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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
 Posted - 09/20/2007 : 08:06:42
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US gold futures are at a 28-year high. Yesterday in NY gold hit $721.50 an ounce.
Anybody have any theories on the meaning of this? KOK, maybe?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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darwin
>> Denizen of the Citizens Band <<
USA
5454 Posts |
Posted - 09/20/2007 : 08:32:18
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| credit crunch, not sure what that means but it sounds good. no? |
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
Posted - 09/20/2007 : 09:37:06
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The recent interest rate decrease - although keeping the market afloat a little bit longer - has devalued the dollar.
The dollar is being dumped and hence the value of gold is going up. The U.S. economy is in the intensive care unit on life support and the they are keeping it alive with adrenaline shots and those heart shock thingy's.
Fears of dollar collapse as Saudis take fright
Ambrose Evans-Pritchard
London Telegraph
Thursday September 20, 2007
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.
"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.
"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.
The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.
As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.
The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.
There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.
The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.
Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.
"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.
"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said.
Mr Redeker said the biggest danger for the dollar is that falling US rates will at some point trigger a reversal yen "carry trade", causing massive flows from the US back to Japan.
Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.
The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.
"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.
The Federal Reserve, however, clearly calculates the risk of a sudden downturn is now so great that the it outweighs dangers of a dollar slide.
Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending.
For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.
The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.
Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/20/2007 : 09:45:14
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What, no youtube vids?
Seriously. There's a connection between that high and the fed overnight slashing the rate down to 4.75? Why don't they teach this stuff at school? darwin?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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darwin
>> Denizen of the Citizens Band <<
USA
5454 Posts |
Posted - 09/20/2007 : 09:58:00
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| Because it's all too complicated and economists can only explain things after they happen. |
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floop
= Wannabe Volunteer =
Mexico
15297 Posts |
Posted - 09/20/2007 : 10:14:27
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quote:
Originally posted by darwin
Because it's all too complicated and economists can only explain things after they happen.
and, mind control |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/20/2007 : 10:17:47
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quote:
Originally posted by darwin
Because it's all too complicated and economists can only explain things after they happen.
whereas scientists can explain things before they happen?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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coastline
> Teenager of the Year <
USA
3111 Posts |
Posted - 09/20/2007 : 10:20:33
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That would be the definition of science: systematized knowledge derived from observation, study, and experimentation carried on in order to determine the nature or principles of a system and be able to predict how that system will behave.
 Please pardon me, for these my wrongs. |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/20/2007 : 10:27:15
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Coastline, since you're in a rare didactic, literal mood, might you now explain the whole Jena 6 thing? First I thought it was a Jenna Jameson movie I don't have; after reading the news I now think it's PC run amok.
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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darwin
>> Denizen of the Citizens Band <<
USA
5454 Posts |
Posted - 09/20/2007 : 10:39:23
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quote:
Originally posted by kathryn
quote:
Originally posted by darwin
Because it's all too complicated and economists can only explain things after they happen.
whereas scientists can explain things before they happen?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
Since I can't think of anything funny to say, I'll say something boring. Yes, we can, but only if it isn't too complicated (and by complicated I mean doesn't have too many different players and random effects). And when we can't predict things, our goal is too learn more about the subject so that we can do a better at prediction. |
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floop
= Wannabe Volunteer =
Mexico
15297 Posts |
Posted - 09/20/2007 : 10:42:08
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quote:
Originally posted by darwin
quote:
Originally posted by kathryn
quote:
Originally posted by darwin
Because it's all too complicated and economists can only explain things after they happen.
whereas scientists can explain things before they happen?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
Since I can't think of anything funny to say, I'll say something boring. Yes, we can, but only if it isn't too complicated (and by complicated I mean doesn't have too many different players and random effects). And when we can't predict things, our goal is too learn more about the subject so that we can do a better at prediction.
boo!! i want funny answer |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/20/2007 : 10:42:32
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That wasn't boring. It was, um, heartfelt and honest. You got anything on this Jena 6 thing? Because I'm starting to think that sometimes when someone who is arrested is African American it may be that they are actually guilty and not an innocent person who has been framed because they're African American. Whaddaya say, 'fessor?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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coastline
> Teenager of the Year <
USA
3111 Posts |
Posted - 09/20/2007 : 10:46:51
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quote:
Originally posted by kathryn
Coastline, since you're in a rare didactic, literal mood, might you now explain the whole Jena 6 thing? First I thought it was a Jenna Jameson movie I don't have; after reading the news I now think it's PC run amok.
