For a bunch of folks who claim to ignore asset prices in making their decisions, why do cuts always seem to materialize close to, and become larger near, large stock-market declines?
Besides all the Dick Fulds of the world need a good return on all the cash they're sitting on. The SEC did everything to help the Wall Street speculators before, why stop now? They are after all the best and the brightest, Lahde be damned (sorry, darned.)
It matters, oh it matters very much. That's why instead of lowering the FFR we saw last week the raising of the excess depositary interest rate. Lowering FFR does nothing to help banks. Lowering my HELOC from 4.5% to 4% does not help WaMu. No, the whole point of the exercise is to fatten bank margins thus no explicit drop but rather an implicit drop that has actual overnights down around 1%. Oh wait, we've already got that. Cripes, how much more can we do? Giving them 1% money, letting them lend it out 18 times at 7% and they still can't even pretend to be solvent?
In six months we won't even be talking about monetarism or rates cuts - it will be fiscal stimulus all day everyday. Doesn't matter if it's McPalin or O'Biden (put the two together and it sounds like a Chicago law firm)...
I would like to clarify that the market participants do not expect a 50bp cut.
They expect the average effective overnight rate after the next FOMC meeting to be 1.00% if you assume the Fed only chooses interest rates that are a multiple of 25bp
If you look at the Chart of the Effective Overnight Fed Funds Rate, or look at the daily summaries, then you will see that indeed that rate cut has already been done and the market merely expects it to continue going forward.
What the FOMC announces compared to what the Fed does are different, but it's only what the Fed does that matters.
the problem is broke consumers dont want to borrow in the environment that they forsee, even at 0%. No one wants to take on more debt, except those that cant survive without it, and banks wont lend to them (for good reason).
what do the a-holes at fed think when repeated cuts do no good??? Didnt they learn anything from japan?
No, it is immaterial at this point. Further, the Bernanke quote really makes it appear that he is judging the validity of a rate cut by the immediate stock market reaction.
They can cut if they wish - but where will the cheap money go? At this point that is the real crisis. If you want to throw money around but there is no good, productive place to throw it, you should rein in your urge to be the big hero, show some patience and bide your time.
Hey, Jas managed to hit Godwin's Law in one. That might be a record.
mb --
what do the a-holes at fed think when repeated cuts do no good???
They think that they need to try something else, which is why they are buying commercial paper and other money-market assets. They will start buying other things soon enough.
People talk as if Ben Bernanke does not know that a credit crunch is deflationary...
the problem is broke consumers dont want to borrow in the environment that they forsee, even at 0%. No one wants to take on more debt, except those that cant survive without it, and banks wont lend to them (for good reason).
what do the a-holes at fed think when repeated cuts do no good??? Didnt they learn anything from japan?
mb | 10.26.08 - 12:43 pm | #
It is phase one.
Phase two will be stimulus - bridges to nowhere, increased public services (like medicare & reeducation grants) or war.
Put the two together and you have a whole lot of potential activity even if it smacks of 'broken window fallacy'.
EvilHenryPaulson, the market expects a 50 bps rate cut in the target Fed Funds rate. Sorry if that wasn't clear.
I did write: "Of course the FOMC just sets the target rate. The effective Fed Funds rate has already been at or under 1% for the last couple of weeks. So the Fed will just be making this official."
if they want any chance of recovery in next few years, the consumer must be enriched, without increasing taxation.
massive govmt spending cuts, massive tax cuts, low intersest rates, and its off to the races.
problem is , the govmt is the largest employer. it has grown itself into a position where it cannot do whats right.
the bailouts are a step in wrong direction. Even j6p knows that this makes him pooorer in future, so he is more reluctant to spend. dont need an econbomics degree from harvard to know that, just common sense.
But our economic policy is based on the assumption that j6p is dumber than he really is.
2 years ago we went to look at these million dollar houses in Brevard in a development called Summer Lakes. Today in the real estate section one of them is a $1,150,000 short sales.
We had no intention to buy, they had a coordinated open house for 4 houses, and we wanted to see how the other half lives. Guess there was never enough of the other half to live like that.
Doubt if an interest rate cut of even to zero would help people who bought unaffordable houses.
As far as I can tell, the sand foundation for the financial house is still filled with credit default swaps that are completely untransparent, the leverage of lenders is still way beyond rational and no one is talking reform. The rot in the structure is not being addressed.
Trust.
When trust is gone, it takes mighty actions to restore trust, not puny financial gimmicks, before people will even have the basic faith that their money is safe in the banks or investments. Do I trust the safety of my cash in the Bank of America? Hell No! Do I trust that the FDIC will protect me 100% down the road if needed? Only a bit, because the position of the US government in the world markets is questionable. Will we have crushing deflation or inflation run wild? Who knows?
You can't restart a consumer-led economy on this foundation. Everything they are doing looks like makeup on a putrid corpse.
In six months we won't even be talking about monetarism or rates cuts - it will be fiscal stimulus all day everyday. Doesn't matter if it's McPalin or O'Biden (put the two together and it sounds like a Chicago law firm)...
This is great. Send free money to GS, JPM, etc. They can't lend to anyone.
Ah, they can lend back to gov't. Treasury bonds.
Private sector crowded out. But gov't can do infra projects. See Japan. Very productive.
With all due respect, this thing is too complex for all these economists with smart ideas.
30 bln daily monetary exchanges across the world. Send in the surgeons. Bretton-Woods II is dead.
The Notorious A.I.G. writes:
I too have been touched by the FSM's noodly appendage. He will provide us with wisdom and pasta to see us through these difficult times.
The Notorious A.I.G. | Homepage | 10.26.08 - 12:41 pm | #
The FED is trying to "put" a bottom on what is, and will likely remain, a deflationary spiral.
But as others are pointing out : making money cheap or giving cheap money to the banksters (insurers, etc , etc) does not deal with bad debt tied to deflating real assets and having these lucky smart guys sit on taxpayer largesse rather than lend it out on Main Street means : we are all deflated now.
And it won't be hard to do either - make the stimulus 'mandatory' in the same way corp budgets are (use it or lose it). There are so many ways to do that it scares me witless at times.
High speed trains connecting major cities are the answer. That will free us up from the detested Airline "industry" also. Joe Biden gets it on that one. Maybe, if we treat it as a national emergency, or like the space race as crucial to the future, we can have high speed trains in place before we run out of oil and are trapped like rats.
Calculated Risk writes:
EvilHenryPaulson, the market expects a 50 bps rate cut in the target Fed Funds rate. Sorry if that wasn't clear.
I didn't misunderstand you, as I recall the Futures contract is settled based on the effective overnight fed funds rate for a given month and that is what those charts are derived from
sweet , where do I stand with a net!
PonziMonetizaCoruptiCaptislm | 10.26.08 - 12:57 pm | #
My guesses:
1) Infrastructure construction
2) Alt energy
3) Education (think more grants not loans)
4) Medical & social services (subsidies for displaced workers, etc.)
Pumping cash into any single one of these results in immediate increase in payrolls & profits for some body. Put your net near any one of those & you'll catch 'your share'.
I bet we see efforts along this line before March 09 no matter who lives in the WH.
Don't they need to coordinate with other countries to cut together, or has the current strength of the dollar scared Europe off?
Seems Europe can take their pain either in a higher rates, or in the FOREX markets... if the Germans still ran things, I'd bet the former, but with the ECB, I'm willing to bet for a coordinated rate as a shared race to see who can competitively devalue to best to protect jobs.
So with short term rates virtually at zero, tell me again why I should keep my money in a bank... as opposed to a few watertight containers secretly geocached at various remote and random locations?
I sure wish I could borrow money rates like that. One interesting thing about negative real interest rates - the cost of owning gold or any other solid, non-interest-bearing asset becomes negative.
ztexas writes:
So with short term rates virtually at zero, tell me again why I should keep my money in a bank... as opposed to a few watertight containers secretly geocached at various remote and random locations?
ztexas | 10.26.08 - 1:06 pm | #
They want you to SPEND it if you haven't already got the memo... so if you are bitching that the rates are too low to want to save they would say 'good'.
1973 the Dow peaks at 1,000 a level first reached in 1966.
1974 the Dow troughs intraday at 540 in December.
1975 the Dow recovers to close the year at 858.
