Reuters
Greenspan: Derivatives Boon to Economy
Thursday May 8, 9:21 am ET
CHICAGO (Reuters) - Federal Reserve Chairman Alan Greenspan said on Thursday the increased use of sophisticated financial instruments called derivatives has been a boon to the U.S. economy during a period of unusual stress.
'Although the benefits and costs of derivatives remain the subject of spirited debate, the performance of the economy and the financial system in recent years suggests that these benefits have materially exceeded the costs,' Greenspan said in remarks prepared for delivery to a conference sponsored by the Chicago Federal Reserve bank.
While the U.S. economy's performance has been 'subpar for some time,' it has been 'remarkably resilient' in the face of severe shocks including the collapse of stock prices, terror attacks and global turmoil, Greenspan said, partly because the U.S. banking system has remained healthy.
My Cup To AG
I sit here holding this wonderful coffee cup. The cup was so attractive, so much so it caused me to actually use a credit card, something I rarely do. My charge company is unsure of this charge so rather then take any risk they have decided to sell my account. The company that purchased my account has done a bit more research so they know the chances are slim that I will not pay this debt. D's CupCatcher we shall assume is listed on NYSE.
Now we have a fund who is interested in D's CC.. What the fund has done with the help of hedging is bought
both long and short on CC. They aren't to sure if D will pay the bill to CC but they have assured themselves they have a chance to make profits if D do pay or if D don't pay.
This is called win win.
Now another fund has bought a future contract on CC who they are sure will have an increase in value as D has bought a cup. These guys own nothing but they do have a piece of paper that is a promise to buy CC if D pays or not.
As I follow the trail of my cup the costs start to add up. With all the transactions that have taken place I now have a cup that has added $100,000.00 to the economy. It is about this time I realize I am drinking out of one expensive cup. This facts shocks me so I drop de cup and it shatters. Now all that remains that proves the cup existed is a small piece of pottery. As I carefully pick up that wee piece from the earth I notice it has the words made in China clearly etched upon it.
I now have no cup to drink my coffee out of.
The financial industry has made a fortune on one cup and I wonder why business can't afford to make the cup here.
I have done this in fun but there is a great deal of truth in what I have written. This amounts to a tremendous amount of dollars whirling in air that do little but add costs to do business as business attempts to dig itself out of the ground.
THE FACTS
biz.yahoo.com
Deflation Boogeyman Haunts Fed
Wednesday May 7, 1:01 pm ET
By Andrea Hopkins
WASHINGTON (Reuters) - The fear of falling prices -- the boogeyman that has crippled Japan since the early 1990s -- has come to haunt the U.S. Federal Reserve.
After months of worry about sluggish growth and mounting job losses, the uncertainty of war and tepid business spending, the central bankers who steer the nation's monetary policy admitted concern about deflation.
This year's first-quarter represented a 41 percent decrease from the same time last year, when venture capitalists raised $1.68 billion for future investments, the study said.
While refinancing levels have hovered near historical highs, cash-out refinancings, when homeowners borrow against the equity value on their homes, appeared to be tapering off, Quicken Loans' Walters said.
"We're seeing less cash-out refinancings. We're still seeing a lot of people switching into lower-rate loans," Walters said.
People in other words are reducing their set payments. They are not moving surplus assets into business as they are questioning future growth as well as their own future ability.
Indiscriminate sale of dollars produces profits. Where by conservative loans are those that usually create solid dollars that aids productivity in the economy. When you own a business and apply for a loan you are thoroughly investigated. An American consumer on the other hand is given a credit card when they don't even request it. Heck I just got one that offered to pay me if I use it.
Credit, finance and refinancing are very lucrative for the financial sector. However in this business of dollars sales you must have an increasing supply of dollars to sell. The result is surplus dollars add cost to those who attempt to build a tangible business. Stats show costs have increased but profits have continually decreased since the mid fifties.
We might be adding jobs to the financial sector but we aren't adding jobs to the sectors that pay off the loans.
We do not tie the dollar to any solid object of value. We partially base its value on the GDP of the nation. If dollars that we borrow do not increase numerically and the ones we earn contract we are unable to pay for the dollars we have borrowed. (Little oddity here is there must be a constant increase of dollars in an economy. Ideally there dollars come from healthy tangible business expansion. Our largest business expansion appears to be in the financial sector or what I term the indiscriminate sale of dollars.
Dollar deflation is to me is the largest threat we face and this is the worst type of deflation. It amounts to a dollar that is not capable of creating a dollar. In other words if you have a debt payment of $999 and you can only make $199 out of your business you are too far out in debt and too short on dollars to pay the debt.
Could this be part of the reason why our dollar is dropping in the currency market?
Could this be the reason why low interests rates have not been able to stimulate business?
Anyone have a spare cup? |
