Could we have financial system dollars and regular dollars, so that their wanking and stimulus can be self contained to the fake economy, while us real guys can pay an honest buck for a hamburger, a buck whose value is backed by virtue of the fact that it represents actual real labor input to the economy that produced something other than a derivative of a derivative of the shadow of a phantom?
According to my econ professor, the Federal Reserve now pays interest on deposits that banks make with the Fed. Why would they take that money out and put it into T-Bills? To drive other interest rates down? To keep the government going?
Hoopajoops LTD writes:
Could we have financial system dollars and regular dollars, so that their wanking and stimulus can be self contained to the fake economy, while us real guys can pay an honest buck for a hamburger, a buck whose value is backed by virtue of the fact that it represents actual real labor input to the economy that produced something other than a derivative of a derivative of the shadow of a phantom?
You can but it is in coin and minted pre 1964. The rest of the fiat cra* is good for starting fires during a cold winter...
Bernanke can dump money until hell freezes, but I don't see a wage increase in my future... so I don't see inflation. True, he may start more price bubbles, but that will damn his reputation forever.
They can't loan it out because there is no demand for credit from anyone who is likely to pay it back. They got their fingers singed and they are not lending money to deadbeats anymore. There is so much excess capacity that nobody can see anywhere to invest that is likely to produce a decent return.
It's astonishing that the bankruptcy procedures for Lehman Brothers are not factored into your analysis.
Once Lehman entered Chapter 11 all over her liabilities are frozen and partitioned into buckets or tranches of creditor classes.
The legal spadework to determine just what the priorities are is not quick.
In the meantime, all of Lehmans remaining paper assets mature or spin off cash. (The physical assets have already been sold, mostly. )
There is only one place the Bankruptcy Court will permit the proceeds to flow: Treasury Bills or their equivalent. As a practical matter, its going to be 100% T Bills.
Lehmans T Bills position surges each and every day as its huge pile of short term paper matures.
No matter how much the Treasury pumps into the system the cash drains right back to Lehman Brothers ending up in their T Bill position.
It is the RELENTLESS purchase of T Bills by the bankruptcy administrator that is skewing the yield curve. Every purchase is a forced buy interest rate be damned.
How much is involved? Lehman entered Chapter 11 with over 600 Billion dollars of assets marked to market.
Their face value is much higher.
Since only a minority of mortgage debt has soured, which has already been factored into the asset valuations, one must imagine that by now Lehman Brothers has a staggering cash horde.
Such disbursements that the Court will permit ( legal fees and operating expenses) are trivial by comparison.
Tying up this much cash is staggeringly deflationary. This cash drain operates like a black hole sucking in liquidity system wide.
The Treasury needs to use TARP monies to directly buy out creditors holding the senior positions as soon as possible.
The Treasury can then wait for the court to pay off these claims in as much as their already is enough on account, in T Bills, to cover the senior positions.
This is one way to wrap up the bankruptcy and reduce the legal expenses of the creditors.
Such action would at last neutralize the deflating effect of the Lehman bankruptcy.
Rob Dawg Writes: "Negative interest rates imply the possible repudiation of printed dollars at current valuations. That's so scary I don't have a comment."
Hoopajoops LTD writes:
Would you mind thinking out loud about the implications of it? I'm fascinated at what is happening to the dollar and even our conception of money right now.
Rob Dawg(Good) writes:
Flight to safety. The "safer" the allocation the lower the interest rate. Apparently Treasuries are safer than printed cash dollar notes. And notes they are. Pull out a buck. Read the first line; "FEDERAL RESERVE NOTE". Just because they have always "traded" at par doesn't mean they must or will trade at par. Soviet Union had this problem in the 80s. Sell at par redeem at a fraction. Result, massive slowing of the velocity of money, aka chaos de-leveraging. Exactly the opposite of what the Fed hopes to accomplish.
Forgive me if I have misunderstood you, but are you implying that negative treasury rates are explained by individual investors questioning the solvency of the Fed, or the fed's ability to back its own notes? By individual investors dropping their dollar bills (which are federal reserve notes) in favor of treasury bills (which are US Govt notes)?
As in, people are actively contemplating what would happen upon the fed becoming insolvent?
Off topic: If anyone see offensive ads, please let me know. If you can tell the source (Adsens or Tribal Fusion) and the URL that would help. I've tried to block all flashing, sound, po-ups, sexual ads, etc.
