T Nation

Bernanke - A Disaster!

Says, Jim Rogers.

http://www.ft.com/cms/893ac9c8-757e-11dc-b7cb-0000779fd2ac.html?_i_referralObject=579721586&fromSearch=n

Bernanke has been taking the right moves to avert a bad recession or a depression from the credit collapse. The choices were bad (inflation) or worse (recession/depression), so he chose bad. Also, some inflation was already baked in due to Greenspan’s Fed leaving rates low for so long after the 2001 recession that was triggered by the tech collapse and 9/11.

Bernanke is is going to destroy the investments of millions of people.

Who wants to invest in a shitty rate and a shitty currency?

[quote]LIFTICVSMAXIMVS wrote:
Bernanke is is going to destroy the investments of millions of people.

Who wants to invest in a shitty rate and a shitty currency?[/quote]

You probably blame the firemen for getting the furniture wet when they put out a fire.

[quote]LIFTICVSMAXIMVS wrote:
Bernanke is is going to destroy the investments of millions of people.

Who wants to invest in a shitty rate and a shitty currency?[/quote]

I’d wager there’s a pretty decent shot of a blue-chip rally late this year.

It’s going to fall hard if rates do not go back up because most long-term investors want an actual return for the risk…shorting the market will only take investors so far.

He’s damned no matter what he does.

[quote]Zap Branigan wrote:
You probably blame the firemen for getting the furniture wet when they put out a fire.[/quote]

How is fucking up long term investment anything like putting out a fire?

I guess the only way to save this place is burn it down before it catches on fire…?

[quote]Zap Branigan wrote:

You probably blame the firemen for getting the furniture wet when they put out a fire.[/quote]

This is the mentality of a lot of people unfortunately…

Anyone watch Jim Cramer? I found this video yesterday about Jim Cramer’s hypocrisy regarding the Fed.
http://www.youtube.com/watch?v=tCFjc5keNM4&feature=user

[quote]LIFTICVSMAXIMVS wrote:
Zap Branigan wrote:
You probably blame the firemen for getting the furniture wet when they put out a fire.

How is fucking up long term investment anything like putting out a fire?

I guess the only way to save this place is burn it down before it catches on fire…?[/quote]

He is doing it to prevent an even worse problem.

[quote]LIFTICVSMAXIMVS wrote:
Bernanke is is going to destroy the investments of millions of people.

Who wants to invest in a shitty rate and a shitty currency?[/quote]

Depends on the interest-rate differentials with other currencies. If other areas are seeing an economic slowdown as well, they will likely also lower their interest rates, and the dollar will recover some of the ground it has lost.

BTW, BOE and BOJ lowered their rates this week. The EU may soon follow…

The problem is metaphysics: You can’t be wealthy and hopelessly in debt. We spend like we’re wealthy when we are really surging toward utter collapse.

A is A (Aristotle; Rand). Reality cannot be tricked for long.

Hyperinflation, followed by extreme wage and price controls, and a draconian government to enforce it all. We will resemble Germany in the late 30s.

BTW: Just to keep Lixy happy: Iraq. ;D

A crisis is inevitable. I’d almost rather they just let the depression hit so we can get it over with.

[quote]belligerent wrote:
A crisis is inevitable. I’d almost rather they just let the depression hit so we can get it over with.[/quote]

Not me. Too many bad things happen that way.

[quote]Zap Branigan wrote:
belligerent wrote:
A crisis is inevitable. I’d almost rather they just let the depression hit so we can get it over with.

Not me. Too many bad things happen that way.[/quote]

That is nonsense.

A small depression is a perfectly normal part of the business cycle.

Dragging it out by pumping money into the system will only make problems worse and lead to an ever bigger depression down the road.

Very good article:

http://www.mayin.org/ajayshah/MEDIA/2008/recession_or_crisis.html

[i]A crisis? Or a mere recession?

