Open Thread: Fed Driving Rates Much Lower
By Barry Ritholtz - March 18th, 2009, 8:01PM
Buy a third of a trillion in treasuries, and watch rates plummet.
That is the Fed’s obvious goal.
The mere announcement sent rates plummeting: Yields on the 10-year note plunged to 2.48% from 3.01% late yesterday. Bloomberg noted this as the biggest decline since 1962.
Not surprisingly, the dollar got whacked and gold rallied.
~~~
Is this a smart idea? Will we see mortgage rates at 4.5% ? What will this do inflation? The Dollar? Gold? Equities? Economic activity?
What say ye?
March 18th, 2009 at 8:09 pm
I may be mistaken but it seems every new Plan marked a top in the market had there been a rally. On the surface the dollar plunging and gold rallying is generally not good.
March 18th, 2009 at 8:18 pm
Barry, weren’t 10 years down near 2% during the very end of 2008? Yes. Weren’t people crying with joy at the great refinance and housing boom that was to come at 5%? Yes. Now they will cry more joy if we can push it down to 4%. Then 3%. Unemployed people don’t want to buy depreciating assets at any rate.
I was in the deflation camp and still think we’re there for a short while more but looks like exponential QE is on the way… most of the money created thus far is just going down rabbit holes and velocity of money is putrid. Once any velocity of money returns to this country inflation is going to be wicked and no the Fed won’t cut back the juice on time because “one of the mistakes” of the Great depression/Japan was anticipating a recovery before it was firmly grounded.
I bought gold today for the first time in a while post Fed meeting.
http://www.fundmymutualfund.com/2009/03/bookkeeping-starting-powershares-db.html
As for equities, sure a fixed amount of anything with x*printing press dollars thrown at it = higher prices but its illusionary.
What happens when interest rates do one day go up? housing prices will deflate again because the prices we are going to get in the next 12-24 months will be phanton levels based on subsidized mtg rates.
March 18th, 2009 at 8:21 pm
It is whack-a-mole game, financial mod. Equities popped up? Here comes the mallet…
March 18th, 2009 at 8:21 pm
Take a look at the daily charts for the S&P 500, long term government bonds (TLT) and Gold (GLD). S&P up 2.09% on the day, and 2.06% since the fed announcement. TLT up 3.81% on the day and and 2.9% since the fed announcement. GLD up 3.39% on the day and up 6.1% since the fed announcement. S&P 500 closed off some from its highs, TLT closed well off of its highs but GLD closed right at its high.
Right now, the Feds actions have caused bonds to go up some, stocks to go up some and gold to go up a lot. Does that sound like something to cheer about? I think not.
Barry – I know you are still hard at work finishing your book but what say YE?
March 18th, 2009 at 8:22 pm
Bernanke’s ridiculous theories could only work in a command economy. He admits as much when he yaks about the need for “political will”. Since it is unlikely that the US will quickly segue into a dictatorial state in the timeframe required for his theories to work, the unintended consequences are likely to be severe…and unpredictable. But I’ll try anyways: gold up, SP500 down.
March 18th, 2009 at 8:27 pm
It’s to set the scene for G-20 discussions, especially directed at Germany as much as boosting the US economy.
March 18th, 2009 at 8:29 pm
Sir,
I’m curious as to the following: does the Fed 1.2 trillion dollar purchase indicate that the world savings pool just couldn’t (or was unwilling to) swallow the trillions being added to the Federal Debt.
In other words, has China tipped its hand?
Respectfully,
March 18th, 2009 at 8:31 pm
Bennet Sedacca .. rest in peace.. one of my most trusted voices.. passed away on Mar 16 shortly after posting this on Minyanvilles Buzz & Banter. Sometimes he was a little early.. but in the years I’ve followed him.. he never led me astray.
1. Most perma-bears are bullish
…
…
9. No, Virginia, the market is NOT cheap..
10. etc etc etc
If you have a sub to Buzz & Banter I highly recommend you read the rest..
I’m not at liberty to share it.
In any case.. maybe today was a game-changer but…
tread cautiously
March 18th, 2009 at 8:37 pm
Driving rates much lower? Big deal.
The point of this entire exercise is to keep the precious banking system intact, literally at all costs.
Lots of luck with that. See you at SPX 150.
March 18th, 2009 at 8:40 pm
8 trillion in guarantees and injections has not worked thus far. we are following the japanese manuscript page for page. quantitative easing did not insight inflation in japan and the japanese were in far better shape than our cesspool. the jpanese remain in a deflationary abyss with interest rates at zero and monster gov debt to gdp. i doubt there will be any inflation here for quite some time. homes are still oversupplied and overpriced. i’ll bet we also see a one month 1 million job loss. i doubt getting mortgage rates down to 4% will benefit much although the refinancing will help some. the fed is the only lendor out there. they have now infiltrated all the credit markets with their slime. the economy is simply not functionaing and neither are credit markets which continue to collapse. get ready for a TARP 2 TARP 3 TARP 4 and more gov bullshit.
March 18th, 2009 at 8:41 pm
>> I may be mistaken but it seems every new Plan
This is not “new”. Bernanke explained the plan in his 2002 speech.
>> Bernanke’s ridiculous theories could only work in a command economy.
Part of our economy is a command economy. And, specifically, the Fed has the ability to make credit available or not. Combined with QE, at some point investors WILL move out of Treasuries and into other assets.
March 18th, 2009 at 8:44 pm
>> 8 trillion in guarantees and injections has not worked thus far.
The economy does not turn on a dime.
>> we are following the japanese manuscript page for page. quantitative easing did not incite inflation in japan
How do you know? What would Japan have looked like without QE?
And just how instructive is Japan? What was the PE of the Nikkei prior to its bust? And what was the property under the emporer’s palace worth?
March 18th, 2009 at 8:45 pm
texasradio,
I wouldn’t put it past Bernake to carry out plans based on an all but officially declared dictatorship.
What we need now is another Huey Long. This quote by him is probably why they had him killed. Oh yeah, I forgot. We don’t do stuff like that in America.
So in this land of God’s abundance we propose laws, viz.:
The fortunes of the multimillionaires and billionaires shall be reduced so that no one persons shall own more than a few million dollars to the person. We would do this by a capital levy tax. On the first million that a man was worth, we would not impose any tax. We would say, “All right for your first million dollars, but after you get that rich you will have to start helping the balance of us.” So we would not levy and capital levy tax on the first million one owned. But on the second million a man owns, we would tax that 1 percent, so that every year the man owned the second million dollars he would be taxed $10,000. On the third million we would impose a tax of 2 percent. On the fourth million we would impose a tax of 4 percent. On the fifth million we would impose a tax of 16 percent. On the seventh million we would impose a tax of 32 percent. On the eighth million we would impose a tax of 64 percent ; and on all over the eight million we would impose a tax of 100 percent….
…What this would mean is tat the annual tax would bring the biggest fortune down to $3 or $4 million to the person because no one could pay taxes very long in the higher brackets. But $3 or $4 million is enough for any one person and his children and his children’s children. We cannot allow one to have more than that because it would not leave enough for the balance to have something….
…And now you have our program, none too big, none too little, but every man a king.”
Senator Huey Long, 1935
http://www.americanrhetoric.com/speeches/hueyplongshare
March 18th, 2009 at 8:47 pm
Basically, we asked the Chinese and Japanese: Which do you prefer – our intrinsically worthless dollars or our intrinsically worthless dollar-denominated Treasury bonds?
