Posted on 04/04/2010 11:39:39 PM PDT by bruinbirdman
The most audacious monetary experiment in modern history ended on April Fools' Day. America must walk without crutches, on gangrenous legs.
The US Federal Reserve has completed its purchase of $1.7 trillion (£1.1bn) of mortgage securities, agency debt and US Treasuries, the conjuring trick of "credit easing" that allowed Ben Bernanke to create stimulus equal to 12pc of GDP.
The Fed's money creation has been more or less the size of Washington's borrowing needs for the last year, as Beijing notes with suspicion.
We will never know whether it was wise to go nuclear. My view – anathema to readers, I fear – is that Ben Bernanke and Britain's Mervyn King saved us from potential calamity. We were all too close to the tipping point illustrated in Irving Fisher's Debt Deflation Causes of Great Depressions, the moment when the sailing ship catches water and capsizes instead of righting itself by natural rhythm.
Work by Berkeley Professor Eichengreen shows that global trade, industrial output, and stock markets all crashed at a faster rate over the six terrifying months after the Lehman crisis than during the early 1930s. How quickly we forget, and how easily we are seduced by a 76pc stock rally into thinking it was a storm in a teacup. Just wait until the day fiscal retribution comes.
The $1.7 trillion created out of nothing will vanish as the bonds are sold on the open market. Not too quickly, let us hope. Easy money must cushion the blow of spending cuts. Even talk of ending QE amounts to tightening. While the US economy has begun to create jobs again – plus 114,000 in March, stripping out short-term census workers – there were false dawns in 2002 and 1982. The broader U6 jobless rate nudged up to 16.9pc.
Bond vigilantes
(Excerpt) Read more at telegraph.co.uk ...
Rampant deflation and inflation keep duking it out between themselves, it seems.
This Ambrose Evans-Pritchard dude suffers from Arrested Development! That should read GANG-GREENous legs!
What kind of sissy boy goes around in public with a hyphenated last name? Is he ashamed of his father? Sheesh!!!
gitmos
Deflation is great fun.
It means money scrabbling becomes all that much desperate.
Or for that matter, Sierra.
yitbos
The propositiion was put to Paul Volker on C-Span that the current problem of sovereign debt is nothing that a few years of 5% inflation can't fix.
yitbos
I'm not sure this article is talking about price deflation.
One of the few, that's for sure. Chris Ruddy did a pretty good early job.
Many believe Clinton and Blaire were responsible for getting AEP off the U.S.A. beat.
This is not too farfetched, The Obammunist got talk show host Michael Savage "Banned in Britain".
yitbos
If the fed quits QE, indications are there will be a liquidity problem.
If you lose your job and need to rent, you sell your house. No one is buying.
If you think cash is king, you sell non cash assets, prices drop.
AEP thinks Helicopter Ben might have stopped dropping cash cold turkey, thus committing an error similar to other central banks who caused the original crash. AEP thinks QE should be weaned gradually.
yitbos
What other Central banks? I thought private banks (Lehman Bros.) precipitated the whole thing. What am I missing?
This is not the first I’ve heard of deflationary pressure.
In simple terms an entrepreneur will not invest in expansion
because of falling prices. One business is re-negotiating
an eight year lease for less money. If he can’t get it
he closes thus downsizing his operations because he’ll lose market share.
The owners can’t afford to allow this trend because other businesses will want to renegotiate. Therefore a small
industrial site wanes. All of this and the county govenment is raising taxes and user fees on this land.
The financial crisis was political in origin - save our economy, put our politicians out of work!
On the same page in FT there is another piece of news. Good accounting principles are necessary for the proper workings of the markets. Good accounting principles should be allowed to develop, so what happens; political dictates (this time from the EU): Accounting convergence threatened by EU drive
No, I wouldn't doubt that at all. Blair and his spin-doctors were not at all above putting hard pressure on the newspapers. And of course he wanted to stay on good terms with the Clintons.
Unfortunately, A E-P's book on Clinton never got the notice it was due. And now we are all paying back the debts of Clinton's sins. I can possibly imagine HRC running a really weak election campaign - she isn't better than that, but that the whole Clinton-machine would miss all those holes in BHO's antecedents, that is not possible.
However, when they understood that Obama was a real threat, it was obvious that the Clintons found themselves with their hands tied. It does not seem too far fetched that people who had more than just knowledge of Clinton's peccadilloes came to Obama's defence. And therefore we are now saddled with the catastrophe of a non-US US president.
There’s not enough domestic manufacturing to raise taxes on for an inflationary Fed move. The extra money would be even far more worthless than it was during the ‘70s.
So when will real payment for the big debts come due—a few months, a couple of years? ...about four years, perhaps? Would a run from bonds start that change, perhaps?
Recall that Sarkozy always wanted politicians to have influence on the euro and any central bank. European financial data has always been notorious for its lack of transparency.
yitbos
Disagree. The Toons are hard core socialists, too. They just found themselves out organized. They are both on the outs. He is getting rich and she is "gracefully" retiring.
yitbos
I read A E-P’s book in the 90s and it was very good. I can’t wait for his book on 0kaka. Ruddy’s was good too but A E-P’s writing is better IMO. It’s been a few years so I can’t remember each very well now.
I think HRC and the 0kaka machine had MAD weapons pointed at each other for sure.
Deflation shakes out debt by default.
Sovereign debt shakes out with devalued currency.
A run from bonds would mean selling bonds, increase in interest rates.
So, with deflation, increased interest rates, a country would be in a world of hurt (like Greece?)?
During deflation, treasury bonds are a safe bet? Wanna buy a company's stock or bonds when they are going bust left and right?
Right now, a good bet is any new money going into cash and equivilents. And that doesn't help the liquidity or deflation problem.
yitbos
For years I thought my first name was Noah since I kept hearing, “You’re No Account!”.
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