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
Six black kids beat a white kid in Jena, Lousiana. Fuckin' cracker deserved it.
Just joking. To be honest, I haven't followed the story closely. There are two reasons I'll follow a news story: 1. Because it affects me personally. 2. Because I have to do something on it for the newspaper. I really doubt #1 will come into play. I guess #2 will become an issue soon, as this thing's blowing up pretty quickly. There's the big rally going on today, and now the Democratic presidential candidates are jockeying to see who can show the most solidarity for the six accused kids. Yada yada yada. Did you know that you can buy a fake vagina modeled on Jenna Jameson's? Her picture is on the package.
Please pardon me, for these my wrongs. |
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Homers_pet_monkey
= Official forum monkey =
United Kingdom
17125 Posts |
Posted - 09/20/2007 : 10:51:31
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quote:
Originally posted by darwin
credit crunch, not sure what that means but it sounds good. no?
Mmmmmm, credit crunch.
 I'd walk her everyday, into a shady place
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darwin
>> Denizen of the Citizens Band <<
USA
5454 Posts |
Posted - 09/20/2007 : 10:58:47
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Jena 6 (from maybe faulty memory): some black kids sat under "the white tree" and the next day some white kids hung a noose from the tree (no punishment for white kids), a few day later a fight broke out at party, next day a white kid pulls a shotgun on a black kid (no punishment for white kid), few days later a bunch of black kids kick and stomp a white kid, white kid ends up in hospital for a couple of hours (one black kid found guilty of aggravated battery with the possibility of 22 years in jail), that ruling has been overturned (and may be prosecuted again) because he shouldn't have been tried as an adult, the other 5 kids may still be tried as adults
Some of the liberal outcry is about the white kids seeming to go unpunished and the thought of a kid going to jail for 22 for kicking and stomping another kid seems way too harsh. |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/20/2007 : 10:59:20
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The Jenna Jameson vagina started being sold on her web site about 10 years ago, I think. It was her then-husband's idea. He was her manager. I love her. She is great. She looks very different without her make-up. Sorry I am high on sinus medicine.
I just think that anything that draws both Sharpton and Jackson is a buncha hooey.
I could be very wrong.
editing to add, having read darwin's post: did you say "noose"? Maybe it's not a buncha hooey. A noose? In 2007?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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Edited by - kathryn on 09/20/2007 11:01:31 |
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Carolynanna
>> Denizen of the Citizens Band <<
Canada
6556 Posts |
Posted - 09/20/2007 : 13:43:02
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quote:
Originally posted by kathryn
US gold futures are at a 28-year high. Yesterday in NY gold hit $721.50 an ounce.
Anybody have any theories on the meaning of this? KOK, maybe?
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
I actually think kok is right for the mostpart.
With such crazy stock markets and your low dollar (do you realize that even our loonie is almost worth a buck! haha, take that americans, we'll be invading your country for vacations now that we can afford it) war, irrational investors etc. natural resources seem more stable. Increasing futures of gold simply indicates that the price of gold is thought to increase as well.
Really I just wanted to rub it in about the loonie.
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Fuck off I got work to do. |
Edited by - Carolynanna on 09/20/2007 13:58:30 |
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
Posted - 09/20/2007 : 13:52:36
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Many are aware of the looming dollar crash and are buying gold in order to survive the resulting depression.
US expert warns of fresh shocks
By Eoin Callan in Washington
Published: September 19 2007 14:59 | Last updated: September 19 2007 18:53
Fresh economic shocks on the scale of the current credit squeeze will occur if US house prices continue to fall, one of the country’s leading housing experts warned on Wednesday.
Robert Shiller, a Yale university economist, told a US congressional panel that he feared “the collapse of home prices might turn out to be the most severe since the Great Depression”.
“The decline in house prices stands to create future dislocations, like the credit crisis we have just seen,” he told the Senate’s joint economic committee.
The warning underlines an increasingly widespread view that the turmoil in financial markets and tightening lending conditions are early consequences of a slump in the US housing market that is gathering momentum.
