To all: as the title implies,"what now?" Really, what now? The Fed cut rates 1.25% in eight days. This amounts to about a 30% rate cut, literally ovenight. The stock market steadied itself slowly, and in fits and starts rallied 5-6%. Yesterday, and today were the worst back to back days in a year or so. In 2 days, we have given back close to 1/2 of the gains made off the rate cuts. We will be testing the lows made 2 weeks ago, shortly, if not immediately. The President., sec of the Treasury, and the Fed have all fired bullets at the same time. They missed the target, or point to be exact.
How many more bullets do they have? Can they give $10,000 to every man woman and child in the US? Yes they can. Can they lower interest rates to 0% and grow the money supply by 20% ? Yes they can. For a while. A short while. Will it work? NO! It can't work. Here is why: If the Treasury gives $10,000 or more, or any amount to the public, they either have to print, borrow it, or the Fed prints the $s and the Treasury borrows from the Fed [monetize it]. It is all smoke and mirrors. Anyway you look at it, the government is creating money out of thin air, and dispersing it to solve problems caused by not having sound money in the first place. If they lower rates to 0 and juice the money supply more, they destroy an already destroyed Dollar more, or maybe completely. They can try this. They are trying this. Foreign investors who hold $s will not stand for it. This is a game of chicken. Which Central bank panics first, and begins to sell $s? We are very close to this happening. When it does, the $ will collapse, all market interest rates will go up, and money supply is likely to contract faster than it did in the 1930's. The situation today is mathematically headed toward disaster. Many argue it will be inflation or deflation. In Dollar terms, I think we get hyperinflation in the things we need and use, and deflation on anything owned or borrowed against. In real money terms ie. Gold/Silver, we will experience deflation in everyday goods and massive deflation in real estate, stocks, autos, bonds, etc. The fruits of an UNBACKED currency system, globally.
We are at an inflection point. The game of chicken is about to end. The government has spent huge amounts of ammunition to turn things around. Just read the recent economic news, and how it is deteriorating. The economy will not turn up from here. There is no possible way to know all of the ramifications. The only sure thing is to have real money when push comes to shove. Unbacked currency will come looking in a panic for backing. There is not enough Gold and Silver bullion on the face of the earth to back even 1% of the paper outstanding.
I have written to, spoken to, and known some of you for more than 20 years. All of you know me as a straight shooter, not afraid to speak my mind. Some may not like to hear this, but I do believe we are at the doorstep of something far worse than the 1930's. I see no other possible outcome. This is systemic. Back then, if you had $s, you were "Golden". Today, if you have $s, it won't help since they are only pieces of paper and no longer represent pieces of Gold/Silver. Back then, neighbors helped neighbors. Today no such camaraderie exists. I can see the economic outcome, I fear for the humanitarian outcome. My apologies for the "uplifting" read. We will all wake up shortly to a predictable trainwreck with unpredictable ramifications. Hope all is well, Bill H.
Hi Bill,
[Don't know if this already came up in the cafe earlier; have tried the cafe's search engine and couldn't find it.]
Here's a link to the Fed's own report on the US Banks aggregate reserves as of January 31, 2008. Take a look at table 1, the (preliminary) negative 8.751 billion usd for the week ending January 30. Since Dec 19, some 45 billion usd have left the Banks' reserves...!
federalreserve.gov
Comments on this at
market-ticker.denninger.net
(on sunday, feb 3)
and
globaleconomicanalysis.blogspot.com
and
marketoracle.co.uk
Refuted at
piggington.com
which contains extra comments from the first (denniger) blog
The question discussed is: do the Fed figures mean the US banks have completely burned through their own reserve capital, and are all their reserves now completely being loaned to them by the Fed – and do the banks in fact come out +short+ 9 billion usd +on top+ of all those already borrowed reserves?
How serious is this? Opinions clearly differ...
Cheers - Walter Winkler
Feb. 6, 2008 |