Apparently, they prefer the smell of the green, printed paper over the relatively odorless, sepia, printed paper.
Pick your paper!
March 18th, 2009 at 8:48 pm
By the way, what say me? The day the government backed Fannie/Freddie (to my chagrin) was the day I learned to stop worrying and love (well, accept) QE.
Our choice is: live thru the 1930’s or live thru the 1970’s. I know which one I prefer.
Eliminate the Fed and fractional-reserve banking (or the absurd leverage)? Sure. Great. Just show me a plan how to “get there from here”. To worry about “this year and next”, I’ll take QE.
March 18th, 2009 at 8:50 pm
“at some point investors WILL move out of Treasuries and into other assets.”
And maybe those assets won’t be the ones the Fed wants them to go to (stocks, housing) but into ones they don’t want (gold, food).
March 18th, 2009 at 8:50 pm
this is a command economy.
March 18th, 2009 at 8:53 pm
refinancing does increase cash flow to the homeowner- however less people can qualify than before because it is now all full doc- not stated income (liar loans). It is pretty wild stuff what the Fed is attempting and possibly unprecedented at these levels. The Fed buying treasuries just hits me as being a big shell game- creation of money obviously- the dollar stands to lose and gold stands to gain. I got my ass handed to me in my trades after the Feds announcement- but I think after the euphoria has passed common sense will prevail and you will see the S&P500 go lower. Nasdaq has really been pissing me off – what is keeping that index going?
March 18th, 2009 at 8:55 pm
Barry,
My dissertation is on liberal Republicans in 1931-2. They were calling FOR inflation, and they were outraged at the Fed’s deflationary policies. What if their cries that the money supply needed to be re-flated had been heeded?
March 18th, 2009 at 8:56 pm
I see some special offers for 30-year fixed mortgages at 3.75 percent in my downtown area. Factor in the tax benefit and your effective rate is more like 2.5 percent. I’m waiting for them to just give me the house.
March 18th, 2009 at 8:57 pm
As businesses and consumers save more (or at least borrow less) the velocity of money goes down. If the velocity of money goes down, a larger money supply is required to support the same level of economic activity. The Fed is printing the money and the Treasury is spending it where the President and Congress think it will do the most good. But de-levering is continuing, so don’t think this is the last shot from the Fed.
March 18th, 2009 at 8:57 pm
Or, said another way: either (a) bail out no one (e.g., 1930 but no longer an option no) or (b) bail out “everyone”.
All CB’s are trying to lower the burden of existing debt (in every denomination) by depreciating all their currencies.
Think about what “no bailouts” would have meant:
- Most banks fail.
- Companies’ deposits lost.
- Companies can’t pay suppliers and can’t make payroll.
- Suppliers can’t pay their suppliers and employees can’t make rent/mortgage.
- Repeat until all banks/companies/employees fail.
Finally:
- Government calls in the National Guard to bring food to broke, urban populace.
- Subsistence farmers do alright.
That’s how I expect it would’ve played out. And if every Bernanke-critic has his/her way and the government loses the political will to QE, that’s how it *will* play out.
March 18th, 2009 at 9:01 pm
Franklin411- Dr. Franklin?
Matt- You know what- probably that and a new car! I know that almost all builders are losing money on every house they sell. That’s what happens when you buy finished lots at inflated prices.
March 18th, 2009 at 9:05 pm
Can’t fix a debt crisis with more debt….
March 18th, 2009 at 9:06 pm
>> And maybe those assets won’t be the ones the Fed wants them to go to (stocks, housing) but into ones they don’t want (gold, food).
Don’t you think they know this? But, heck, if we eliminate ethanol, we can cut food prices.
Look, no one says this “medicine” doesn’t “suck”. But, this medicine is better than the disease. At least, IMO.
Don’t like what the Fed will do to the USD? You’re all smart people. Read everything you can, figure out what you think will protect your wealth, and place your bets given the circumstances. (I, myself, have invested a little in DBA. Probably going back into more reflation trades. Don’t know yet what I’m going to do. Still can’t decide whether inflation or deflation will win and for how long.)
March 18th, 2009 at 9:08 pm
Barry,
Bernake and Co. are unconcerned about the inevitable inflationary whiplash. Why? Bcause 90% (at least) off the physical assets in the USA are controlled (if not fully owned) by the people Bernake is protecting. The rest of us get slammed by the old “keep the CPI down” trick while those physical assets owned by the fortunate sperm club shoot to the moon. The CDS contracts get unwound as the capital base of most large corporations get resucitated by the increase in fiat money values producing a larger “book” value which in turn produce hordes of stock buyers. Wala! A new bull market while the rubes riot in the streets. Buy “security” company and private army stocks. GM gets record sales in armor coated prius imitations for executives to drive around in. Brokers will love them too. New York and other big cities get more exciting than ever. Ads bring “danger” tourists with messages like “Forget diving with sharks, walk down Wall Street for the thrill of a lifetime! Tour guides have level three black belts so security is assured. We have a complete line of designer bulletproof body suits. ”
But seriously, it won’t work. The other countries won’t be gamed with our currency tricks. Bernake will fly high with the elite for a while and then crash. He’s a one trick pony. For him to think outside his elite box is like asking a fish to consider life in the desert. We are broke.
March 18th, 2009 at 9:08 pm
>> Can’t fix a debt crisis with more debt….
Therefore, I would’ve preferred not to honor Fannie/Freddie bonds and AIG CDS’s. But, I can’t change that, unfortunately.
But, we can kick the can down the road. If all governments increase debts to stimulate, then maybe there will come a day when we do mutual debt cancellation.
March 18th, 2009 at 9:09 pm
Unfortunately, this begins the inevitable attack on the last man standing – the USD. We better hope foreigners don’t pile out of US investments. This could introduce a whole new kind of fear to the crisis. Fear over the currency…. Got my first sell signal since December
It’s time to pare back risk big time….
March 18th, 2009 at 9:10 pm
@CNBC Sucks:
>Basically, we asked the Chinese and Japanese: Which do you prefer – our intrinsically worthless dollars or our intrinsically worthless dollar-denominated Treasury bonds?
This inspired me to think…. If the Fed is buying treasuries and enough suckers refuse to “fight the Fed,” can or will the Chinese/Japanese/Arabs/Russians/etc. use this opportunity to unload/dump their treasuries into a liquid market? Would this cause an eventual uncoupling of our economies?
If you think about, the assumption that foreign powers will keep on buying treasuries is that if they didn’t, it’d be mutually assured destruction of all of our economies. I’d speculate that they will take this treasury rally to protect their own interests and lower their exposure… This does not bode well for a medium to longer term recovery.
HCF
March 18th, 2009 at 9:13 pm
I say let’s don’t kick the can down the road. Their is nothing wrong with bankruptcy- contracts canceled, shareholders wiped out, bondholders take a loss, counter parties take a loss- so what- that’s the way it works. Let’s take the remedy now not limp along on over the counter medication.
March 18th, 2009 at 9:13 pm
>> But seriously, it won’t work. The other countries won’t be gamed with our currency tricks.
