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

To: kris b who wrote (75333)	12/11/2006 8:04:10 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Mike, could you please explain how will FED get money/credit to the consumers (Deposit directly into private accounts? Everybody will stop working and wait for the next welfare cheque from the FED) and how will FED force the people who are already broke and sinking financially to spend that money. They might decide to pay their debts down instead. So far liquidity pumping by FED since June just isn't working. The juice isn't flowing where they want it to flow. Pig man are sucking it all, while J6P is starving financially, down to 20 days of funds on transactional balance. It is easy to print but hard to get it to the economy through the channels that need it the most. Thanks Bingo We have theory and we have practice. It will take Congressional action to do what Mike expects. Bear in mind that is not impossible, it is merely unlikely. God knows what the next Congress will do. Also note what a complete pullout in Iraq (also not impossible) might do do to military expenditures. Also note what the next Congress might do to allowing cheaper drugs to come in from Canada. Also note that Bush might start a war in Iran in the meantime. Also note that at any time Congress might pass another "Smoot-Hawley" act. etc etc etc Those are more reasons we have theory and we have practice. All we can do IMO is be aware of the longer term trends as to what debt means and will ultimately do while in the meantime not getting killed by total blowouts in the shorter term. If ANY of us could successfully predict the short term, we would be retired long ago and not bothering to post here. Mish

To: kris b who wrote (75333)	12/12/2006 9:33:47 AM
From: Mike Johnston	Read Replies (2) \| Respond to of 110194

Mike, could you please explain how will FED get money/credit to the consumers (Deposit directly into private accounts ?... I think there is no way that they would deposit money directly in consumer accounts. The phrase "depositing money in private accounts" (as used by Paul Kasriel) most likely means that they could deposit money in the accounts of such outfits as Fannie Mae, Bank of America or Goldman Sachs or simply printing money to buy government debt which in turn is used to finance tax cuts and credits.

To: kris b who wrote (75333)	12/12/2006 9:41:47 AM
From: Mike Johnston	Read Replies (1) \| Respond to of 110194

The very minute they start massively monetizing the bond market or buying assets, hyperinflation is "baked in the cake". Let me explain the above sentence: When Fed goes unconventional, the first thing they will do is peg long rates. That would entail buying massive amounts of government debt in the private market. But the additional inflation that would result from all this new money would push inflation sharply higher, increasing the theoretical "true free market" yield on the bonds, meaning the Fed would have to increase the purchases until finally it would be the only buyer in the market. That i think could result in hyperinflation since interest rates would be negative and getting progressively more negative as this process unfolds. The more negative the interest rates would get, the higher the inflation would go, making rates even more negative, resulting in even more inflation and on and on until money is wiped out in hyperinflation. If the Fed starts monetizing bond market, eventually they will have to monetize entire bond market = hyperinflation -g-