Mid-Week Open Thread (2009-06-24)

Here is your open thread for the mid-week on June 24th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

88 comments:

  1. 1
  2. 2
    Hugh Dominic says:

    RE: Scotsman @ 1
    For what its worth I am more worried about deflation than inflation, but there is certainly no consensus on this…

    You Should Be Worried About Inflation, Not Deflation
    http://seekingalpha.com/instablog/296964-living4dividends/9574-you-should-be-worried-about-inflation-not-deflation-says-paul-kasriel

  3. 3
    jon says:

    RE: Hugh Dominic @ 2 – The links at the end of that article are even better. The second one links to this, by Allan H. Meltzer,

    “They point to the less than 1 percent decline in the consumer price index for the year ending in March as evidence that deflation is a threat. But this statistic is misleading: unstable food and energy prices may lower the price index for a few months, but deflation (or inflation) refers to the sustained rate of change of prices, not the price level. We should look instead at a less volatile price index, the gross domestic product deflator. In this year’s first quarter, it rose 2.9 percent — a sure sign of inflation. ”

    The drop in demand has put pressure on suppliers of all types to dump inventory below cost. These are temporary discounts that will disappear when inventories have reached a new equilibrium. The long term price structure has not changed. When the stimulus bill money kicks in and unemployment actual drops, then people will be confident and all the money parked in treasuries will be spent and invested. So at the same time that the private sector is selling treasuries, the Treasury will be issuing massive piles to pay for all the wild spending, and the Fed thinks it can mop up excess cash by selling them also? Not going to happen. Obama will tell the Fed to butt out so he can nationalize health care and keep going with his trillion dollar a year deficit spending. So the Fed will be stuck with all the excess reserves being released into lending.

  4. 4
    David Losh says:

    The fact is that no one looks at the elephant in the living room. I can think of a lot of reasons not to.

    We had two decades of credit spending. People used credit cards like they were spending actual income. That was your velocity of money. When people wanted something they just bought it.

    Then we had the HELOCs, and refinances to pay off those credit cards and that pushed up the price of houses. Banks wanted to take that unsecured debt and make it secured then sold those mortgages, then bundled them, then sold the bundle. House prices went up because that’s what the banks wanted.

    The trillions pump in by the governments of the world today are filling a void left by restricted credit.

    In other words you would need to dump in many trillions world wide to compensate for the lack of personal credit.

    That leaves us with only a cash economy. Cash drives down prices by reducing demand.

    More to the point we have had two decades of inflation created by credit spending. Wages, low wages, paying off that debt will suck money out of the global economy. The only solution I see is for the financial markets to forgive debt and that would open up another can of worms.

  5. 5

    RE: Hugh Dominic @ 2

    SOME NEWS DATA THE LAST FEW DAYS THAT MAKES SCOTSMAN’S DEFLATION PREDICTION MORE PRAGMATIC

    If you’re in debt [like most Americans], you’re praying for inflation.

    You point at Obama printing mass funny money and you’re convinced that inflation [its really stagflation with 20-25% of us unemployed, not counted unemployed or severely underemployed] is brewing.

    Well the actuals to date say your “pie in the sky” hope is just that. COLAs and CPIs are already going negative as I blog, and if we factored in the degradation of house prices lately [COLAs and CPIs don’t], the deflation you dread would easily be double digit today.

    Welcome to the Depression in Seattle.

    Here’s a blog from me from yesterday:

    “…EVEN YAHOO TECH TICKER IS USING THE “D” WORD FOR OUR ECONOMIC MESS NOW

    The article in part:

    “…The talk was all about rising yields, soaring commodities, a weakening dollar, and how to drain liquidity when the time came. Would the Fed be able to stick the landing? Could we tolerate a little bit of inflation if it meant not cutting the recovery short?

    What a difference a week makes. Here comes the D-word again.

    With the rally sputtering, and the economy showing few meaningful signs of recovery, suddenly the market is back to its old fears.

    Oil has moved sharply lower, and gold, which just a couple of weeks ago was knocking on $1000 now looks set to break below $900, to the eternal disappointment of its fans. Sure, gas prices have bounced back, but still, the CPI showed its biggest drop in 50 years last week….”

    The rest of the URL:

    http://finance.yahoo.com/tech-ticker/article/268445/Deflation-It's-Back?tickers=%5Edji,%5Egspc,%5EIXIC?sec=topStories&pos=8&asset=&ccode=…”

    More related news blogs from me:

    “…GOOD NEWS FOR SAVERS:

    From CBS Market watch today:

    “…Stocks tumble on bleak outlook for world economy
    Stocks slide as World Bank slashes 2009 forecast for global economy; Dow industrials drop 201…”

    Deflation should now intensify as oil prices collapse. This beats stagflation slam dunk, that’s horrifying.

    Reply to this comment By Softwarengineer on 2009-06-22 15:51:24

    EVERYONE THAT IS IN DEBT HOPES FOR INFLATION, WHILE THOSE OUT OF DEBT AND SAVING MONEY CAN BENEFIT FROM DEFLATION

    The media will never admit it, but we’re in deflation right now, COLA is -3.2% for federal retirees to date.

    But the federal deficit will spike inflation again? See to believe. To date, that’s just words with actuals contradicting it.

    Now, if we also calculated the unemployment rate the same way they did during the Great Depression [it was a simple survey extrapolated over the entire nation, which of course included those unable to enter the workforce, severely underemployed and giveups]. We’d never do that, unemployment would be like 20-25% doing it honestly.

    Now, let’s sum up the anomalies: we have current deflation and Great Depression sized unemployment….doesn’t that mean we’re in a depression right now?

    Oil prices at $147 a barrel should have produced like $6.50/gal gas, assuming $70 a barrel oil produces like $3/gal gas today. Obama needs to investigate why we’re currently getting gouged at the pump, doesn’t he(?)…..but does he want to? It would make the deflation even worse…LOL

    Even Democrats make good Republicans sometimes.

    Hide reply Reply to this comment By Softwarengineer on 2009-06-20 18:01:09 …”

    And what’s wrong with Savers getting rewarded for once and spendthrifts in America getting a good spanking?

  6. 6
    Tim McB says:

    Softwareengineer said:

    And what’s wrong with Savers getting rewarded for once and spendthrifts in America getting a good spanking?

    Because savers don’t encourage consumption, which accounts for nearly 70% of economic output. Because life isn’t fair. Because saving is downright unAmerican. I hope that this mindset will change some day. Sometimes doing the right thing is its own (and only) reward.