China, Russia, Europe, Eastern Europe, India, Brazil…do any of these nations prefer we not print but cause a worldwide global depression? That’s cutting off their noses to spite their faces. Some of these countries do NOT want a massively unemployed populace to threaten their non- or barely-democratic leadership. I am confident that most of them will reluctantly compromise on their Treasury holdings than face growing domestic unemployment from a global depression.
At least, that would be *my* pitch to them: “Don’t be stupid. Let’s cooperate.”
March 18th, 2009 at 9:13 pm
First, it caught many, many, many leaning the wrong way. Classic Greenspan trick. Second, conventional mortgages have been at 4.7-4.8 for a couple weeks now–Jumbos not so much. If you want to spur any activity on the coasts (East/West), it would seem that getting that Jumbo rate down is necessary. At least that is probably what the thought is… I am more the Doug Kass “Spent up vs. Pent up” camp… you can lower all you want, but lack of demand, lack of qualifiers, mean it will have no/little effect.
Dollar wise, Minyanville folk preach we’ve got a choice; deflate assets or dollars. You’ll notice when the market was going down not too long ago, the dollar was pretty strong. Now with the market going up, it is weakening. It is unlikely we can have our cake and eat it too. One or the other is going to get decimated–which do you want? Of course, the surprise of last year was that the dollar didn’t get creamed. And that ended up being perhaps because it was the best of the worst in fiat currencies… In the land of the blind, the one eyed man is king…
Gold looks like it is done with its’ little pull back. Today’s action helps it maintain its longer term trajectory up…. Gold should be a good play for quite some time. It spent 20 years getting it’s teeth kicked in–now, that is a secular bear market… What truly has value? A piece of paper with a dead president? Or some shiny ore? I know which has worked thru the ages…but damn is it heavy!
I’d like to thank Bill Gross for talking his book a couple weeks ago. I’d like to thank Bernanke for staying true to his word/policy. It makes portfolio building much easier when the people at the table are tipping their cards so you can see… I’d like to thank the big banks for pumping the hope up on earnings before writedowns. I’d like to thank all those who thought more housing starts was a good thing even though we already have a thirteen month supply. I’d like to thank my Mom. (orchestra music drowning me out….) exit-
March 18th, 2009 at 9:20 pm
To wunsacon:
Would the Fed go into the market place and outbid others to buy Treasuries?
My gut feeling, and this is why I am asking others to weigh in, my gut feeling is that all these counter-intuitive auctions where debt has been getting gobbled up has been through the Fed, not a “flight to quality”. The Fed would not buy up anything that the Chinese would willingly buy, would they? Ergo, the Chinese (et al.) have not been buying Treasuries.
We just raised the debt ceiling by a trillion: that’s an awful lot of debt to be saturating the market with. Tax season is upon us and we will certainly have a record short fall of revenue leading to tons more debt. My thesis? The Chinese have stopped buying. Thus the Fed jumped in.
March 18th, 2009 at 9:23 pm
>> Their is nothing wrong with bankruptcy- contracts canceled, shareholders wiped out, bondholders take a loss, counter parties take a loss- so what- that’s the way it works.
That’s great advice if you’re talking about something that would affect 3% of all companies. But, please see my post at 8:57pm. I don’t think we can train enough bankruptcy judges, lawyers, etc. quickly enough to accomplish what you suggest. I believe your advice would, if followed, turn America into a giant Hooverville for 5 years. Me? I prefer Japan.
Then again, what will Japan do next to pay down its debt? What’s the “end game” there? Admittedly, I haven’t thought much of an answer for that yet. (“Strong opinion, loosely held”…now, where have I heard that before…) Hmm…Maybe it will come down to mutual debt-forgiveness by all countries. In order for that to happen, all bad debt must be aggregated by the CB’s. (And, as we know, that’s what’s happening.) Otherwise, there’d be too many negotiating tables and too many parties at each one.
March 18th, 2009 at 9:27 pm
What is the Fed but a Serial Bubble blower? Next up…bonds.
March 18th, 2009 at 9:28 pm
It’ll all end in tears…..
Dow 3000
“Funny, how just when you think life can’t possibly get any worse it suddenly does.”
- Marvin the paranoid android
March 18th, 2009 at 9:29 pm
Just when the banks were enjoying a nice yield curve, Bernanke steps in and flattens it.
March 18th, 2009 at 9:30 pm
Direct quote from CNBC’s Donny Deutsch tonight: “Are there any reasons to not be bullish now?’
Couldn’t help but think that moral hazard is alive and well. This Fed thing happened so fast I haven’t had time to think about it much…perhaps they are pre-empting Chinese action. If China dumped their treasuries, the Fed is indicating they will buy htem.
March 18th, 2009 at 9:34 pm
Paul, your suspicion seems valid.
All, I’m sorry for monopolizing the board. At the very least, I’m playing Devil’s Advocate. Why? Because I don’t think Ben (or his plan) is as stupid as so many people make him (and it) out to be. And, right now, all across the blogosphere, people are just “piling on” onto Ben without — IMO — quite unfairly. But, heck, I also admit that I would, if in Ben’s shoes, probably play this the same way…because it seems to be the “least horrible” option.
People, we dug the hole the past 30 years, particularly in the past 8. We are not climbing out of it without a lot of pain. Pick your poison.
And all the complaining? Many of you have a right to complain, because you’ve been critical all along of the debts we’ve been running up all these years. But, I sure wish there had been more people paying attention a lot, lot sooner. Now’s an “almost useless” time for people to start paying attention. But, I guess: better late than never.
March 18th, 2009 at 9:35 pm
All of this bailout has got to be paid for somehow.
Here’s what the rest of the is voting with their wallet.
Straight from the Council on Foreign Relations.
http://blogs.cfr.org/setser/2009/03/18/a-bit-more-to-worry-about-foreign-demand-for-long-term-treasuries-has-faded/
March 18th, 2009 at 9:37 pm
Oops…seem to have lost my prior post…and, since things had been going swimmingly up this point, I forgot to first save what I wrote. The gist of that was:
Paul Jones, I agree.
All, sorry for monopolizing the conversation. I felt someone had to argue the other side.
March 18th, 2009 at 9:40 pm
@Carey:
Interesting…the rest of the world can’t fund our spending anymore, so we’ll have to print the money ourselves, leading to more debt, leading to less foreign interest in our debt…does seem like a positive feedback loop, one with negative consequences.
March 18th, 2009 at 9:43 pm
Wunsacon wrote,
“And, specifically, the Fed has the ability to make credit available or not. Combined with QE, at some point investors WILL move out of Treasuries and into other assets.”
This isn’t exactly accurate. The Fed can make credit available to banks – but it is loan standards that determine the ease of credit moving into the broader economy. Even if investors move out of treasuries into other assets, that doesn’t fix the broader economy – we don’t need inverstors moving money; we need money moving into the pockets of wage earners who can then turn around and make purchases.
Supply side still does not work, even if you are talking about money and credit – it requires a demand for money and credit before it is spent into the ecomony. As long as no one perceives an ability to take on new payments, then no amount of available credit will do anything but sit and wait to be used.
March 18th, 2009 at 9:44 pm
Carey
exactly- this is like a big magic act or the Wizard of Oz- pay no attention to the man behind the curtain. The Fed steps in- a big shell game- might as well be Obama himself buying the treasuries because the money is not there- its pulled out of a hat. Its bullshit and we need to understand that.
