Posted on 06/06/2006 12:25:55 PM PDT by ex-Texan
..The golden age of liquidity is drying up...Our guess is that we will see the results of this fundamental shift towards tighter money over the next decade or two...
We don’t know what this portends, but yesterday Ben Bernanke slouched over to Congress. He must have worn lifts. For somehow he managed to remind the world of old Paul Volcker. We remember when the giant Paul walked the earth over at the Fed. It was a different world back then, with consumer prices rising at double-digit rates, and interest rates over 15%. But Volcker stood up and did what a Fed chief is supposed to do; he stopped inflation.
Even recently, speaking to an audience that included an intrepid reporter for the Daily Reckoning, Volcker said he was surprised the country had gotten away with such a long period of credit expansion, without setting off a new round of consumer price inflation. He wondered out loud how it came about and when it might end. But he, like the rest of us, had no sure answer.
And now cometh his successor, Ben. Speaking in public yesterday, the former head of Princeton’s economics department sounded if not like an inflation fighter, like an inflation taunter. Inflation, he said, was "unwelcome." Not exactly inflation-fighting words, but it was enough to lead investors to fear another .25% rate increase was coming. Stocks sold off, taking the Dow down by nearly 200 points.
Meanwhile, the European Central Bank seems to have found a touch of Volckerismo, too. "ECB rate hike done deal," says AFP.
"Golden age of liquidity is drying up," adds the International Herald Tribune. "Cash, credit, related financial instruments; liquidity surged in the past decade, fuelled by relaxed monetary policies of central banks, globalization, new technologies and such exotic financial instruments as derivatives. They in turn drove down interest rates and bond yields and encouraged investors to pump more money into riskier assets, propelling stock markets."
But now...
"The era of under-priced capital in constant supply is ending," adds David Roche, a financial strategist in London.
Our guess is that we will see the results of this fundamental shift towards tighter money over the next decade or two. We also guess that trying to fight this trend by selecting stocks carefully will be like flossing your teeth before the battle of the Little Big Horn. If we are right, asset prices are going down no matter how much financial hygiene you practice. And it will mean, among other things, fewer Fed chiefs on the cover of TIME magazine and fewer Treasury secretaries from Goldman Sachs. Speculation will cease to pay. In fact, maybe our next Treasury secretary will come from the legal profession, where he will have made his reputation in Chapters 7 and 11.
It was cheap money as well that fuelled America’s property bubble. Now, that bubble seems to be losing gas.
From Las Vegas comes news that takes our breath away. There were 2,992 houses for resale in the city in 2004. The following year there were 10,493. This year there are 17,121 – far more than 5 times as many as there were 2 years ago. Including new houses, there are some 20,000 dwellings for sale in Las Vegas right now. And they are still putting them up, with hundreds of new projects still being built out and more than 500 sales offices open for business.
Meanwhile, over to the right, on the Florida coast, comes news from our own family sources that real estate is getting hard to sell.
We recall a realtor quoted in the NY TIMES only a year ago:
"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past." Explaining how limited supply and unlimited demand would create a situation in which prices rose forever.
Many people thought so. But now it looks as though this economic model was not so different after all.
"Yes, we missed the top," reported our source yesterday. "Now, we’re definitely on the downhill slope. We reduced the price twice already. We’re getting plenty of lookers but no takers. Basically, we’ll sell for whatever we can get at this point, even less than we paid two years ago."
And thus we see, dear reader, something interesting. Inflation may be ‘unwelcome’ in the dewy eyes of the economics professor who now rules the Fed, but the lack of it is terrifying to the wide open peepers of Speculation Nation.
"In a nutshell," explained Joseph Quinlan, chief market strategist at Banc of America Capital Management, "the era of easy and abundant global liquidity is coming to an end – a change in the global monetary backdrop that usually inflicts pain on those asset classes highly dependent on easy money."
But all of America is now highly dependent on easy money. The US government relies upon it to pay for its bread and circuses. Wall Street needs it to keep stock and bond prices elevated. The lumpen need it too – their house prices will fall without it. And when housing falls, the whole kit and kaboodle comes down with it. The US economy will be in recession within 6 months.