  7. 7
    jon says:

    Low oil prices are good for our economy. Gold has been irrelevant for decades.

    Meanwhile, durable goods orders are up sharply for the second month.

    http://seattletimes.nwsource.com/html/businesstechnology/2008920611_apuseconomy.html

  8. 8
    Acerun says:

    http://www.reuters.com/article/GCA-Housing/idUSTRE55L39120090622

    “Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.”

    Some people just don’t get it……..

  9. 9
    Scotsman says:

    We’ll get deflation. Keynes is too much of an over-simplification of the modern economy. This is not your grandfather’s monetarism.

    Credit has been the same as money in our modern economy, and credit has been destroyed faster than the government has increased deficit spending, the net result being a decrease in the effective money supply.

    The consumer is tapped out, has stopped buying, is saving for the first time in decades, and is paying down debt. Each dollar of debt paid off by the consumer or business is a dollar destroyed or taken out of the system. Because of this, dollars are leaving faster than the government is injecting them.

    It requires a separate post, but the new debt planned by the federal government this year alone is equal to all the treasuries currently held by China, Japan, Great Britain, and a couple of the next largest buyers combined. Do we honestly expect these countries to double their holding of U.S. debt in one year? What happens next year? What about the other countries currently pushing deficit financing? There is not enough money available world-wide to absorb the U.S. deficit WITHOUT a significant rise in interest rates. Rates must rise to a level where money is pulled from other forms of more productive capital and put into treasuries. The rates required to make this happen will kill off what remains of the economy, kill any chance of credit creation (new money) and drive us into depression. It will also force the U.S. government to abandon much of it’s entitlement spending, further pushing us into depression. There will be no money available to “stimulate” our way out. All of this suggests deflation, then a long, flat recovery.

    California is a microcosm of the U.S. We can watch what happens there to get an idea of what’s coming for the rest of the country, indeed perhaps the world.

  10. 10

    RE: Acerun @ 8

    I READ THAT NEWS ARTICLE TOO AND WAS HORRIFIED LIKE YOU TOO

    These politicians still live in the past; thinking what will pull us out, is the same thing that threw us in the pit in the first place.

    If only like 50% of the condos get sold; why in Hades should the feds be backing this high risk toxic waste condo project? 70% sounds too risky to me too [its a 30% vacancy rate toxic loan level]; but much better than going back to the old failure pit “51%”.

    We need fresh politicians to replace these old codgers, like ones with real progressive change ideas/plans, not “same old same old”.

  11. 11
    Tacoma Troll says:

    Here is news on the condo market in Tacoma

    http://www.thenewstribune.com/topstory/story/788511.html

  12. 12

    RE: Tacoma Troll @ 11

    TIM, YOU CAN ADD TACOMA TROLL’S CONDO EXAMPLE TO YOUR MAP OF ABANDONNED PROJECTS?

  13. 13
    jon says:

    RE: Scotsman @ 9 – Any debt being paid down is more than offset by government borrowing for the deficit.

    If there aren’t enough buyers for the federal debt, the administration will be faced with not being able to fund its plans of social engineering, and will see unemployment rising because of high interest rates. All because there aren’t enough dollars to buy the debt.

    All Helicopter Ben has to do to solve that problem is type in his password, bump up the reserves again, and use that to buy hundreds of billions more in treasuries, or to be a bit more subtle, to buy MBS from banks and let the banks use the proceeds to buy treasuries. They have already announced they are doing this.

    Sure that is an assault on the notion of private property, but given a choice of that or high unemployment, which one do you think this administration is going to do? There is no risk whatsoever of deflation. The only risk is whether they can contain the inflation.

  14. 14
    deejayoh says:

    a month to month rise in durable goods orders is not very impressive when looked at this way:

    http://bullandbearwise.com/DurableGoodsChart.asp

    Still much lower than they’ve been in the last 5 years. But it does give the talking heads “green shoots” to squawk about I guess

  15. 15

    RE: deejayoh @ 14

    EXCELLENT CHART EXAMPLE DEEJAYOH ON HOW MTM TRENDS ARE A JOKE COMPARED TO YOY

    The 787 test delay maded CNN news last night as a failure of foreign subcontractors to deliver decent parts.

    The USA Today had a more detailed article on the 787 test delays, stated in part:

    “…This new delay in the 787 program reinforces a perception that Boeing’s management either is unrealistic in setting ambitious production goals or is incapable of meeting those goals as it tries to develop a plane that could change the economics of air travel more than any plane since the introduction of commercial jets in the late 1950s. In cutting by 20% the amount of fuel needed to fly international routes — and emissions by a corresponding amount — the 787 could reduce airline operating costs and, in theory, the prices passengers pay.

    But creating such a breakthrough aircraft has proved to be a bigger challenge than Boeing officials expected, and that’s damaging the company’s reputation and credibility….”

    The rest of the URL:

    http://www.usatoday.com/travel/flights/2009-06-23-boeing-787-delay-affects-credibility_N.htm?csp=Travel

  16. 16

    RE: jon @ 13

    THE FED BUYS ITS OWN TREASURIES

    But its not just some magic funny money password. They need fed funds from either the IRS revenue [that’s down 44% from 2007, so forget that] or the Social Security and Medicare revenue coming in [I assume its similarily drastically reduced too, with high unemployment and severe underemployment].

    So we pay for today’s unemployment extensions from tomorrow’s retirements and tomorrow’s/today’s Medicare/Medicaid?

    Sounds like robbing Medicaid Peter to keep Unemployed Paul in benefits for a few months longer.

    Where’s the industrial base longterm job creation in this short-term burn the pile of money up plan? I know, you come up nada.

    I agree with Scotsman who has the numbers to back him up. We can’t stop the deflation bonfire with Medicaid money. there isn’t near enough water to calm the raging deflation fires.

    Enjoy your reduced deflationary 2010 property tax statement, assuming you’re a home owner in debt.

  17. 17
    patient says:

    After the first two weeks in June there was a short disucssion on the low number of closings and the norm of much higher numbers in the second half of the month. Ira or Kary how does the 3rd 7-day period look for June? I.e June 15- June 21. Any big change over the first two weeks?

  18. 18
    jon says:

    RE: softwarengineer @ 16
    “But its not just some magic funny money password.”

    Actually, it is. You can see the assets jump up in this graph:

    http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

    The Board of Governers has to approve the move, and the FOMC does the buying and selling. I don’t know who actually bumps the reserves.

