I refer the honourable brown one to the replies I gave earlier.
Major Crapper: You mentioned the risk that a bank takes by lending money-well that's in the old days.Now the banks just bundle those risks as Asset Backed Securities and sell it on to some other schmuk-risk gone
Getting Closer To My Masterwork
75 replies to this topic
Posted 20 March 2003 - 08:35 AM
Posted 22 March 2003 - 03:39 PM
My $.02 ...
1. The FED rate is 1.25%. It can go to zero and they can STILL lower rates beyond that point by monetizing the long bond. This means the FED "prints" money to buy the bond, keeping the price rising and the long rate dropping. This, in turn, forces other rates to drop as well. As Bernanke pointed out, the FED has a LOT of maneuvering room.
2. As the recent stock market rally proceeded, the long bond rate (and others) went up. You can expect this action to be reversed in the immediate future by FED activity. WHY? If the rate stays up / continues to rise, then two things happen: a) no consumers borrowing for mortgages or refi's (waiting for rates to drop), and foreigners stop buying bonds (not interested unless bond prices continually rise). These equate with economic GAME OVER.
3. As the FED brings the long bond rates down, the dollar and the stock market will drop back into their prevailing down trends (also, gold and CRB will continue upward).
The game will continue as before after this brief chapter ends (maybe days or, at most, weeks).
Posted 22 March 2003 - 04:25 PM
Right arm erayboy!
IMO there is no elasticity in mortgage rates. Prices have climbed mostly because rates fell. A rising rate should cause a more rapid price decline as buyers can "afford" less house.
Re-fi's become less likely as the differential shrinks accompanied with potential stalling or falling home prices.
The fed must now work to reduce or hold long term rates, maintain the dollar, keep the stock markets propped up, and still look fresh as a daisy. Good luck. The boom is over, gone , dead, kaputski. The bust will be accordingly sized. No bra can hold it.
Posted 22 March 2003 - 04:54 PM
Its could be that the recent teaming up of the FED and BOJ could extend the day of reckoning for some time. Ww shall see.
Posted 22 March 2003 - 05:41 PM
I would be interested in knowing what percentage of homes that are eligible for refinancing have not been refinanced. Also, it would be interesting to see what percentage of the current debt in the US is self liquidating. I suspect that very little of the money coming out of the latest refinancing boom is going into activities that generate real wealth.
erayboy: doesn't printing push the interest rate up? I would think that printing too much would push the interest rate up, so the value of existing bonds would go down.
Perhaps looking on the bright side would be in order - after things implode there will be all
sorts of good consumer stuff available for cheap second hand How many cents on the dollar do you think yuppie SUVs will go for?
Posted 23 March 2003 - 01:28 AM
1. I did not mean to imply that the game would end soon, only that the rally would. The game will go on indefinitely.
2. "Printing money" increases money supply causing inflation. It does not raise rates. However, when the FED "monetizes" the long bond -- printing money and buying bonds -- it raises the price of the bonds which, in effect, lowers the rate. Other shorter term rates are reduced proportionally by market pressures. The FED isn't concerned so much for the banks' dwindling profits as it is for the bond -- the bond market being 5 times the dollar value of the stock market -- since the GOV can always bail out failing banks. The bond is the mechanism for funding the GOV's debt and repatriating dollars for reuse by the empire. Rising bond prices keep the foreign dollars flowing back into the USA.
3. The FED has "unlimited funds" and it (PPT/ESF) can prop the stock market by buying stocks -- previous conspiracy theories were fleshed out this week by statements by the BOJ pertaining to working with the FED in supporting (any and all) markets as necessary. The activity of injecting funds into the market has had minimal inflationary effects since these dollars are later vaporized when the market subsequently collapses further.
4. The debt burden is beginning to crumble. The consumer can barely get more credit/debt, so he will not be able to continue buying goods and services. As this cash flow slows, individuals and corporations are failing at an increasing rate -- bankruptcies are at a record rate/size and are rising. This deflationary destruction of the money supply is the number one target of the FED's effort to inflate. Can they print it fast enough to buy all the bonds and all the stocks? They seem to think so.
5. Deflation of inflation? The answer is YES to both. Some things inflate (essential items that are not manufactured -- medical services, insurance, raw materials [CRB basket of commodities]) while others deflate (cars, computers, electronics, etc.). Be certain of one fact: Americans will be stuck in between while being crushed by debt -- all the while being encouraged to patriotically BUY MORE.
Posted 23 March 2003 - 03:15 AM
HRFF got about half-way through the posts, here.
