Saying this isn’t going to be like the GD 1.0 is like judging a baseball season by the first 10 games played.

During the depression, it was normal for the market to rally when the government would announce a new plan. But as time went on, we’d see a new bottom tested. Most people who believe in overall deflation have predicted this time around will be no different.

but obviously he cant stand being wrong.

personally attacking the person who was right, just discredits him further… ( i thought that was against posting rules anyways.)

cant you guys make cogent points without all the bluster?

The Clinton bubble popped after Y2K and 9/11. They were in serious panic at that point.

A lot of very smart people were fooled by the bogus valuation methodologies underlying MBSs and CDOs. In retrospect the amount of oversight was ridiculously small. But the theory was those people were betting their own money. Now we know better.

David,

I agree that the Bush policies were very short-sighted. I also believe that he knew we were in a bubble (since 1996) and was hoping it lasted until 2009. It popped 18mos too early.

I am describing something that doesn’t even really expand the amount of electrons. As someone else put it, “it was like the old Russian joke, ‘we pretend to work and they pretend to pay us.’” This is strictly so the banksters can “truthfully” report that their crap debt is “worth” more than it really is and prevent the bank from being declared insolvent.

I’ll see what some of the better minds that I pick have to say about the T purchase. From what I am hearing, the “print” isn’t exactly what first meets the eye. If they wanted to “print,” they would have done so 18months ago. Geithner is STILL trying to create his toxic waste dump, and every incarnation of it since he first floated it in November 2007 has gone down in flames.

Here is what I think is going on.

49% of government spending is BORROWED money. Taxes can barely cover half of what Barry, Harry and Nan are doing. 39.6% of taxes are paid by 1% of taxpayers. Those taxpayers are getting creamed. What the Treasury saw on March 15 (declining quarterly tax estimates) is likely what caused the FOMC to issue the statement it did. I can’t wait until they react to what they see on April 15, when individual returns hit.

Treasury data from overseas is also not encouraging.

Can’t tax + Can’t borrow = Can’t spend.

Spending = Congressional power.

I’ll leave the rest up to the rest of you to figure out, lest Angie and 98115 get all testy.

“but corporate debt is being positively crushed, so we should expect GDP to get crushed with it”

“but a standard debt creation through expansion of the FEDs balance sheet”

It’s circular. The transfer of debt to the government puts it on broader shoulders. Investors are hammered, screwed is a better word. If you were stupid enough to buy stocks, bonds, or investment instruments based on paper profits you get what you wanted.

The government under the Bush administration turned a blind eye to corporate greed in favor of an appearance of prosperity. I would go so far as to say it was for ego in the face of a foreign attack against the World Trade Center. That certainly came up enough in every type of speech that was an excuse for whatever debacle Bush was addressing at the time.

GDP can be increased by research development and production. If need be we can open the borders by utilizing the NAFTA treaty. We are a great country of innovators. It was a shame George Bush didn’t have enough confidence in the American way of doing business. He let parlor tricks pass for profit.

Regarding the T purchase by the FED…

I am having lunch with a friend that is more knowledgeable in this subject this week. Hopefully he will have something interesting to say. Right now, this IS NOT a raw print, but a standard debt creation through expansion of the FEDs balance sheet. I hope to learn more of the mechanics of this.

Curious to hear your take on this. I am wondering if this is anything different from what was previously announced at the beginning of Dec 2008 – $500B that time, petty cash for their weekly on market buying activity. Looks like they ran out of cash and are re-upping for $750B this time.

Doesn’t really look like a new program or approach.

Regarding the “print…”

It isn’t what it seems. The speculators are out in force to try to front-run the FED buying at “above” market rates, thus the spike in US debt values, but corporate debt is being positively crushed, so we should expect GDP to get crushed with it. Down go tax revenues…

Meanwhile…the foreigners are probably going to be very cautious about buying US debt.

Some of the “printing” is the FED agreeing to buy some mortgage dreck at high prices from insolvent banks. The bank agrees to keep all the proceeds on reserve at the FED. In reality, no money changes hands, or is even created. All we have is a bookkeeping drill, but the banks are allowed to stave off the day of reckoning another few weeks, and we get a rally in the S&P.

Regarding the T purchase by the FED…

I am having lunch with a friend that is more knowledgeable in this subject this week. Hopefully he will have something interesting to say. Right now, this IS NOT a raw print, but a standard debt creation through expansion of the FEDs balance sheet. I hope to learn more of the mechanics of this.

I now return you to Mikal’s onanistic display of financial idiocy…already in progress.

