Posted on 05/16/2009 5:56:38 PM PDT by Lazamataz
This is the ponzi scheme: the treasury asks for a check for X billions from the federal reserve and the federal reserve writes the check tot he treasury creating money that is not in any checking account and for which every man woman and child who has or does or will pay taxes is now indebted. When the federal reserve==treasury cabal creates money from nothing, the inflationary factor immediately makes you and me the lenders AND the parties indebted to pay the bill and make the check written a valid transaction.
The Fed causes losses?
TARP is a perfect example.
You mean money the Treasury is spending?
Likewise, with Bernanke & Co accepting $trillions in agency debt & MBS (previously a big no-no), he is committing the Fed to greater risk than that of the individual member banks that used them as collateral to access funds.
You think the Fed is going to lose money on those loans?
Who here doesn't believe that We The People are not going to be asked to cover the losses in these bonds when they inevitably occur
The Fed accepted them as collateral, at a discount and is charging interest. You think the Fed will lose money?
If there are losses, how do you imagine taxpayers are on the hook?
So, of course you are correct that the Fed doesn't technically have anything to do with increasing our national debt.
I've been saying.
But they are an indirect party with limited oversight that is able to threaten us to cover (that is, issue debt) the results of their bad decisions.
So how much of the bubble is Congress' fault? How much is the Fed's?
The Federal Reserve doesn't give money to the Treasury. If the first step is in error, I'm betting you'll come to the wrong conclusion.
the federal reserve writes the check to the treasury creating money that is not in any checking account and for which every man woman and child who has or does or will pay taxes is now indebted.
It doesn't matter who the Treasury borrows from, that creates debt for us. If Congress didn't waste so much money, the Treasury would have no need to borrow.
When the federal reserve==treasury cabal creates money from nothing,
Do you have a mortgage? Car loan? Credit card debt? You just created money. I blame you!!
the inflationary factor immediately makes you and me the lenders AND the parties indebted to pay the bill
I know, that's why oil went from $150 to $50 a barrel.
Your penchant for misstating causes me to wonder why I even addressed you a second time. I'll know better in the future.
What exactly did I misstate?
Need a strawman to attack?
No, I'll just continue to attack your ignorance of the topic.
Look at your failure to recognize I stated it is a 'ponzi scheme' ...
A ponzi scheme pays old investors with the funds of new investors. The Fed doesn't have investors.
the federal reserve has no money
The Federal Reserve has a balance sheet of over $2 trillion.
the treasury has no money,
Yeah, the Congress spends too much.
but they create the ponzi of billions in a similar way you might write bad checks to your own bank account in another bank where you have no money, then write checks on the deposited rubber check.
The Federal Reserve doesn't need to kite checks.
Your penchant for misstating causes me to wonder why I even addressed you a second time. I'll know better in the future.
Yeah, lots of people I correct on FR run away. Wallow in your ignorance, you seem to be used to it.
Thanks for verifying the point I made. You have a nice night now, ya heauh. LOL
Right back at ya, keep posting your silly errors.
The few price falls other than real estate are mostly due to commodity prices falling after last year's bubble. The true measure of a deflation "zeitgeist" is when people postpone purchases because they think the prices will fall more later. Computer prices don't count since they always fall regardless of inflation mentality. The velocity of money can change very rapidly so once the inflationary boom kicks in it will quickly overwhelm the feeble fumbling Fed.
The fallout of monetary failure is never going to be monotic. Basically we will have a rapid succession of monetary booms and deflationary episodes until the financial breakdown as described in the article. Last year's commodity bubble was just a taste. The next will be higher and more damaging to the economy. Whether the Fed kills it with tighter money or it overreaches and and pops, commodity prices and credit will come crashing down after that so you will be able to talk about deflation again or, if the inflationary boom goes high enough, you will assign blame for the financial collapse anywhere but the Fed's excessively low rates.
If you believe so strongly in what the Fed is doing, you should be buying Citibank bonds yourself and/or loaning money to average American homebuyers at 5%, locking your money for 10 to 30 years betting that there will be no inflation and the big banks and American real estate represent no credit risk. But undoubtedly you are not, you are speculating on a new inflationary boom like everyone else in the market.
You really should stop. Citi has cash and cash equivalents of $525.8 billion as of the end of March. Short term investments are another $179.6 billion.