I thought wads of the stuff were being used to plug balance sheet holes. The problem is the leakage/spillover continues.....
No, your first part is correct. But the depth of the holes haven't yet been reported to shareholders. (ABX & CDS in particular). So when those writedowns occur, capital ratios would be an issue if cash wasn't already on hand. So, Voila! TARP money is cash-equivalent.
Therefore, they cannot lend it out, or they will trigger the regulators in the near future.
Calculated Risk(Excellent) writes:
Off topic: If anyone see offensive ads, please let me know. If you can tell the source (Adsens or Tribal Fusion) and the URL that would help. I've tried to block all flashing, sound, po-ups, sexual ads, etc.
CR, some ad on this site has definetely infected my work comptuer with spyware. Other people were complaining of this as well. I sispect it's the pen ad but I really have no idea.
exactly, if I was to hold paper, at least I want the real thing... (light-bulb!!!) that's it, physical money is now trading at a premium to electronic... what does that remind you of?
Anonymous writes:
I thought wads of the stuff were being used to plug balance sheet holes. The problem is the leakage/spillover continues.....
No, your first part is correct. But the depth of the holes haven't yet been reported to shareholders. (ABX & CDS in particular). So when those writedowns occur, capital ratios would be an issue if cash wasn't already on hand. So, Voila! TARP money is cash-equivalent.
Therefore, they cannot lend it out, or they will trigger the regulators in the near future.
Anonymous | 12.09.08 - 3:55 pm | #
--
why are you posting as anonymous, you pretty much nailed it there. shadow system deleveraging means constant drain on cash positions until ?
I dunno about banks parking the TARP funds in treasuries. The banks can get interest on reserves at the Fed, so why would they get 0% when they can get 1%?
The Overlords have everyone just about where they want 'em. The masses have fled into treasuries, cash, and pure paper money ... and the printing presses can now roll for maximum effect. The true masters will once again retain ownership of the means of production, and halt the deflation by fiat...
As for "100 economists can't be wrong" - history tends to suggest that whenever 100 economists can actually agree, they must be wrong.
stealthwii@gmail.com writes:
Fed becoming insolvent results in what? The Amero? The crazy conspiracy stuff?
I have no idea what it means. It breaks my mind to even contemplate the idea of the FED becoming insolvent. I started thinking about thi sissue once I realized that there are some dollar bills in circulation which are backed by the united states treasury itself rather than the federal reserve bank. These bills are distinguished by the fact that they do not say FEDERAL RESERVE NOTE and have a red rather than green seal on them. I've been thinking and wondering for a while why someone would prefer a US Treasury backed dollar bill note rather than a federal reserve backed dollar bill note. It seems to me that the current preference for US Treasuries as a medium of exchange even to the point of accepting negative yields could possibly represent a flight from the FED Reserve backed notes.
Back in the day, banks used to issue their own printed currency which they backed with their own solvency, representing the value of their deposits.
I would like to borrow $1B at zero percent and invest every dime in ultrashorts. I will return the $1B in 3 months and never work again. If I lose the bet, I will go to the TARP.
Seriously. What's the big deal about zero? These aren't December 2008 dollars, these are March 2009 dollars being pledged. Who here think there will be anything close to the same number of dollars three month from now?
I think we are seeing the very first signs of a flight away from fiat.
First it was conventional bonds that were shunned, then everyone wanted Treasuries, now those are being discounted... probably by Feb everyone will prefer (and pay a premium for) wheelbarrow's of paper cash, and we know by history where things go from there!
Ben Bernanke, hear this: the Investment Banks do not drive the economy and never did. They live off it. If 700 billion had been handed out on street corners, the investment banks would be OK today and we would all be happier.
This man's "academic theory" is going to be utter disaster before this is all over.
Perhaps it is the Russians? I read that on Denninger, it makes sense too. Who else has a lot of money they want to keep somewhere safe for a short period?
I agree with those who mention that banks can get higher interest from the Fed, although we do not know what strings the government/Fed attached to the bailouts.
--
"Ten year is now yielding 2.67% and the thirty year treasury just over 3.0%."
I am sure that most economists and people here on this blog saw it coming. Hell, they were yelling this outcome ever since Bernanke started his printing press. Ignorant me had no clue.
