Sunday, March 22, 2009

Dollar Devalued Yet Again

Check out this post. Here's a summary (emphasis mine):
On Wednesday, right around the time the US markets were winding down, the Dollar was deliberately devalued. Everyone in the world watched it happen, except for Americans, who were outraged or offended by some manufactured distraction, as usual. The Federal Open Market Committee {FOMC] published an historic press release. Here's an excerpt:

"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession...."

So what does that mean?...

It means the Federal Reserve is now printing its own money. It's a defacto devaluation of the U.S. Dollar, with a promise of more to come. The Federal Reserve is going to buy everything in America that's not nailed down, throwing another $1,150,000,000,000 lifeline at markets...

President Obama may have no other choice than to take this route as foreign investors grow wary about the capability of the USA to service its debts. We will see less participation in Treasury auctions, since sovereign wealth funds will likely decide that domestic investment is probably a better idea that depreciating Treasuries. For the time being gold investments will look like a safer place to hold wealth, along with oil, silver, and certain other commodities.

Maybe Ben Bernanke will be able to do what no central banker has ever done before: put in just the right amount of inflation... not too much, not too little.

[How successful will Bernanke be at 'quantitative easing'?] In the past, they tended to overdo it.

There are not many examples. France, England and America in the 18th century. Practically no examples we know of in the 19th century (they'd learned their lesson!). And in the 20th century - only marginal countries... or countries with nothing left to lose... engaged in 'quantitative easing.' Germany did it in the 1920s, because her war reparations burden was greater than she could sustain. Argentina did it in the 1980s, because it owed too much money to too many foreigners. And Zimbabwe did it in 2003-2009, for reasons of its own.

There are not many examples because the consequences of over-doing it are so horrible, central bankers have generally not done it at all. Quantitative easing was always a possibility... but it was always a last resort... like blowing up the powder and spiking the guns; it was something you did when you knew you'd lost the battle already.

While all this was happening, the American people were off gnashing their teeth over the relatively miniscule AIG bonuses. And then Obama went on Jay Leno, which had to be discussed, and then he spoke to Iran, which was a big deal. And then there's Limbaugh and Beck to bash. Plus, the Special Olympics. And so it went.
Want more? How about this post over at Seeking Alpha which probably should have been titled "The United States of America is Now a Banana Republic".

Anyway, I think it's pretty clear that the U.S. government doesn't need our money. I mean, if the Fed can manufacture money, any amount, at will, out of "thin air", whenever it feels like it, then the Federal government doesn't need nor deserve our hard-earned tax dollars. We might as well keep it for ourselves (to buy gold, as kindling for a fire, you know, for stuff of real value).


Blogger Talitha Halostar said...

Tiny Tim Geithner and Helicopter Ben Bernanke are going to ruin this country. They both need to GO!

Mar 22, 2009, 6:42:00 PM  
Blogger mountainwatcher said...

Yeah, but I think we need to start thinking in the positive direction.
I've noticed that it is always easier to send negative messages.
It is the lowest common denominator.

I think we are all sailing in this boat and I wonder why we are so happy to shoot holes in the hull.

My politics are in the middle.
I have seen outrageous crap from both sides.
I love our country.
I want the best for everybody.

Does anybody here think they know what to do with our current mess?

All I see is condemnation and frustration.

Lots of heat but little light.

Mar 23, 2009, 1:53:00 AM  
Blogger Yuli said...

Ditto to MountainWatcher!

Mar 23, 2009, 8:05:00 AM  
Blogger Chuck Ponzi said...

Yuli and Mountainwatcher.

There are people who know what to do and how to do it.

Some of them are in positions they should be in. (I personally like Ben Bernanke a lot better than Alan Greenspan)

And some of them are not (Timmy Geithner needs to go, he's a bumbling idiot and a tax cheat; that's no way to lead)

The problem is that policy makers are too afraid of failure to make the right choices. They'd rather hurt everyone a little than destroy those that took the wrong trade. It's the "privatize the profits, socialize the losses" moral hazard that Timmy and Benny are promoting. It is promoting bad behavior... and no matter who says it, the house is not burning down nor is this an economic Pearl Harbor. It is a normal business cycle that requires normal intervention. Anything more hurts our future.