    “They need fed funds from either the IRS revenue”

    The money you pay in taxes goes to the Treasury, not to the Fed. Likewise when you buy government debt. The government does not give money to the Fed (except for interest payments on debt). The Fed just creates the money and buys or sells assets using that reserve. See any description of the FOMC.

  19. 19
    Scotsman says:

    Two points. First is that the amount of debt destroyed through either repayment or default far exceeds what the treasury has sold thus far. That, combined with a pretty severe drop in velocity has M3, the broadest measure of the money supply, contracting. That’s the beginning of deflation.

    Second is the myth of increasing durable goods orders. What counts is deliveries, not orders, much like closed sales are a better indicator than pendings. And deliveries have been pretty stable, not increasing, so I think everything we’re hearing about these additional “green shoots” is insignificant.

  20. 20

    RE: patient @ 17

    June 15th through June 21st, single family in King County saw 315 closed listings, and June 1st through June 23rd has seen 956 closed listings . Numbers supplied by NWMLS, not guaranteed or verified.

  21. 21
    jon says:

    By Scotsman @ 19:

    Two points. First is that the amount of debt destroyed through either repayment or default far exceeds what the treasury has sold thus far. That, combined with a pretty severe drop in velocity has M3, the broadest measure of the money supply, contracting. That’s the beginning of deflation.

    Yes, the total wealth has dropped sharply. But the total amount of credit lost is about equal to the decrease perceived value of real estate. So the amount of money has gone down by just about the same as the amount of things it can chase after. So it is a wash as far as inflation/deflation goes.

    Similarly for low wages for currently open jobs. While demand is down because unemployed people have no salary, they aren’t producing anything and so the amount of goods and services are down also. So again, fewer dollars are chasing fewer goods.

  22. 22
    Scotsman says:

    RE: jon @ 21

    Wealth, dollars (or their equivalents), and income are very different things. I think you’re assuming some kind of interchangeability that isn’t there.

    Yes, the asset base or wealth has shrunk considerably. But the level of available credit has fallen much faster, not only because the asset base collateralizing it has shrunk, but because lenders have withdrawn credit.

    Losing your job doesn’t remove dollars from the system, but it does drop the velocity, as does saving, which reduces the impact of existing dollars.

  23. 23
    patient says:

    RE: Ira Sacharoff @ 20 – Thanks Ira, that is definately a bump from the low 200s/week that was reported for the two first weeks but it still seems improbable that we will see another 1000 closings in the last 7-day period, even taking into account that the nwmls always seems able to pull another 10-20% or so additonal closings from what individual members searches yields.

  24. 24
    jon says:

    RE: Scotsman @ 22 – You are correct that losing a job by itself does not destroy dollars. What happens is that the employer decides that because it is difficult to lower salaries, they would rather preserve prices buy cutting production. So instead of paying out salary, they keep the money in the bank. Then the bank has no one to lend to since the employee is out of work, and so uses the deposits to repay their TARP, and that does destroy money.

    Really what matters for pricing is the amount of amount of money that is available to be spent at any moment in time versus what is available to be bought, along with peoples expectations of where prices will go within the time horizon that the consumer or business is able to defer a particular purchase. What is called velocity is just a backward looking averaging of how fast those transactions occur. Velocity is not needed at all for price changes. You could have zero actual transactions and watch bid and asked prices go up and down to see price changes.

  25. 25

    RE: jon @ 18

    HI JON

    I opened your URL and all it is is a fed debt chart with no explanation on how its debt is approved with your alleged magic password. Big deal, you added:

    “The money you pay in taxes goes to the Treasury, not to the Fed. Likewise when you buy government debt. The government does not give money to the Fed (except for interest payments on debt). The Fed just creates the money and buys or sells assets using that reserve. See any description of the FOMC….”

    Where’s the FOMC description in writing you allege to above? And don’t hand me a “doncha know” verbal or a 10,000 page website as proof. This website is much more scientific than that.

    If money from nothing is magical and true as you allege, how come the stock market watches treasury sales like a hawk for lack of buyers?

  26. 26
    Kary L. Krismer says:

    By Scotsman @ 22:

    RE: jon @ 21 -Wealth, dollars (or their equivalents), and income are very different things. I think you’re assuming some kind of interchangeability that isn’t there.

    Yes, the asset base or wealth has shrunk considerably. But the level of available credit has fallen much faster, not only because the asset base collateralizing it has shrunk, but because lenders have withdrawn credit..

    Wealth and income are entirely different things. That’s sort of similar to what I try to point out when discussing high end homes. The buyers don’t typically need the income to support the purchase as much as the wealth. Stated differently, they don’t tend to get 1.6 million dollar loans on a 2 million dollar home.

    I’d disagree with you on what has fallen back faster, at least in the conforming limits of F&F, FHA loans. Even beyond those limits it’s probably the loss of wealth that has hurt the high end market more than anything.

  27. 27
    Kary L. Krismer says:

    RE: patient @ 23 – I would agree, but another 400 or even 500 closings isn’t all that unlikely.

  28. 28
    Scotsman says:

    RE: jon @ 24

    Jon, sorry, but as you’ve written it that’s just wrong. You may have meant something else, but what you’ve written doesn’t make sense. And yes, velocity is very important to any understanding of generalized inflation or deflation.

  29. 29
    Scotsman says:

    RE: Kary L. Krismer @ 26

    Very true regarding high end homes.

    When discussing debt and credit, remember that there’s a whole array of commercial credit, personal credit, and government credit out there beyond the world of real estate. The current crisis may have gained traction in the real estate market, but now involves a wide range of additional players.

  30. 30
    jon says:

    RE: softwarengineer @ 25

    The are several pages on the FOMC at the Fed website, but the pertinent part for this discussion is
    http://www.newyorkfed.org/markets/pomo/display/index.cfm

    “The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system.”

    In other words, they create or destroy reserves (aka money) when they buy or sell Treasury securities.

    “If money from nothing is magical and true as you allege, how come the stock market watches treasury sales like a hawk for lack of buyers? ”

    Because if there are no buyers, then either the Fed will have to buy the federal debt, thus increasing reserves (aka money), or the government will have to cut back on its spending. It is also an indicator of the overall market interest rates, which determines the required rate of returns for investments to be preferable to just parking the money. A high risk-free interest rates means businesses will not do risky investments and so they won’t buy products to use for their use in manufacturing or sales, and so the amount of profits overall will fall.

