Posted on 10/18/2008 1:45:18 PM PDT by vietvet67
On Aug. 9, 2007, central banks around the world first intervened to stanch what has become a massive credit crunch.
Since then, the Federal Reserve and the Treasury have taken a series of increasingly drastic emergency actions to get lending flowing again. The central bank has lent out hundreds of billions of dollars, accepted collateral that in the past it would never have touched, and opened direct lending to institutions that have never had that privilege. The Treasury has deployed billions more. And yet, "Nothing," Anna Schwartz says, "seems to have quieted the fears of either the investors in the securities markets or the lenders and would-be borrowers in the credit market."
The credit markets remain frozen, the stock market continues to get hammered, and deep recession now seems a certainty -- if not a reality already.
Most people now living have never seen a credit crunch like the one we are currently enduring. Ms. Schwartz, 92 years old, is one of the exceptions. She's not only old enough to remember the period from 1929 to 1933, she may know more about monetary history and banking than anyone alive. She co-authored, with Milton Friedman, "A Monetary History of the United States" (1963). It's the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression.
Since 1941, Ms. Schwartz has reported for work at the National Bureau of Economic Research in New York, where we met Thursday morning for an interview. She is currently using a wheelchair after a recent fall and laments her "many infirmities," but those are all physical; her mind is as sharp as ever. She speaks with passion and just a hint of resignation about the current financial situation.
(Excerpt) Read more at online.wsj.com ...
Thanks for the post.
“Since then, the Federal Reserve and the Treasury have taken a series of increasingly drastic emergency actions to get lending flowing again. The central bank has lent out hundreds of billions of dollars, accepted collateral that in the past it would never have touched, and opened direct lending to institutions that have never had that privilege. The Treasury has deployed billions more.”
The issuing of so much “monopoly money” puts the greenback’s “world reserve currency” status at serious risk.
See Travis McGee’s # 26 in this thread:
http://www.freerepublic.com/focus/f-news/1913159/posts#26
At least she agrees that the toxic assets have to be cleared out of the system. I think what we are seeing now is governments attempting to spread out a safety net before that’s done.
If you understand our banking system, you know that America can never get out of debt. They designed it this way.
Earth to old bat in denial - the ordinary people *are* the reckless creditors, called "bank depositers". And they are also the reckless debtors, called "homeowners".
The Fed is not fighting the last war, and the bank recapitalization was entirely required. Forcing more firms into bankruptcy won't recapitalize anything, it will just leave the government the only actor willing to provide bank capital.
And for the millionth time, debt is not a sign of negative net worth, the net worth of American households is over $50 trillion, and it 4 times their debts.
“If you understand *accounting*, you know that *no economy*, ever, “gets out of” debt. There is a liability for every asset, first principle of accounting.
And for the millionth time, debt is not a sign of negative net worth, the net worth of American households is over $50 trillion, and it 4 times their debts.”
Yes, the “asset” on the other side of our “debt” is future tax revenue. F-—ing great!
To err is human. To FUBAR requires government intervention.
Derivatives
Americans own --- all the buildings, every single one you can see. All the houses, every single one you can see. All the businesses, every single one you can see. All the professional offices, all the stock, all the bonds, all the companies, all the power plants, all the mines, all the pipelines, all of it, all worth $71 trillion as of mid September of this year, with only $14 trillion borrowed against that sum.
Geez o flip, isn't there a single economically literate conservative left in the world?
OK, JC, I got right here in front of me 252 ozs. of gold bullion, mostly 1 ouncers collected over 3 decades. Would you please tell me where the liability is? Don’t owe anybody a dime, own house and cars outright. As I see it, the gold is an asset but where is the liability?
$51 trillion borrowed. The value of the assets is dropping as the real estate bubble deflates, paper value is not real value. The proof is fairly obvious, the income streams need to match up to debt burden and they don't, so the assets are obviously overvalued (not supplying income). It takes about 15% of the current 13T in income to pay just a 5% nominal interest on the debt.
Ms Schwartz gets it.
What investors need now is a good reason to believe corporate balance sheets. Otherwise, it won't matter how much taxpayer money gets pumped into ailing financial institutions. We'll still be risking systemic meltdown because nobody, especially the banks, will be able to trust anyone else's books.
Many people have pointed out that the government required loans be made to deadbeats, creating a rotten core within a lot of the securities. But it is also a fact that the government made credit too cheap for everyone and is doing so again right now. Part of the result is that cheap credit is used for leverage speculation such as the commodities boomlet last spring. The result of that is businesses that needed those commodities (or energy) were starved and had to lay people off.
Another government screwup that, as she points out, the government saved some firms and not others. The fact that they saved any, and that it was known in advance that they would, creates moral hazard. The moral hazard had several bad effects, first the share prices went down because the shareholders were the first to get screwed when the govt took over. That starves those companies of capital and make them more likely to fail.
Second, the credit default pricing was distorted. Hedge funds were able to speculate on Fannie and Freddie being taken over and make money when they were by buying credit default swaps even without owning F&F bonds.
Third as she points out, it gives firms like F&F an incentive to make bad decisions because they know their politicians will defend them.
I understand accounting pretty well.
If you have a huge debit in retained earnings...you have a real problem.
I’ll bet the US balance sheet reflects this.
Excessive debt is not good.
How did that legal entity come to own the bullion?
Accounting is about ownership, not about what exists. What exists hasn't changed since the earth formed, only how it was arranged, where, in what forms, how it is valued and how it is owned.
In no decade since WW II have US households added debt even half as fast as they have added assets.
Go read the Z.1 flow of funds statements put out by the Fed and review them back to WW II. Then we will talk. Until then, you are rebreathing media spin about subjects you don't remotely understand.
Addled brains looking for any stick to bash responsible authorities. Just spewing nonsense.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.