"Perhaps it is the Russians? I read that on Denninger, it makes sense too. Who else has a lot of money they want to keep somewhere safe for a short period?"
Talked to hedge fund friend . . . one reason Treasuries are negative is hedge fund/private equity guys from around the world are liquidating everything they can and are buying treasuries. They figure the good times are over and are trying to keep at least some of their winnings.
Does anybody else find it curious that although treasures are paying negative, an incredible sign of deflation, gold is holding it's own; down 3% on the year, up 5% on the month, and up oodles over the last few years?
ades writes:
A thousand dollars at 0.005% gives you $0.0125 after three months.
This is lunacy.....
So to put this in perspective:
Retirement is not to far off and your house is down 30%, your holdings are down 30% and you invest in Ts to be safe. Somehow this wont turn out to well, imho.
"I am interested in topic R Dawg opened up in last thread about dollar devaluation. In fiat system with no PM standard, how does this occur? Does it have to be an outright exchange? And seriously, what is the possibility of this happening, and what are the precursors? What are the social implications (how are current wages/prices affected?)"
It won't be an exchange. The Treasury/Fed will simply increase the amount of money in circulation and hand it out as they see fit. They already are (check the H.3 and H.4.1 reports at . They will continue to do so until the deflation stops. They will probably overshoot and no one knows by how much.
Federal Reserve Bank Credit has more than doubled in the past few months. See e.g.
"They figure the good times are over and are trying to keep at least some of their winnings."
Stuff like that plus global wages are awfully strong deflationary wind for the Fed to sail into.
Not saying they won't try- they are promising everyone up and down the street that they can and will inflate, but even as of this late hour they haven't even touched the wage question.
Wisdom Seeker,
The US has been handing it out... to no effect. To date, Bernanke has been proven utterly wrong.
At some point it may all break loose and go the other way - out of control inflation - but we are a long, long way from that situation.
If you were a bank now and had gamed Paulson out of billions, who would you loan it to? The auto industry? techs? real estate developers? homebuilders? shippers? retail chains? mortgage lenders? other banks?
nova writes:
So, if Wal-mart is doing so well; why did they suspend stock buybacks today?
Perhaps the numbers are not looking good for Christmas shopping?
You mean trading on inside information? Perish the thought.
if that is what they are doing - more proof of how smart these guys are. Pay the Treasury 5% after tax and receive 0% pre tax. Maybe they can make it up on volume?
Not to worry about the buck, though, because most of the rest of the world has it as bad or worse than we do... the dollar exchange rates will probably hold up reasonably well?
awgee writes:
I read that the t-bills are also almost the only collateral that is accepted for CDSes that necessitate payment.
awgee | 12.09.08 - 4:05 pm | #
The Treasury/Fed can't hand out money as they see fit. It requires either government spending or bank lending to get new money into circulation. The Fed is pushing on a string.
Asked about a new car deal on an inexpensive model. Was told I could have $5000 special discounts if I financed. I would have to finance with a Bank of their choice and they didn't want me to pay off too quickly.
Asked what kind of discount I could have if I paid cash. Answer was, No Discount. I would have to pay full price. WTF?
See, they could afford to pay the discount because the bank can give them the kickback because the bank is getting money from the fed. If they don't get the bank in on the deal, the bank doesn't reward them with a fraction of the newly printed money, so they can't afford to discount.
The Treasury/Fed can't hand out money as they see fit. It requireseither government spending or bank lending to get new money intocirculation. The Fed is pushing on a string. \t trail | \t\t\t\t12.09.08 - 4:19 pm |
Not really true. The Fed can buy equities, if the mood strikes it. (With printed money.)
--
What % of born-and-bred Americans have been inflationists for at least a year?
Every inflationist for the past year must be one irate dope. Dopes are in full force today, it seems.
Bernanke must be dumbfounded. His schemes aren't producing the desired results. Are Central Planners meet their preordained fate. Bernanke faithful can only be characterized as dopes. No?
CDS collateral, and foreign money diving in (especially from unstable countries).
Treasury bill yields can be large when converted back into another currency which is devaluing vs the dollar. 0% T-bills would have yielded a nice return in Euros, Pounds, Rubles, Rupees, or Reals over the past 3-6 months.
Anonymous - yes,you are right - they can buy equities. But they never have. That's a brave new world. It would be interesting to see what would happen.
Jas Jain(Irritating) writes: Bernanke faithful can only be characterized as dopes. No?
