Rolling US Economy Into The Shitbin Thread

One thing that really gravels me is that the Federal Reserve Bank has regulatory powers that extend well beyond the ability to set the Fed Funds rate, and include such things as raising the margin requirements for stock purchases, but because the Fed's governors have completely bought into the Reaganite ideology that regulating free markets can only hurt matters, it has systematically eschewed using these powers, which not only could have softened the dot-com bubble and bust but could also place some boundaries on the over-leveraging used by hedge funds.

By now every single lesson from the Great Depression has been forgotten and every safeguard put in place by those who saw it and lived through it has been dismantled (Glass-Spiegle), co-opted (SEC) or heavily abused (FDIC).

Regulation is for the way down;)

By now every single lesson from the Great Depression has been forgotten

i dunno, is this true? isn't bernanke a great depression expert and thats maybe partly why he was brought in?

more to the point, i think there's one lesson they learned very well. Avoid Deflation At All Costs (which is why Japan 1990 is the only subsequent downturn that followed that path?)

Which is what all this helicopter ben business and $600 presents is all about? what we'll get instead may be just as bad, but any govt will choose rampant inflation over deflation every time now

Eh.

Deflation destroys by slow attrition. It tends to slow everything to a crawl and to strangle commerce. Hyperinflation destroys like a prairie fire, or more accurately, like a neutron bomb that leaves infrastructure intact.

Deflation tends to favor the old and the established, but chokes off investment and fossilizes an economy. Hyperinlfation tends to favor the young, who had less invested, fewer savings and who tend to start from scratch anyway and have their working lives ahead of them.

Don't go wishing for either one, but I suspect that the hyper-right wing establishment is finally going to get its inner heart's desire: wipe out all the work of the New Deal and Great Society, wreak revenge on those damn-hippie baby boomers, and reduce the next generation to properly obedient field workers. It will be Reagan's final legacy.

They'll save their own fucking hides through the wonders of our all-benevolent Chapter 11, which has at last become the sword they needed to work all this magic without ruining themselves.

Bah! I feel immensely old and sour when I think about this stuff.

Deflation favours the liquid, hyperinflation favours the illiquid

their actions thus far look like they will do anything to avoid the former. the former means a full stop for the economy, vastly reduced economy. the latter means activity continues, allbeit with people poorer (some of them wont realise)

vastly reduced ACTIVITY, i meant to say

though you could argue that economy and activity are the same thing, i dunno

Deflation favours the liquid solvent, hyperinflation favours the illiquid insolvent. Slightly different emphasis provided. Both are true.

not if you are solvent but rely on a wage for income.

Wages may lag in a hyperinflation, but they beat the living tar out of a fixed income.

even so, the feds actions thus far suggest they learned one lesson from the great depression? doesn't mean they're doing the right thing, but they've reacted very quickly, and seem happy to get more dollars out there? (at what ever cost that ultimately brings)

Yes, they do seem very happy to spew maoney across the landscape like t-shirts at a rock concert, although it is a nail-biting, jittery sort of happiness.

http://www.harpers.org/archive/2008/02/0081908

When is the next cut? march 18?

That Harper's article is excellent.

Cunning Realist has a little project going.

We haven't even got a good name for that pass play in the last Super Bowl yet. Dude needs to chill.

Hahah

http://bigpicture.typepad.com/comments/2008/03/foreclosure-pro.html

"the owners, have ceased paying their mortgages in some cases for nearly 2 years and have continued to occupy these homes. Now, these are homes in excess of $2,000,000 in the very best neighborhoods in South Florida"

this true? those jinglemail dudes must be regretting handing the keys back so easy now

http://themot.org/gallery/d/45773-2/gas_prices.jpg

yeah i was gonna start a rolling shitty gas prices thread yesterday.

$3.25 down the street, though i'm sure i've got it easy compared to some of you guys.

gas prices are further evidence that I am way too pessimistic to make money with puts and shorts or whatever, because I was calling for $4/gallon (DC area) back in 2006

I think I was just too young and unaware of how much oil companies will manipulate their own pricing at american pumps in order to maximize profit

like, maximize maximize warehouse full of actuarial scientists and microeconomics phd's all evaluating demand curves and models of agents with bounded rationality 80 hours a week maximize

will fed cut again in response to todays payroll data?

I'd say yes. One quarter percent cut looks about right to me.