Hyper, you're talking thru your hat, in some ways. Major is calling you out on some important points.
Everyone seems to have their thesis about where we're headed. Hyper has his. Rogers is saying it's inflation we're headed FUR. They're a dime a dozen, often animated by who has what political axe to grind, with a good deal of historical
"interpretation" thrown in to bolster one's point of view.
It's obvious we've overdone things in this nation - in a HUGELY irresponsible way. It's fairly obvious the American consumer is driving the world economy, and now that he/she's up to his/her KEISTER in debt that won't continue. They tried to get the stock market to act as a buffer until they overdid that. Then they turned to real estate as a proxy and now it's beginning to tire. What will they turn to next? Hyper's saying they've run out of trix, and he's probably correct - we don't quite know yet, and won't until real estate REALLY crumples and the stock market fails to snap back - current machinations SNOTwithstanding.
It's obvious the "gearing" in the past 8 to 10 years has been ASStonishing and accelerating, exponentially, ass documented by Noland, say. It's obvious the world's second largest economy is in DEEP trouble and wallowing in deeper still. It's obvious the world's THIRD largest economy is stumbling. And it's obvious (when Iraq is pushed off the front pages) that the world's LARGEST economy is beginnng to sputter. It's also obvious no one has a policy "solution", that there is no consensus as to what that should be. It's also evident that initiating this war at this time may be more than sheer coincidence, especially when its locus is taken into account.
With the three mightiest (or, more to the point, ONCE mighty) economies blundering about like drunks in an alleyway, it doesn't take genius to deduce we're, collectively, headed FUR a crisis of potentially cosmic dimension.
But what form the coming crisis will ASSume is anyone's guess. The historical antecedents at this point, really, are completely irrelevant unless they can provide guidance for a VIABLE "solution"/or it's corollary, more of interest here, a roadmap FUR investment/trading strategies as the future unfolds. The tragedy is that the antecedents/causes have been permitted to occur FUR so 'long' and are so intertwined and complex, that extricating any thesis as a framework FUR policy FURmulation will be contentious to the point of rendering such efFURt ineffectual.
What is, PERHAPS likely, is the emergence of some reality NO one quite anticipates, in some particularly virulent and insidious manifestation, and of a systemic and protracted nature.
A la Japan.
We are beginning to reap where we have so ASSiduously sown.
"The sphinx set riddles for people which they could not solve and the sphinx devoured them." Russian poet Ilia Ehrenberg reflecting years later upon the debacle of the Bolshevik Revolution and civil war
"In any case, experience shows people are unlikely to change their ways without a cataclysm of existential proportions" Meinhard Meigel, German economist and demography expert on his prophecy of a Wagnerian abyss of social and economic chaos
"We believe that here is no easy way out of this mess, and that the chance of a benign outcome, while hopefully possible, is quite low." Comstock Partners 3-17-2005
"Not without a shudder may the human hand reach into the mysterious urn of destiny." Junk email promoting the sale of Valium, Viagra, Soma and Cialis. Of course, we AMERICANS need not WORRY about such CLAPTRAP!!!
"The trouble about myths, or lies, is that those who foster them are stuck with them." Edward Crankshaw
"I don't buy the idea that a crash will come without warning. There are always warnings. All crashes have certain common technical preconditions." Doc (snorjt)
"YOU look IMPORTANT. Are you important, or just....WEIRD?"
"Bob I am" at a political gathering, to HRFF, 9-29-04
"Are YOU C.I.A.???"
"No, I'm not "CIA"."
"Well, you sure LOOK LIKE you're C.I.A.!!!"
Lead singer of the rock band KISS to HRFF at a luggage carousel at SeaTac airport circa 1996
"Unlike you, I use words people can understand." Doc
"America at the moment, with its faith-based currency, faith-based economy and faith-based government, might be a heaven for those who love faith, but it's a hell for those of us that respect evidence." The Daily (W?)Reckoning, circa 9-17-04
"What should be clear at this point is that even huge fiscal stimulus and unprecedented financial excess are incapable of fostering a sound and self-sustaining economic expansion. The paramount issue, today and going forward, is the deeply maladjusted U.S. economy and its increasing unresponsiveness to even enormous yet misdirected financial stimulus. Both the Financial Sphere and Economic Sphere are severely maladjusted." Doug Noland's Credit Bubble Bulletin, Aug 24 '04
"U.S. dollar purchasing power relies almost entirely on the difference between interest rates in Japan and the higher rates in the United States." Warren Pollock, Prudent Bear essay circa 9-04
"What about your replacements? the Children. What do we tell them when the whole thing caves in?" HyperTiger
Posted 23 March 2003 - 11:14 PM
Ok, I need some enlightenment about how this really works - since I'm not an economist, I could have a misunderstanding of how things work.