1. Inflation will not be a problem in a recession. Someone mentioned 40% interest rates. No way. Perhaps in decades. Just look at what happened to oil and gas prices, as just one example. The loss of jobs/demand takes all the pressure off prices.

2. Inflation was not a problem even during a massive credit bubble, because there are 3 billion people in third-world countries willing to work for a meal and roof over their heads. Once growth resumes (you decide when) it will be decades before this “excess” labor is worked out.

3. The dollar will not become worthless any time soon. Some of you expressed shock and/or disbelief that the dollar has actually strengthened as markets tanked. While I did not predict that, I am not surprised. In every past crisis, foreigners flocked to the dollar when they were frightened. It may not be great, but it’s stronger than all the other colored pieces of paper out there. It’s the safe haven for protecting what you have.

I’m not bullish on real estate or stocks. I just don’t agree with doomsday scenarios. They are possible but extremely unlikely. Remember, during the great depression there was 30% unemployment and very little aid for people in need. Still, people didn’t run around with torches and pitchforks and we didn’t have a revolution. Today unemployment is 8%. It’s a long way to disaster-ville.

Maybe if we make dollars worthless enough, bubble prices for a house appear to be reasonable all of the sudden? I think the current crisis is proof that building an economy based on credit is the worst thing we can do. I believe building a job base that supports spending within our means is a much better plan.

Not so long ago I went through my own personal Great Depression. It taught me how to value money and save for a rainy day. Now I have enough rotting in the bank to live like a king for years. Then again, living like a king, to me, is living in a shack and writing music while not having to worry about paying bills. There’s nothing better in this world that I can think of doing with my life.

Great Depression 2? Bring it on baby. It sounds downright enjoyable.

DJO hit the nail on the head. The government is moving money around.

People still pay mortgages, buy insurance, pay taxes, buy gas, the list goes on for the number of real dollars that filter through the government.

Money does not get lost. Money does not disappear. Dollars are a real currency. Dollars are money, dollars.

What you are all talking about is paper, debt, a formula of economy. Paper profits have inflated the price of everything. Paper profit is what makes people rich. Dollars are what make people wealthy. The wealthy have not lost any dollars.

I’ll tell a story about myself, I am a widower. My wife died after a year in the hospital. Illness and death changes perceptions. It also shows you how badly our health care system works, a topic for another time.

The point is that when you take away the trappings and look at the reality of our economy we can move money around and make profits. Any one of us can become rich or wealthy. It takes a little risk.

When you realize there is nothing any one can do to you. When you come to grips with the fact you’re going to die anyway. What’s the risk? Your money or your life?

The US.gov is selling debt like mad to fund all these bailouts, the GWOT and all the institutionalized sloth in the US.

US debt is in a bubble, which allows Congress to continue to roll its debt (think of it as a refi with teaser rates). When a bubble is showing signs of fatigue, you sell.

With all that happening, the bond market is setting up for a huge crash, which will take the DJIA into the 3000s, if not lower. The US.gov can’t backstop the debt markets anymore than you could drain Lake Washington into the Sound to keep the tide from going out. It may look like a good idea to the masses, but it won’t work.

It is my theory that this printing move is more jawboning than action and is designed to keep Congress’ debt going another quarter, or perhaps two. When Ben announced this, it told me that he believes that this is the perfect time to panic.

Panic ain’t bullish.

Printing money is like morphine. When the pain is real, it is not addictive. But now that they have started doing it, the next time a difficult choice has to be made, they will just print a little more, “for the children.”

Since I am obviously disgraced by my government telling everyone they are about to blow their heads off by printing currency to get us out from our debt obligations, and since you are so forward thinking in your prediction of how this printing will work, please enlighten us.

Please, oh great fount of wisdom, tell us how this works and how you can get in front of it to profit. Since the answer is so easy, and I am so obviously flawed, please enlighten us as to how we mere dullards can profit from such a move.

We mere mortals are requesting an audience with your brilliance and benevolence. Oh, Sensei, please show us the path less traveled. How does the .gov plan to “print” our way out of this mess and how does it not destroy the livelihoods of at least 280million Americans?

So they took $750B out of the left pocket, and put it in the right pocket.

Ok. Great. Not like anyone was restricting Fannie and Freddie from lending.

In the past 6 months, since they went into “conservatorship”, the Feds have basically made it easier for them to get in more trouble. Hasn’t helped much so far.

I was laying on my death bed amidst abstract poverty during a large part of that 12 years. I abandoned an extremely promising musical career and took up reading medical books in an attempt to figure out what the doctors who abandoned me couldn’t be bothered to figure out. I was not out partying with the rest of you. In fact, if you had seen me, my appearance was such that you would have shunned me. I know, because even my good friends wouldn’t come around anymore. Why should they? I had nothing left to take and only misery left to give.