March 18th, 2009 at 9:54 pm
@ Steve Barry:
>Direct quote from CNBC’s Donny Deutsch tonight: “Are there any reasons to not be bullish now?’
Gettin’ a bit crowded on that side of the ship, eh? It’s funny how on CNBC these days everyone says “No one believes this rally, so I’m bullish I and think that that was THE bottom.” The problem is, if everyone thinks that everyone else is overly bearish, doesn’t that seem to imply that everyone is actually pretty much bullish? I guess it never works when everyone claims to be contrarian…
HCF
March 18th, 2009 at 9:54 pm
The Fed, Treasury et al will be all over gold to try to contain it.
March 18th, 2009 at 9:57 pm
wunsacon..
isnt inflation in all currencies equal to mutual cancellation of debt??
right now debt is a problem to everyone and it can be reduced by printing more money….inflation kicks in….now only if we can get the unemployment to go away and wages to go up.
China/india/brazil are exporting countries….i dont think they have found another customer willing to consume their good yet, hence they will still try to give more credit so that we can buy their stuff, so that they can have a job so that they stay out of trouble over there..
my only fear is china being a communist country with couple of guys calling all the shots not accountable to anyone and cannot be lynched like over here.. they can become egoistic like russia…and may prefer mutual destruction….but thats too scary to even think….economic warfare(i think thats still a tin foil stuff).
March 18th, 2009 at 10:04 pm
Winston,
I recognize (and humbly submit that I understand) that argument. Please consider some counterpoints:
[a] Lower rates means people can refinance and make lower payments. That’s fewer walkaways than we otherwise would’ve had. Reducing walkaways could be “big”. This “system” has various tipping points. If people would see house prices stop declining, we might put an end to jingle mail.
[b] The refinancing means more saving/spending money for many people.
[c] I might also buy my first home, on account of the lower payments of owning versus renting. (Maybe there aren’t many in my shoes.)
[d] Imagine a scenario where every “private” bank becomes an ORIGINATOR ONLY, with the Fed/Fannie/Freddie becoming the holder of every mortgage in the US. If a bank can borrow @ 0.1%, charge a couple of points, and “flip” a mortgage over to the Fed/Fannie/Freddie, they will make a profit. (I.e., as others point out, the Fed is becoming the lender of ONLY resort.) So, the banks WILL lend. Really, the USG (the taxpayer) is lending to itself, since no one else is. Circular? Of course. But, if it achieves (a) above, that is an outcome that would not have been possible otherwise.
[e] Remember how business around the globe was doing pretty well until the USD started appreciating? The leader of every nation — whether s/he admits is publicly or not — knows they’re better off with an orderly decline again in the USD, because they all just got caught with their pants saddled down with too many anti-USD bets. (The USD. The global economy. Two contestants enter. Only one can emerge. Game on…) Our labor isn’t competitive at current rates anyway.
March 18th, 2009 at 10:08 pm
This country is on the l-o-n-g, s-l-o-w road to decline. I could blame the previous Administration, and they certainly did speed things up. But make no mistake: we lag the leaders in the rest of the world in terms of our level of educational performance. Just today I waited for the electronic gizmos to “do their thing” at the checkout line and the message came up: “Waiting ON customer,” rather than “waiting FOR customer.” This is a silly little anecdote, but it is truly symptomatic. We don’t even RECOGNIZE our mistakes any more, and we teach our machines—to whom we have given-over control— to repeat our errors. Most of our jobs are now low-paying service jobs requiring not that much education, anyway—and those jobs carry none to very limited benefits. Wealth is gradually rising and concentrating at the top. The Middle Class is in decline, including those who really are wealthy, but won’t admit it.
What’s the answer? For the government to spur the stock market and sink the dollar? That’s just a different flavor of More Of The Same. Spend. Stimulate. Create debt. Leverage. Loan. Borrow, waste… Where is there any true PRODUCTION any more, which creates REAL, not PAPER wealth?
March 18th, 2009 at 10:10 pm
Sorry, Winston, techy, other folks. Wordpress blocked a few of my responses. I don’t want to spend more time re-editing my comment to “get it thru”. (I’d do it if I could figure out what was objectionable in a “known amount of time”.)
Maybe Barry will see it and publish it.
March 18th, 2009 at 10:12 pm
I say: deflation becomes more likely
March 18th, 2009 at 10:12 pm
China has proved that they can take more pain than we can- however- you are wrong- the leaders can be lynched- a populace uprising is probably their biggest fear.
March 18th, 2009 at 10:13 pm
With this being expiration week, I figured we would get a squeeze. But the squeeze after the FOMC statement was weak. They couldn’t hold 800 on the S&P. I think the squeeze is done.
Good article @ blogs.cfr.org
I don’t think they’ll sell Treasuries. They’ll just buy less of them.
March 18th, 2009 at 10:16 pm
Max, “true wealth” is our technology, which scientists keep improving and which Steve Jobs keeps applying/marketing. That will go on forever, well after we’ve made ourselves into the “2nd-class species”. (I, for one, will take the blue pill and welcome our digital overlords. Hopefully, the rest of you won’t grow bored with our “perfect” matrix and dismantle it.) As for paper/gold, those are IOU’s — sometimes honored and sometimes not — to control relative wealth.
March 18th, 2009 at 10:18 pm
next fad/ bubble: distressed asset investing
this is why america rocks, folks
there’s someone out there to buy everything that’s for sale, from gulfstream jets down to garage sale antiques eventually
as we speak, distressed asset funds are popping up everywhere in New York and elsewhere. They are probably way early, but they have a story to tell to the holders of the $9 trillion that CNBC keeps saying is “on the sidelines”
they are raising billions and hiring as much of the disaffected ex-wall street talent as possible. some of them are hedgies who blew up their funds in 08 and are back in action under a new name
by this summer, everyone will be an expert in buying distressed property, distressed mortgages etc.
and then when someone buys the domain name “distressedinvesting.com” , the trend will end.
March 18th, 2009 at 10:18 pm
Ahab: No PhD yet…A few more months, or as long as I can string it out. Everyone I know is worse than unemployed–unemployed, unemployable and student loans coming due! At least in school my payments are deferred!
March 18th, 2009 at 10:18 pm
Is this a smart idea? No, the Fed is “pushing on a string”, as lower borrowing rates won’t spur lending activity even if you assume banks get their capital together within the next 9 months…only consumer confidence will.
Will we see mortgage rates at 4.5% ? No, a slight sell off in long term (i.e., 30 year) Treasury bonds by foreign SIV’s will cause the mortgage rate to hover between 4.75% and 4.85%.
What will this do inflation? Long term, nothing, if consumers do not spend and businesses cannot borrow because of tight credit conditions. If anything, you’re looking at deflation for a while until consumers and businesses get their mojo (i.e., confidence) back.
The Dollar? Declines due to the Treasury printing press to buy long bonds.
Gold? Rallies given fear of US dollar declines in the next year.
Equities? Don’t go there, especially with bull rallies in a bear market.
Economic activity? Don’t count on it this year, even with the government stimulus package. Consumers are worried, and rightfully so, with where their balance sheets are, given the tremendous amount of wealth lost over the last year or two.
I could be wrong in all of my opinions above, though. Long time reader, first time poster, love the new look of your blog!