Alan Greenspan, former Federal Reserve chairman, told the Financial Times this week that double-digit falls in house prices from their peaks would not be surprising. A fall in house prices on that scale would be unprecedented in US history and would have an economic cost several times greater than the meltdown in the subprime mortgage market that triggered the current financial crisis.
The Center for Responsible Lending has predicted that foreclosures on subprime loans will lead to a cumulative loss of $164bn (€118bn, £82bn) in home equity. Investment banks have suggested the costs to financial institutions could be more than $300bn.
The joint economic committee heard from experts who said a 15 per cent fall in house prices would wipe out $3,000bn of household wealth.
Alex Pollock, a fellow at the American Enterprise Institute, said: “Residential real estate is a huge asset class, with an aggregate value of about $21,000bn, and is of course the single largest component of the wealth of most households.
“A year ago it was common to say that while house prices would periodically fall on a regional basis, they could not on a national basis ... Well, now house prices are falling on a national basis,” he said.
Mr Shiller said it was “difficult to predict the depth, duration and all of the consequences” of the worsening housing slump.
“The Federal Reserve will undoubtedly take aggressive actions, which will mitigate its severity. But, if home price deflation persists or intensifies, they may discover that the Achilles’ heel of this resilient economy is the evaporation of confidence that can accompany the end-of-boom psychology,” he said.
Senator Charles Schumer, chairman of the joint economic committee, criticised the handling of the subprime crisis by the Fed and the Bush administration.
“Despite all the reassuring statements we’ve heard from the administration that the impact of this mess would be ‘contained’, it has not been contained, but has been a contagion that has spread to all sectors of the economy,” he said.
Warning signs
There were fresh signs of weakness ahead for the US housing sector as figures showed applications for building permits fell to a 12-year-low.
Housing starts also dropped to the lowest level since June 1995, declining 2.6 per cent to an annual rate of 1.331m units.
The decline in construction activity appeared to be spreading to the north-east, where starts were 38 per cent lower.
Patrick Newport, an economist at Global Insight, said: “The eye of the storm is just ahead.”
But investors were cheered by the prospect of future interest rate cuts, as consumer price figures suggested a moderate inflation trend.
The government’s consumer price index fell last month by 0.1 per cent as prices at the pump dropped by nearly 5 per cent.
Core prices increased by 0.2 per cent. But the annual underlying inflation rate edged down to a 17-month low of 2.1 per cent from 2.2 per cent.
Mr Shiller, who designed the respected Case-Shiller house price index and predicted the bursting of the dotcom bubble in a bestselling book, said that while there had been a focus “on lax and irresponsible lending standards, I believe that this loss in housing value is the major ultimate reason we see a crisis today.”
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Edited by - The King Of Karaoke on 09/20/2007 14:36:19 |
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
Posted - 09/20/2007 : 19:01:16
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This one seems to break it down real well. In short... We're in real trouble.
The Era of Global Financial Instability
“Scientists say they have discovered a hole in the universe. We’re not surprised. We knew something was wrong.” Bill Bonner, “The Daily Reckoning”
By Mike Whitney
09/20/07 "ICH" -- -- Wall Street loves cheap money. That’s why traders were celebrating on Tuesday when Fed chief Ben Bernanke announced that he’d drop interest rates from 5.25% to 4.75%. The stock market immediately zoomed upward adding 336 points before the bell rang. The next day the giddiness continued. By mid-morning the Dow was up another 110 points and headed for the stratosphere. Everyone on Wall Street loves Bernanke. He brings them candy and sweets and lets the American worker pay the bill.
We’re disappointed in the new Fed Chief. We thought he would be different than Greenspan. We were taken in by his scholarly appearance and his modest demeanor. We thought we sensed the heart of a real patriot---a man of character and conviction. We were wrong. In his first crisis, Bernanke caved in and gave away the store. He rewarded his fat-cat friends at the hedge funds and investment banks while paving the way for more inflation for the rest of us. Presently, gold is soaring at $736 per ounce, oil is at $82 per barrel, and the euro just climbed to a new high of $1.40. Food and energy prices are bound to skyrocket. Bernanke has crushed the dollar for a “last fling” on Wall Street. It’s madness.