For that matter, even the non- Bernanke faithful can be characterized as dopes. By the way jas, you should invest some time in learning the correct usage of the word "only." You wouldn't want to expose your Dopeland origins too quickly, would you?
Dollar carry trade? For foreigners whose currency is depreciating against the dollar, 0% Treasuries make a real return - just as 0% yen denominated debt did in the 90s.
But not for dopes. Dopes despise caution. Every dope believes that he, or she, takes calculated risk (NOT intended for CR) only. Safety is lot easier to calculate than risk!
Anonymous - yes,you are right - they can buy equities. But they never have. That's a brave new world. It would be interesting to see what would happen. trail | 12.09.08 - 4:24 pm | #
Didn't mean to imply they had. Naturally, the recent alphabet soup tells us that we are in uncharted waters. Anyway, the bigger point is that the Fed has very broad abilities to print money. I only named one method of injecting it into the economy; there are others.
The Fed and Treasury take all the toxic assets onto their balance sheets. The banks take the free money given and consolidate buying up smaller institutions. The banking system concentrates performing assets into a few institutions and destroy the competition. The taxpayer takes the hit and the good assets are owned by a powerful few.
It seems to me that the current preference for US Treasuries as a medium of exchange even to the point of accepting negative yields could possibly represent a flight from the FED Reserve backed notes.
Hoopajoops LTD | 12.09.08 - 3:59 pm | #
"Rick Dreher, director of the state's bureau of revenue, cash flow and debt, said Pennsylvania's bonds drew five bids and were priced at a true interest cost of 5.05 percent. While that was 104 basis points above what its debt fetched in June, it was within the market rise in yields since then"
My theory is that insurance companies and pension funds are moving into Treasuries because they are being mandated. I'm not sure who is mandating.
Regulators, rating agencies, boards of directors, etc.
Insurance companies and pension funds are the largest domestic buyers of diverse fixed-income instruments. They will all go broke keeping money in Treaasuries at these yields any length of time. But it works for now to keep them solvent.
I know jas is one crazy crank, but on a macro level he has been right on.
See CRs earlier smackdown. And Jas has been no more right than many of the long time posters here. Note: his puerile name-calling has gotten him banned at other blogs.
If I were a Chinese, Japanese, or Saudi central bank, I would give serious consideration to selling US t-bills right about now.
If you are a Middle East oil producer or sovereign wealth fund, you should do the same to fund current operations.
Simutaneously, you should keep your oil in the docks or in the ground (instead of selling it now) and sell it forward a year or two. You can earn 8-11% on the contango, which is a lot better than zero in t-bills.
By the way, I'm continuing to watch the backwardation story in silver.
While there is no clear trend yet, it continues to be interesting. As some silver bulls have pointed out, there's no law that says a silver squeeze has to happen overnight. It could emerge over several months.
More on the question of "what would you invest in, if you were a bank (and yes, all investors are effectively banks)":
So I was reading Galbraith's "The Great Crash, 1929" book, and in it he mentions the concept of "bezzle", which is the amount of money that has been embezzled from the banks and is no longer there. The trouble with bezzle is that you don't know how big it is during the boom (no one is looking), and then in the crunch everyone starts auditing like mad and it's all revealed.
Thanks to Tanta and others, we know that the pre-2008 credit environment was loaded with tons of stuff that was effectively the same as bezzle: "assets" that everyone thought was worth something, until they woke up and realized it wasn't.
Then we had the problem that investors weren't being given enough confidence to put their money at risk, because of the lack of transparency. Indeterminate bezzle is a poor bedfellow, even for Barney Frank. As a result, all non-transparent assets were punished nearly indiscriminately.
We chose to TARP that problem over, and pray that sick banks could be healed with injections alone.
Now we're stuck even worse because the failure to actually fix the real problems has generated a global lack of confidence that has cascaded into the broader economy. In an environment with that much uncertainty, it's even more difficult to tell where things are going. The prospects of even honest businesses are now so murky that risk premiums are being forced skyward by the newly-reluctant capitalists...
Instead of bailouts we need perp walks. The best news I saw all day was the apparently-corrupt Illinois Governor getting taken down.
It seems to me that the current preference for US Treasuries as a medium of exchange even to the point of accepting negative yields could possibly represent a flight from the FED Reserve backed notes.