Personally, I see deflation as a much higher probability as hyperinflation. Indeed... look at typical inflation hedges... noone believes the hyperinflation meme; or at least they don't invest their money that way.


Mar 23, 2009, 9:56:00 AM  
Blogger pothead said...

Mountainwatcher you've missed the plot. Geithner and Bernanke have blown about 3 Muni bus sized holes in the hull of the boat you're sailing in. Maybe they shouldn't be firing that bazooka so often eh?

As for what we could do differently? How about face the music? Propping up select parts of asset classes and/or industries in an arbitrary fashion only created a larger problem. The underlying values have not changed, they are being artificially - and most likely only temporarily - inflated.

Imagine you had a child with a 104 degree fever. Would you rather the hospital just had the child get in an ice bath and drink cold water? This would likely yield a lower temperature, especially if you used an oral thermometer right after the child drank the ice water. But did that process actually diagnose and treat the cause of the symptom?

Mar 23, 2009, 10:28:00 AM  
Blogger marine_explorer said...

Isn't much of Europe trying to shore up backs with a lot more worthless liquidity? Seems currency devaluation is a worldwide pandemic.

Mar 23, 2009, 11:31:00 AM  
Blogger HHB said...

Yep, Europe and Japan are following suit. The UK was first to start buying out on the long end of the curve a few weeks back and Japan's money growth is up to over 20%.

Still, the US is by far and away the most aggresive here. The base has more than doubled in 6 months and will possibly triple or quadruple as these new programs are implemented.

Even if the Fed can drain this liquidity once the credit markets recover, that in and of itself will cause another recession ala Volker in '82. They are going to have to raise rates and that will further crush whatever is left of home prices.

Mar 23, 2009, 1:40:00 PM  
Blogger mountainwatcher said...

So, are you all saying that none of the current Obama/Geithner/Bernanke solutions are good?

I'm looking for info and I don't have a political agenda.

Was the Bush stuff better?

O.K. Anybody got a solution?

How about some positive input.

What would you do to fix this mess?

Mar 24, 2009, 3:20:00 AM  
Blogger marinite2 said...

This comment has been removed by the author.

Mar 24, 2009, 10:04:00 AM  
Blogger marinite2 said...

What would you do to fix this mess?

Now? Before this started? Somewhere in between? I think I've made my points abundantly clear.

But in a nutshell, let the markets correct naturally. Let people who made risky bets, and lost, take their lumps. Reward prudence, avoid moral hazard, set a good fiscal example. Reward good behavior and punish bad. Right now we are rewarding bad behavior so that only means it will be more of the same down the road. And I am not one of the sorts who thinks the proper course of action is always the one that makes the most people happy... that just leads to 51% being happy and 49% being angry.

Like Chuck said, this is a fairly normal business cycle. Recessions happen and for good reason. It is not financial Armageddon.

If politicians were equipped with backbones, there would be more pain up front, but we would be out of this sooner, rather than later, and we would be stronger on the other side. Instead, our elected representatives (and the non-elected ones in the Fed) have decided to water board the American public (and the rest of the world) by lengthening the process out of self.

Like HBB said or implied, because our reps have elected to take the current path we are on, lending interest rates will almost certainly have to rise and that will be the final nail in housing's coffin.

Just IMO. That's how I see it. It didn't have to be so. Hopefully this time people won't forget. But I am not optimistic.

And already I've seen ads from Wells Fargo for cheap, adjustable, mortgage rates with future reset dates. At this point, anyone who takes those deserves to lose it all IMO.

Mar 24, 2009, 10:08:00 AM  
Blogger pothead said...