Factoids from 1975. Inflation was measured at 9.2%, Fed Funds were 7.25% and the average house sold for $39,300. Average income was $14,100 and gas sold for 44c a gallon. Unemployment was 9.2% and a new car costs $4,250.
Meanwhile Gerry Ford loaned NYC 2.3 billion, two guys named Gates and Allen introduced Basic on an Altair 880. Oh, and Jimmy Hoffa disappeared.
Bretton Woods collapsed in 71-72 and in the UK, inflation peaked at 24.2% and the Conservative Party elected Maggie Thatcher as their leader.
Many differences today but if you lived through the mid 70's, I can tell you it was Hell.
In 75, the trans Alaska pipeline was under construction and the 40's field began to flow.
The 1,000 peak on the Dow was not equalled in inflation adjusted terms til 1992.
Last time the FFR approached 1% there was scattered talk that a rate below 1% would blow up the MMF industry. Was/is that really an issue to worry about?
If the short term rates have effectively been under 1% anyway, it would seem to have little effect. Perhaps it even increase because of a longer term inflation outlook? Or do we see Japan style rates of under 3% across the board?
Seems Europe can take their pain either in a higher rates, or in the FOREX markets... if the Germans still ran things, I'd bet the former, but with the ECB, I'm willing to bet for a coordinated rate as a shared race to see who can competitively devalue to best to protect jobs.
DCRogers | 10.26.08 - 1:06 pm | #
Brits, Germans & French still have a real 'safety net'. They don't care if they are made redundant. Bring it on. Meet you at the Pub...
Italians, Spanish, the Noobs in E Europe? I bet they look at things differently.
CalculatedRisk
I did check, see here for the summaries of the CBOT 30 day Fed Fund Futures/Options.
The charts from the Cleveland Fed interpret from the 30 day FF Options, which are in turn based on the 30 day FF Futures which are based on the effective overnight rate for a given calendar month.
The Cleveland Fed works backwards assuming that rate cutes occur in 25bp intervals, and when they say "expect a rate ____ by the FOMC at said meeting" they implicitly assume that the overnight rate is about the target rate (as it is in normal times)
Cripes, how much more can we do? Giving them 1% money, letting them lend it out 18 times at 7% and they still can't even pretend to be solvent?
Rob Dawg
Rob Dawg: You pose a good question. Banks are restricted to twelve times leverage though, even so one would think there was a profitable transaction available somewhere.
Maybe, that is the problem. Given they have the dollars (credits) to lend, they are in the situation where qualified borrowers aren't either 1) asking for the credit, or 2) interested in getting the credit, or 3) sufficiently qualified to access the credit.
Tapped out, in other words. Too simple? Probably so, but if there was demand, there would be loans being made.
Or, the commercials are still sufficiently overloaded with a bunch of stuff that is opaque, illiquid, market to model, AAA rated, etc.
Still too simple? Perhaps. The fact remains that there ain't much left for the central planners to do. They already raided the member banks reserves, they're coming after our savings (that which has not yet evaporated), and have plans for a massive attempt at issuing even more credits. I liken it to attempting to outrun a treadmill.
Wally, Wall Street see new money first. The poor see them last. Purchasing power down.
Japan deflation 90-03. Repeat. Gov't managed to fill the coffers of the crooks through keynesian stimuli. But there was no deflation in consumer staples. Result: extreme decline in purchasing power for the poor.
Many differences today but if you lived through the mid 70's, I can tell you it was Hell.
I commented on this the other day, on why so many people still [fairly] think that we are a "nation of whiners."
I don't think people realize just how tremendously Katrina changed the culture of politics. While the event was indeed a tragedy, it also ensured that the failure to respond to any future tragedy would be greater than the tragedy itself.
dryfly wrote: They want you to SPEND it if you haven't already got the memo... so if you are bitching that the rates are too low to want to save they would say 'good'.
Forgive me... I'm a little slow. The irony is that the lower they push rates, the less likely I am to spend the modest lifetime savings that I do have. ZIRP suggests prolonged agony, in which case, I'm hoarding the cash that I have, not spending it.
CalculatedRisk,
Last post -- I did not read through to the caveats that what the Fed does matters more than the FOMC target, so I just want to make clear that I wasn't criticizing you but rather that the Cleveland Fed charts no longer mean what they used.
The market could both be right and make payday while the FOMC does not cut at all. The result being the Cleveland Fed's phrasing with implicit assumptions is demonstrably wrong. They need to publicly accept that the overnight rate is separate from the FOMC target and that the Fed governors are being treated as a token apparatus
ztexas writes:
dryfly wrote:
They want you to SPEND it if you haven't already got the memo... so if you are bitching that the rates are too low to want to save they would say 'good'.
Forgive me... I'm a little slow. The irony is that the lower they push rates, the less likely I am to spend the modest lifetime savings that I do have. ZIRP suggests prolonged agony, in which case, I'm hoarding the cash that I have, not spending it.
ztexas | 10.26.08 - 1:18 pm | #
I hear ya - just telling you like it is. They plan to stimulate so get stimulated damn it!
Yea, back in the bad old 70's, Tricky Dick became a Keynsian then resigned in disgrace. (in the Rose garden, Nixon and Ford were walking when Nixon bumped into him. Nixon "I beg your pardon," Ford "OK". Vietnam fell and the price of houses on Long Island declined 20 to 30%.
MLM, Rob Dawk, et al (forgive any omission): I freaking love this place. There are times when the discourse deteriorates (like on late nights over the weekend sometimes), but all in all I really am stimulated by all this intellectual cross talking.
Hey! We be stimulated. Man this is better than a harsh laxative!
Basel,
I think you're right re Katrina. Though Bush's father was nearly derailed by Andrew, so you'd have thought he'd have had a clue.
Andecdotally, I hear the disconnect. A handful of wealthy, older friends moved out of the markets in early summer, and use the words depression and FDR in conversation.
Younger friends, my age, in debt despite significant income, describe things as "terrible" and are waiting for the economy to "straighten out". Zero expectation of continuing or worsening hard times.
We are just performing an intervention for Jas. I thought I sent you a note about the plan. CR had the exit strategy to the recovery center as his part. Fortunately Jas had a quick recovery.
Folks, you need to understand the business model.
1. GS borrows massive amounts from FED at 1%.
2. They leverage that 12 times and lend it back to Government. Congress now have funds to do stimuli.
3. GS doesn't lend to the other non-gov't backed small banks.
4. FDIC and GS picks up small bank.
5. The world suffer depression because productivity is removed from economy.
6. Repeat all mistakes from GD.
7. WWIII
Back in the bad old 70's, my first kid was born and cost $2,173 with tax, title and license. The second one fully insured in 81 clocked in at $4,375 or so.
Actually I remember the 70's. I was more honest then. Pass the bong.
I'm not sure if this rate cut is about spurring domestic consumption or investment. Recession is already a reality. The crisis is now in forex, and the cut would (hopefully) slow down the JPY carry trade unwind and the flight to safety.
On the other hand, what's a few bps when sovereign default is on the table?
Dryfly: As I understand the situation, Volcker is already hard at work with the Obama team. He's delivered position papers and action plans on what must be done every step of the way. He is an octogenarian, but he is a young 80+ man. Maybe, it won't be as bad as we think. Maybe the sun is about to come out. Maybe the children will sing and the flowers will bloom and, and, and,
I think and certainly hope, after all is said, something will be done to the banking industry comparable to what we had done to the tobacco industry some years ago.
I went to law school at nite from 72-76 with the hub. The hub worked for the hurricane center. I worked for the University for practically no money, but a tuition remission for both of us. No debt, but a mtg.
We paid 22,500 for a house that we fondly called the pit, because we never cleaned it. didn't have time.
We didn't even notice any hard times.
We sent out daughter to private school until the end of 2nd grade, when the school system improved. It was costly, but affordable.
I had a hard time finding a job in late 76, but thought it was prejudice against women. Never occurred to me it was a bad economy.
Anyway my 'Volcker' is a metaphorical Volcker. The real guy has said he wouldn't do it the same way as he did it in the 70s & 80s - we are structured the same way an so it wouldn't work.
besides I till think it's gonna be McPain not O who is picking the econ team. Rip me in two weeks if you want...