Thinking about your questions(s) — the thing that came to my mind was that by any definition used for a company going belly up, the US government is probably already bankrupt. Bankruptcy is having more obligations (debt) than the resources (assets) to clear the obligations. I do not see the US government filing for bankruptcy or declaring that it will default on its obligations anytime soon.
What is likely to happen is that the debt of the US government will become dammed near worthless through monetizing the debt, which will require or lead to inflation. Really bad inflation. The other possibility is that the interest rate required to get foreign countries to buy our debt is incredibly high, higher or just as high as the standard interest rate on AAA rated debt in 1981 (12%). This will create a situation in which the largest part of the government’s budget is debt servicing (interest payments) and account for virtually all payments made by the taxpayers of the US. This situation will force the government to rewrite the rules for getting federal bucks; expect to hear the phrase “means testing” to appear more and more in the next two decades as it relates to social security and medicare. Also look for states to get less money from DC.
I really do not know what the federal government will do to tame the paper tiger it is creating every budget year — and it may be a while before we see anything profound. It all depends on how much our paper remains worthwhile for the chineese and arab oil sheiks to keep buying. I am throwing out as impossible the other alternative; cutting down federal spending to defense and bare bones government to reduce the debt by running supluses for a decade or four — that will not happen.
There is relatively little money compared to debt in the financial system. When the debt prices collapse, there is not nearly enough money to cover obligations. If Citi's depositors decided they wanted their $1T, debt prices would collapse and the Fed would have to print nearly all that money. $400B of the $525 you list as cash equivalents was already provided by the Fed.
Yes. I think we will discover that the Fed has lent in excess of the true market value of the underlying collateral. If the magnitude of the mispricing is to the extent that many believe, Congress will be faced with allowing an insolvent Fed to fail, or having US taxpayers once again socialize a private enterprise's losses.
So how much of the bubble is Congress' fault? How much is the Fed's?
I don't know, nor is it especially relevant. If it were so, what would be your point? That we the people have the ability to control the Fed, and the fact that we didn't means we are wholly to blame? The Fed was given a fairly narrow charter, yet it has proven to enable a body of private citizens to effectively run our economy.
Perhaps if our representatives were more versed in economics it wouldn't be so, but unfortunately, we are at the mercy of their understanding (or honesty). The Fed & their allies take full advantage of this IQ arbitrage to their own benefit.
Low interest rates are *not* the cause of the current crisis, and low interest rates will not by themselves trigger inflation.
Inflation could come from too much credit+cash creation, or inflation could come from a dearth of industrial/agricultural production (see Zimbabwe's farm seizures circa 2002 and Weimar Germany circa 1922 when France occupied Germany's Ruhr industrial region and all of Germany went on strike to protest).
Considering the destruction of credit availability and global surplus of manufacturing/agricultural capacity, however, inflation is an unlikely option.
In contrast, the opposite of inflation is a very real possibility. Deflation is how the Markets remove surplus capacity.
Got too many houses? Then you'll get home price deflation.
Got too many cargo ships? Then you'll get transportation cost deflation. Last year it cost $300,000 per day for a mega bulk ship to move iron ore across the sea. This year, it costs $25,000 per day.
That's not a typo. $300k down to $Twenty-Five K in a single year.
Making too many cars? Then auto prices will deflate. Deflation, by the way, is not only a reduction in prices, but also a reduction in the velocity of money. Less money...and it's moving slower.
Why didn't the U.S. see hyper-inflation in 1945 when we were printing more money than today?
Why hasn't Japan seen hyper-inflation since 1989 due to their printing of more money than us each year?
The pressure to obtain inflation is immense upon Geithner and his Central Banking friends worldwide, of course, as inflation devalues debt and increases the velocity of money.
But after a full year of pumping a spare $12.8 Trillion into the U.S. economy, we've seen...a PPI of -1.2% for two months back, and a PPI of 0.0% for last month.
Deflation...in the face of massive money printing. Why?
What factor explains it? (hint, I've repeated it non-stop above...I'm simply not spelling it out for the lurkers)
Well duh!
When the debt prices collapse, there is not nearly enough money to cover obligations.
You think debt prices will collapse from here? Let me know what you're shorting to profit from this collapse.
It's 100% likely (last year's commodity price boom). Going forward it is pretty much 100% likely unless there is a deflationary collapse because there is less and less of an in-between option as Fed credit will either be hoarded or used for speculation on an inflationary boom.
