by in a flash. And "sizable" job losses strikes me as not being something which will just disappear in October...

Maybe Santa will deliver us the biggest Christmas present ever, better start knitting those giant socks.....

[AlexLah]

Growth of what?

Similar like Geitner assuring that the US will cut the budget deficit. Why is nobody asking: How?

[MJP]

Growth of what?

Similar like Geitner assuring that the US will cut the budget deficit. Why is nobody asking: How?

Using a GIGANTIC pair of scissors.

[bartender100]

This thread is 98 pages long, so lets ask one question.

Is the financial crisis over? Short reply's only

My answer is no, much worse to come, complete meltdown still possible

[MJP]

This thread is 98 pages long, so lets ask one question.

Is the financial crisis over? Short reply's only

My answer is no, much worse to come, complete meltdown still possible

+1

[AlexLah]

Why?

[midas]

Latvian bond failure begins

http://v2.ftalphaville.ft.com/blog/2009/06...ins/?source=rss

churchill I have been wondering why there hasn't been so much updated media coverage ( Eastern European

economies ) unless I have been missing them but then this evening as I was checking the latest

about the ongoing MP's expenses row I found this in the Telegraph

about Russia, Ukraine, and the EU states of Eastern Europe. There are also 178 comments

from readers after the article which predictably show a wide spectrum of responses

Failure to save East Europe will lead to worldwide meltdown

http://www.telegraph.co.uk/finance/comment...e-meltdown.html

[MJP]

Why?

Why what, Alex?

[AlexLah]

They say you should never answer a question with a question, but that is another thread in the word games section..........

So why would one think it is over/not over