Hoopajoops LTD | 12.09.08 - 3:59 pm | #
And gold/oil/silver is not preferred, because ?
Interesting Times | 12.09.08 - 4:29 pm | #
Perhaps because the central banks are sitting on massive holdings of gold and can threaten to dump it at any time to depress its value? They choose to stockpile the one true competition to a fiat currency so that they can flood the market and wipe out anyone making any major moves towards it as a replacement for fiat currency. Genius.
Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest? Is it too inconvenient, or is it a vote of no confidence in the banking system?
The dollar HAS to die in order for all of this to be over.
Alternatively, we can let bankruptcies run their course, which will punish those that lived beyond their means and made stupid investments. Your solution will reward those that lived beyond their means, but penalize all investments.
Certainly. And it exactly why Bernanke's program has been ineffective - he thinks he is creating money to stimulate the economy, but his grand plan is being sandbagged.
I've said this for a long, long time: the Fed can throw money out the door, but it cannot control where the money goes after that. That is the flaw in the whole program and it should have been obvious when the Greenspan bubbles happened. If there is no proper allocation for capital, improper allocdation will occur. This is not rocket science; this is where academic theory grinds up against reality.
@Jas: "Worrying about low probablity events is not a good habit."
In the name of Taleb, I call Bulls**t on that comment. The global absence of that VERY GOOD HABIT among financial decision makers is what got us into the current mess.
Geez, as long as we are going to be a completely socialist country, I vote to give or loan the TARP and other bailout money to folks who need health care. That has gotta be a better use than a bunch of wealthy bankers.
ray writes:
"What's the effect on my money market fund in my 401k?"
Hey this was an interesting question. Is there a risk that negative T yields may force MM Treasury funds to "breaking the buck", and how quickly? That could be huge, if possible.
"By the way, I'm continuing to watch the backwardation story in silver.
While there is no clear trend yet, it continues to be interesting. As some silver bulls have pointed out, there's no law that says a silver squeeze has to happen overnight. It could emerge over several months."
Folks seem to use the term backwardation differently. Are you refering to the basis and the front month, or the front month and the next farther out?
@Angry Saver - and it was the failure of those borrowers to consider the "low probability event" that the market might not rise forever which led them to their tears.
"Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest? Is it too inconvenient, or is it a vote of no confidence in the banking system?"
Because, if ya got $100,000,000, it ain't covered by the FDIC.
Anonymous writes:
Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest? Is it too inconvenient, or is it a vote of no confidence in the banking system?
Because a dollar is a federal reserve note, backed by the federal reserve, while a US Treasury is a US Government note, backed by the United States itself? One of these two has just publicized that about half of its balance sheet consists of worthless assets.
If monetary theory and such is so complex and convoluted, with such diverse and polar opinions on how it actually works, fraught with so many moral hazards and opportunities for fraud and deception, and if the sheeple are so ignorant as to what is or might be going on behind the scenes, nor can anyone consisely pinpoint where the money supply actually stands at, not to mention what should be considered money,
why would any sane intelligent person what to store their wealth in anything but gold and silver?
--
"In the name of Taleb, I call Bulls**t on that comment. The global absence of that VERY GOOD HABIT among financial decision makers is what got us into the current mess."
Wisdom Seeker,
You have a point but you missed my emphasis on safety and caution. One should worry about every possible outcome? One should hide in a cocoon??
I am a big Taleb fan. As a speculator, I was also positioned for the Black Swan event as was he.
@Jas: "Worrying about low probablity events is not a good habit."
I'll chime in on the bullsh!t call here, though that is a matter of it being incomplete.
First, the ability to make an accurate probability assessment is problematic, and the toughest area to do this is at low probabilities, aka out in the tails. However, the statement does hold water for low probability and low impact events.
Assessing impacts and the costs of mitigation can typically be done much more accurately than the probability assessment of occurence. Spend time on low probability, high impact, reasonable mitigation cost events...just sayi
The mightiest economic nation on earth has been brought to its knees, and now China(?) wealth and power are to be tapped to restore us?
Didn't they self-destruct and go back to the stone age just a few years ago? Cultural Revolution?
But if they can implode and then lurch to lead the world out of depression, I suppose it can't be too bad for us.
@Jas - I suspect we are "in violent agreement" but I had to point out that considering low-probability but high-impact outcomes is a critical element of making financial decisions:
"One should worry about every possible outcome?"