Business Standard, 19 March 2008

While the US economy is beset with serious difficulties, there are equilibriating forces in play which suggest that this could endup as a recession but not a crisis.

The US economy is facing substantial difficulties. Housing prices have dropped. An increasing number of households are defaulting on home loans. Losses on home loan portfolios are affecting financial firms who hold derivatives on home loans. Some financial firms have gone bankrupt, and there is uncertainty about who else might be bankrupt. With finance in difficulties, the monetary transmission is malfunctioning. Hence, while the US Fed has cut rates sharply, the full impact of these lowered rates on the economy is not going through. Inflationary expectations are worrisome.

This is undoubtedly a difficult situation. But is it a crisis? One estimate of the size of losses on sub-prime home loans is $400 billion. This is roughly 2.85% of US GDP. In India, with roughly Rs.50 lakh crore of GDP, a comparable scenario would involve home loan losses of Rs.1,43,000 crore. If such a shock hit India, one can only imagine how bad things would be.

In such difficult times, why is the US economy still rolling with the punches? Why has the US economy not collapsed in a mire of failed firms, finger-pointing by government agencies, morchas in the streets, and JPC inquiries? Understanding how this shock is being absorbed, and the equilibriating forces in play, is important in making a call on whether this is a crisis or a mere recession.

In the idealised world of securitisation, a parcel of home loans is converted into securities, which are then sold into the broad market. The ownership of these securities is dispersed amidst international hedge funds, pension funds, etc. The originator of the home loan is largely immune to the outcome : if a default takes place, the losses are borne by the owners of the securities.

Many critics of securitisation have pointed out that this theory has not quite panned out as expected. However, at the same time, there is no doubting the fact that securitisation has given a substantial dispersion of the $400 billion loss. For this reason, the impact of the massive loss on the US financial system is not as large as it might otherwise have been.

The second equilibriating channel lies in monetary policy. Unlike many other countries which have experienced crises, the US has well functioning institutions for conducting monetary policy. The US Fed has cut rates dramatically in response to difficulties in the economy. On 14th March, the 90-day treasury rate in the US had dropped to 1.16%. The impact of lowered interest rates on the economy is not as strong as it used to be, owing to difficulties in finance. However, a certain impact is surely there. Low interest rates are helping strengthen demand, and help attract smart speculators to buy assets at fire sale prices.

Difficulties in finance inflict damage on the economy when they trip up the debt financing of firms. However, US corporations are unusually under-leveraged and cash-rich. Hence, this recession-inducing channel from credit market distress to the real economy is absent. The health of US corporations today is very different from the health of Japanese firms in Japan’s lost decades.

Low interest rates are doing their job in one critical respect: the decline of the dollar. Unlike other countries which have experienced crisis, the US has a floating exchange rate and an open capital account. The exchange rate pegging with capital controls, which has brought down so many emerging markets, is absent. When interest rates dropped, the dollar fell - exactly as it should. The weak dollar is bolstering net exports and helping the economy.

These effects are large. The Q4-2005 current account deficit was 7% of GDP; this has shrunk to 4.9% of GDP in Q4-2007. In other words, over these two years, the decline in the dollar contributed roughly 2% of higher demand for goods and services produced in the US.

A second remarkable feature of the decline in the dollar is the funding channel for the US through Asian central banks and governments in the middle east. For each $1 trillion of reserves held in USD assets, a 10% decline in the dollar constitutes a transfer of $100 billion to the issuer of liabilities in the US. Every Asian country should be asking whether this deal makes any sense for them, but in understanding the present situation, it’s useful to note that no other country facing a crisis in the past has had such a good deal, which produces fiscal transfers in the time of need.

Unlike many countries which have experienced crises, monetary policy in the US is manned by brilliant intellectuals like Ben Bernanke and Fred Mishkin. Few people in the world understand the interplay between monetary policy and financial sector difficulties as well as them.