Here are a few suggestions:

1. Make the stress tests that the 20 banks are doing transparent to the citizens of this nation and legitimate. Right now the process is pretty much the polar opposite. This way we all can see who is in good shape, who is in bad shape and if they are viable or not.

1a. If some banks are not viable, rather than funnel ever more cash into their gaping maws, let's do what the FDIC has done with the 20+ other banks that have failed in 2009. Namely, take them over, sell off their crap at market value, retain the good stuff, get better management in place and sell the bank.

1b. Take the same approach with the auto industry.

2. Create a regulatory framework for the derivatives market and put in place a clear enforcement mandate.

3. Streamline the alphabet soup of regulatory agencies in the financial markets so that we get consistent enforcement across the board rather than selective enforcement some of the time.

4. Stop the mantra that the gov't must "fix" or somehow stop the slide in housing values. I think the market will do that quite well enough.

5. Ratchet back the quantitative easing/printing of money. The current approach will devalue the dollar and will likely cause the foreign entities that have been buying our debt to really think hard about what they are buying into.

6. Kill this godawful "plan" that Geithner unveiled yesterday to get the "toxic" assets off of the banks' balance sheets. That plan is so shoddy that is likely just a wholesale transfer of wealth from the taxpayer to the banks. Read up on that one. The FDIC are going to be backing all of those non-recourse loans. Guess who backs the FDIC?

Mar 24, 2009, 10:13:00 AM  
Blogger marine_explorer said...

"...this is a fairly normal business cycle"

If that's true, why don't the banks and a few top-heavy corporations stop bitching about impending doom?

It strikes me many "capitalists" don't believe in free-market corrections anymore. After years of growth on rampant credit, they don't want their cookie jar taken away, and now they're begging the government for money they don't deserve--a shocking attitude of entitlement.

As others have said already, the only "fix" I see is to let businesses fail, because only at the bottom will they be motivated to devise business models that actually work. The retail sector cannot drive our economy, so propping that up is a doomed venture. Well, I guess so much is obvious.

Mar 24, 2009, 11:15:00 AM  
Blogger Grandis said...

To the original point about the fact that we are talking about AIG bonuses versus the FED printing money; I think it's a very sad indication of our collective (lack of) intelligence. Of all the overhauling, bailout, government interventions, I think we desperately need an overhaul of the “free” Press. It seems to me that the press much prefers reporting on what “pundits” (windbags) have to say instead of actual stories. What happened to investigative reporting? The truth is we are very clearly not a serious or sophisticated people. Democrats and Republicans.

Printing money may not lead to a post WWI OR WW2 Germany with people running through the streets with wheel barrels worth of worthless money. But printing money is FAR from an exact science and the truth is you never know what it could lead to. Fingers crossed that it won’t lead to an even worse situation.

In regards to bailing out specific institutions I don’t think it’s a one size fits all situation. The Fed (or another institution) needs the authority to take over AIG. Then as quickly as possible that @ss clown of a company needs to be broken up and spun off. NEVER again should companies be allowed to be so large that their failure can kill the entire economy. RIDICULOUS THAT THIS WAS ALLOWED TO HAPPEN! Detroit should go into bankruptcy so that a judge can order a reshuffling of management and renegotiate everything. We all know that is going to happen anyway.

As far as propping up the banks goes; right now they (Citi, BofA, etc.) are already half@ssedely nationalized. I think that right now time will tell if the Fed will go all in. They may have to, but I think they are desperately hoping the stimulus will make that unnecessary. When people talk about letting the banks fail, I don’t think that is a reality that will ever happen. Therefore I think it is a waste of time to discuss and another distraction.

Mar 25, 2009, 10:50:00 AM  
Blogger mountainwatcher said...

I just saw this post on the NYT website...