Bernanke invoked the “Greenspan put”, which means that he used his power to protect his friends from the losses they should have incurred from their bad bets. Now, the big market players know that he can be counted on to bail them out whenever they make poor investment choices. He’s also lived up to his nickname, “Helicopter Ben”; ready to deal with every new calamity by tossing trillions of freshly-minted US greenbacks into the jet-stream over the NYSE so elated traders can jack-up their PEs and fatten their bottom line . We think Bernanke should abandon the helicopter altogether and personally deliver pallet-loads of $100 bills to Wall Street’s doorstep on a Fed-owned fork-lift, just like Bush does with contractors in Iraq. That way the fund managers and blue suits can keep stoking the market with cheap cash without wasting time at the Fed’s Discount Window.
Despite the merriment on Wall Street, there is a downside to Bernanke’s actions. The Fed chief has shown foreign investors that he WILL NOT DEFEND THE DOLLAR. That is a powerful message to anyone who hopes to profit by investing in the US. It alerts them to the fact that the “strong dollar” policy is a fraud and that they’re better off getting out of US Treasuries and dollar-backed assets. Apparently, they got the message. Last month, foreign central banks and investors dumped $9.4 billion of US Treasuries and bonds compared to net purchases in June of $24.7 billion. That means that foreigners have stopped buying our debt which is currently $800 billion per year. That’s the last leg holding up the wobbly greenback. The dollar will undoubtedly fall precipitously.
So, why would Bernanke weaken the dollar even more by lowering rates 50 basis points?
Is he crazy or did he panic?
We don’t know, but we do know that this is the beginning of Capital flight---the sudden exodus of foreign investment from US debt and equities. Most likely, it will be accompanied by the hissssing sound of gas escaping from a punctured equity bubble followed quickly by a painful round of deflation, massive unemployment and the gnashing of teeth.
Surprisingly, Bernanke’s rate cuts don’t even address the underlying problems they are supposed to cure. Millions of homeowners who took out subprime and Alt-a loans are headed for foreclosure. Only a small percentage of these will benefit from the rate cuts and avoid default because of lower “resets” on their loans. Most of them will not qualify for refinancing UNDER ANY TERMS because they don’t meet the new standards for securing a loan. Banks and mortgage companies have become much stricter in their loaning practices.
The rate cuts don’t really help the banks or hedge funds either. Their stocks may lurch upward for a day or two, but that won’t last. Money is getting tighter and spending is down. It’s not a good time to be holding hundreds of billions in mortgage-backed liabilities (CDOs) which may have been levered many times their original-value. There’s no market for these CDOs. They’re turkeys. The debt will either have to be written off or the companies will be forced into bankruptcy.
Rate cuts won’t stem the tide of insolvencies or fix the deeply-ingrained problems in the financial markets. All they will do is forestall the impending recession by sustaining abnormal levels of liquidity. But as consumer spending shrinks and unemployment continues to rise; the Fed’s “band-aid” approach to these systemic problems will prove to be ineffective. Bernanke is sacrificing the one thing he’ll need most in the bumpy months ahead; his credibility.
As economist and author Henry Liu says, “A market that catches on to the impotence of central-bank intervention can go into free fall.”
The most compelling argument for interest rate cuts was made by economist Martin Feldstein in a Wall Street Journal article “Liquidly Now”. Feldstein summarized the issue like this:
“Three separate but related forces are now threatening economic activity: a credit market crisis, a decline in house prices and home building, and a reduction in consumer spending. These developments compound the general weakening of the economy earlier in the year, marked by slowing employment growth and declining real spendable income.”
“The subprime mortgage defaults have triggered a widespread flight from risky assets, with a substantial widening of all credit spreads, and a general freezing of credit markets. Official credit ratings came under suspicion. Investors and lenders became concerned that they did not know how to value complex risky assets.
In some recent weeks credit became unavailable. Loans to support private equity deals could not be syndicated, forcing the banks to hold those loans on their own books. Banks are also being forced to honor credit guarantees to previously off-balance-sheet conduits and other back-up credit lines, further reducing the banks' capital available to support credit of all types.
The inability of credit markets to function properly will weaken the overall economy in the coming months. And even when the credit market crisis has passed, the wider credit spreads and increased risk aversion will be a damper on economic activity.
In addition to these general credit market problems, the decline of house prices and home building will be a growing drag on the economy….Falling house prices would not only cause further declines in home building but would also shrink household wealth and thus consumer spending.”