They are in a tough spot. Politically speaking, they need to look busy. However, in real terms a cut now will do at least as much harm as it does good. It's only for show, to keep the panic on a lower simmer instead of coming to a boil.

it's good to know that we're using our fiscal policy primarily to sooth a bunch of panicky cocaine-addicts.

haha I know

http://bigpicture.typepad.com/comments/2008/03/whose-the-socia.html

Further, the ECB doesn't seem to care where their equity markets are.

http://bigpicture.typepad.com/photos/uncategorized/2008/03/06/2008europeangraphic.jpg

whoa the market was around 11500 in Jan '00. It's now at 11900.

where's my coke

NEW YORK (AP) -- Stocks tumbled for a second consecutive session Friday after the government's much-anticipated February jobs report revealed employers slashed payrolls last month, touching off concern that a cornerstone of the economy's growth in recent years is showing signs of strain. The Dow Jones industrials fell more than 200 points, bringing their two-day slide to more than 400.

The decline came despite the Federal Reserve's announcement that it would take steps to aid the credit markets.

The Labor Department's report that employers cut jobs by 63,000 last month -- the most since March 2003 -- unnerved investors worried about the health of the economy and who had been expecting a 25,000 gain in jobs. While the unemployment rate fell to 4.8 percent, the decline reflects people leaving the labor force.

The payroll numbers arrived minutes after the Federal Reserve announced it would take fresh steps to ease credit troubles, including boosting the amount of money it will auction to banks.

IT LIVES:

http://www.latimes.com/media/alternatethumbnails/photo/2008-03/36502038-07122031.jpg

Whoa Nellie.

So can someone help me understand what the fed did? They basically offered to trade government securities to financial institutions for risky mortgage-backed securities? Does anyone have any opinion on that?

Well, not exactly a trade- a 28-day loan of a Treasury with a AAA-rated mortgage-backed security as collateral.

ah ok. So does that basically add liquidity by temporarily letting banks hold more safer securities? I really don't understand this stuff that well.

Yes, it's supposed to be a liquidity injection - since the banks can easily convert the Treasuries to cash. There are some things that are not yet clear, such as will the Feds automatically roll these loans over every 28 days as long as the MBS hasn't been downgraded? What haircut will be applied to the MBS collateral?

So is there any big risk here? Like what if the MBS turn out to be even worse than we thought?

I guess there is some risk of the bank defaulting on the loan, but if that happens, I think we can assume the bank is hosed anyway since I don't think the government is going to let them just walk away from the loan unless they are in fact bankrupt.

The Fed's discount window is always portrayed as the 'lender of last resort' for banks in liquidity trouble. Hiowever, if a bank takes advantage of this, there is generally a presumption that the bank is in deep, deep shit. Their stock takes a big hit, other banks view them with increased suspicion, etc.

What this gambit seems to be doing is offering roughly the same opportunity, but without (they all hope) as much adverse baggage. It looks to me like an attempt to buy time for the banks while the latest interest rate cuts work their way into the system. It probably can't make anything worse in the big picture, but if things still look as bad in three months, then it won't accomplish jack shit.

rearranging chairs on titanic

yes. middle class now actually sitting in the ocean itself.

or I should say anybody who actually has to worry about expenses, as opposed to worrying about returns.

Approvals for new loans are dropping through floor in UK but mortgages and loans are how money is introduced to the economy, right? Money supply has been increasing at around 10-14% in the UK over last 3-5 years (similar figures in US?) - which all backs up a continuing inflationary scenario (which has been happening for years but had been hidden as it went into real estate). Is this now a pushing on a string situation? ie, for the inflationary scenario to continue won't loans need to continue?

obviously money has been going into commodities and gold but isn't this 'existing' money?

intuitively a continuing inflationary scenario seems to make more sense, if only because ben has read a lot of books on the depression and they'll do anything to avoid a repeat, and interest rates will presumably be cut aggressively further...but how is it going to get out there without loans and mortgages (I guess in UK mortgages and consumer loans take up a larger proportion of total debt since all UK industry got closed down)

guess it comes back to that old inflation vs deflation argument. or whether oil/wheat/gold are going to 'correct'. still have trouble conceiving of gold as anything but an 'inverse dollar' sometimes though

talking of which....close to 990 again

Unless a commodity is in a genuine shortage (i.e. orange juice after a massive freeze in Florida) then commodities are not really a value-added, growth-oriented kind of investment, but rather a hedge against capital losses, at times when financial instruments appear to be bad risks (i.e. bond ratings are being cut or inflation is accelerating).

Right now, traders (it's more neutral than calling them speculators, but let's stop calling them 'investors', ok?) have given up looking for returns and are looking to preserve capital from loss. That's why commodities are surging. There's a disctinct chance that the low interest rates are just going to fuel commodity speculation and push inflation up at a dizzy pace.

The Fed's goose is really cooked right now. They are nudging the dollar towards the cliff. As I said several months ago, if it comes down to saving the banks or saving the dollar, the Fed will jettison the dollar like a jet pilot hitting the big red EJECT button.

If I were the fed I would be quietly tapping up the good folks in the gulf, china and singapore and pleading with them to start buying up banks (moreso than the stakes they have already bought).

Funny, but sobering.

laughing and crying

a toxic blend. just in time for spring break.