  31. 31
    Scotsman says:

    RE: Ira Sacharoff @ 20

    So my initial gut feeling of 1250 for June was better than my hyped 1400-1500? I let those “green shoots” get to me.

  32. 32

    RE: Kary L. Krismer @ 27

    I BELIEVE THE TIM STATED THAT 1300 WAS HORRIFYING HISTORICALLY?

  33. 33
    Scotsman says:

    “June 24 (Bloomberg) — Treasuries fell for the first time in four days as the Federal Reserve kept the size of its asset- purchase programs unchanged, failing to ease concern that record government borrowing may lead to higher interest rates.

    Yields rose the most on longer-maturity debt even as policy makers said inflation will remain “subdued for some time.” Fed Chairman Ben S. Bernanke has emphasized that the central bank can successfully take back more than $1 trillion it pumped into the U.S. banking system to pull the economy out recession without stoking inflation.

    “If there was a surprise, then maybe it was the fact that there was no mention of the exit strategy,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 17 primary dealers that trade with the Fed.”

    Huh. Do you think they realize they may run out of cost effective money to make the purchases with? Something about “a rock and a hard place” comes to mind. What do you think they mean by “inflation will remain subdued for some time?”

  34. 34

    RE: jon @ 30

    SORRY JON, ITS STILL CLEAR AS MUD

    An inability to want to make the American debt worse [its interest rate can go up too high and theoretically wipe out our federal government?], as you indicated, apparently has kept President Obama up on sleepless nights.

    http://firstread.msnbc.msn.com/archive/2009/06/18/1969480.aspx

    If President Obama thinks Bernanke can just magically pay for trillions more of debt as you apparently allege, why are they even thinking of taxing our health care benefits to pay for health care reform?

    I need some clear statements, RE: FOMC, from you, that justify simply creating money from nothing being Bernanke’s primary call [the magic password] and it can occur with no likely horrifying risks to our economy and government. Good luck, I assume your website reference won’t help.

    Where’s the 3rd party Ross Perot when we need him desparately…LOL

  35. 35
    The Tim says:

    RE: softwarengineer @ 32 – Well, we’d have to hit 1,300 just to match last month.

  36. 36
  37. 37
    deejayoh says:

    RE: softwarengineer @ 36 – I don’t think commodity price fluctuations are signs of deflation. Sometimes they are just fluctuations.

  38. 38
    jon says:

    By softwarengineer @ 34:

    RE: jon @ 30

    If President Obama thinks Bernanke can just magically pay for trillions more of debt as you apparently allege, why are they even thinking of taxing our health care benefits to pay for health care reform?

    I need some clear statements, RE: FOMC, from you, that justify simply creating money from nothing being Bernanke’s primary call [the magic password] and it can occur with no likely horrifying risks to our economy and government. Good luck, I assume your website reference won’t help.

    The risk is that if the newly printed money is spent on things that do not increase productivity, then the extra money will be chasing the same amount of goods and services as before, and so inflation will result. Inflation hurts people who have money in savings accounts and the like. Obama knows that what he wants to spend the money on is mostly to take care of people who are already retired. That’s nice, but it won’t stop the inflationary effects of the Fed buying Treasuries.

    There is a description of how the exactly decision is made on page 40 of http://www.federalreserve.gov/pf/pdf/pf_3.pdf

    “Each weekday, beginning at around 7:30 a.m., two groups of Federal Reserve staff members, one at the Federal Reserve Bank of New York and one at the Board of Governors in Washington, prepare independent projections of the supply of and demand for Federal Reserve balances.

    The manager of the System Open Market Account and the group in New York are linked in a telephone conference call with members of the staff at the Board of Governors and with a Federal Reserve Bank president who is currently a member of the FOMC. Participants in the call discuss staff forecasts for Federal Reserve balances and recent developments in financial markets. They pay special attention to trading conditions in the federal funds market, particularly the level of the federal funds rate in relation to the FOMC’s target. In light of this information, they determine a plan for open market operations. The decision is announced to the markets at around 9:30 a.m., at the same time that the Desk solicits offers from dealers. (Typically, longer-term repurchase agreements are arranged earlier in the morning, usually on a specific day of the week.) If an outright operation is also needed, it would typically be executed later in the morning, after the daily operation is complete.”

  39. 39

    RE: deejayoh @ 37
    TRUE

    But couple today’s news with the IEA Report and its definitely a deflation forcast, in part:

    “….The International Energy Agency has announced in its latest report that the global oil demand will reduce aggressively in 2009 as the global economic slowdown further eats away consumption. IEA in the report released on January 16th 2009 amended its former 2009 approximation down by 940,000 barrels per day to 85.3 million barrels per day, a decrease of 500,000 barrels per day year on year. It said that “Forecast global oil demand has been sharply revised down for 2009, accompanying a reappraisal of global economic prospects.”…”

    The rest of the URL:

    http://energybusinessdaily.com/oil/iea-expects-oil-demand-to-go-down-in-2009/

    The fly in the deflation of oil prediction ointment is the Iran turmoil getting out of control. But if the democracy forces take power, maybe oil will likely go down some more….LOL

  40. 40
    mukoh says:

    RE: deejayoh @ 37 – Totally correct DJ

  41. 41
    mukoh says:

    RE: softwarengineer @ 38 – so a 1% decrease in global consumption of oil is a huge price movement softie?

    Iran’s democracy isn’t ha penning anytime soon unless we repeat the tremendously great democratic process of winning a country over like we did with IRAQ.

  42. 42
    Kary L. Krismer says:

    RE: softwarengineer @ 32 – Well, I don’t know if I’d use the word horrifying. Pathetic would be more my term, with horrifying being used to describe January and February. It’s clearly not good, but it’s better than it was–just not that much better.

  43. 43
    Kary L. Krismer says:

    By deejayoh @ 37:

    RE: softwarengineer @ 36 – I don’t think commodity price fluctuations are signs of deflation. Sometimes they are just fluctuations.

    Exactly. It’s not like there was significant inflation when oil was at record levels.

  44. 44
    Kary L. Krismer says:

    RE: softwarengineer @ 38 – No! The price of a single commodity or item is not evidence at all of deflation. You’re looking at the wrong things if you think you’re trying to find evidence of deflation.

    Check out the price of computers since 1990. It’s not like we had significant deflation since that time just because computers are much less expensive now.