The Fed cut rates, but the monetary transmission was not quite working owing to difficulties in finance, so the rate cuts were not doing their job. Hence, the Fed has been innovating with new ways to get back into the game. These innovations include changing rules on collateral, reaching out to financing non-banks, etc. These strategies are on the right track and will help.

Some hedge funds and private equity funds have failed. From the viewpoint of public policy, this reiterates the case for having hedge funds and private equity funds as major players, since these failures have no repercussions. The failure of Carlyle is very different from the failure of financial firms like banks or insurance companies which have assured returns obligations to the general public. It is an excellent risk management strategy for society to have hedge funds where rich people place their money, which can blow up when times go bad inflicting losses on rich people.

In the failure of Bear Stearns, there was no bailout. Senior managers will be sacked, and the shareholders were expropriated. In this fashion, bit by bit, the losses on the housing market are being absorbed by various portfolios.

Conditions in the US are undoubtedly difficult. However, it is important to also understand the institutional depth of economic policy making, and the equilibriating responses which are in play. This may well be a recession, but it is not an emerging markets style crisis. [/i]

Recession, yes. Crisis, no. Some people will suffer and some will prosper. I am just irritated at the bailouts instead of allowing a “free market” correction to happen. Protectionism in the financial sector is not a good thing.

One thing I do like, however, is lower housing prices while I shop for a vacation home.

The difference between now and the past is that we basically bankrupt. Previously, if the economy went into a recession (post 1945), the Fed would just lower interest rates and print up a shitload of money.

Now, the debt has exploded, approaching 10 trillion dollars. We have a 400B deficit this year, with most of the country employed and paying taxes. There are limits to how much money the Fed can spend/lend. What happens as unemployment rises and fewer people pay?

Then we have the huge overhang of foreign-held dollars. If the Fed goes wild, foreigners bein dumping dollars. Our standard of living goes down — no more foreign cars, French wine, or shopping trips to Hong Kong.

America then begins to resemble one big Wal-Mart: lots of poor people roaming the aisles looking for the promised land.

[quote]Headhunter wrote:
The difference between now and the past is that we basically bankrupt. Previously, if the economy went into a recession (post 1945), the Fed would just lower interest rates and print up a shitload of money.

Now, the debt has exploded, approaching 10 trillion dollars. We have a 400B deficit this year, with most of the country employed and paying taxes. There are limits to how much money the Fed can spend/lend. What happens as unemployment rises and fewer people pay?

Then we have the huge overhang of foreign-held dollars. If the Fed goes wild, foreigners bein dumping dollars. Our standard of living goes down — no more foreign cars, French wine, or shopping trips to Hong Kong.

America then begins to resemble one big Wal-Mart: lots of poor people roaming the aisles looking for the promised land.[/quote]

And American factories open again and people get better paying manufacturing jobs instead of peddling Chinese made junk at Wal-Mart and foreigners start buying American products because they will be affordable again.

Circle of life.

[quote]Zap Branigan wrote:
Headhunter wrote:
The difference between now and the past is that we basically bankrupt. Previously, if the economy went into a recession (post 1945), the Fed would just lower interest rates and print up a shitload of money.

Now, the debt has exploded, approaching 10 trillion dollars. We have a 400B deficit this year, with most of the country employed and paying taxes. There are limits to how much money the Fed can spend/lend. What happens as unemployment rises and fewer people pay?

Then we have the huge overhang of foreign-held dollars. If the Fed goes wild, foreigners bein dumping dollars. Our standard of living goes down — no more foreign cars, French wine, or shopping trips to Hong Kong.

America then begins to resemble one big Wal-Mart: lots of poor people roaming the aisles looking for the promised land.

And American factories open again and people get better paying manufacturing jobs instead of peddling Chinese made junk at Wal-Mart and foreigners start buying American products because they will be affordable again.

Circle of life. [/quote]

That’s why I voted for Duncan Hunter.