Posted on 03/10/2008 8:36:24 AM PDT by PHLSyndicate
>Sorry. I have a really, REALLY tough time swallowing >“financial wisdom”
For starters, this is not financial advice. I’m merely reporting a summary of what many others are saying.
I hate to sound like an apologist for this guy, but I have to repeat - he is not predicting where the economy will go. Rather, he is saying that if certain things happen, WE may predict what it is highly likely it means and come up with our own predictions.
He is not giving readers a fish. He is teaching them how to fish.
Regarding the typo. I read a lot of blogs from very intelligent men and women. I see embarrassingly obvious typos in most. I don't like it, but they have to reach a certain threshold before I feel comfortable using it to impugn the content of the article. Especially with words that may be spoken often enough but are not seen enough in print. I've seen it in my business with VERY intelligent people - even with spell checker at their fingertips they miss the squiggle's red line, often times because so many of the words in technical articles are correct but still do not pass spell check. A good one is "impactive". Word doesn't think it is spelled correctly and offers no alternative. I finally checked dictionary.com http://dictionary.reference.com/browse/IMPACTIVE before I just added it to the Word library.
He said “wisdom”, not “advice”.
I sincerely don’t understand the animosity being expressed over this article. I wouldn’t exactly say that what I wrote is entirely controversial. There used to be a time when conservatives cared about things like budgets, debt, inflation, and the soundness of money. I don’t get what happened. You may not care that a billionaire gets wiped out, but when you can’t get a car loan or a mortgage has a 15% interest rate on it, you certainly will. Contrary to popular belief, the business cycle has not be eliminated.
So to sum up, we will have either a panic or not, massive deflation or inflation, or maybe nothing. Thats the gist of the last paragraph.
I misspelled a word once, and correctly twice. So crucify me. I’m a computer programmer with an interest in current events and economic history, not an English teacher. Since the rest of you are obviously university professors of some sort, I’ll be sure to bring it up a notch next time.
>>He covered all the bases so he can’t be wrong. I got to respect that.<<
If commodities go one way, I think it means one thing. If they go another, then it means something else. I’m not going to pretend to be smarter than the stock market. And I’m not telling people how to invest. Its entirely possible that I’m not understanding the situation and, as many of you wish, everything is totally fine. If I told you I knew what would happen, I’d be lying. All I can do is look at history, see how things played out in similar situations, and try to draw conclusions from the past experience of others.
My observation is: on the whole, things are going pretty darned well, and have been for quite some time - ergo, people are getting bored and looking for some hobgoblin to get scared about. Impending TEOTWAWKI (The End Of The World As We Know It) is always a popular subject for the luxuriously comfortable.
The moment had come,Yes, there are viable concerns about national/world-scale budgets, debt, inflation, and money integrety. Between long-running assurances that these really are reasonable, not a problem, and maybe even necessary for a strong economy, vs. it's all so bad that nothing but a world-pounding econo-crash can solve them, there's not much to do but get yerself out of debt (totally), get ready for major SHTF, and let the world do what it may.
I swallowed my gum,
We knew there'd be blood on the sand pretty soon.
The crowd held its breath,
Hoping that death
Would brighten an otherwise dull afternoon.
- Tom Lehrer
We can live beside the ocean
Leave the fire behind
Swim out past the breakers
Watch the world die
- Everclear
>>All I can do is look at history, see how things played out in similar situations, and try to draw conclusions from the past experience of others.<<
Yup. The scary thing is that when you add in the variables unique to this particular scenario, it can look REALLY scary. And with every passing month the potential downside looks worse. It is already far worse than many “experts” were predicting just a year ago, and we have just started our downward fall from the apex. Nobody knows how far it will go, but we will all find out fairly soon (next two or three years).
And nobody is even taking into account the “non-economic” events that could happen to exacerbate the problem.
Oh yes! The economy is just fine.....nothing to see here.
Run on the banks? That is a joke. The average person is $20,000 in the hole. Are they all going to suddenly run down to the bank and pay it off? Maybe it’s $40,000. Whatever.
Actually, its already happening.
According to this NY Times author there is a bank run going on between banks, rather than individual depositors and banks.
"Soon afterward, however, a full-fledged financial panic began. Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a little-known but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system."
The primary reason behind the emergency rate cuts and the TAF auctions, which seems to be a means to monetize mortgage debt, is to stave off a lack of lending between banks.
A bank in England recently underwent defacto nationalization in order to stop a bank run.
The real question is whether creditors will demand “pay up now”, or will realize that a reduced/interrupted payment plan is better than no payments at all. The latter works OK for them ... up to a point, where there’s enough debtors facing “pay now” that the creditor’s income stops.
But yes, kinda hard to have a run _on_ banks when most people don’t have anything there to speak of. I suppose the counterpoint is that there IS at least _something_ in most checking accounts, but if everyone pulls _that_ out at once, there still won’t be enough cash to satisfy the demanded withdraws. The average person may be $20-40K in the hole, but they still have an average of $2K in checking; there isn’t $200,000,000,000 cash sitting in ATMs and bank branches at any given moment.
Right, nowhere close. Usually, bank reserves around $40 billion.
The TAF auctions were set up for a few reasons, one of which was to help banks remain solvent, not just overnight as the Discount Rate does, but for longer periods of time. As a result, from $40 billion in reserves the banking system went to (negative) $15 billion since December. Every penny that is in a bank, reserved for withdraw, is borrowed from the Fed at this point.
This is completely unprecedented. From what anyone can tell, the Fed is accepting mortgage debt, and other iffy collateral, in exchange for monetary injections. They are taking assets, which are really worth anywhere from 0% to 70% of their book value at full value and inserting money into the system to keep the entire system solvent.
This graph illustrates the issue. And it doesn't tell the whole story since the number extends nearly to the bottom as the current non-borrowed reserves level is about (negative) $15 billion. Or you can look at it from the other side and say borrowed reserves are at $15 billion.
If the Fed hadn't been on top of things and intervened starting in December, as far as I can tell, the banking system went insolvent in January.
Wow. I read this paragraph in the article:
“Given the speculation in commodities and panic buying of contracts in a manner that is inconsistent with demand, I sense smart money is quickly moving to tangible assets (like gold). If we have a sudden crash in prices of commodities, I’d interpret that to mean investors are liquidating anything they possibly can in order to meet obligations and the Fed’s attempt to inflate is failing.”
And then this just an hour ago:
“Foreign mining stocks hit as metals prices fall”
If the government stayed out of things and responded by stabilizing the currency the result would likely be a sharp painful recession followed by a slow but steady recovery. When the Fed/government tries to steady things with wheels and levers it will likely convert that short deep recession into a real long-term depression as was the case in the 30s. That one didn’t really end until the 50s recovery and boom.
Were you around in the 70s? Don’t worry about runs on banks. Don’t know anybody with enough “savings” to run for.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."~~Ludwig von Mises
Yes, if the government tampers in any way whatsoever. If we just let the dipsh!t investors stew in their juices, then no.
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