March 18th, 2009 at 10:19 pm
Max Bialystock Says:
March 18th, 2009 at 10:08 pm
“What’s the answer? For the government to spur the stock market and sink the dollar? That’s just a different flavor of More Of The Same. Spend. Stimulate. Create debt. Leverage. Loan. Borrow, waste… Where is there any true PRODUCTION any more, which creates REAL, not PAPER wealth?”
Exactly! That is the problem. We are on our way to becoming the UK if we are not their already.
March 18th, 2009 at 10:21 pm
While I would certainly agree that the US hasn’t seen a free market since time was, it is not yet a command economy. Yes, Bernanke would love to have it, and he has been pushing for the fed – i.e. himself – to control the entire financial apparatus of the US. This could happen, substantial defaults are on the horizon, Bernanke is positioning for it.
All this talk of “increasing lending” is a smokescreen for the money gift, helicopter drop, call it what you will. I would like to believe that the extension of credit follows different rules than those that have been established over the course of human history, but I don’t. Consider the government as a bank: what if they lend without the age-old vetting of lapsed time to prove a debtor’s merit. What do you think their default rate would be? Would you want to rely on a government-financed debtor knowing that the government might change their mind depending on which way the political wind is blowing? That doesn’t work, and it is almost certainly at the heart of the proposition that private property be abolished. How many years does it take for a debtor to re-establish credit after a bankruptcy or foreclosure filing? Therein lies the answer to the question: How long will it last? Don’t forget to factor in the effect of government interence in markets when calculating the answer. End rant.
March 18th, 2009 at 10:21 pm
By printing money to buy treasuries in order to pay off government debt the FED is in effect monetizing debt. Printing money leads to inflation. Inflation is the overall general upward price movement of goods and services in an economy. Inflation could be here this year, next year or two years from now but it is on its way. Combine that with a dollar which is going to get whacked (creating velocity) and you have a recipe for hyper-inflation. In the end, the money you will make by day trading into the future will be as worthless as the money you have in your wallet today. Get on the right side of the trade before it’s too late.
March 18th, 2009 at 10:27 pm
Wunsacon,
Never a need to apologize. Although what you argue may be right, at this point in time it is still conjecture either way. Problem in my mind is that the solution to every national problem has been reduced to an election timeline, that even Keynes “In the long run we are all dead,” has been further reduced to “In the political run, we face reelection next year.”
March 18th, 2009 at 10:28 pm
Excellent, respectful, informative thread. Wunsacon, thanks for your contributions.
March 18th, 2009 at 10:35 pm
Barry:
It’s deja vu all over again. Chubby Checkers had success with the Twist. The last time the Fed tried it it was a flop.
March 18th, 2009 at 10:35 pm
All of this “strategerizing” reminds me of a good old-fashioned pinball machine. Bing, bang, boing – and the occasional bonus. But we can’t keep the ball in play forever (regardless of strategy) – gravity will eventually pull it to the little black hole at the bottom. If you shake the machine too hard, you tilt, and it’s game over. Right now, Bernanke is shaking the machine pretty damned hard.
Mamma always said the pinball machines were a waste of time and money. Looks like she was right.
I almost sold my gold at $1K, a few weeks ago. Glad I didn’t.
March 18th, 2009 at 10:41 pm
Franklin411- good deal- I’ll be calling you doctor soon enough I imagine. Don’t get too caught up in politics however- it will only let you down. As I always tell everyone who is excited about a candidate- prepare to be disappointed- it has never proved to be wrong.
March 18th, 2009 at 10:42 pm
One or two agreed with me, above. Maybe many of you have been too polite to register negative replies. I don’t much appreciate the UK reference, though. They have true universal health care, which would serve as a giant-step toward filling-in the gaping holes in our own (USA) social safety-net. We DO indeed need to get from “me, me, ME!” to “WE!” Even the “threat” of “universal” health care here in the US is a bad joke. What’s being proposed by the various political “Leaders” here in the States amounts to nothing but a mandate which downloads the whole business onto each and every INDIVIDUAL. If you’re not covered through your job, tough! Go find healthcare for yourself. THAT’S not “universal,” unless you don’t really care about what actual words mean, and the concepts behind them. The current proposals simply impose a huge burden onto each person to get covered.
TRULY universal healthcare will spread-out coverage to everyone, and spread-out the cost UNIVERSALLY across the tax base. OMG!!! That might mean the wealthy actually might have to start paying their fair share of taxes as a PROPORTION of their income.
Doctors in Canada and England are on nice fat salaries. Why couldn’t the same be done here— unless there is some hidden agenda whereby we must make it possible for doctors as a class unto themselves to become not merely wealthy, but stinking, obscenely friggin’ rich, beyond any semblance of moral acceptability. Don’t tell me “greed is good.” Greed is WRONG.
March 18th, 2009 at 10:56 pm
I think Bernanke’s plan could be much more efficient. They should just de-criminalize counterfeiting for a month. Everyone could just print whatever they need at home! (honor system here people). Treasury could post a pdf file of a $20 bill and away we go. Democracy at work – you too can be the Federal Reserve.
March 18th, 2009 at 10:58 pm
If Bernanke buys up another trillion or so in treasuries and MBS’s, I think that tends to take SPX 500 off the table (at least in nominal terms).
The more money that the Fed puts into mortgages and MBS’s, the more difficult (politically) it will be to unwind the whole thing.
When Obama is going to need a good economy the most is during the 12 months (or so) prior to the 2012 election. I have a feeling that he may peak too soon.
March 18th, 2009 at 11:02 pm
Max Bialystock:
I don’t think it’s as much the doctors as it is the managers (look at the past 40 years and the trend towards “managed” healthcare), and the pharmaceutical companies. They have money first and foremost on their minds – much more so than the doctors.
March 18th, 2009 at 11:05 pm
Max Bialystock
my comment about the UK only applies to the fact that they do not manufacture anything anymore. However, universal health care is not nirvana and don’t think that by having it we have reached the promised land. In the end it has to be paid for and unfortunately rationed.
March 18th, 2009 at 11:06 pm
The Japanese, Chinese, even OPEC have been propping up our currency for years. Even if they lose appetite for our long-term Treasuries, they will continue to stockpile those zero-coupon, zero-redemption bonds we call dollars. They really don’t have attractive alternatives. It won’t help our credit situation (low interest rates everywhere, and not a drop to drink), but the Japanese and Chinese will do their own monetary gymnastics to make sure we don’t have to push wheelbarrows of dollars to buy their goods. They also know the wheelbarrow scenario is impossible because the Republicans will fight inflation adjustments to wages in this country at every turn.
The world is trying to figure out how to create a new equilibrium to replace Larry Kudlow’s “infinite growth” economic system based on the most voracious, deficit-generating organism known to man: the FIRE-employed American consumer.
March 18th, 2009 at 11:09 pm
texasradio @ 8:22
“Bernanke … admits as much when he yaks about the need for political will”.
I didn’t see the 60 minutes interview but I did catch a glimpse of it… he was saying, essentially, that unless we give the Fuhrer everything he wants, we’ll face Armageddon.
March 18th, 2009 at 11:10 pm
From the Fed statement:
“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability”.
There’s two really good jokes in that sentence. One, the Fed only has one “tool”, devaluing the dollar, and two, when you make an announcement that drops your currency by 3% in one hour, the last thing on your mind is price stability.