  45. 45
    jon says:

    By Kary L. Krismer @ 42:

    By deejayoh @ 37:

    RE: softwarengineer @ 36 – I don’t think commodity price fluctuations are signs of deflation. Sometimes they are just fluctuations.

    Exactly. It’s not like there was significant inflation when oil was at record levels.

    Although oil was widely blamed, I don’t think that was the real cause of the inflation. If anything, it was deflationary because it drew money out of the country.

    http://www.nber.org/papers/h0084

    “The truest cause of the 1970s inflation was the shadow of the Great Depression. The memory left by the Depression predisposed the left and center to think that any unemployment was too much, and eliminated any mandate the Federal Reserve might have had for controlling inflation by risking unemployment.”

  46. 46
    jon says:

    By Kary L. Krismer @ 43:

    RE: softwarengineer @ 38 – No! The price of a single commodity or item is not evidence at all of deflation. You’re looking at the wrong things if you think you’re trying to find evidence of deflation.

    Check out the price of computers since 1990. It’s not like we had significant deflation since that time just because computers are much less expensive now.

    Although the price of each computer has gone down, we own a lot more computers, so the total expenditure on computers is way up. Sometimes these labels just break down.

  47. 47
    Kary L. Krismer says:

    RE: jon @ 44 – I’d sort of go back to the 70s too. I think to the extent that oil was causing the inflation, it was a mistake to fight that–it just lead to unemployment.

    But connecting up to today, to the extent that lower priced oil means lower priced products generally as the price of oil works it’s way through the economy, that is a good thing, because lower prices mean more things would sell and more employment. That’s entirely different than lower demand leading to lower prices.

  48. 48
    jon says:

    RE: Kary L. Krismer @ 46 – I agree.

    Btw, softwarengineer, I replied to your #34 but the post was lost somewhere and I when I reposted it was rejected as duplicate.

  49. 49
    Tim McB says:

    So dumb question, but since couldn’t we have deflation and inflation at the same time deflation in some parts of the ecomony (i.e. credit related items such as homes and cars) and inflation in others (i.e. fundamental goods, things linked to oil, groceries, commodities etc.)? Deinflation? You could say that oil is linked to supply/demand that at the end of the day will deflate but that hasn’t been the case its at nearly $70 in a global recession when supplies are 3.7 million barrels strong. In some ways I see our situation as bipolar. You might be able to buy a new GM Yukon for $10k (assuming you’d even want it), a Plasma for $400, or a Ballard Craftsman for $250k soon, but you’re going to pay $4-$5 a gallon for gas and $5 for milk. We can’t seem to make up our minds.

    I’m not an economist though. Perhaps there’s a term for this.

  50. 50

    RE: Scotsman @ 31
    No, Scotsman, I think your hyped prediction will be more accurate. The last seven days of May saw 415 closings. I think we’ll equal or exceed that, so 1400 is not out of the question.

  51. 51
    Scotsman says:

    RE: Tim McB @ 49

    Tim, you’re confusing price changes with inflation/deflation. Strictly defined, inflation/deflation are the change between the total amount of money in the system and the total supply of goods/services for sale. It is not really a supply/demand issue, unlike individual prices for specific goods.

    For example, if we cut the price of everything in half, and cut everyone’s wages in half, that would be deflation. So while your standard of living wouldn’t change in this example, the price of gas may still go up, or the cost of construction come down. But if you think about it, you can see that the whole structure of prices has ratcheted down.

    You can have systemic deflation while the prices of whole groups of goods/services go up. It gets complicated, and any discussion requires specificity when discussing the issue. Price changes are not deflation or inflation- they are simply price changes. Hope that helps.

  52. 52
    DrShort says:

    With the massive movement towards a global economy over the last 20 years, I don’t think we really know how the inflation/deflation issue will work out. Economic theory states that inflation will result from an increase in the money supply because too much money is chasing a limited supply of goods and services. But how does this play out with a single nation’s economy like the US that relies heavily on imports and foreign labor? I’m not sure this has been tested in the “real world” yet.

  53. 53
    Civil Servant says:

    Regarding the June numbers, I look forward to some Greg Perry self-congratulation over a prediction that was only 30% off the mark.

  54. 54
    Scotsman says:

    The problem with real world deflation is that not all prices adjust at the same time. For example, your mortgage payment is fixed, for 30 years. If we are deflating, and your pay is being cut 5% a year, pretty soon that fixed payment is hitting you a bit hard. After some time has passed, the same payment could buy you perhaps twice as much house, or car, or vacation, etc. That’s why it’s so important to get out of debt if there’s a strong possibility of significant deflation. While inflation makes debt shrink along with the purchasing power of savings, and favors buying assets with credit, deflation does just the opposite. Remember- no debt, and cash is king. Dollars are scarce during deflation, and everyone wants/needs them to pay increasingly onerous debts. Something for everyone to think about as we go forward.

  55. 55
    Scotsman says:

    RE: DrShort @ 52

    True, but the short story is the rest of the world is as bad off as we are, or worse. So we all sink or swim together. As we circle the drain in a swirl of activity, jockeying for position, there’s much discussion about who’s ahead, and who my escape. But the reality is we’re all likely going down the drain.

  56. 56
    DrShort says:

    By Scotsman @ 55:

    RE: DrShort @ 52

    True, but the short story is the rest of the world is as bad off as we are, or worse. So we all sink or swim together. As we circle the drain in a swirl of activity, jockeying for position, there’s much discussion about who’s ahead, and who my escape. But the reality is we’re all likely going down the drain.

    Yeah, I guess I was thinking more about the crowd that says:

    “The Fed is printing money like mad — Hyper inflation is coming!!”

    While that’s normally a true cause and effect, there’s other things going on right now. There’s a few big questions marks in my mind that makes me question that ordinarily true statement.

    1) Isn’t the increase in money supply from the Fed more than countered by the losses in money by banks? When the bank writes off a loan, doesn’t that money just disappear out of the system?

    2) Has the “velocity” of money been fundamentally slowed by this credit crunch, coming regulations, consumer habits, and renewed lending standards? MV = PY (Money x Velocity) = (price x output of goods). You can have a massive increase in the money supply and still have deflation if the velocity is reduced. Banks lending as much as possible and consumers spending as much as possible cause high velocity. We’re now pulling back from that and velocity should slow.

    3) How does one country’s increase in the money supply (if you assume it is) cause inflation in a global economy? I’m sure the link is still there, but how muted is it by foreign labor markets and imports?