Regardless the next 'Volcker' will be named something else but he'll do pretty much the same thing - wring out some excess fiat & inflict great pain in doing it. But we'll be begging for it by then. Well most of us anyway.
Until then its reruns of 'Saturday Night Fever'...
15. IRONIC - When Ben Bernanke took over a vacant slot on the Federal Reserves Board of Governors in August 2002, he was required to set aside the 120 pages he had written for a book that he began 2 years earlier. A New York City publisher had paid Bernanke an advance on a book that was to be titled "Age of Delusion: How politicians and central bankers created the Great Depression"
May 1, 2001 BEN S. BERNANKE (CV) Other Papers and Work in Progress: Age of Delusion: How Politicians and Central Bankers Created the Great Depression (book manuscript).
Arent Politicians and Central Bankers in-charge & in action now, more frantically than at any time in 1930s?
Are Americans born-and-bred American dopes or what!
KeyCorp, Capital One to receive cash infusion: source
| Reuters
KeyCorp (KEY.N: Quote, Profile, Research, Stock Buzz), Zions Bancorp (ZION.O: Quote, Profile, Research, Stock Buzz) and Capital One Financial Corp (COF.N: Quote, Profile, Research, Stock Buzz) are some of the banks that will receive cash under the U.S. government's second round of capital infusions, a source familiar with the Treasury Department's thinking said on Sunday.
Fed to slash rates as recession looms
| Reuters
The consensus among Fed watchers is for a half-point cut in overnight rates to 1 percent, which would be the lowest level since June 2004. The central bank is also expected to signal a willingness to lower borrowing costs again if needed -- especially with inflation pressures fading fast
Last time the FFR approached 1% there was scattered talk that a rate below 1% would blow up the MMF industry. Was/is that really an issue to worry about?
Oh, absolutely, and I suspect TPTB are doing their best to keep it beneath the rug. The problem is that any fund experiences losses from time to time and the less it's making, the less leeway there is to cover those losses. For an extreme example, suppose all short-term rates fell to 0. If rates ever increased, then all funds would lose some money as a result but none would have any gains to cover it with, so every last one would break the buck, even without any defaults on the underlying assets.
Obviously we won't go to absolute 0, but even where we are with really low treasury rates and high volatility I'm a little surprised a Treasury MM fund hasn't gone bust already. Of course TPTB don't want this discussed because it might drive people to withhold money from MM funds, which would exacerbate a host of problems.
Until then its reruns of 'Saturday Night Fever'...
dryfly
I won't rip you. The same guys will be in charge no matter who gets 'elected'. I'm gonna stay loaded until the pain sets in. By then, I may not notice at all. Cheers!
To witness an inflection point in world history is a privledge not to be missed!
Ross
Oh. That's what we're calling it. An inflection point. Great. Something else for me to look up and understand. IAnd to think, I had it all figured out that we were freaking doomed. Now I learn we're Freaking Inflected.
The crisis is now in forex, and the cut would (hopefully) slow down the JPY carry trade unwind and the flight to safety.
No, the less US investments pay, the less incentive there is to borrow yen and loan dollar (the carry trade). Further cuts accelerate the unwind. LIBOR coming down also accelerates things by killing carries into adjustable loans.
Now that I think about it, the Feds are on the horns of a horrific dilemma - keep rates up and kill borrowing, or push them down and kill the carry trade. Talk about a no-win situation.
To witness an inflection point in world history is a privilege not to be missed!
... Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions everything, now restrains itself and anxiously hopes for just two things: bread and circuses. - Satire X of the Roman poet Juvenal (via wiki the omniscient).
The lesson of history is that we learn nothing from history.
--
It is not the economic theories that matter; economics is all about human behavior.
Bernanke was hired to guarantee the Greater Depression! (By horrific amount of "unprecedented intervention" that no one can ever know how it would turn out).
No, the less US investments pay, the less incentive there is to borrow yen and loan dollar (the carry trade).
Now that I think about it, the Feds are on the horns of a horrific dilemma - keep rates up and kill borrowing, or push them down and kill the carry trade. Talk about a no-win situation.
Fair Economist:
Your scenarios applies to the initial decision of an investor to make a carry trade. What I'm imagining is that the FFR cuts slow down the JPY appreciation that are accelerating the unwind via cascading margin calls.
I'm on the younger side of people here so I was wondering how the markets traded in the 70's. I'd like to know the degree that liquidity dries up and how good opportunities are to make money. Also, at this point everything seems like monopoly money. Governments everywhere promising and printing. "Everyone" older than me says they have never seen anything like what is happening now, but I've only seen the last 4 years from a trading desk. Any words of wisdom?
Dry, why are you so sure O's not gonna win?
lawyerliz | 10.26.08 - 2:19 pm | #
Liz I'm not sure but if I had to bet (forced to call) I'd go with McPain.
And the reason is 'subtle racism' - the almost lily white folks in rural Ohio, Pennsylvania, Missouri, Wisconsin, Iowa, Minnesota, etc. and I assume the same in Virginia, Florida, North Carolina WILL NOT pull the lever for a black guy - just will not do it.
And they won't even admit it to themselves let alone the pollsters.
You have no idea how many conversations I have with 'these people' in my travels all around 'fly over' - I just don't see it happening.
I think you have to add 5% minimum to McCain's polls in those states (and subtract 5% min from O's) to get a feel for where we really are.
Now those rural areas aren't the bulk of those states population... but blue collar rubes have been the swing vote in many of those states the last two or three elections - I don't see that changing this time. It works for heavily McPain IMO.
And counting the O signs in W Penna or N Florida doesn't do it for me. You can buy signs - you can't buy votes.
If O wins we truly ARE at an inflection point. Big time. But I just don't see it happening. I expect a McCain win to come as a Truman like surprise to many.
"Everyone" older than me says they have never seen anything like what is happening now, but I've only seen the last 4 years from a trading desk. Any words of wisdom?
s0mebody | 10.26.08 - 2:33 pm | #
I didn't know any traders back then - everyone I knew was 'working'. The trading then was done on 'the floor' - for all we knew it was on the very same set where they shot the 'one small step for man' scene if you know what I mean. I suppose old reruns of Wall Street Week w/ Louis R might help - if you can find them.
Man that would be an archive worth going through. Hint, hint.
Your scenarios applies to the initial decision of an investor to make a carry trade. What I'm imagining is that the FFR cuts slow down the JPY appreciation that are accelerating the unwind via cascading margin calls.
Normally increasing rates makes a currency appreciate and decreasing them makes it depreciate. So cutting dollar rates while keeping yen rates stable will make the dollar depreciate vs. the yen.
dryfly writes:
"I suppose old reruns of Wall Street Week w/ Louis R might help - if you can find them...Man that would be an archive worth going through. Hint, hint."
Any idea where you can get a working BetaMax player?
s0mebody writes:
"I'm on the younger side of people here so I was wondering how the markets traded in the 70's."
I don't know how the trading went, but I do know that speculative technology stocks went to zero. I lost what would have been my college fund that way.
I tend to agree with dryfly that McCain might be the eventual winner even though the polls indicate otherwise. People tell pollsters what they think the pollster wants to hear. It sounds "progressive" to say you are voting for Obama/Biden. It sounds retarded to say that you will vote for McCain/Palin. This even happens in exit polls -- remember 2004?
Also, note that Obama never goes much above 50% and MacCain has about 42%. Where's the other 8% ? On the other hand I hope we don't have another 2000 election with lawyers deciding who won.
"Everyone" older than me says they have never seen anything like what is happening now, but I've only seen the last 4 years from a trading desk. Any words of wisdom?
This is not the same environment as the 70s. Inflation was largely a function of the boomers entering the economy and workforce.
It's seventeen years old now but I have to recommend "The Great Reckoning". James Davidson made some amazingly accurate predictions such as the transition of the "east-west political conflict" to the "north-south religious conflict".
The problem with "unlocking the credit markets" is that the Feds are now racking up $400 billion in debt per month. They will be forced to print money. The political economy has been destroying the real economy for quite some time, masked by "globalization" but we're probably at a tipping point.
I like what ya'll say but perhaps it is a bit to much US Centric? For the most part I do not think this country is really captain of its financial ship. The oceans don't seal us off anymore, and we can't live, as currently configured, without imports.