Feldstein demonstrates a keen understanding of the problem, but backpedals on the remedy:
“Fed action to lower interest rates cannot solve the credit market problems, but it would help the economy: by stimulating the demand for housing, autos and other consumer durables; by encouraging a more competitive dollar to stimulate increased net exports; by raising share prices to increase both business investment and consumer spending; and by freeing up spendable cash for homeowners with adjustable-rate mortgages”.
What? So Feldstein wants rate cuts even though he admits that “lower interest rates cannot solve the credit market problems” but will just stimulate more wasteful “consumer spending”?!?
That’s not a cure, Martin. That’s just more Greenspan snake oil.
“Too much liquidity” is the problem not the solution. The reason the markets are so volatile and likely to implode at any minute is because every asset-class has been foolishly inflated by a monetary policy that followed Feldstein’s prescription. Now he wants to avoid the consequences of these misguided policies by reflating the bubble and destroying the dollar in the process. It’s a bad idea.
The Fed’s cuts coincide with the dismal earnings reports from Wall Street’s investment giants; Lehman Brothers, Morgan Stanley, Bear Stearns and Goldman Sachs. The four banks have taken a combined 22% haircut in the last quarter and are expected to sustain heavy losses from the billions of dollars of subprime CDOs they’ll have to either downgrade or write-off. So far, Bernanke’s rate cuts have diverted attention from the grim news and falling profits from America’s investment core.
The big financials aren’t the only one’s feeling the pinch from the housing meltdown either. There are many others including Bank of America that announced “unprecedented dislocations” in credit markets will have a “meaningful impact” on third-quarter results at its corporate investment bank. “Chief Financial Officer Joe Price told investors at a conference in San Francisco, ‘These are quite challenging financial times, and I cannot remember when credit markets in particular have been as volatile and unpredictable as they have been for the last few months.”’ (Bloomberg News)
Bernanke’s rate cuts are “thin gruel” for the banks bottom line, but they do offer a welcome distraction from the relentless drumbeat of bad economic news. The subprime sarcoma has spread to every part of the financial markets. It’s not just the steady up tick of foreclosures and mushrooming real estate inventory. The banks are also hoarding capital to cover their losses on unmarketable CDOs and leveraged buyouts (LBOs) which means that new mortgages will slow to a crawl even to credit-worthy applicants. An article in Bloomberg News gives us some idea of how quickly the market for housing-related bonds has deteriorated:
“Sales of US asset-backed securities, such as bonds that repackage subprime loans or credit card debts as well as collateralized debt obligations., FELL73% FROM A YEAR EARLIER to $30 billion last month, according to estimates from analysts at Deutsche Bank AG”. (Bloomberg News)
Bernanke is just prolonging the pain by not allowing the market to complete its cycle so that bad debts to be written off and industry can retool for the future. He’s buying time for his banker-friends, but doing considerable damage to the dollar in the process. Jim Rogers, the chairman of Beeland Interests Inc. summed up the rate cuts like this:
``Every time the Fed turns around to save its friends on Wall Street, it makes the situation worse. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems in the U.S.''
Rogers is not alone in his conclusions.
Even foreign leaders, like Venezuelan President Hugo Chavez, have commented recently on the worrisome state of US markets. Three days ago Chavez said on public television that we may be facing a "global financial earthquake" as the result of "irresponsible" US economic policies. Chavez quoted Nobel Laureate Joseph Stiglitz’s warning that we may be facing a major economic disaster which could lead to “widespread misery, hunger and severe unrest. And the United State is to blame.”
Chavez added that the Bush administration "has had to inject $300 US billion into the private banks this month to avoid a collapse of the dollar and the world economy ….The dollar is going down, they don't see that it isn't supported by reality” and because it is "because its fiscal deficit is the largest in history."
Chavez’s predictions appear to be accurate as we can see that gold has suddenly skyrocketed while the dollar continues to fall.
The firestorm that began with the Fed’s low interest rates in 2002-2003 and evolved into the subprime-lending crisis of 2006-2007 is now threatening the stability of the entire financial system and the broader global economy. The reason for this is that mortgage debt is the foundation upon which all manner of bizarre-sounding debt-instruments are now resting. These debt-instruments (derivatives) greatly magnify the leverage on the underlying asset which is often is nothing more than a dodgy subprime loan.