"It’s amazing when you listen to the best and the brightest as they try to defend what has already failed. You don’t need to adjust Glass-Steagal; just put it back in place. That solves half the problem. I don’t care what these financial institutions pay their employees, but I do care that the government seems to think they are too good for BK. Why? All this doom and gloom you said we’d avoid back in September, is still being visited upon us now. This reckless abandon with public money to save insolvent institutions is heresy to the capitalist system. You can’t have it both ways: When you are profitable you tell government to mind it’s own business and you pay the right people in government to make sure it does. When your casinos go bust, you come crying to the taxpayer, who the government rips off because you have paid the right people to take our money and claim it’s for our own good. Give me a break! What needs to happen is for someone in Washington to get a clue and some nerve to do the right thing by the American public and stop selling us out for the sake of the investor class. Enough is enough."

This was from a guy named Greg.

Whad'ya think?

Mar 27, 2009, 1:10:00 AM  
Blogger mountainwatcher said...

Oh yeah, I forgot to mention--

Could you please do something about that Gross National Debt clock on the home page.
It seems to be going up at a hugely accelerated rate.
It makes me nervous.
Would you mind adjusting it down a bit?

Mar 27, 2009, 1:20:00 AM  
Blogger Matthew said...

Well said Grandis.. lots of other good points and posts above as well.. Agree w/your points Marinite and great suggestions pothead (wouldn't those be refresshing!!)

One of the problems I see, especially here in the US, is that it is getting harder and harder to distiguish between politics and economic policies... there's always a twist.. one of the current twists that I see is to do dumb and expensive things early in this Administration as they can always blame the last one for putting them in a corner... the current situation and the bail-out plan has provided a golden opportunity for getting pork projects funded at a time when the country can least afford it... what I see lately is mostly politics and very little in the way of good economic policies..

I suspect the Obama Admin will have a year or so to do more dumb things that can be passed (blamed) onto the previoius administration, so expect more of the same going forward... remember, there is little (real) political risk tied to what his Administration and the Fed are doing right now.. the real political risk, really, is not acting and letting the free market straighten this god-awful mess out.. however, as Grandis so aptly commented on, the dumbed down electorate needs it's headline to read each morning, and cannot be boethered with (nor probably understand) the details of the story or stories underneath...

Bush 43 figured this out, unlike his dad, who lost out on a second term because of it.. national debt is "no big deal".. the debt is not important to this contry's electorate, because it can be passed onto the next generation easily enough... my "monthly nut" is all that matters to me right now, so cut my taxes, damn it!.. expecting me to think so far into the future and expecting me to understand the importance of preserving the value of the dollar is beyond my comprehension and intelligence... Bush 2's admin figured this out... Obama is continuing that same thinking, and it wont' cost him over the longhaul IMO... we ain't smart enough (or patient enough) to connect the dots..

Can you imagine a country electing GWB twice as being a truly advanced society, really ?

Mar 29, 2009, 5:03:00 AM  
Blogger mountainwatcher said...

"'Can you imagine a country electing GWB twice as being a truly advanced society, really ?"

Not really, but do you think Obama is as clueless as GWB?

I'm thinking the guy is pretty bright.
Do you assume he will do as much damage?

Is it possible that he could so some good here?

Apr 1, 2009, 1:43:00 AM  
Blogger Matthew said...

No, I think Obama is much, much smarter than Bush and will be a much, much, much better President. It's too bad he needs to spend the first few years of his Presidency mopping up from the past... That said, Obama is also an astute politician, and I think he's already figured out that deflating the dollar and inflating our debt is not as politically risky as raising taxes, closing tax loopholes, or telling the Wall Street thugs to screw themselves... we are not a smart or patient electorate...

Apr 2, 2009, 4:23:00 AM  
Blogger sf jack said...

The "Alt-A Bay Area"?

The San Francisco Bay Area is LOADED with people (and their loans) like this:

"'My situation is a little complicated,' I warned. I told him about my child support and alimony payments and said I was banking on Patty to earn enough money to keep us afloat. Bob cut me off. 'I specialize in challenges,' he said confidently.

As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were 'Alt-A' customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.

I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me."

My Personal Credit Crisis
EDMUND L. ANDREWS - The New York Times Magazine
Published: May 14, 2009

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