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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (29941)	4/3/2005 5:59:21 PM
From: longjonsilvers	Read Replies (5) \| Respond to of 110194

WOW! my first post on such an estimed forum! well here goes my ignorance!(?) maybe all of you can enlighten me. what i fail to understand is this: all the deflationists claim that the power to expand the money (credit) supply is limited (contrary to bernanke) because money (credit) is created by an issuance of debt and repayment of that debt will cost more than the money (credit) created due to the interest, THEREFORE a crash is inevitable. so far so good, i understand the argument well (i think!) BUT didnt bernanke say in that famous heliocopter speech that the fed did and could once again monetise bonds? is this not, unless im mistaken, equivilent to the fed printing money (not credit) to buy its own credit (treasury bonds). Pray tell, how does this then end in deflation? how is the creation of money therefore limited by issuance of debt? (that is until the fed has bought up every t bill and bond, every corporate and municipal and bond and every junk bond that exists?) does the fed not create MONEY and place it in the hands of those former owners of the bonds (debt)? in theory the fed could end up owning every debt instrument in existance - altho the value of the dollar then would be questionable at best! so therefore is bernanke not right? is the power of the fed not unlimited in its creation of money? have you also heard evidence of this happening right now from caribean banking centers fronting for the fed? it is my supposition that the fed does not say anything that does not warn the big boyz of what is really happening - after all do they not really work for the big boyz? so was bernanke not really saying in effect that not only that they could monetize bonds but rather implying that they had already begun? enlighten me please! hi ho hi ho its off to work we go jon

To: Elroy Jetson who wrote (29941)	4/3/2005 6:09:04 PM
From: russwinter	Respond to of 110194

Once the animal spirits and strong prices come out of the speculations, then the "margin clerks" take over, and credit expansion subsides. However, when the Bubble credit expansion is still on going, then I feel the changes at the margin in Fed "liquidity" and rates, strongly influences speculative behavior by encouraging or signaling more leveraging. What I see at present is a little different for this cycle, in that Fed injections and accommodation have changed at the margins from frantic to normal. That's why I focus on that. You can see that there are plenty of takers for the injections that are made available, as Fed funds and T-bill rates quickly move to higher levels after each rate increase. Every TIO and repo offering has an abundance of bidders. It still has the look of considerable demand for new credit (no pushing on a string yet), although from a less accommodative Fed. The thirst for leveraged speculations still appears amazingly strong, even if returns are a lot more choppy of late. You can see it in the stock market daily, as the Pig Men try to ramp one sector, see it fade, then do it again somewhere else.