After many years of the hardest work I’ve ever done, I reached the point where I could run 5 miles 3x per week. And that represented a fraction of my workout routine. I climbed rocks and mountains all over the West during that time of intense physical, mental, and emotion healing. It was a testiment to what lengths people will go to in order to pick themselves up out of the sewer and build a better life.

As for that rich old white guy, I don’t need any of the money in his safe to realize my dreams. Unlike him, I’m already living them. His deathbed experience is just around the corner, and unlike me, he won’t be able to put himself back together and live another 50 years. Hoarding money isn’t the greatest thing in life. He does it because, as menial as it is, it’s all he has. Had he donated it to intelligent medical research years ago, it might have actually done him some good. But now it’s too late, so he’ll fruitlessly and selfishly take it to his grave. “As yea sow so shall yea reap”

When the Fed is the only buyer left, the government is essentially trying to fund its self- by its self. Its just a big circular flow operating outside of reality. How much money do you want? Here, have some more! It’s kind of like raw printing, but legal in a weird corrupted sort of way.

Here’s the catch- the government and the Fed can control the amount of currency in circulation. But they can’t control its value as measured by real productive capacity. And when its value goes to zero, either through dilution, inflation, or a lack of faith in its continuity, we’re done. This change was a big step toward that end.

No, it’s not in a vault, it’s gone. That’s the problem. The rich guy had more of a cushion to start, so he has some left, but he lost a bunch. They guy with nothing still has nothing. And the guy who, like most of us, thought he had a start on something, now has little left. That’s what hurts. Or will- we’re not done yet.

Jonness- works like this: The Fed goes to Treasury and buys dollars for a few cents a piece (covers the cost of running the presses, etc.). Then the Fed goes to the government and buys T-bills, gives the government the cash and puts the T-bills (bonds) on its books and collects the interest. The government uses the cash to pay its bills. So yes, there is debt behind the new dollars, they didn’t just come out of thin air. In a normal world that debt would have to be paid back, to the Fed, a private bank that works in concert with the government, but isn’t a government entity. The Fed has been using the new dollars to buy 10 and 30 year bonds for more than the market says they are worth. By overpaying, they have been able to force down long term rates in an effort to build borrowing demand through lower rates- think mortgages. Since they already have target rates at essentially zero, and demand still hasn’t picked up, they had top try something new to manipulate rates down.

Normally investors buy these same bonds. Having the Fed buy them, at above market rates, just adds another distortion to the markets, increases government debt, and steals from the future. The danger is that by having it all be an “inside deal” by an entity that isn’t subject to market constraints there is no real limit on how much of this new money they can create. The normal higher interest rates, a constraint, are absent. It’s rigged from the start, and forces other player in the market to go along, or get out. Until the whole hoax comes crashing down.

Here’s what I love, we just came off of ten or twelve years of the most economic growth the world has seen and in two years we are worried about a couple of trillion dollars. I really like the twenty trillion dollars of lost wealth figure that is thrown around.

You are commenting on a post of a blog started by an electrical engineer who foresaw the collapse of the housing market. You pay your money you take your chances, but the money is where you wanted it to be.

It’s all safely in some rich old white guys vault.

Buying T-Bills with tax dollars is a problem?

Can the United States government pay back borrowed money?

Did Kary actually say American business needs credit?

Please give it a rest.

The United States creates more money in a day, they don’t need to print it, then most economies make in a month. If our government were to ever ask the American people for money we would give it. I’d challenge any one of you to say you wouldn’t contribute if your government asked, like Clinton did.

We can do what ever we want. I know I can.

This government is the envy of the world because of our freedoms and opportunities. We make money. Do you not make money? I make money. Are you restricted from making more money? Why? Is there a law on the books that prevents you from making more money? Is there a class or social order that says you can not be as rich as you want to be? OK, wealthy takes a few generations, but still, has some one told you you are barred from doing what ever you want when ever you want?

In this country the law is stacked in your favor. It depends on what you do with your opportunity. So you can talk about economic formulas all day long and it means nothing.

Am I mistaken? I’m under the impression the $1.2 trillion Bernanke is printing is not backed by Treasuries. It’s coming off the presses and going straight into the system. If so, and his plan doesn’t work, what’s to stop him from printing $5 trillion more?

IOW, if the $1.2 trillion doesn’t fix the credit market, thus restoring Velocity. It’s easy to print more money and inflate our way out of this mess.