According to Satyajit Das, a respected authority on derivatives trading, “A single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.” (Are We Headed for an Epic Bear Market” Jon Markman)
We are now seeing the first signs that this enormous debt-bubble is beginning to unwind. There’s very little the Fed can do to affect the inevitable crash. As defaults in housing continue to rise; the swaps and derivatives in the secondary market will implode. Trillions in market capitalization will vanish in a flash.
US GDP for the last 6 years has largely depended on transactions involving the exchange of massively over-levered assets. Production in the real economy has remained flat. The investment banks are at the epicenter of this controversial new system called “structured finance”. We continue to believe that the banks that depended on mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) (as well as asset-backed commercial paper) for the bulk of their income; are in deep trouble. Robert E. Lucas alluded to potential bank-woes in an article in the Wall Street Journal, “Mortgages and Monetary Policy”:
“There is an immediate risk of a payments crisis, a modern analogue to an old-fashioned bank run. Many institutions -- not just banks – HAVE PAYMENT OBLIGATIONS THAT ARE FAR IN EXCESS OF THE RESERVES TO WHICH THEY HAVE IMMEDIATE ACCESS. Against these obligations they hold short-term securities that they believed could be liquidated on short notice at little cost. If some of these securities turn out not to be liquid in this sense (and especially if no one is sure who holds them) then everyone wants to get into Treasury bonds.”
It‘s rare when we are in agreement with the far-right viewpoints of the WSJ’s Editorial page, but in this case, Lucas nailed it. The banks have “obligations that are far in excess of the reserves to which they have immediate access.” This is a direct result of the new market architecture of “structured finance” which stacks debt on debt until the whole system is pushed to the breaking point.
Low interest rates can’t fix this “systemic” problem. Only fiscal policy can soften the blow of a deflating credit bubble. Economist Henry Liu offers this constructive “New Deal-type” proposal which is a sensible (and ethical) way to address the prospect of growing unemployment and increasing economic hardship for the middle and lower classes:
“A case can be made that what is needed under current conditions is not more cheap money from the Fed, but full employment with rising wages by government fiscal stimulants to boost consumer demand. The US government should make use of the money that the banks cannot find worthy borrowers to lend to, with money-cautious investors seeking to lend to the government, creating jobs for infrastructure rehabilitation and upgrading education to get the economy moving again off the destructive track of privatized systemic financial manipulation.” (“Either Way, It could be an Unkind Cut” Henry C K Liu, Asia Times)
Americans will be forced to wean themselves off debt-spending but---at the same time---the current market system must be completely transformed and re-regulated. The financial innovations of the last decade have created an opaque system that rewards clever debt-schemes and ignores productivity. Structured finance promised to use capital with greater efficiency while distributing risk more evenly throughout the system. Instead, it has polluted world financial markets and pushed the global economy to the brink of disaster.
Author Gabriel Kolko summed it up better than anyone in his article “The Predicted Financial Storm Has Arrived”:
“We are at an end of an era…Now begins global financial instability. It is impossible to speculate how long today's turmoil will last-but there now exists an uncertainty and lack of confidence that has been unparalleled since the 1930s-and this ignorance and fear is itself a crucial factor. The moment of reckoning for bankers and bosses has arrived. What is very clear is that losses are massive and the entire developed world is now experiencing the worst economic crisis since 1945, one in which troubles in one nation compound those in others.
Internationalization of finance has meant less regulation than ever, and regulation was scarcely very effective even at the national level….. Greed's only bounds are what makes money. Existing international institutions-of which the IMF is the most important--or well-intentioned advice will not change this reality.”
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jimmy
= Cult of Ray =
USA
876 Posts |
Posted - 09/20/2007 : 19:11:51
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oh katie, I know what you mean about the sinus medicine- I never take things like Sudafed cause it makes me feel all awkward and nervous. I'm scared of that shit.
my friend posted MORE NEW paintings at http://myspace.com/landspeedsong |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/20/2007 : 20:03:23
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quote:
Originally posted by jimmy
I never take things like Sudafed cause it makes me feel all awkward and nervous.
It makes me nervous and weird. Plus, not to get too personal, it makes me kinda space out during inopportune moments. That said, pseudoephedrine is the devil's medicine. It's so evil yet so necessary at times.