Take a look at the exchange rates. Something is going on. I just do not know what. There are people who knows whats going on, they just way over estimate their ability to control events.
Sixty years ago many rural Europeans an Americans lived quite similar to the way their Great Grandparents did. It is trully how amazing how complicated our system has become.
Take a look at the exchange rates. Something is going on. I just do not know what. There are people who knows whats going on, they just way over estimate their ability to control events.
A couple of weeks ago, the G7, thinking that liquidity and credit, decided that the solution was to guarantee their own bank transactions. Methinks that ignited an already fragile system.
Thanks for the responses. I guess one benefit of being relatively new to this is that even if I don't know what's going on, no one else seems to know either.
"Thanks for the responses. I guess one benefit of being relatively new to this is that even if I don't know what's going on, no one else seems to know either."
The first bullets of the war on Syria/Iran have just been fired(also means market will be up as this indicates US still has money and defense business is back).
details below.
Also, note that Obama never goes much above 50% and MacCain has about 42%. Where's the other 8%
You need to look at pro-Obama state polling, specifically:
FL (27 EV) 48-46
OH (20 EV) 50-44
VA (13 EV) 52-45
NC (15 EV) 49-48
IN (11 EV) 50-43 (!)
MO (11 EV) 48-46
CO (9 EV) 52-44
NV (5 EV) 49-46
NH (4 EV) 50-45
losing all of these drops Obama back down to 260, but if he can hold on to any one state with 9 EVs or greater he still wins.
McCain has to run the table from here. Possible, but it's going to need one doozy of an October surprise. The market crashing didn't really help matters.
I'm on the younger side of people here so I was wondering how the markets traded in the 70's. I'd like to know the degree that liquidity dries up and how good opportunities are to make money
I was pre-teen back then but in the 1970s we didn't have PCs, let alone the internet.
Stock prices came in the daily paper's business section. No ETFs, let alone the ultra inverse ETFs (ca-ching).
China was a basket case of Maoist reactionarism, Japan was clobbered by the oil shock and had one-tenth the collective technical acumen it holds now.
Oh, and M3 was way under $2T, instead of the $14T+ it is today.
FOMC has zero credibility and thus the only surprise would be for a rate increase. What few traders are left will punch up buys on the news and then sell within minutes. A fools game!
The problem is lack of trust and faith that the same bunch of thieving, lying, bumbling bunch of dipshits that got us into this mess are going to some how fix it. Cut rates to zero, it ani't going to fix it and more then likely will make thing much, much worse. Benny can't get the boot until 12-31-09 and until then this economy isn't going anywhere.
"what do the a-holes at fed think when repeated cuts do no good??? Didn't they learn anything from japan?"
-mb
Well... yes. The only problem is that what they learned from Japan can't work here. The Japanese lowered rates to 0% for over a decade and spawned their infamous carry trade which devastated workers and savers there but was a boon to Japan's exporters--the group that counts in Japan. Since when did the US, the nation that off-shored its manufacturing base and runs a trade deficit with virtually everyone, suddenly become a major exporter? Oh yeah, Japan's FOREX reserves have become huge as befits a major creditor nation--none of these characteristics are shared with the US.
Now then, is the Fed, as someone in this thread has suggested, "pushing on a string"? WELL OF COURSE! Who are the banks going to lend to in Maxed out America? Are underwater homes going to become piggy banks again? Silly rabbit.
The question is, do we go below 0.25% by the end of the year?
Nemosis: paralysis secondary to being underwater all week with no rallies.
CR woke up.
I hope Tanta is doing ok. Please tell her we are hoping for the best.
I am sorry, but do you actually think you are being witty?
For a bunch of folks who claim to ignore asset prices in making their decisions, why do cuts always seem to materialize close to, and become larger near, large stock-market declines?
Dr. Krugman is updating his book "Return of Depression Economics".
Wait, I thought his boss at Princeton was the expert on the Great Depression...
sorry, but how does that graph show a predicted 50 bps cut?
That chart looks like son of the Spaghetti god.
I say raise 'em. It's the contrarian thing to do.
Besides all the Dick Fulds of the world need a good return on all the cash they're sitting on. The SEC did everything to help the Wall Street speculators before, why stop now? They are after all the best and the brightest, Lahde be damned (sorry, darned.)
It matters, oh it matters very much. That's why instead of lowering the FFR we saw last week the raising of the excess depositary interest rate. Lowering FFR does nothing to help banks. Lowering my HELOC from 4.5% to 4% does not help WaMu. No, the whole point of the exercise is to fatten bank margins thus no explicit drop but rather an implicit drop that has actual overnights down around 1%. Oh wait, we've already got that. Cripes, how much more can we do? Giving them 1% money, letting them lend it out 18 times at 7% and they still can't even pretend to be solvent?
Hey CR --
You might want to add a link to this chart
.
In six months we won't even be talking about monetarism or rates cuts - it will be fiscal stimulus all day everyday. Doesn't matter if it's McPalin or O'Biden (put the two together and it sounds like a Chicago law firm)...
I would like to clarify that the market participants do not expect a 50bp cut.
They expect the average effective overnight rate after the next FOMC meeting to be 1.00% if you assume the Fed only chooses interest rates that are a multiple of 25bp
If you look at the Chart of the Effective Overnight Fed Funds Rate, or look at the daily summaries
, then you will see that indeed that rate cut has already been done and the market merely expects it to continue going forward.
What the FOMC announces compared to what the Fed does are different, but it's only what the Fed does that matters.
For those having trouble with the chart:
1.50% 5% chance
1.25% 10% chance
1.00% 45% chance
0.75% 30% chance
0.50% 10% chance
I too have been touched by the FSM's noodly appendage. He will provide us with wisdom and pasta to see us through these difficult times.
yawn...
the fed's FFR now is in the race to push the rope the farthest. FAIL. It is out of their hands with standard tools.
pushing on a string
the problem is broke consumers dont want to borrow in the environment that they forsee, even at 0%. No one wants to take on more debt, except those that cant survive without it, and banks wont lend to them (for good reason).
what do the a-holes at fed think when repeated cuts do no good??? Didnt they learn anything from japan?
"And does it matter?"
No, it is immaterial at this point. Further, the Bernanke quote really makes it appear that he is judging the validity of a rate cut by the immediate stock market reaction.
They can cut if they wish - but where will the cheap money go? At this point that is the real crisis. If you want to throw money around but there is no good, productive place to throw it, you should rein in your urge to be the big hero, show some patience and bide your time.
Hey, Jas managed to hit Godwin's Law in one. That might be a record.
mb --
what do the a-holes at fed think when repeated cuts do no good???
They think that they need to try something else, which is why they are buying commercial paper and other money-market assets. They will start buying other things soon enough.
People talk as if Ben Bernanke does not know that a credit crunch is deflationary...
How much coffee did you have this morning, Jas?
mb writes:
pushing on a string
the problem is broke consumers dont want to borrow in the environment that they forsee, even at 0%. No one wants to take on more debt, except those that cant survive without it, and banks wont lend to them (for good reason).
what do the a-holes at fed think when repeated cuts do no good??? Didnt they learn anything from japan?
mb | 10.26.08 - 12:43 pm | #
It is phase one.
Phase two will be stimulus - bridges to nowhere, increased public services (like medicare & reeducation grants) or war.
Put the two together and you have a whole lot of potential activity even if it smacks of 'broken window fallacy'.
Jas,
And your point being?
Give it a rest for a little while or
at least consider decaf.
People talk as if Ben Bernanke does not know that a credit crunch is deflationary...
Nemo | Homepage | 10.26.08 - 12:47 pm | #
Well said Nemo...
EvilHenryPaulson, the market expects a 50 bps rate cut in the target Fed Funds rate. Sorry if that wasn't clear.
I did write: "Of course the FOMC just sets the target rate. The effective Fed Funds rate has already been at or under 1% for the last couple of weeks. So the Fed will just be making this official."
Best to all.
The US cant afford the debt.
Much like housing, it's simply unaffordable at any interest rate.