Two things are going to happen
1) interest rates will rise as the Fed keeps issuing more and more treasuries which will support the dollar
2) other major currencies will come under even greater pressure than the dollar as their economies head down even faster than ours. Failing EU banks due to eastern bloc loans. Japanese export collapses. yada yada

As Gameboy says, this is the printing of money right off the presses. This is the economic equivalent of the first of a long series of atom bombs dropped on the economy.

Some argue that it’s not meaningful to print $1.2 trillion and flood the system because we’ve seen $20 trillion in wealth destruction. I think they should consider that Helicopter Ben has the authority to print as much money as he wants. There’s not a darned thing anyone can do about it. He laid out his plans long ago on how to address a Japan-style bubble bursting. He will make good on his promise and print however much money he feels is necessary. He has said that deflation trivial to stop. All’s you have to do is print money until things inflate. IMHO, the printing will not stop until the dollar is toast. All the while, we will be brainwashed about the brilliant plan to pull the money back out of the system prior to the destruction of the dollar. Unfortunately, Bernanke will mis-time the market, and the U.S. will be toast.

I’m considering picking up a conservative 10 oz. of gold just so I’ll have something left when bread goes to $50 a loaf and everybody is still out of work.

Gold’s days are over as anything except a speculative medium. Its value floats against all other currencies, a mirror of their current status. Many who hold gold as some sort of ultimate currency will be rudely surprised should world economic systems collapse.

For there to be a new standard it would have to be something better, not something new.

Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions

This is nothing more than bluster. You can’t purposefully create a widely accepted reserve currency because you want to. The US dollar is the world’s reserve currency because of it’s relative stability over 100 or more years, and the sheer size of the economy behind it.

It will take a LONG time for any new currency to gain the kind of credibility that the dollar has.

The whole idea of trying to “create” a new reserve currency is crazy to begin with: there already is an already accepted global currency: gold. The fact that the Russians aren’t proposing a move to use gold as the global reserve currency speaks volumes about their intentions (i.e. they aren’t REALLY serious about supplanting the dollar).

It was caused by increased spending on the War on Poverty, the Vietnam war, and then the oil shocks. Labor was able to keep up because Europe and Japan manufacturers had not yet gotten their quality up to American standards yet. When then those standards did catch up, we responded with import quotas, which motivated the Japanese and Germans to focus on high end products where the profit per unit was higher, and that meant American cars got stuck with the low quality reputation.

“For inflation to be maintained as more than a one time increase in prices, wages have to adjust up.”

That just allows the standard of living to be maintained. You can have inflation without wage increases, that just means that the standard of living is falling. But that is exactly what Obama promised when he was campaigning, saying that our consumption was killing the world through CO2.

MOSCOW, March 19 (Reuters) – China and other emerging nations back Russia’s call for a discussion on how to replace the dollar as the world’s primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.

Calls for a rethink of the dollar’s status as world’s sole benchmark currency come amid concerns about its long-term value as the U.S. Federal Reserve moved to pump more than a trillion dollars of new cash into the ailing economy late Wednesday.

Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to up their influence on decision-making globally. Their first ever joint communique did not mention a new currency but the source said the issue was discussed.

I also took in software engineers comment because his is a little Apocalyptic also.

Kary you want things to go back to the way they were the same as all the Real Estate bloggers do. It’s not happening. We turned a corner on the economy. We have the New World Order Bush Senior promised and George Junior delivered. Actually Bernake delivered.

At the first rise in interest rates and the response was immediate Bernake choked and back peddled. That is in my opinion what caused the crash. If he would have stayed to the game plan and fought inflation, whether real or perceived the global economy could have dealt with it’s own mess.

Bernake blinked, backed down, and cowered in a corner. George in response to economic extortion started giving away money. That was the end.

Obama just finished what George started, but there was no need to. He should just forget about the economy, he has done more than enough and get on to international détente.

The reality is that demand is still collapsing, unemployment is rising, and the consumer and most small businesses are tapped out and unwilling to borrow more. So while the banks may be more liquid and willing/able to lend, the demand isn’t there. The new dollars never make it to the consumer, which means sales never increase, and employment/wages don’t go up. Keeping the current economy/government on life support isn’t the same as curing the disease. The government allows itself to get deeper in debt without generating any new productive capacity. Remember, only about 12% of the stimulus was really for an increase in productive capacity, and only 40% of the 12% gets spent before 2010. That’s nothing, and too late. The rest effectively maintains the status quo in the face of a declining economy.

For inflation to be maintained as more than a one time increase in prices, wages have to adjust up. And wages won’t adjust up until unemployment falls leading to a shortage of labor that forces employers to bid for available labor with higher wages.