Now, remember, the Fed doesn’t have any money, just a checkbook. But they can write checks to buy stuff (which is fraud when anyone else does it), and that’s what they’re gonna do. So they’re buying $300B in debt with pretend money. I’m not clear why we needed someone with a 1590 SAT score to come up with the same solution any crack whore would, but that’s the plan I guess. The sad part is we could have given everyone $3,000 with that checkbook, and that would actually help the economy.
The only “price stability” the Fed is trying to create is in housing, and that’s the bubble they created. But seriously, we’re so fucking dumb, we think this just might work…..
March 18th, 2009 at 11:11 pm
CNBC Sucks @ 11:06
I think the foreigners are mostly buying the short-term stuff… 5 years or less maturity.
They’re not as stupid as they may seem.
March 18th, 2009 at 11:14 pm
mark mchugh @ 11:10
“I’m not clear why we needed someone with a 1590 SAT score to come up with the same solution any crack whore would”.
LOL.
March 18th, 2009 at 11:18 pm
Max Bialystock,
You are right.
March 18th, 2009 at 11:19 pm
There are at least 2 other issues here:
1. Bernanke wants to use a portion of the money to buy MBS (mortgage backed securities).
This agency should be under the perview of the US Congress, which should own these assets. Reason being, if the US taxpayer is being put on the hook for the money (or the succeptability for taxation for future money), then the US taxpayer should be the holder and recipient of any future returns on these assets.) What is really troubling is that in the past Bernanke has stated that his view is that these MBS should be bought and held at full value. Since they OBVIOUSLY are not worth now what they were in the past, then OBVIOUSLY that line of reasoning does not hold. If the FED is pricing these assets, then someone had better be looking over their shoulder.
2. The question of inflation. If the FED really does inject this money into the monetary system, will it cause inflation? My sense is that the inflation that might result from this amount of monetary stimulus is almost nil. In the first place, there is so much slack in the economy that this much monetary injection wouldn’t even rate a blip on the inflation meter.
March 18th, 2009 at 11:19 pm
call me ahab:
Re: rationing of medical care.
I’ve spent quite a bit of time in Canada over the past 2 years, and I’ve mad a point of asking people what they think of their healthcare system, and if they ever have to wait to see a doctor (I’d estimate I’ve asked more than 20 people, and fewer than 50). I’ve yet to hear a complaint. OTOH, when I was “covered” by Kaiser Permanente, I was often made to wait more than a week to be seen by a doctor (not very good when you have the flu or a chest infection).
March 18th, 2009 at 11:21 pm
I love this:
“…the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, A TACTIC THAT AMOUNTS TO CREATING VAST SUMS OF MONEY OUT OF THIN AIR.”
It’s from the New York Times (http://www.nytimes.com/2009/03/19/business/economy/19fed.html), but it sounds like it’s from The Onion. That is very, very scary…
HCF
March 18th, 2009 at 11:22 pm
wow.
Looking back over the comments, it seems to me that:
1) nobody has any good sound, logical rationale for what to expect going forward — a lot of “feelings” but not much to back them up.
1a) me too.
2) this is understandable, given the lack of precedent for this sort of action, and these circumstances.
The rest of this year is going to be verrry interesting. Time to stockpile Prozac or Drambui (but prolly not both).
March 18th, 2009 at 11:23 pm
I’m surprised no one has brought up “implicit inflation target”, which is Fed Speak for “we have an inflation target but we don’t want to call it that because then everyone will complain that our actions are inconsistent with our inflation target.” The statement references the inflation target without actually mentioning it. Clearly, the FOMC was not comfortable with headline year over year CPI reported this morning. The Federal Reserve doesn’t really care about the level of house prices but it is concerned with the speed at which house prices are moving (take that, Alan Greenspan!)
March 18th, 2009 at 11:24 pm
ANDY T. must watch music video: http://www.youtube.com/watch?v=2pHITqLJ6T0
i just bot the album on itunes… you will go crazy for it… also, try fleet foxes, but i think you will prefer anthony green.
March 18th, 2009 at 11:27 pm
dhurwitz6,
I like it!
Let’s see now, tomorrow I can electronically create AGG superkalafrajalistic pyrite treasuries for 0%. I’ll start with 30 trillion ( what the hell ). In order to guarantee that my auction is subscibed properly, I will buy a complete “ladder” from 1 month tp 50 year AGG pyrite treasuries for 40 % of the 30 trillion. Any takers? Hurray for fractional reserve (Man, what a neat term! It must have been Dr. Jekyll at Jekyll island that thought of that one.) money multipliers!
March 18th, 2009 at 11:28 pm
Marcus Aurelius Says:
“I’ve yet to hear a complaint.”
That’s good I guess- maybe it works- I don’t know- but I have heard that if you need special treatment then it becomes rationed because there is only so much $$ to go around. I have a gut feeling that this must be true- they have to choose who gets specialized care and who doesn’t- not saying it’s wrong- just saying that’s the way it probably is.
March 18th, 2009 at 11:28 pm
DL – I fully agree. I was just positioning cash as a short-term, zero-interest, immediate-maturity bond to make my point. The foreigners certainly are not as stupid as they may seem, but not smart enough to call in part of our debt by demanding Alaska.
March 18th, 2009 at 11:32 pm
karen @ 11:24
Is A.T. in the house?
I think he’s out somewhere contemplating the fate of the S&P.
March 18th, 2009 at 11:32 pm
constantnormal: yes. amen.
so i’ve been reading all these comments too, and obsessively checking this site for sane, up-to-date analysis. and i understand that this stuff is way off the map, and barry, bless him, only comments when he knows he can give a solid, honest analysis – and that’s why i come to this site, i want someone with an ethical approach to broadcasting their expertise – but. seriously.
help. throw us a bone here. give us some analysis, and failing that, give us your best bet. and failing that, tell us what your gut feeling is, and put a disclaimer after it:
disclaimer: we are in uncharted waters. from the way things have gone, historically, i think: a)
and from the way things have been going recently, i think b)
and from the way people have been panicking, i think c)
and, failing that, just hang it up and tell us to go comment amongst ourselves.
March 18th, 2009 at 11:35 pm
D.L. oh, no, he’s around as I am, always… just p*ssed off and taking time off… LOL.
March 18th, 2009 at 11:40 pm
Agreed WUNS, Winston, Paul,
We know Benny wants to crash the dollar and bring on inflation. He has told us so. The assets that he is buying do have value, just not at the current hyper-inflated prices. Sort of a backing theory play t0 control inflation. I like the mutual debt forgiveness idea…….could work if the CB’s control most of the bad debt?? Good thoughts. I do agree China is probably secretly unloading dollars.
Long term question is where do we go from here with no bubbles? A lot of these jobs are not coming back. Wages are stagnant. No savings.
The biggest worry,…the major attacks on our constitution. I thought the patriot act was scary.
March 18th, 2009 at 11:41 pm
BR:
When did you join Facebook? I thought you disliked those kind of things.
~~~
BR: Years ago. But it was fallow — but I never did anything with it.
I got an angry email from a former colleague who thought I was dissing her by not responding to her Friend request. (So I friended everyone) Maybe later this year, I will play around with it a bit
March 18th, 2009 at 11:49 pm
Mish’s Global Economic trend analysis has some spot on insight that might help readers. TBP gave him a hat tip for calling out Peter Schiff a while back and I’ve been following him religiously ever since. His big thing is that he puts his money where his mouth is and he claims he has excellent returns. Plus his is an Austrian (not ethnically) which adds some insight that the CNBC economists don’t provide outside of Schiff.