Give it a rest for a little while or
at least consider decaf. - fallonpdx
Someone from Portland pushing decaf? This really is the end of the world.
if they want any chance of recovery in next few years, the consumer must be enriched, without increasing taxation.
massive govmt spending cuts, massive tax cuts, low intersest rates, and its off to the races.
problem is , the govmt is the largest employer. it has grown itself into a position where it cannot do whats right.
the bailouts are a step in wrong direction. Even j6p knows that this makes him pooorer in future, so he is more reluctant to spend. dont need an econbomics degree from harvard to know that, just common sense.
But our economic policy is based on the assumption that j6p is dumber than he really is.
Just as you cannot make people buy overpriced houses, you cannot make people buy stocks when the market has gone haywire.
2 years ago we went to look at these million dollar houses in Brevard in a development called Summer Lakes. Today in the real estate section one of them is a $1,150,000 short sales.
We had no intention to buy, they had a coordinated open house for 4 houses, and we wanted to see how the other half lives. Guess there was never enough of the other half to live like that.
Doubt if an interest rate cut of even to zero would help people who bought unaffordable houses.
Far out. More viagra for eunuchs.
It
just
won't
work.
CC
This is off-topic.
Link to article of the increasing income disparity in Japan:
Yahoo! 404 - Page Not Found
We see a similar thing in the US, of course. For an economy increasingly based on consumer spending as the driver, this is deadly.
As far as I can tell, the sand foundation for the financial house is still filled with credit default swaps that are completely untransparent, the leverage of lenders is still way beyond rational and no one is talking reform. The rot in the structure is not being addressed.
Trust.
When trust is gone, it takes mighty actions to restore trust, not puny financial gimmicks, before people will even have the basic faith that their money is safe in the banks or investments. Do I trust the safety of my cash in the Bank of America? Hell No! Do I trust that the FDIC will protect me 100% down the road if needed? Only a bit, because the position of the US government in the world markets is questionable. Will we have crushing deflation or inflation run wild? Who knows?
You can't restart a consumer-led economy on this foundation. Everything they are doing looks like makeup on a putrid corpse.
Wages go up or spending goes down.
That's it.
ah yes, stimulus part deaux.
much like the banks taking on forced capitalizations, the krill must take their stimulus.
free money reigns.
In six months we won't even be talking about monetarism or rates cuts - it will be fiscal stimulus all day everyday. Doesn't matter if it's McPalin or O'Biden (put the two together and it sounds like a Chicago law firm)...
sweet , where do I stand with a net!
This is great. Send free money to GS, JPM, etc. They can't lend to anyone.
Ah, they can lend back to gov't. Treasury bonds.
Private sector crowded out. But gov't can do infra projects. See Japan. Very productive.
With all due respect, this thing is too complex for all these economists with smart ideas.
30 bln daily monetary exchanges across the world. Send in the surgeons. Bretton-Woods II is dead.
The Notorious A.I.G. writes:
I too have been touched by the FSM's noodly appendage. He will provide us with wisdom and pasta to see us through these difficult times.
The Notorious A.I.G. | Homepage | 10.26.08 - 12:41 pm | #
RAmen brother...
The FED is trying to "put" a bottom on what is, and will likely remain, a deflationary spiral.
But as others are pointing out : making money cheap or giving cheap money to the banksters (insurers, etc , etc) does not deal with bad debt tied to deflating real assets and having these lucky smart guys sit on taxpayer largesse rather than lend it out on Main Street means : we are all deflated now.
cracker writes:
ah yes, stimulus part deaux.
much like the banks taking on forced capitalizations, the krill must take their stimulus.
free money reigns.
cracker | 10.26.08 - 12:55 pm | #
Exactly.
And it won't be hard to do either - make the stimulus 'mandatory' in the same way corp budgets are (use it or lose it). There are so many ways to do that it scares me witless at times.
keep the thread straight...Jas has'nt posted in this one yet
BabyJas writes:
keep the thread straight...Jas has'nt posted in this one yet
He did but propriety necessitated its deletion.
BabyJas,
He did and I and several other posters read it... and now that post is gone.
It does indeed matter to the banks and banking regulators.
Lakeguy==hahahahahah
yeah Jas post was deleted - it was, shall we say, a bit much
High speed trains connecting major cities are the answer. That will free us up from the detested Airline "industry" also. Joe Biden gets it on that one. Maybe, if we treat it as a national emergency, or like the space race as crucial to the future, we can have high speed trains in place before we run out of oil and are trapped like rats.
Calculated Risk writes:
EvilHenryPaulson, the market expects a 50 bps rate cut in the target Fed Funds rate. Sorry if that wasn't clear.
I didn't misunderstand you, as I recall the Futures contract is settled based on the effective overnight fed funds rate for a given month and that is what those charts are derived from
Rob Dawg writes:
BabyJas writes:
keep the thread straight...Jas has'nt posted in this one yet
He did but propriety necessitated its deletion.
And that's how propaganda works! A+ Dawg
It'll even the playing field for people that cant access the fed.
Say, the Fed cuts 100 bps. What will be the impact on the USD meteoric rise against most currencies?
Here we go again another jerky Jas thread.
sweet , where do I stand with a net!
PonziMonetizaCoruptiCaptislm | 10.26.08 - 12:57 pm | #
My guesses:
1) Infrastructure construction
2) Alt energy
3) Education (think more grants not loans)
4) Medical & social services (subsidies for displaced workers, etc.)
Pumping cash into any single one of these results in immediate increase in payrolls & profits for some body. Put your net near any one of those & you'll catch 'your share'.
I bet we see efforts along this line before March 09 no matter who lives in the WH.
Don't they need to coordinate with other countries to cut together, or has the current strength of the dollar scared Europe off?
Seems Europe can take their pain either in a higher rates, or in the FOREX markets... if the Germans still ran things, I'd bet the former, but with the ECB, I'm willing to bet for a coordinated rate as a shared race to see who can competitively devalue to best to protect jobs.
Just cut the damn thing to zero and get it over with Benny.
Jas is OK at 30 words or less. It's when he brings the soap box that it gets tedious.
So with short term rates virtually at zero, tell me again why I should keep my money in a bank... as opposed to a few watertight containers secretly geocached at various remote and random locations?
I sure wish I could borrow money rates like that. One interesting thing about negative real interest rates - the cost of owning gold or any other solid, non-interest-bearing asset becomes negative.
The FFR is no longer relevant.
ztexas writes:
So with short term rates virtually at zero, tell me again why I should keep my money in a bank... as opposed to a few watertight containers secretly geocached at various remote and random locations?
ztexas | 10.26.08 - 1:06 pm | #
They want you to SPEND it if you haven't already got the memo... so if you are bitching that the rates are too low to want to save they would say 'good'.
Rob Dawg,
I push decaf on all my wingnut friends, followed by a shot of Thorzene, and a stuffed rabbit to cuddle.
Bread and circuses beginning.
1973 the Dow peaks at 1,000 a level first reached in 1966.
1974 the Dow troughs intraday at 540 in December.
1975 the Dow recovers to close the year at 858.
Factoids from 1975. Inflation was measured at 9.2%, Fed Funds were 7.25% and the average house sold for $39,300. Average income was $14,100 and gas sold for 44c a gallon. Unemployment was 9.2% and a new car costs $4,250.
Meanwhile Gerry Ford loaned NYC 2.3 billion, two guys named Gates and Allen introduced Basic on an Altair 880. Oh, and Jimmy Hoffa disappeared.
Bretton Woods collapsed in 71-72 and in the UK, inflation peaked at 24.2% and the Conservative Party elected Maggie Thatcher as their leader.
Many differences today but if you lived through the mid 70's, I can tell you it was Hell.
In 75, the trans Alaska pipeline was under construction and the 40's field began to flow.
The 1,000 peak on the Dow was not equalled in inflation adjusted terms til 1992.
I pray for deflation but prepare for the other.
Thread music:
YouTube - The Fixx - Saved By Zero: Relaid Audio
Loaded with danger
Maybe Ill win
Saved by Zero
Holding onto
Words that teach me
I will conquer
Space around me
- The Fixx
Last time the FFR approached 1% there was scattered talk that a rate below 1% would blow up the MMF industry. Was/is that really an issue to worry about?
What happens to the long bond?
If the short term rates have effectively been under 1% anyway, it would seem to have little effect. Perhaps it even increase because of a longer term inflation outlook? Or do we see Japan style rates of under 3% across the board?