  57. 57
    Racket says:

    By Scotsman @ 54:

    . That’s why it’s so important to get out of debt if there’s a strong possibility of significant deflation. .

    Debt has nothing to do with it. Buying something for more money that it’s worth is the problem, whether you paid cash, or borrowed the money.

    The interest rate(s) are the factor that makes debt good or bad.

    Buying a house for too much money in cash is really not that much different that doing it on credit. Except, you can walk away from the debt, the cash is gone forever.

  58. 58
    Scotsman says:

    RE: DrShort @ 56

    Life’s an adventure, that’s for sure, and the unexpected can always come over the horizon.

    I’d say “yes” to #1 and #2, and #3 is the playground of those who have a better understanding than I of the intricacies of currency valuations. But even the experts there are said to be playing with half a deck- there are too many variables and unknowns to try and capture the whole picture, let alone be predictive.. Relationships between two or three currencies/economies is one thing, but a dozen major players? And what about those like the Chinese who peg and un-peg their currencies as a political expedient? A random war or two? How about some energy/oil plays? Are those free markets? The water gets deep and very murky pretty quickly.

    On the positive side, I’m sure we’re about to learn a great deal of new information about how economies operate, and can spend the next couple of decades trying to sort it all out, because this time will be different from anything in the past.

  59. 59
    Sniglet says:

    “The Fed is printing money like mad — Hyper inflation is coming!!”

    I think that one of the biggest problems with this whole inflation/deflation debate is the very concept of a money “supply”. Many people just assume that policymakers (in the government or central bank) control the supply of money. In reality, the money supply is an amorphous thing that is composed of many different factors. The mere act of extending credit (i.e. making a loan to someone) increases the money supply. That is why contracting credit shrinks the money supply.

    Policymakers do have some control over the money supply, but it is more limited than generally assumed. The primary way in which central banks attempt to control the money supply is by raising or lowering the rate charged to banks who borrow money from it. Unfortunately, history has shown that interest rates alone don’t determine how willing banks are to extend credit. Moreover, central bank interest rates have very little impact on the secondary credit markets, such as asset backed securities, in which non-banks extend loans.

    Recently, central banks have resorted to outright money creation through the monetization (i.e. purchases) of government debt (e.g. US treasuries), but the money that has been spent in these direct monetization schemes is quite puny (not even exceeding $500 billion so far). The lions share of “stimulus” which as taken place is in the form of government spending, but this spending is being financed almost exclusively by the issuance of MORE debt.

    So here we have the government sucking money out of the private economy (i.e. through bond sales) only to re-issue it in the form of stimulus spending. This is not the same thing as “printing” money (quite the contrary, in fact).

    I know people get tired of my continual references to Japan, but the nation of the rising sun did EXACTLY the same thing the US government is now doing when it’s deflationary period began 20 years ago. The Japanese government has been on a multi-decade spending spree, driving that nation’s debt to above 70% of GDP (the US debt, by contrast, is something like 30% of GDP), but deflation has NOT been stopped.

    Deflation is kind of like quick-sand. The more you struggle, the worse it gets. Stimulus actions turn out to have the exact opposite results as you would think. In deflation, the rules of economics are upside down (not really, but that’s they way they appear, but that’s another whole conversation). Where low interest rates normally goose the economy in inflationary periods, they actually lead to further price declines in deflation. With super-low interest rates there is little incentive for people to extend credit, particularly in an environment when the collateral for loans is decreasing in value, thereby making loans very risky.

    As I’ve suggested before, the Federal Reserve should raise rates if it wants to start turning the economy around.

    http://surkanstance.blogspot.com/2008/10/another-rate-cut-another-failure.html

  60. 60
    WestSideBilly says:

    RE: Scotsman @ 54 – What do you consider “significant deflation”?

  61. 61
    Scotsman says:

    RE: WestSideBilly @ 60

    If you go back to the first post and bring up the chart you’ll see that during the 1920-1935 period we saw an average deflationary rate of maybe 5% for 15 years or 75% total for the period . That correlates pretty closely with what Japan has seen over the last decade and a half, and ties in with those who predict 80% off in housing. It’s actually a bit less than that because you’re taking a percentage of a decreasing base, if that makes sense. But the point is it can certainly be life-changing. Indeed, even a solid 25% hit can destabilize the economy for years and years. But it doesn’t hit equally- those in debt are hurt, those who are lending reap windfalls. Those with cash or the ability to take on new debt at the bottom can see the opportunities of a lifetime. If you have significant savings, that Porsche that was $50K is now only $20K, you can buy half a dozen rental houses at the bottom verses 2 now, that sort of thing. And it’s important to remember that once a new equilibrium is reached, growth and some sense of normalcy return and life goes on.

  62. 62
    Scotsman says:

    RE: Sniglet @ 59

    Like you, I wish more people understood that the government has much less control over the money supply than many believe. And how many folks believe the Fed sets interest rates, when in actuality they follow the market and can at best make small, short term modifications to existing trends? It’s like the sport of curling, where the puck (market forces) glides over the ice toward some final destination as the sweepers (Fed) frantically sweep to clear or fill in the ice in its path. Sure, they can speed or slow the puck to some extent, but their efforts are nothing compared to the initial momentum of the puck. The same is true with financial markets- the Fed follows, it doesn’t lead. Yet the vast majority of folks who think they know something about economics will tell you the Fed sets interest rates. Our current situation is a perfect example of the Fed pulling every kind of trick it can to keep rates low in order to help the economy, but market forces keep pushing back, and will soon enough drive rates significantly higher. Fun times!

  63. 63
    Kary L. Krismer says:

    I’m not that up on macro issues, but I’d question whether the fed really “printing money like crazy.” They’re borrowing money like crazy.

  64. 64
    Scotsman says:

    Uh oh. Someone just dropped a turd in the punch bowl. This should get interesting…

    http://market-ticker.org/archives/1156-More-Bernanke,-Mr.-Issa,-And-The-Media.html

  65. 65
    jon says:

    By Kary L. Krismer @ 63:

    I’m not that up on macro issues, but I’d question whether the fed really “printing money like crazy.” They’re borrowing money like crazy.

    It looks to me like the bulk of the assets of the Fed now are in assets held as collateral for bank reserves in excess of required. Basically that is just a gimmick to get the toxic assets off the books of the banks. They have replaced the value of the MBS with reserve credits for the banks’ balance sheets.