All that said – this is going to be the first step of Quantitative but not the last. Not a chance this makes a beep, but CHina is P.O.ed either way because they know what the Gov. wants to do to the dollar. All this after Hillary made her first visit to CHina instead of Europe.
The real question is when do people start questioning some of the deeper assumptions. Check out the Google Queue for “Bretton Woods” it makes an interesting index to see how popular that search term is getting. I see that term doubling in queries within the next 6-9 months.
March 19th, 2009 at 12:05 am
As reported EPS is worse than -$20/share. Granted, most of that comes from massive one-off charges, but S&P is forecasting a rebound to only $8ish for Q2 2k9 ($12ish on OEPS), pegging the forward PE at a still-high 16.
Now that we went down almost 60% and experienced the 2nd worst bear market in 140 years, not to mention the fact that trailing 12 month earnings have dropped 95% (in the Great Depression, peak to trough earnings on a trailing 12 basis only dipped around 70%), I really wonder how much worse it can get.
We’ve avoided many of the mistakes the Japanese made – C is really the only zombie bank still out there, and it may not be long for this world, unlike its Japanese counterparts that continued eating brains and wandering aimlessly a decade after they were obviously insolvent – and though it’s been painful, I don’t know how much excess there is to ring out of the system.
It only took eight years for real earnings to return to 90% of their 1929 peak, and even then, the economy only tapered off because fiscal hawks caused FDR to raise taxes in a fixed currency world. I don’t expect the Fed to make monetary policy-like decisions, and frankly, it wouldn’t surprise me to see the S&P have a bumpy, unpleasant, but relatively stable (stable, as in no pitchforks and torches) hovering around 800-900 for the next three to five years in preparation for the next secular bull.
March 19th, 2009 at 12:11 am
Good catch, btw Calvin Jones . I just Fbook trolled for Barry’s profile, and wadya know, he’s on there now.
I’m tempted to friend, but I like being anonymous.
March 19th, 2009 at 12:25 am
anyone that didn’t see today as fait accompli was smoking crack as far as i’m concerned…
March 19th, 2009 at 12:30 am
yes, of course, karen, where else were they going to turn?
though, I’ll ask again: “Who has bets on the U$D seeing 2010?”
March 19th, 2009 at 12:36 am
Mark, it’s 2012 we need to be concerned about.. ha ha ha
March 19th, 2009 at 12:43 am
karen,
by the look of that pepto-colored logo, I think you’re right!~
http://www.london2012.com/
bring your slicker~
;
March 19th, 2009 at 12:44 am
Setser on the foreign demand for long term treasurys. Hint: Demand isn’t up…….
http://blogs.cfr.org/setser/2009/03/18/a-bit-more-to-worry-about-foreign-demand-for-long-term-treasuries-has-faded/
March 19th, 2009 at 12:45 am
@karen: You’re right about that. I guess I just didn’t think it would happen so soon and I think having it actually happen is still somewhat of a shock and merely reaffirmation of just how screwed up everything is……
March 19th, 2009 at 12:47 am
Glad I held onto my gold stock through the recent selloff! Gold may be ready to make a big move. Stocks are still expensive, contrary to what so many of the talking heads say.
March 19th, 2009 at 12:53 am
Can we just get on to the music now! This guy, Anthony Green is amazing! I’m now on on song 12 of 31. There is not one I want to discard…
March 19th, 2009 at 12:59 am
Sorry Barry but I just can’t resist this:
HARTFORD, Conn. – A 36-year-old Swedish countess ( is that countess or cuntess? LOL) divorcing a former CEO says she cannot live on $43 million.
Marie Douglas-David, a former investment banker, says she has no income and needs her 67-year-old husband, George David, to pay her more than $53,000 a week — more than most U.S. households make in a year — to cover her expenses.
David stepped down last year as chief executive at Hartford-based United Technologies Corp. but is still chairman of the board and has an estimated net worth of $329 million. He and his wife accuse each other of extramarital affairs. Their divorce trial started Wednesday.
Now it all becomes clear! Bernake had an affair with a countess that turned out to be cuntess. He needs lots of money.
March 19th, 2009 at 1:02 am
I’ve heard of “high maintenance” trophy wives but this is ridiculous!
March 19th, 2009 at 1:08 am
AGG, i saw a license plate holder this evening that i couldn’t believe, “I’m not spoiled… I’m well taken care of” How’s that for Orange County, CA?! Sometimes i fear the next plague.. as well as the mentality of the US…
March 19th, 2009 at 1:42 am
Can’t fix a debt crisis with more debt….
How ironic, considering the US dollar is literally debt!
March 19th, 2009 at 1:58 am
Something tells me that Tim, Ben and Larry may be in trouble if this latest gambit doesn’t work. One would think not keeping the president in the loop in matters that make him look bad would not make the president very happy……
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031804210.html?hpid=topnews&sid=ST2009031801503
March 19th, 2009 at 2:20 am
On one level, this may be a shot back across China’s bow.
“If you won’t buy our treasuries, we’ll make up the money and buy them ourselves. And maybe trash the dollars you’re holding in the process.”
Possibly also aimed at anyone in the White House or Congress who might be considering taking responsibility for the solution out of the hands of the folks most responsible for creating the problem.
March 19th, 2009 at 2:25 am
Finally some attention to the trillions being printed by The Fed. Maybe we can stop obsessing over some small change at AIG and start a public campaign to demonise the Fed and Treasury gangsters.
March 19th, 2009 at 2:29 am
OMG, I woke up this morning to find that my forex account went up almost 1000%!
Thank you Ben! That was a once in a lifetime giveaway.
March 19th, 2009 at 3:02 am
Paul Jones is absolutely correct. The Chinese have practically stopped buying our treasuries. This move is to preempt the sharp rise in yields that would have occurred as this fact got more widely accepted.
This also provides the Chinese, and other creditors, an easy profitable exit.
The great debasement has just become official policy. Got Gold?
March 19th, 2009 at 3:52 am
I see no light at the end of the tunnel. It’s amazing, I cannot believe where this is going – you can’t pay off a debt with a debt! Unless of course you devalue your own currency to such an extent that today’s money/debt will be worth nothing tomorrow. Piling up debt over debt over debt will resolve nothing in the long run. That’s a non-stop creation of debt and in order to finance it, you need to create money or more debt which in turn needs to be financed too! We’ve got the banking cartel hijacking the whole society and they made it clear – we’ve got our debt, but it is your problem, pay for it or else…
What kind of an economy is that? It’s like an army of road workers getting loans to dig trenches on our roads so people would damage their cars and get loans to buy new ones, and then somebody gets a loan to patch the holes. Is there an added value to all of this? Or you just end up with an outstanding debt?
How‘s this relate to the housing market. You create unlimited supply of credit/new money which has never been accounted for in first place and banks bought into this to get rich and dug themselves in a deep hole. Something not funny happened on the way to the forum. You damage your car (ooops, your house price is under water) then go to a bank and pray they modify your mortgage. This takes again an unlimited supply of credit/new money. Of course, someone too will get a loan and buy/build a house. But this time the outstanding debt has doubled its size. On the road again…
Maybe in 5-10 years we’ll point fingers at today’s fed heads of what went wrong. Greenspan, anyone?