Seems Europe can take their pain either in a higher rates, or in the FOREX markets... if the Germans still ran things, I'd bet the former, but with the ECB, I'm willing to bet for a coordinated rate as a shared race to see who can competitively devalue to best to protect jobs.
DCRogers | 10.26.08 - 1:06 pm | #
Brits, Germans & French still have a real 'safety net'. They don't care if they are made redundant. Bring it on. Meet you at the Pub...
Italians, Spanish, the Noobs in E Europe? I bet they look at things differently.
CalculatedRisk
I did check, see here for the summaries of the CBOT 30 day Fed Fund Futures/Options.
The charts from the Cleveland Fed interpret from the 30 day FF Options, which are in turn based on the 30 day FF Futures which are based on the effective overnight rate for a given calendar month.
The Cleveland Fed works backwards assuming that rate cutes occur in 25bp intervals, and when they say "expect a rate ____ by the FOMC at said meeting" they implicitly assume that the overnight rate is about the target rate (as it is in normal times)
--
"Jas is OK at 30 words or less. It's when he brings the soap box that it gets tedious."
$12 Help,
Tough to digest anything more than a sound bite? I am mostly brief but at times you need few paragraphs to make an argument.
Born-and-bred American dopes are trained for sound bites.
Jas
Cripes, how much more can we do? Giving them 1% money, letting them lend it out 18 times at 7% and they still can't even pretend to be solvent?
Rob Dawg
Rob Dawg: You pose a good question. Banks are restricted to twelve times leverage though, even so one would think there was a profitable transaction available somewhere.
Maybe, that is the problem. Given they have the dollars (credits) to lend, they are in the situation where qualified borrowers aren't either 1) asking for the credit, or 2) interested in getting the credit, or 3) sufficiently qualified to access the credit.
Tapped out, in other words. Too simple? Probably so, but if there was demand, there would be loans being made.
Or, the commercials are still sufficiently overloaded with a bunch of stuff that is opaque, illiquid, market to model, AAA rated, etc.
Still too simple? Perhaps. The fact remains that there ain't much left for the central planners to do. They already raided the member banks reserves, they're coming after our savings (that which has not yet evaporated), and have plans for a massive attempt at issuing even more credits. I liken it to attempting to outrun a treadmill.
Meanwhile Gerry Ford loaned NYC 2.3 billion, two guys named Gates and Allen introduced Basic on an Altair 880. Oh, and Jimmy Hoffa disappeared.
Coincidence?
Italians, Spanish, the Noobs in E Europe? I bet they look at things differently.
dryfly
We are damn lucky communism destroyed their industrial base else we'd be in deeper doo-doo.
It would be nice to refi into a low ARM,if they were available but the rates are the same as a 30 yr fixed.
I'm just beginning to hate banks,
use the bailout to fund acquisitions,pay shareholders dividends and fund the bonus pool. So much for patriotism and helping out fellow citizens.
It's all good Jas. I just hate arguements. I do like the circus, however, especially with icy cold beer.
Wally, Wall Street see new money first. The poor see them last. Purchasing power down.
Japan deflation 90-03. Repeat. Gov't managed to fill the coffers of the crooks through keynesian stimuli. But there was no deflation in consumer staples. Result: extreme decline in purchasing power for the poor.
Many differences today but if you lived through the mid 70's, I can tell you it was Hell.
I commented on this the other day, on why so many people still [fairly] think that we are a "nation of whiners."
I don't think people realize just how tremendously Katrina changed the culture of politics. While the event was indeed a tragedy, it also ensured that the failure to respond to any future tragedy would be greater than the tragedy itself.
dryfly wrote:
They want you to SPEND it if you haven't already got the memo... so if you are bitching that the rates are too low to want to save they would say 'good'.
Forgive me... I'm a little slow. The irony is that the lower they push rates, the less likely I am to spend the modest lifetime savings that I do have. ZIRP suggests prolonged agony, in which case, I'm hoarding the cash that I have, not spending it.
Many differences today but if you lived through the mid 70's, I can tell you it was Hell.
Ya I was there for it - great time to graduate from high school & go to college. My father started a biz then too (couldn't find a job).
I hitchhiked all over the central US & lived like a savage when not in class studying engineering.
There are worse ways to spend one's time.
CalculatedRisk,
Last post -- I did not read through to the caveats that what the Fed does matters more than the FOMC target, so I just want to make clear that I wasn't criticizing you but rather that the Cleveland Fed charts no longer mean what they used.
The market could both be right and make payday while the FOMC does not cut at all. The result being the Cleveland Fed's phrasing with implicit assumptions is demonstrably wrong. They need to publicly accept that the overnight rate is separate from the FOMC target and that the Fed governors are being treated as a token apparatus
The fact remains that there ain't much left for the central planners to do.
They'll go to the other side of the string, as dryfly points out.
ztexas writes:
dryfly wrote:
They want you to SPEND it if you haven't already got the memo... so if you are bitching that the rates are too low to want to save they would say 'good'.
Forgive me... I'm a little slow. The irony is that the lower they push rates, the less likely I am to spend the modest lifetime savings that I do have. ZIRP suggests prolonged agony, in which case, I'm hoarding the cash that I have, not spending it.
ztexas | 10.26.08 - 1:18 pm | #
I hear ya - just telling you like it is. They plan to stimulate so get stimulated damn it!
They plan to stimulate so get stimulated damn it!
dryfly
Back to the idea of a pony.
Back to the idea of a pony.
Did we ever leave it?
Yea, back in the bad old 70's, Tricky Dick became a Keynsian then resigned in disgrace. (in the Rose garden, Nixon and Ford were walking when Nixon bumped into him. Nixon "I beg your pardon," Ford "OK". Vietnam fell and the price of houses on Long Island declined 20 to 30%.
Looks like we're condemned to relive the past.
MLM, Rob Dawk, et al (forgive any omission): I freaking love this place. There are times when the discourse deteriorates (like on late nights over the weekend sometimes), but all in all I really am stimulated by all this intellectual cross talking.
Hey! We be stimulated. Man this is better than a harsh laxative!
And you guys should quit picking on Jas.
Back in the bad old 70's I walked three miles to school in the snow uphill both ways!
Basel,
I think you're right re Katrina. Though Bush's father was nearly derailed by Andrew, so you'd have thought he'd have had a clue.
Andecdotally, I hear the disconnect. A handful of wealthy, older friends moved out of the markets in early summer, and use the words depression and FDR in conversation.
Younger friends, my age, in debt despite significant income, describe things as "terrible" and are waiting for the economy to "straighten out". Zero expectation of continuing or worsening hard times.
dryfly writes:
In six months we won't even be talking about monetarism or rates cuts - it will be fiscal stimulus all day everyday.
can't fool me sonny: Its fiscal stimuli all the way dow
Back in the bad old 70's, we had negative real interest rates til 1982.
Oil peaked at $28/bbl, declined then hit $40 in 79. Copper got so high ($1.25/lb) they made my pennies out of zinc!
V the V,
We are just performing an intervention for Jas. I thought I sent you a note about the plan. CR had the exit strategy to the recovery center as his part. Fortunately Jas had a quick recovery.
Folks, you need to understand the business model.
1. GS borrows massive amounts from FED at 1%.
2. They leverage that 12 times and lend it back to Government. Congress now have funds to do stimuli.
3. GS doesn't lend to the other non-gov't backed small banks.
4. FDIC and GS picks up small bank.
5. The world suffer depression because productivity is removed from economy.
6. Repeat all mistakes from GD.
7. WWIII
Back in the bad old 70's, my first kid was born and cost $2,173 with tax, title and license. The second one fully insured in 81 clocked in at $4,375 or so.
Actually I remember the 70's. I was more honest then. Pass the bong.
can't fool me sonny: Its fiscal stimuli all the way down
zendiet | 10.26.08 - 1:33 pm | #
I never said nor suggested we'd be 'wealthier' - there will be plenty of money out there just don't confuse more money with more wealth.
In stimulation driven inflation we all 'work harder' for 'less wealth'. In deflation far fewer work but those that do get wealthier.
We won't get our Volcker until we try the stimulation treadmill for a decade or so & tire of running in place.
Damn Haloscan.
I'm not sure if this rate cut is about spurring domestic consumption or investment. Recession is already a reality. The crisis is now in forex, and the cut would (hopefully) slow down the JPY carry trade unwind and the flight to safety.