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
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shineoftheever
> Teenager of the Year <
Canada
4307 Posts |
Posted - 09/21/2007 : 13:14:49
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there is a direct corelation between the dow jones and the price of gold. i think that's right. when the dow jones drops, the price of gold goes up and versa vicey. i think this just an economic theory.
The waxworks were an immensely eloquent dissertation on the wonderful ordinariness of mankind. |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/21/2007 : 13:28:43
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shiner, are you feeling richer today with your CND dollars? A Montreal friend just called on his way out of town to NY State to buy up some US consumer goods. He said the bridge is more jammed than usual because so many suddenly-rich Canadians are heading south for some weekend shopping.
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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Carl
- A 'Fifth' Catholic -
Ireland
11546 Posts |
Posted - 09/21/2007 : 15:30:24
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"I love goooold!" |
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VoVat
>> Denizen of the Citizens Band <<
USA
9168 Posts |
Posted - 09/22/2007 : 15:38:16
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quote:
Originally posted by kathryn
US gold futures are at a 28-year high. Yesterday in NY gold hit $721.50 an ounce.
Anybody have any theories on the meaning of this? KOK, maybe?
I think it means we should all hunt down some leprechauns. Except I've heard rumors that their gold disappears overnight, so it might not be so great in the futures market.
"If you doze much longer, then life turns to dreaming. If you doze much longer, then dreams turn to nightmares." |
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Carl
- A 'Fifth' Catholic -
Ireland
11546 Posts |
Posted - 09/22/2007 : 15:40:55
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I caught a leprechaun once, but had to hide him in case any tourists saw him, thus perpetuating the image of Ireland as a mystical blarney land.
"I hate how the reptile dreams it's a mammal. Scaley monster: be what you are!!" - Erebus. |
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darwin
>> Denizen of the Citizens Band <<
USA
5454 Posts |
Posted - 09/22/2007 : 16:44:46
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Long line for the last non-Vietnamese donut shop. |
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shineoftheever
> Teenager of the Year <
Canada
4307 Posts |
Posted - 09/22/2007 : 17:14:53
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quote:
Originally posted by kathryn
shiner, are you feeling richer today with your CND dollars? A Montreal friend just called on his way out of town to NY State to buy up some US consumer goods. He said the bridge is more jammed than usual because so many suddenly-rich Canadians are heading south for some weekend shopping.
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
when the cdn dollar hit within 10 cents earlier this summer i opened up my e-bay account. nuff said? border traffic has been brutal all summer and still is, even midweek. i only went to seattle once this summer, bought some lucky brand jeans, that's about it. next time i go to vegas though i'll probably fly from seattle. that reminds me, we should have an international forum meet-up in las vegas maybe in 2011 or something. i think that's enough time for everyone to save up enough money, maybe the man will indulge is if we give him enough notice. what does everyone think of that?
The waxworks were an immensely eloquent dissertation on the wonderful ordinariness of mankind. |
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kathryn
~ Selkie Bride ~
Belgium
15320 Posts |
Posted - 09/22/2007 : 17:54:56
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You wear Lucky jeans, shiner? That may disqualify you from being my secret forum crush.
Vegas international forum meet-up with The Frank playing sounds good. Floop's flying everybody in, I hear.
the cure make me want to die, but in a good way -- mr.biscuitdoughhead
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shineoftheever
> Teenager of the Year <
Canada
4307 Posts |
Posted - 09/22/2007 : 18:28:03
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if floop flies everyone in we'll be landing in barstow.
what's wrong with lucky brand? i like the low-rise, they fit me comfortably, i just need to find the santa cruzer style in black. i got a pair with a boot leg, that was a mistake, i don't really like those ones, i wear the other pair more.
The waxworks were an immensely eloquent dissertation on the wonderful ordinariness of mankind. |
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coastline
> Teenager of the Year <
USA
3111 Posts |
Posted - 09/22/2007 : 18:29:52
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Vegas? What's wrong with Saskatoon?
Please pardon me, for these my wrongs. |
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The King Of Karaoke
> Teenager of the Year <
USA
3759 Posts |
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VoVat
>> Denizen of the Citizens Band <<
USA
9168 Posts |
Posted - 09/23/2007 : 20:17:27
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And here I thought the dollar was destroyed when schoolchildren made George Washington's head into a mushroom!
"If you doze much longer, then life turns to dreaming. If you doze much longer, then dreams turn to nightmares." |
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What does this mean?