March 19th, 2009 at 3:53 am
I have a question. If the 12 fed banks are owned buy the banks that operate in their area, why is the fed loaning the Government money to give to their shareholders. And why doesn’t the government print their own money and pay down their own debt instead of taxing the hell out of me.
March 19th, 2009 at 5:07 am
They ain’t buying the 10 year, it is mainly for the 2 and 5 for recapitalization. Market errored on the 10 year. It has already began to rise in the futures.
March 19th, 2009 at 7:05 am
It is a bad idea…if it were a good idea, it would be a good idea in more stable times…
You have taken time and substituted lower rates for it…
a new bubble, in government debt…or should I say taxpayer debt…
just moving the chairs from one spot to another…
March 19th, 2009 at 7:09 am
The shills at CNBC are showing gold up $47 this morning.
Question: When the fuck are they measuring from? The previous NYMEX close? and since when is that their reset point? and why am I the slightest bit surprised?
March 19th, 2009 at 7:23 am
We are all Madoff customers now….
March 19th, 2009 at 7:49 am
What if you knew with 100% foresight how the global macro economy would play out in the next 5 years?
In 1990 I was an Athiest. A life changing incident led me to reading the Bible. I found much of the prophesy in it meshed with my market analysis and started looking closer. It’s helped me be extremely accurate in my market predictions for the past 19 years. I humbly say that I have successfully called every major turning point as a result.
If you doubt this, start with a read of Revelations and the Old Testament book of Daniel. Look at the “end time” prophesies. They include a “one world government”, and my first thought on reading it in 1990 was, “How on earth would you ever get Americans to give up their sovernity?” Easy…
You simultaneously over several decades “dumb down the masses” through the lowering of educational standards (look how poorly our kids rank globally), teardown conservative values and ideals the country was founded upon (greed and concern for self above all else is the result — note AIG as an example and need I say more), and build a financial bubble and then ultimately collapse it.
Sure, some will prepare by buying guns, gold and stocking up on food. But 98% of Americans have been made “soft” to the point that given a collapse and crisis that brings about food shortages for two weeks will have the population clamoring for a new “world leader” who promises to wipe the slates clean and start over from scratch.
Before you write me off as a “nut job”, read the sections mentioned above. After looking at the hundreds of accurate predictions in other areas, the Bible has a flawless track record. Again, I approached this as an Atheist who’s main intent was to disprove the Bible so I could write it off as a creation by man. Two solid years of study and trying to poke holes, I had to accept it for what it claimed to be. Like I said, it has helped guide me through the waters pretty successfully these past 19 years.
March 19th, 2009 at 8:36 am
Bernanke races to the bottom… others now must follow.
The real problem is that this move will not have much effect on the economy. If high rates were the problem, they would. But – obvious to everyone on Earth but Ben, it seems – they are not the issue.
The issue is that you cannot trust the bastards who are running our big institutions… and Bernanke intends to keep those guys in their jobs.
March 19th, 2009 at 8:37 am
Lots of fun last night/this morning…..Huey Long…..Wizard of Oz……The national guard….the dollars going through the floor….gold’s going somewhere…..food supplies are threatened….Bernie Madoff owns us…..Why not take the day off and go out with the kids
March 19th, 2009 at 8:51 am
I have a question. If the 12 fed banks are owned buy the banks that operate in their area, why is the fed loaning the Government money to give to their shareholders. And why doesn’t the government print their own money and pay down their own debt instead of taxing the hell out of me.
——-
That’s why we are in a such a pickle. Most people have zero understanding of money creation. How can they even decide which leaders to elect when they have no idea how the whole thing is being managed?
March 19th, 2009 at 10:19 am
boy we’re at 117 here! lots of comments on this one.
Not sure if I missed it in the aboves but I for one hope to refinance my mortgage down from 6.5%
I suspect that is one aspect of the plan to make it easier for the folks who have held on to their homes to keep them and bring the foreclosure curve down to manageable levels.
March 19th, 2009 at 11:56 am
I’m a little confused by all this gov’t intervention. Do I need to continue trading/investing on my own account or as a tax payer am I now a shareholder of the worlds largest hedge fund? The federal gov’t has a pretty good good mix in place for us at the moment; we’ve got some bank stocks, some insurance stocks, plenty of foreign currency exposure, oil and nat. gas reserves, a pile of mortgage backed securities, some unsecured bonds, and now we’re gonna apparently pick up some 10-year notes. Seems like a fairly diverse portfolio and my only question is when should I expect quarterly statements and dividend checks to start arriving?
March 19th, 2009 at 12:21 pm
bman Says:
March 19th, 2009 at 10:19 am
Not sure if I missed it in the aboves but I for one hope to refinance my mortgage down from 6.5%
I suspect that is one aspect of the plan to make it easier for the folks who have held on to their homes to keep them and bring the foreclosure curve down to manageable levels.
……You got it buddy…I’m going to refi two props and got offered 4.5% this morning….it’s going to be a real shot in the arm for domestic balance sheets at all levels and will stimulate real estate
March 19th, 2009 at 12:40 pm
My opinion:
http://theburningplatform.com/economy/the-pothole—holy-cow
March 19th, 2009 at 1:11 pm
@ chatter about China not buying our Treasuries
I’m not so sure this is true. The latest data from Treasury is that foreign purchases are negative.
http://www.ustreas.gov/press/releases/tg57.htm
According to the latest data from Treasury, holdings from China (and Japan) are still increasing:
http://www.ustreas.gov/tic/mfh.txt
But the data is for January – February data out in April.
Wen Jiabao made his infamous comments on Friday AFTER the 3-year and 1-year note auctions. Reports of those auctions are all over map – an AP piece said demand was ‘decent’, Forbes said ‘terrible’. Not sure what the real picture is but the big decline in purchases seems to be coming from the Caribbean tax havens.
March 19th, 2009 at 1:14 pm
that should be 10 (TEN) year auction….
March 19th, 2009 at 2:21 pm
Lets see – more cheap money as the cure for too much cheap money. Causal logic is a bit fuzzy.
Said another way – after 4 days and nights of hard partying in New Orleans – free beer doesn’t entice me to drink on Sunday morning.
March 19th, 2009 at 2:24 pm
karen Says:
March 19th, 2009 at 12:25 am
anyone that didn’t see today as fait accompli was smoking crack as far as i’m concerned…
haha, it’s hard to filter out the noise and pick the right things at the right time, but i’m with you on this one. Now pass the pipe!
March 19th, 2009 at 7:58 pm
I guess I’m a Point-A-to-Point-B guy.
When the January TIC data (http://blogs.cfr.org/setser/2009/03/16/todays-tic-data/) indicates that there were very outflows in agency debt and outflows in long treasuries, then, the next day, the Fed announces that it’s buying agency debt and long treasuries, I would tend not to view that as a coincidence.
We’ll see whether the bond market stuffs it up his chute or not. Right now, it looks like he spent a third of a trillion dollars for a one-day move.
March 20th, 2009 at 1:48 am
“Our choice is: live thru the 1930’s or live thru the 1970’s. I know which one I prefer”
well wunsacon, 70 + 30 gets you the oughts (‘oo)…..
and THAT’S what we’re gonna get