On the other hand, what's a few bps when sovereign default is on the table?
Dryfly, Ahmen brother. The question is, will we peak at 24% inflation like the UK in 75? Or will 'they' put silver back into my dimes.
Dryfly: As I understand the situation, Volcker is already hard at work with the Obama team. He's delivered position papers and action plans on what must be done every step of the way. He is an octogenarian, but he is a young 80+ man. Maybe, it won't be as bad as we think. Maybe the sun is about to come out. Maybe the children will sing and the flowers will bloom and, and, and,
naaahhh! fuhgedaboutit
sue writes:
I'm just beginning to hate banks,
I think and certainly hope, after all is said, something will be done to the banking industry comparable to what we had done to the tobacco industry some years ago.
I went to law school at nite from 72-76 with the hub. The hub worked for the hurricane center. I worked for the University for practically no money, but a tuition remission for both of us. No debt, but a mtg.
We paid 22,500 for a house that we fondly called the pit, because we never cleaned it. didn't have time.
We didn't even notice any hard times.
We sent out daughter to private school until the end of 2nd grade, when the school system improved. It was costly, but affordable.
I had a hard time finding a job in late 76, but thought it was prejudice against women. Never occurred to me it was a bad economy.
Ah, to be young and stupid again.
Volker the Viking | 10.26.08 - 1:52 pm | #
LOL.
Anyway my 'Volcker' is a metaphorical Volcker. The real guy has said he wouldn't do it the same way as he did it in the 70s & 80s - we are structured the same way an so it wouldn't work.
besides I till think it's gonna be McPain not O who is picking the econ team. Rip me in two weeks if you want...
Regardless the next 'Volcker' will be named something else but he'll do pretty much the same thing - wring out some excess fiat & inflict great pain in doing it. But we'll be begging for it by then. Well most of us anyway.
Until then its reruns of 'Saturday Night Fever'...
The International Monetary Fund Sunday announced its second national rescue plan in a matter of days, saying it would lend $16.5 billion to Ukraine.
The announcement follows Friday's a $2.1 billion loan to Iceland and
Typo alert should read:
we AREN'T structured the same way and so it wouldn't work.
Not even drinking yet...
ON TOPIC!...
15. IRONIC - When Ben Bernanke took over a vacant slot on the Federal Reserves Board of Governors in August 2002, he was required to set aside the 120 pages he had written for a book that he began 2 years earlier. A New York City publisher had paid Bernanke an advance on a book that was to be titled "Age of Delusion: How politicians and central bankers created the Great Depression"
http://209.85.173.104/search?q=cache:WSSVgtyXaEYJ:thesoskyteam.com/Gig_Harbor/2008/10/by-the-numbers/+Age+of+Delusion:+How+Politicians+and+Central+Bankers+Created+the+Great+Depression&hl=en&ct=clnk&cd=4&gl=us
May 1, 2001 BEN S. BERNANKE (CV) Other Papers and Work in Progress: Age of Delusion: How Politicians and Central Bankers Created the Great Depression (book manuscript).
Arent Politicians and Central Bankers in-charge & in action now, more frantically than at any time in 1930s?
Are Americans born-and-bred American dopes or what!
Can you spell Greater Depression in the US?
Jas
KeyCorp, Capital One to receive cash infusion: source
| Reuters
KeyCorp (KEY.N: Quote, Profile, Research, Stock Buzz), Zions Bancorp (ZION.O: Quote, Profile, Research, Stock Buzz) and Capital One Financial Corp (COF.N: Quote, Profile, Research, Stock Buzz) are some of the banks that will receive cash under the U.S. government's second round of capital infusions, a source familiar with the Treasury Department's thinking said on Sunday.
Fed to slash rates as recession looms
| Reuters
The consensus among Fed watchers is for a half-point cut in overnight rates to 1 percent, which would be the lowest level since June 2004. The central bank is also expected to signal a willingness to lower borrowing costs again if needed -- especially with inflation pressures fading fast
Boy, this is silly. I think all rate cuts signal is, it's bad, it's really really bad.
Meanwhile, back at the housing mkt, banks are still refusing to recognize reality.
Last time the FFR approached 1% there was scattered talk that a rate below 1% would blow up the MMF industry. Was/is that really an issue to worry about?
Oh, absolutely, and I suspect TPTB are doing their best to keep it beneath the rug. The problem is that any fund experiences losses from time to time and the less it's making, the less leeway there is to cover those losses. For an extreme example, suppose all short-term rates fell to 0. If rates ever increased, then all funds would lose some money as a result but none would have any gains to cover it with, so every last one would break the buck, even without any defaults on the underlying assets.
Obviously we won't go to absolute 0, but even where we are with really low treasury rates and high volatility I'm a little surprised a Treasury MM fund hasn't gone bust already. Of course TPTB don't want this discussed because it might drive people to withhold money from MM funds, which would exacerbate a host of problems.
Tackle the rating agencies now. Policymakers incorrectly lump them with regulatory failures, to be fixed after the panic ends.
But ratings are at the center of the panic. Fed funds could go to zero, and no one will lend, because they no longer trust Moody's or S&P.
Just establishing some oversight there would begin to restore confidence.
lawyerliz writes:
"Meanwhile, back at the housing mkt, banks are still refusing to recognize reality."
That will take longer than anyone has patience for, I think.
Until then its reruns of 'Saturday Night Fever'...
dryfly
I won't rip you. The same guys will be in charge no matter who gets 'elected'. I'm gonna stay loaded until the pain sets in. By then, I may not notice at all. Cheers!
looks like I picked the wong week to go long dong.
tip you're homeowners, they'll be hitting you up in another week.
sorry, shoulda been "tip your homedebtor"
more Brawndo!!!
Volker V.
I'm with you on the loaded part. I ain't slept since the end of August.
To witness an inflection point in world history is a privledge not to be missed!
To witness an inflection point in world history is a privledge not to be missed!
Ross
Oh. That's what we're calling it. An inflection point. Great. Something else for me to look up and understand. IAnd to think, I had it all figured out that we were freaking doomed. Now I learn we're Freaking Inflected.
I'd prefer not to live in inneresting times. Yep, it's boring times for me. Oh, well, we have no choice do we?
Dry, why are you so sure O's not gonna win?
Volker V,
LOL........Freaking inflected! Said with typical British understatement.
Bloody Freaking Inflected!
The crisis is now in forex, and the cut would (hopefully) slow down the JPY carry trade unwind and the flight to safety.
No, the less US investments pay, the less incentive there is to borrow yen and loan dollar (the carry trade). Further cuts accelerate the unwind. LIBOR coming down also accelerates things by killing carries into adjustable loans.
Now that I think about it, the Feds are on the horns of a horrific dilemma - keep rates up and kill borrowing, or push them down and kill the carry trade. Talk about a no-win situation.
Ross writes:
To witness an inflection point in world history is a privilege not to be missed!
... Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions everything, now restrains itself and anxiously hopes for just two things: bread and circuses. - Satire X of the Roman poet Juvenal (via wiki the omniscient).
The lesson of history is that we learn nothing from history.
--
It is not the economic theories that matter; economics is all about human behavior.
Bernanke was hired to guarantee the Greater Depression! (By horrific amount of "unprecedented intervention" that no one can ever know how it would turn out).
Jas
Bernanke was hired to guarantee the Greater Depression!
Jas
I don't doubt this for a second. How better to finish a train wreck than hiring a thoroughly knowledgeable engineer...
Correction, How better to inflect a train wreck...
No, the less US investments pay, the less incentive there is to borrow yen and loan dollar (the carry trade).
Now that I think about it, the Feds are on the horns of a horrific dilemma - keep rates up and kill borrowing, or push them down and kill the carry trade. Talk about a no-win situation.
Fair Economist:
Your scenarios applies to the initial decision of an investor to make a carry trade. What I'm imagining is that the FFR cuts slow down the JPY appreciation that are accelerating the unwind via cascading margin calls.
Is my logic incorrect?
I'm on the younger side of people here so I was wondering how the markets traded in the 70's. I'd like to know the degree that liquidity dries up and how good opportunities are to make money. Also, at this point everything seems like monopoly money. Governments everywhere promising and printing. "Everyone" older than me says they have never seen anything like what is happening now, but I've only seen the last 4 years from a trading desk. Any words of wisdom?