    Scotsman – I’m sure you noticed that nearly all the deflation on that chart came before the gold standard was dropped. Just a few small blips of deflation since then.

  66. 66
    Hugh Dominic says:

    By softwarengineer @ 5:

    RE: Hugh Dominic @ 2

    Well the actuals to date say your “pie in the sky” hope is just that. COLAs and CPIs are already going negative as I blog…

    I thought we cleared this up a few months ago with Ray Pepper.

    Softwarengineer, you are not blogging, you are posting. The Tim is blogging, we are posting comments in reply.

    And for the record, I think we are in for a bout of deflation followed by inflation.

  67. 67
    Scotsman says:

    RE: jon @ 65

    Interesting observation, but is it causal or coincidence? It’s clear that since the 1950’s the Fed has done a better job of keeping it’s member banks and politicians happy by limiting the swings of the business cycle and striking a different balance between inflation and unemployment. But there were a lot of other factors involved- exploding technology and productivity, a changing labor force, etc. It would take some real study to try and identify the “why.” Gold may be part of the answer.

  68. 68
    One Eyed Man says:

    RE: Scotsman @ 61

    Scotsman, where do you get the figure of 75% deflation for 1920 thru 1935? I show inflation as measured by CPI as being in the neighborhood of 30%.

    * Select initial and ending years within 1774-2008 period.
    Year U.S. Consumer Price Index *
    1920 20.04
    1921 17.90
    1922 16.77
    1923 17.07
    1924 17.10
    1925 17.53
    1926 17.70
    1927 17.37
    1928 17.13
    1929 17.13
    1930 16.70
    1931 15.23
    1932 13.66
    1933 12.96
    1934 13.39
    1935 13.73
    1936 13.86
    1937 14.36
    1938 14.09
    1939 13.89
    1940 14.03
    * Average 1982-84 = 100.

    http://www.measuringworth.org/datasets/uscpi/result.php

  69. 69
    Scotsman says:

    Back to healthcare. Well isn’t this interesting, it appears that all federal workers, like congress and the executive branch, as well as all of the others that make up some 20% of the economy would be EXEMPT from the new healthcare plan. Hmmmm.

    This excerpt is from a response to tonight’s infomercial program found on another blog I frequent:

    “Dr. Orrin Devinsky, a neurologist and researcher at the New York University Langone Medical Center, said that elites often propose health care solutions that limit options for the general public, secure in the knowledge that if they or their loves ones get sick they will be able to afford the best care available, even if it’s not provided by insurance.

    Devinsky asked the president pointedly if he would be willing to promise that he wouldn’t seek such extraordinary help for his wife or daughters if they became sick and the public plan he’s proposing limited the tests or treatment they can get.

    The president refused to make such a pledge, though he allowed that if “it’s my family member, if it’s my wife, if it’s my children, if it’s my grandmother I always want them to get the very best care.”

    According to powerlineblog, the Democrats’ proposed plans specifically exempt all federal employees from coverage under the “public plans” being proposed.

    Obama and the Democratic congress want to shove the rest of us into a crappy public plan, but they make dang sure that they and their families won’t have to be in it with us. That fact alone should tell everyone everything they need to know about this scam.

  70. 70
    One Eyed Man says:

    By Hugh Dominic @ 66:

    And for the record, I think we are in for a bout of deflation followed by inflation.

    That’s my estimate as to the most probable outcome, too.

  71. 71
    Scotsman says:

    RE: One Eyed Man @ 68

    Looking at the chart above I picked 5% as an average for the 15 year span. It clearly doesn’t mesh with what you’ve found. I can’t explain why. To be honest, my number seems high from other info I’ve read, but yours seems low. This site, which I use a lot, shows a 32.5% decline:

    http://data.bls.gov/cgi-bin/cpicalc.pl

    I wish I had more background on the data in the chart, and what was included/excluded in the calculation. Apples and Oranges?

    Edit- looking at the chart again, 5% is too high, 3% would be a better average, and fits with your data.

  72. 72

    RE: mukoh @ 41

    WISHING FOR HOUSE INFLATION OR ANY INFLATION FOR THAT MANNER, WON’T MAKE IT HAPPEN

    Current COLA/CPI actuals are actuals; and what inflation actuals are you betting on?

    Speaking of gas consumption though, haven’t you noticed the last year [like myself, bus drivers I talk to, and other professionals who drive for a living all day long] that traffic conjestion is way down [not a puny 1% either, try like approximately 30-50%]? Seattle must be using a lot less oil lately….huh?

    Not in the media is it. Just like deflation and unemployment; we’ll just print the Polly Anna stuff that makes us smile?

    Sometimes the best darn economic data we have is “just look out your window”.

  73. 73

    JAPAN’S EXPORTS DOWN 50% AND CHINA’S WERE SEVERELY BUTCHER AXED TOO IN 2009 YOY

    An excerpt from recent UK [we don’t get this data generally from American media] news, states in part:

    “…Japan’s carmakers have been the hardest hit as shipments of Japanese cars have fallen by 63 percent, with a 71 percent reduction in the number of Japanese cars heading to the US…”

    The rest of the URL:

    http://www.financemarkets.co.uk/2009/03/26/japanese-exports-down-by-50/

    China’s Horrifying URL:

    http://www.industryweek.com/articles/china_imports_exports_down_sharply_in_may_19351.aspx

    But world energy use will sky-rocket anyway and America’s recession or depression doesn’t impact Asia at all? LOL

    Welcome to deflation.

  74. 74
    Tim McB says:

    Re: Scotsman at 51.

    Thanks for the clarification.

  75. 75
    Scotsman says:

    Banks are refusing to foreclose- they don’t want the hit to their books, the tax liability, etc. This will drag out the inevitable just that much longer.

    http://www.washingtonpost.com/wp-dyn/content/article/2009/06/23/AR2009062303500_2.html

  76. 76

    RE: Scotsman @ 75

    ITS A QTR 2 GDP THING TOO SCOTSMAN

    Tomorrow is the QTR 2 GDP wrapup and the overly-optimistic we’ve fixed it all with too much mis-directed debt fans will do anything to rationalize a need for even more debt. That means keeping QTR 2 GDP negativity mitigated.

    Assuming more foreclosures decrease consumer sentiment and the GDP is 70% consumer spending; we must keep it all looking “Polly Anna” and grab that VISA card that hasn’t been maxed out yet and go out and do your patriotic duty, “CHARGE”.