Making too many cars? Then auto prices will deflate. Deflation, by the way, is not only a reduction in prices, but also a reduction in the velocity of money. Less money...and it's moving slower.
All your examples are pretty much negligible except for the bursting bubble ones. Obviously the bursting of an inflationary bubble will cause temporary deflation in terms of prices until the Fed can trigger another inflationary boom. Used cars which are most negotiable have come down about 4 percent as of last November ( http://www.reuters.com/article/pressRelease/idUS55819+19-Nov-2008+PRN20081119). The bottom line is that people are not postponing purchases in anticipation of lower prices except for houses which are slow to drop.
Deflation...in the face of massive money printing. Why?
Because the PPI mostly reflects the popping of last year's commodities bubble. There is also reduced demand as you point out for imported products (and therefore shipping) and other discretionary goods. That is indeed deflation due to the recession, but very minor as I pointed out above. Most importantly there is no deflationary spiral like the 1930's. Business spending has dropped about 10%, consruction about 5%, consumer about 5%, etc. compared to 30 or 40% in the depression. There are already signs of a resumption of consumer spending.
In short the deflation you are talking about is trivial. Yet the financial system was about to melt down due to excessive leverage, derivatives and fractional reserves. There is no doubt of the source of the problem: inflationary booms and deflationary busts created by the Fed, not excessive inventories per se as you imply. There is no doubt that inflationary booms and deflationary busts will continue and become increasingly severe as long as the Fed pursues credit expansion as its solution for deflation.
Deflation...in the face of massive money printing. Why?
Because there wasn't massive money printing followed by helicopter drops. There was massive money credit creation on the Fed's balance sheet with money equivalents traded to banks for their illiquid assets. Naturally that won't stop your trivial deflation. But it will ultimately create serious malinvestment and commodity inflation in the next inflationary bubble. Unless it fails, in which case the current financial system ends and is replaced by new one.
How would the Fed fail?
or having US taxpayers once again socialize a private enterprise's losses.
What private enterprise?
I don't know, nor is it especially relevant. If it were so, what would be your point?
You can't blame the Fed for CRA. Or for Fannie and Freddie repackaging crappy mortgages to give them a AAA rating.
No. I generally don't short. As I have said in other threads, I anticipate a series of upside down U's until the excess leverage is removed from the financial system. Any leg of the U could lead to financial meltdown so I don't believe the Fed/PPT/Treasury will let those go too low. The top of the current U will occur in the next month or two. The next leg down will probably be July followed by a very sharp rise into another upside down U. There is no small matter of $8000 in new home buyer tax credits being paid out next year as well as other stimuli, so there will be growth late this year or next year.
These inflationary booms will succeed but increasingly create a malinvestment condition where prices for commodities and raw materials rise to strangle industry and ultimately economic growth. The subsequent deflationary booms will feature large amounts of deleveraging as long as the Fed pursues cheap credit as its only policy.
This whole mess could be easily rectified with a return to market interest rates combined with investment tax incentives (mainly reduction of the corporate taxes and elimination of the long term capital gains tax). We would also suffer an inflationary burst as this happens but that should be a one time event. Economies cannot grow on credit, only suffer booms and busts and in our condition a bust could end our financial system.
That's not the bottom line. That's not even the only example of massive deflation. A larger example is the slowdown and collapse of M&A's. Mergers and Acquisitions.
You haven't seen any IPO's go through the markets recently, either. Inflationists are left to cheer a mere two IPO's coming up in the near future...statistical blips at best.
The decline of aggregate wages is another example of deflation. Fewer people employed, so less total wages are being paid. Ditto for bonuses and overtime.
So it's not just the collapse of commodity prices from last year. Deflation is everywhere. In stocks, homes, wages, commodities, transportation (fly to Ireland, it's cheap!), manufacturing, hotels, services, tech, interest rates, et al.
If you mean GDP growth in the U.S., yes, the 3rd and 4th Quarters of 2009 should show "growth" due to statistical ledgerdomain and happenstance, but that will come in the face of still falling employment, illiquid Secondary Markets, and a global credit crunch and trade collapse.
In short, GDP growth is already "Baked in" for the 2nd half of this year, but it won't mean a thing and the collapse will only be masked, not reversed, for a very brief time (e.g. half a year).
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