Dry, why are you so sure O's not gonna win?
lawyerliz | 10.26.08 - 2:19 pm | #
Liz I'm not sure but if I had to bet (forced to call) I'd go with McPain.
And the reason is 'subtle racism' - the almost lily white folks in rural Ohio, Pennsylvania, Missouri, Wisconsin, Iowa, Minnesota, etc. and I assume the same in Virginia, Florida, North Carolina WILL NOT pull the lever for a black guy - just will not do it.
And they won't even admit it to themselves let alone the pollsters.
You have no idea how many conversations I have with 'these people' in my travels all around 'fly over' - I just don't see it happening.
I think you have to add 5% minimum to McCain's polls in those states (and subtract 5% min from O's) to get a feel for where we really are.
Now those rural areas aren't the bulk of those states population... but blue collar rubes have been the swing vote in many of those states the last two or three elections - I don't see that changing this time. It works for heavily McPain IMO.
And counting the O signs in W Penna or N Florida doesn't do it for me. You can buy signs - you can't buy votes.
If O wins we truly ARE at an inflection point. Big time. But I just don't see it happening. I expect a McCain win to come as a Truman like surprise to many.
Well, my squirril herd is certainly inflected and the bloody marys seem more bloody gooder this pm.
More Jabberwocky please.
"Everyone" older than me says they have never seen anything like what is happening now, but I've only seen the last 4 years from a trading desk. Any words of wisdom?
s0mebody | 10.26.08 - 2:33 pm | #
I didn't know any traders back then - everyone I knew was 'working'. The trading then was done on 'the floor' - for all we knew it was on the very same set where they shot the 'one small step for man' scene if you know what I mean. I suppose old reruns of Wall Street Week w/ Louis R might help - if you can find them.
Man that would be an archive worth going through. Hint, hint.
Your scenarios applies to the initial decision of an investor to make a carry trade. What I'm imagining is that the FFR cuts slow down the JPY appreciation that are accelerating the unwind via cascading margin calls.
Normally increasing rates makes a currency appreciate and decreasing them makes it depreciate. So cutting dollar rates while keeping yen rates stable will make the dollar depreciate vs. the yen.
dryfly writes:
"I suppose old reruns of Wall Street Week w/ Louis R might help - if you can find them...Man that would be an archive worth going through. Hint, hint."
Any idea where you can get a working BetaMax player?
s0mebody writes:
"I'm on the younger side of people here so I was wondering how the markets traded in the 70's."
I don't know how the trading went, but I do know that speculative technology stocks went to zero. I lost what would have been my college fund that way.
Any idea where you can get a working BetaMax player?
sm_landlord | Homepage | 10.26.08 - 2:43 pm | #
Where else? Ebay.
I tend to agree with dryfly that McCain might be the eventual winner even though the polls indicate otherwise. People tell pollsters what they think the pollster wants to hear. It sounds "progressive" to say you are voting for Obama/Biden. It sounds retarded to say that you will vote for McCain/Palin. This even happens in exit polls -- remember 2004?
Also, note that Obama never goes much above 50% and MacCain has about 42%. Where's the other 8% ? On the other hand I hope we don't have another 2000 election with lawyers deciding who won.
"Everyone" older than me says they have never seen anything like what is happening now, but I've only seen the last 4 years from a trading desk. Any words of wisdom?
This is not the same environment as the 70s. Inflation was largely a function of the boomers entering the economy and workforce.
It's seventeen years old now but I have to recommend "The Great Reckoning". James Davidson made some amazingly accurate predictions such as the transition of the "east-west political conflict" to the "north-south religious conflict".
The problem with "unlocking the credit markets" is that the Feds are now racking up $400 billion in debt per month. They will be forced to print money. The political economy has been destroying the real economy for quite some time, masked by "globalization" but we're probably at a tipping point.
I wouldn't be holding any US paper myself.
I like what ya'll say but perhaps it is a bit to much US Centric? For the most part I do not think this country is really captain of its financial ship. The oceans don't seal us off anymore, and we can't live, as currently configured, without imports.
Take a look at the exchange rates. Something is going on. I just do not know what. There are people who knows whats going on, they just way over estimate their ability to control events.
Sixty years ago many rural Europeans an Americans lived quite similar to the way their Great Grandparents did. It is trully how amazing how complicated our system has become.
Take a look at the exchange rates. Something is going on. I just do not know what. There are people who knows whats going on, they just way over estimate their ability to control events.
A couple of weeks ago, the G7, thinking that liquidity and credit, decided that the solution was to guarantee their own bank transactions. Methinks that ignited an already fragile system.
Broward, Dryfly,
Thanks for the responses. I guess one benefit of being relatively new to this is that even if I don't know what's going on, no one else seems to know either.
Would second Broward's recommendation regarding "The Great Reckoning". Great book but you can always go to Cannosa too soon!
I would also recommend Herman Kahn's 1982 masterpiece "The Coming Boom".
s0mebody writes:
"Thanks for the responses. I guess one benefit of being relatively new to this is that even if I don't know what's going on, no one else seems to know either."
Read Manikiw's article in today's NYT.
ECONOMIC VIEW; But Have We Learned Enough? - NY Times
(Can someone tell me how to post link in Haloscan - the old copy paste doesn't seem to work. Thanks!)
The first bullets of the war on Syria/Iran have just been fired(also means market will be up as this indicates US still has money and defense business is back).
details below.
MarketWarnings: US attacks Syria october 26, 2008). Is iran war next?
Also, note that Obama never goes much above 50% and MacCain has about 42%. Where's the other 8%
You need to look at pro-Obama state polling, specifically:
FL (27 EV) 48-46
OH (20 EV) 50-44
VA (13 EV) 52-45
NC (15 EV) 49-48
IN (11 EV) 50-43 (!)
MO (11 EV) 48-46
CO (9 EV) 52-44
NV (5 EV) 49-46
NH (4 EV) 50-45
losing all of these drops Obama back down to 260, but if he can hold on to any one state with 9 EVs or greater he still wins.
McCain has to run the table from here. Possible, but it's going to need one doozy of an October surprise. The market crashing didn't really help matters.
I'm on the younger side of people here so I was wondering how the markets traded in the 70's. I'd like to know the degree that liquidity dries up and how good opportunities are to make money
I was pre-teen back then but in the 1970s we didn't have PCs, let alone the internet.
Stock prices came in the daily paper's business section. No ETFs, let alone the ultra inverse ETFs (ca-ching).
China was a basket case of Maoist reactionarism, Japan was clobbered by the oil shock and had one-tenth the collective technical acumen it holds now.
Oh, and M3 was way under $2T, instead of the $14T+ it is today.
FOMC has zero credibility and thus the only surprise would be for a rate increase. What few traders are left will punch up buys on the news and then sell within minutes. A fools game!
When's the last time we've seen such high entropy so close to the meeting?
The problem is lack of trust and faith that the same bunch of thieving, lying, bumbling bunch of dipshits that got us into this mess are going to some how fix it. Cut rates to zero, it ani't going to fix it and more then likely will make thing much, much worse. Benny can't get the boot until 12-31-09 and until then this economy isn't going anywhere.
"what do the a-holes at fed think when repeated cuts do no good??? Didn't they learn anything from japan?"
-mb
Well... yes. The only problem is that what they learned from Japan can't work here. The Japanese lowered rates to 0% for over a decade and spawned their infamous carry trade which devastated workers and savers there but was a boon to Japan's exporters--the group that counts in Japan. Since when did the US, the nation that off-shored its manufacturing base and runs a trade deficit with virtually everyone, suddenly become a major exporter? Oh yeah, Japan's FOREX reserves have become huge as befits a major creditor nation--none of these characteristics are shared with the US.
Now then, is the Fed, as someone in this thread has suggested, "pushing on a string"? WELL OF COURSE! Who are the banks going to lend to in Maxed out America? Are underwater homes going to become piggy banks again? Silly rabbit.
I wrote about Krugman's less-than-perceptive commentary at:
Coherently Yours: Professor Krugman's Track Record of Economic Commentary | Zoho Blogs
http://seattlepi.nwsource.com/dayart/20081028/cartoon20081028.jpg