I thought if they were printing money, they'd have to offer higher interest rates on new bonds that they issued, otherwise people wouldn't be interested in them.
If they offer higher interest rates on new bonds, I thought the value of currently issued bonds would decrease, since purchasers would get a higher rate of return on the new bonds.
If there was an inflation scare, it would discourage the bond market somewhat. Printing money is highly inflationary.
If I've missed something, or there is something deficient in this analysis, I'd like to know what it is. When ever I think too hard about the banking system, I get an overwhelming desire to go buy more gold and hide it in a safe place
Posted 23 March 2003 - 11:23 PM
With the FED and the BOJ double-teaming the markets things might not always work out the way you think they should.
Posted 23 March 2003 - 11:48 PM
-Starting with your,:"The tragedy is..... intertwined and so complex......"and ending with,"ineffectual" essentially summarises the AUSTRIAN SCHOOL very nicely==
When Rothbard first started attending economics classes and began to encounter solution mongering peddled by the professoriat he,one day,upped and out the class he went.
The point being ,that in the thesis propounded by Mises, about the the complex web of interacting agents and agencies ,that a state ,playing with a modern economy ,is eqivalent to to predicting the weather years in in advance;
his prescription for encountering bad weather is having a good workable thermometer (the gold standard which protects the NATURAL INTEREST RATE}, AND like Mom used to admonish us: whenever the red in the bulb (interest rate) indicated (note indicated and not predict) inclement financial weather, to respect it ,and never forget to put your raincoat and galoshes on--
There is no way ,following bare's contention,to disentangle the causal gordian knot;like Alexander you simply raise your sword and cut it loose,as in a depression????
And the best way to prevent one in the future???Dont meddle with interest rates and accept the fact that into every life a little rain must fall--
This isnt a form of simpltonianism;it doesnt have a CURE; BUT rather a healthy and humble respect for OVERWHELMING COMPLEXITY,which left alone will sel-correct-
Self correcting does not mean a painless esistence nor making everyone rich overnight ala ponzi, but,rather an economy, patiently evolving over long long real long periods of time----
Posted 24 March 2003 - 12:09 AM
HT, ok assume it happens 'this' coming week by assuming that the congress does NOT pass a debt expansion bill (thereby putting the gov't in bankruptcy). happens at 11 at night.
What do the futures do as the midnight +1 minute time hits? what do the spoos/qubes indexes do short/mid term/long term?
IF the market goes near to zero and we are short (i'm a bit short via bearx, no longs) what will 'happen' to trading accounts? the cash accounts will be worth nil.
since the shorts depend on buying at a lower price to lock in prices, and the hedgefunds that were on the long side or had written puts go under, what do the clearing houses do to perform their function when we shorts want to buy at the 'bottom" (say $10 for ibm, $5 spoo, $2 qqq)? Will the short funds like bearx really 'pay off when we want to withdraw after a 5000% increase?
will the dollar amount of the money be actually worth more relative to the 'then' current prices of a new mini-van or a new house?
currently the spincter futures are -10.10 (-1.13%) 11:13 pm et.
Posted 25 March 2003 - 01:06 AM
Hypertiger: a couple of questions:
1) why stack silver, not gold?
2) How would printing help? Would monetizing debt increase the willingness of creditors to lend?
I agree though, we're in for some tough times ahead.
I had thought that the presence of inflation would make people require higher interest rates, otherwise their investment would get inflated away. The purchasing of long bonds with printed money is a sneaky trick I hadn't thought of. Thanks for the info.
Posted 25 March 2003 - 11:38 PM
For those new to this thread here is I think, part one of the thread on this message board: "Billions For The Bankers, Debts For The People, the money scam" It's probably the third or fourth thread where the aforementioned 1960's financial synopsis from the pulpit is mentioned on Look Out Below. HT also has an MPG file that's a great listen but I'm not sure where to link. One thing is for sure about what HT says. While stocks can and do go to zero, the only way silver and gold do is when there's nothing left to spend it on.
Posted 26 March 2003 - 12:52 AM
I noted the price of silver the other day at less than $5. an ounce? That seems awfully cheap. My parents paid 20.00 per ounce a couple of decades ago, before the Hunt bros scandal, and ensuing drop in price. Still $5 an ounce? That would seem to be a good buy. Don't you think?
Beardrech, You write like an angel. A slightly nutty angel, but an angel nevertheless.
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