We suspect that is it Hank Paulson’s job to let the Fed chief know.
Here's the article from which I got my numbers. It makes a fairly persuasive case that things are not as bad as it seems. As we all know, numbers can be twisted to say anything.
http://www.reviewjournal.com/lvrj_home/2006/Jun-04-Sun-2006/business/7730279.html
For all to learn from - especially on the Fed.
The Founding of The Federal Reserve (video)
http://mises.org:88/Rothbard-Fed
Jackson's 2nd Bank US VETO (very important - what he correctly and constitutionally opposed is just what we ended up with in 1913)
http://alpha.furman.edu/~benson/docs/ajveto.htm
How Progressives Rewrote the Constitution
http://www.cato.org/realaudio/cbf-02-15-06.ram
The Issue of Tariffs: How U.S. Revenue Collection Was Turned Inside-Out (video)
http://mises.org:88/Sophocleus
Size Matters: How Big Government Puts the Squeeze on America's Families, Finances, and Freedom (And Limits the Pursuit of Happiness)
http://www.cato.org/realaudio/cbf-02-02-06.ram
Big Business and the Rise of American Statism
http://praxeology.net/RC-BRS.htm
The Great Depression, World War II, and American Prosperity, Part I (video)
http://www.mises.org/multimedia/video/Woods/Woods5.wmv
Secrets of the Federal Reserve
http://www.barefootsworld.net/fs_m_ch_01.html
That seems like common sense to me, so why do I think an economics expert would say just the opposite? It often seems anymore the things I believe are good are bad according to the "experts", and vise versa.
Scoff if you like but ET is not the only who thinks the credit bubble is popping before our eyes.
I am still in the notion that some of what you've posted is gonna come true....election in Nov 06 and the big election in 08. The economy tanked right after Nixon's 2 terms,Regan's 2 terms, and Clinton's 2 terms....seems a good bet to me.
The answer is real simple, if you live below your means, save, invest, and stay out of debt the "experts" do not make as much money off you. That is why they say it is bad.
WE'RE ALL GONNA DIE!!!!!!
My point was, file a complaint with the Moderator and ask them to investigate who is adding these keywords. Something can be done about it.
Die, no. But soem whill lose their shirts. I won't. I am positioned to ride out a recession. I have cash for emergencies adn have and am paying down debts.
Why would I look at key words?
I bought my 1700 sq. ft. house on 3/4 of an acre in 1986 for $90,000. Now it's supposedly worth $360,000 - but that's the land. Anyone who bought my house for that price would likely tear it down and build some new huge place on it.
The guy next door had his (newer) house up for sale for ~$450,000. I told my wife "He'll never get that." And I was right. He's taken it off the market. I was talking to him and his real estate agent out on his lawn and I told him to his face, "You have to realize that your house is a teardown." He protested, but the real estate agent backed me up. Now he's found out I was right.
There's all kinds of huge new houses built in my neighborhood - 2500, 3500, 5000 sq. ft. on 1/5 acre or less lots, just squeezed on, selling for 1/2 a million dollars or more. Who's going to buy them down the line? These folks are going to find themselves upside down, with a house value of less than they paid for them.
Please change that to leftism, or better yet collectivism.
Just because the progressives co-opted liberal for themselves as a guise, doesn't mean that the Founders were not liberals, they of course were real classical liberals who eschewed the oppressive state, and instead wrote our constitution of liberty of limited Govt with few enumerated powers.
We need to take the glory they gave us back, not concede it.
Oh no. It's so much more than that.It's six bushels of gloom and doom BS from a gloom and doom website/newsletter.
Everyone here is anonymous, even you. Free Republic is designed to work that way.
There are some that do and some that do seem to not care. Some pretend not to understand. Some are making money out of human greed and very sad, pathetic stupidity. Pearls before swine. Last week a freeper thanked me for saving them $ 200,000. People thank me all the time. Others just throw stones regularly. The more cowardly just vandalize key words. Pathetic.
The admin moderator deleted your KEY WORD vandalism. Did you even notice?
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Since I haven't added any keywords to this pathetic thread, that makes you a liar.
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