  77. 77
    One Eyed Man says:

    RE: softwarengineer @ 72

    I pulled the stats just to see how good your guess based solely on observation was. See the link below for a chart on US gas consumption. It looks to me like gasoline consumption is down about 5% on average based upon per day consumption YOY during each of the last 12 months and down about 20% off the peak per day consumption in about August 2005.

    50% is way too high, but 30% off peak isn’t a bad guess based solely on traffic observation, especially when one considers that lower traffic volume probably increases the average velocity and decreases actual time on the road making the traffic volume appear lighter than the actual decrease in gas consumption.

    http://tonto.eia.doe.gov/dnav/pet/hist/mttupus2m.htm

    How’s is the 787 fuselage like Pat Shanahan’s colon? Upon diagnostic probing, both were found to require supplemental fiber to keep sh__ moving forward.

  78. 78
    mukoh says:

    RE: softwarengineer @ 72 – Geezus Softie, I am shocked, when I get numbers from bus drivers and taxi drivers, those are way beyond accurate, and definitely show the big picture of what is going on out there. Thanks for leading me to it, I should ride the bus for the first time in 12 years today just to get some more accurate numbers. And definitely getting numbers from blogs, and blog comments is as accurate as anything else out there.

    I am not wishing for inflation or deflation. All I am pointing out is that your article mentioning a 1% drop in consumption of oil means NOTHING, 0, on the oil prices. In fact oil is up today, seems strange doesn’t it? Swings in oil, metals, commodities, are short term, in the long term the resources are getting scarce, as someone stopped making them a long time ago.

  79. 79
    Scotsman says:

    RE: One Eyed Man @ 77

    “How’s is the 787 fuselage like Pat Shanahan’s colon? Upon diagnostic probing, both were found to require supplemental fiber to keep sh__ moving forward.”

    I’m so glad they discovered now, before I fly on one, that the wings might fall off. Unbelievable. Makes you wonder what else might have been missed…

  80. 80

    RE: mukoh @ 78

    YE OF LITTLE FAITH

    So you don’t trust ole softie’s gut feel projections.

    Here’s the 2006 oil barrels per day data [147] and it hit $100/barrel that year:

    http://www.dawn.com/2006/03/27/ebr7.htm

    Compare that to the 2009 projection URL of 85 at $70/barrel, and golly gee willerkers….we’re using 42% less projected oil today in 2009 than 2006………no wonder them darn freeways seem empty….LOL

    Maybe we don’t need all them hybrids and smart cars after all? All we needed was the equivalent of depopulation to solve global warming, a good ole fashion economic crisis? LOL

  81. 81
    jon says:

    By Scotsman @ 79:

    RE: One Eyed Man @ 77

    “Howâ��s is the 787 fuselage like Pat Shanahanâ��s colon? Upon diagnostic probing, both were found to require supplemental fiber to keep sh__ moving forward.”

    I’m so glad they discovered now, before I fly on one, that the wings might fall off. Unbelievable. Makes you wonder what else might have been missed…

    The good news is we won’t have to listen anymore to the insufferable complaining that all the problems of the 7-late-7 are because of outsourcing and non-union engineering.

  82. 82

    RE: jon @ 81

    I BEG TO DIFFER JON

    CNN already pinned the blame tail on the outsourced donkey a couple days ago. Its mainstream media news. Maybe you need me to dig up the CNN transcript and prove it to you?

  83. 83
    jon says:

    By softwarengineer @ 82:

    RE: jon @ 81

    I BEG TO DIFFER JON

    CNN already pinned the blame tail on the outsourced donkey a couple days ago. Its mainstream media news. Maybe you need me to dig up the CNN transcript and prove it to you?

    I’m going by what it says in today’s seattletimes.

    “It’s our engineers that designed this interface,” Leach said. “Boeing is responsible for the overall design and the integration of the sections and takes responsibility for both.”

  84. 84

    RE: jon @ 83

    INTERESTING JON: TWO VERSIONS OF MSM

    ….but based on MSM’s track record predicting the unemployment and RE bubble collapse, doesn’t surprise me at all. See why I use gut feel at times?

    I’d add too, and I think we can agree on this: The real blame were the CEOs that managed the engineers and subcontractors working with the engineers….Mullally and Albaugh….at least Mullally got the Hades out of Seattle before the 787 manure hit the fan….

  85. 85
    S. Marty Pantz says:

    WSBA’s new “Home Foreclosure Legal Aid Project”: http://www.mywsba.org/default.aspx?tabid=161

  86. 86
    Flying Ape says:

    RE: Scotsman @ 62

    I think this whole debate is not about inflation/deflation but the effectiveness of the Fed. I think the inflationist camp would even agree that we would be in a Japan style recession if there were no stimulus. However, i have to disagree with the assertion that the Fed is ineffective in controlling the money supply. As sniglet stated interest rates are the primary means to increase money supply and ultra low rates would only make the recession worst (i.e. liquidity trap). But the Fed is very aware of this and are expanding credit while preventing further growth in the money supply by making direct loans to secondary markets and taking measures to keep all this new credit in the excess reserves. The Fed decided to pay interest on these excess reserves and the “stress tests” should nudge the banks to keep some of this new money in the reserves, creating a floor on interest rates. I don’t think the explosion in bank excess reserves is solely due to poor loan opportunities but prudent Fed operations.

    Now regarding the ineffectiveness of the Fed keeping long term rates down. Well i guess i cant disagree since the Fed hasn’t done much about it. All this “mad money” the fed is printing has gone to purchase assets and keep short interest rates low. To my knowledge, the only measures the Fed has taken to keep long term rates low is a the purchase of MBS’s and a “pathetic” $300 billion in long term treasuries. MBS purchases can only bring down interest rate spreads with treasuries, not actual treasury rates. Inflation/deflation debate would be the least of my worries in the likelihood that the US government would default over a McMansion backed MBS. Also i don’t believe the Fed is done purchasing half the $300 billion yet and they actually sold treasuries early in the crisis so I don’t know what the big fuss is. When investors challenged the Fed a couple weeks ago with treasury and mortgage rates, the Fed didn’t even flinch yet rate fears subsided. Not to say things could go horribly wrong from now but i think Ben and his crew have done a descent job until now.

  87. 87
  88. 88
    DrShort says:

    For some reason there’s been a huge spike in King County Notice of Trustee Sale filings for June. We’re already at 1400+ for this month. I think the previous high was around 1050. We’ve already blow that away this month.

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