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

To: piggington who wrote (31148)	4/25/2005 11:56:17 AM
From: philv	Read Replies (1) \| Respond to of 110194

Never underestimate the FED. Bernanke has some good ideas!! And, if deflation/depression is on the horizon, who knows what the FED might then do. I really do believe it is inflate or die. They are trying to slowly climb out of this present situation of asset bubbles by slowly raising interest rates, praying they won't upset the apple cart, but if it looks like it might tip, I can't see why they won't just as quickly reverse course, and try once again to flood the markets with liquidity. Maybe zero interest rates will do it. Or a bonus if you borrow! <g> And to hell with the bagholders like Japan and China! Seriously, they won't stand idly by if it looks like a depression. The fat lady hasn't sung yet, so the game just goes on.

To: piggington who wrote (31148)	4/25/2005 12:17:26 PM
From: el_gaviero	Respond to of 110194

Yes, without question the government will get into the act. Who could doubt otherwise for a moment? But how? Assume to keep things real simple that you have a homeowner with a mortgage owned by a bank, and also that you have a government. The government could buy the mortgage from the bank (paying for it of course with printing press dollars). This would be no different than if the Fed had bought a treasury bill from the bank. It would allow the bank to increase its reserves, and thereby lend out more money. But suppose the solvency of the bank is not the problem, as I don’t think it now is or would be? Suppose the problem is the homeowner, who faces bankruptcy and can’t meet his mortgage payments? For the government to buy the mortgage on his house does him no good. If the government wants to help, then something has got to be done that allows the homeowner to keep making payments. What are the choices? Direct subsidy? This is one possibility, i.e., the government simply mails out a check. The trouble with this of course is that it is too blatant. The fool who gets himself into trouble gets his foolishness subsidized in a big public way. Indirect subsidy by means of the tax code? This is the way that it will have to work. That is to say, the government will bring about the same thing as a direct subsidy, but by means of arcane, obscure language in the tax code. If the tax-code approach works, the homeowner is shut down and stuck in place forever. A Japanese style economic coma emerges, and either stagflation or gentle deflation lasts for a long time.

To: piggington who wrote (31148)	4/25/2005 12:47:05 PM
From: dpl	Read Replies (1) \| Respond to of 110194

If they did this it would be after the debt bubble starts to implode.Therefore it would be too late and do no good. David

To: piggington who wrote (31148)	4/25/2005 1:19:25 PM
From: Colin H	Respond to of 110194

I think we might get to see the spectacular return of the HUD. With freshly minted money from the treasury monetized by Bernanke. Too risky? Too dangerous for the dollar? Why not roll out a "compassionate" plan to help the "ownership society". GWB: Although we have record home ownership, and this is good, house prices keep on getting more expensive. And further and further out of reach for many families. My plan will help these families obtain their dream and enter the "ownership society". Plan details, a "new federal bank" (sort of) that can supply money to the HUD or some other agency that goes around buying up the houses and condos. The money printed and thus debt on the books of this bank, does not have to be reported for another five years. That's really passing the buck!

To: piggington who wrote (31148)	4/25/2005 2:03:34 PM
From: jackjc	Read Replies (1) \| Respond to of 110194

I believe this also and have posted it to Mish. We could have 'emergency' low interest rate fed loans to cover mtg and other debt, as the gov does in other emergency situations, especially for those who lose jobs or have other defined 'emergencies'. There is no need to have cascading defaults if gov covers the default converting it into gov 'loan'. And the several million new gov workers required to handle the 'emergency' paperwork and myriad of qualification parameters wil help the unemployment problem. Just the announcement would prevent walking away from homes under water etc, expectation would be that gov would help pay for it and loan would be forgiven eventually. Would slow the process and reduce fear. We can't have pyramiding defaults, where savers wind up with the assets at a discount. Need to balance the loss as evenly as possible by printing and guaranteeing. Of course I don't expect gov to be successful in full, but I don't expect deflation slipping down out of control. Gov can pay the bills with printed money which can not be refused with our legal tender laws. And handling the mess would provide a lot of work. Look at what Roosevelt did with his make work projects, and multiply by 10, with fiat money instead of gold backed.

To: piggington who wrote (31148)	4/25/2005 5:45:40 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 110194

Japan provides an example of how the government can become a lender of last resort when normal lending falls off. Japan also demonstrates that these Monetarist welfare programs will ultimately fail to prevent de-leveraging and deflation. Like American banks in the 1930s, Japanese banks would not issue mortgages for rates below 3.25% - even though their cost of funds was essentially zero. Acting on the deranged advice of Monetarists at our Federal Reserve and their own Monetarist economists • • • Japan created a government agency called "The Home Lending Corporation" which lent newly-issued money direct to home owners at fixed rates as low as 2%. Japan was thus able to misdirect trillions of dollars into uneconomic over-investment in real estate - yet was unable to prevent deflation in real estate values. home.pacbell.net .