Absolutely. (...with realistic assessments of probability, impact, and your course of action in the event...)
"One should hide in a cocoon?"
Of course not. In particular, because there is no such thing.
In the particular context of deflation/inflation - it is precisely because the dominant trend right now is deflationary that one should be worried about the low-probability inflationary possibility. That's the only way to spot the turning point at the right time. It's the same argument that we all made regarding the real estate bubble and the impact its end would have on the economy. The fact that the deflation may not be returned to inflation anytime soon doesn't make the question less important.
Remember the old CR joke, "It's different here.", regarding RE? Transpose that statement to our country and it's future. Discussions of what happens when economies collapse is being demonstrated all over the world. Look outside our borders to understand the consequences of what is happening here. The US is just a lagging indicator to the rest of the world or maybe we do believe it's really different here?
Ditto. He advocates 80-90% safety and 10-20% very high risk.
As a general rule, I couldn't disagree more. Taleb's asset allocations are only suitable at inflection points like now. He's blinded by his own success.
Variable change. As events unfold, you have to react.
But the housing bubble was a pyramid of fraud. I don't view it as a low probability event at all.
"Look for congress to pass a bill next week guaranteeing severance and vacation pay for bankrupt companies. Especially union affiliated companies."
That's ridiculous. The biggest layoffs right now are in the smallest companies.
Companies with less than 50 employees are panicking and you can't blame them.
It would not be fair to employees of small companies to guarantee benefits for bigger companies or unions only. And how can the federal govt. bail out employees of every hole-in-the-wall business that closes? That's a license for fraud.
But in the vast majority of America's cities and towns, economic conditions never fully reached the prosperity that marked the beginning of the decade. Yahoo! 404 - Page Not Found
Reposted that link from upthread, just got to reading it (I often click links and leave while catching up on a thread). Quote is from link, comment is this is a supporting observation for the perspective that this downturn is really a continuation of the recession from 2001...
@Angry Saver - again, we agree that the bubble had to burst. But it was all the other decision-makers who chose to ignore that, who considered it a "low probability event" not worth their time, who made the bubble as bad as it was in the first place.
The only way investors can make sure they recognize the "inevitable outcome" is to consider all possible outcomes. Because we all suffer from confirmation and other biases, that lead many of us astray much of the time...
stealthwii@gmail.com,
The answer to your question is: Ben may think he is printing, but where is the money going? Have you seen any of it?
It is not getting distributed.
The rub is that the banks that Bernanke and Paulson thought were essential hubs of the economy were not and are not performing the job that the word 'banks' means to most people. They do not loan or distribute money; they 'invest'. We have gone down the wrong road on the 'bailout' program and have handed out money that merely has been locked up back in Treasuries.
"Rope-a-doped" is a phrase that comes to mind.
Variable change. As events unfold, you have to react.
But the housing bubble was a pyramid of fraud. I don't view it as a low probability event at all.
Angry Saver | 12.09.08 - 5:02 pm | #
Variable change. I think that's where the magic happens too. And why we are all here.
Taleb could be a product of "Broken Clock" or have stumbled onto something fundamental. If he can repeat his success, we might have more confidence in him next round.
Jas, this "inflationist" missed your speech and wants to know what the gist of it was. --That falling Treasury yields indicate deflation and falling prices? Can you explain how the Fed's activities are not inflationary?
The workers effectively seized the assets of the company. The blame was laid at the feet of BofA. The sit in received huge support from local politicians and the police were not used to clear the factory. The bank released the funds so they and not the workers get the factory. Any worker paying attention and with any ability to organize can do the same thing. Short sighted to not pay a few hundred thousand dollars when fire can burn down a few million dollar asset. That is the reason you'll see a bill passed. Make the taxpayer responsible and not the banks.
Greece is an example to the banks/government of how easily the citezenry can be set off. Trying not to give them a rallying point is crucial.
The difficulty I have with Darth's inflation construct is his idea of debt destruction outstripping all attempts to reinflate.
It's clear to me the value of various asset classes are under fire. But debt? It's that annoying lump under the carpet.
Further - and this is merely a quibble - I'd say there are attempts to prevent a debt/deflationary spiral. Not really the same thing as setting out to reinflate.
I'm way too familiar with wall street to buy into Talebs thesis. Jas's "scam market" is far closer to the truth.
Wall street is a bonus factory. First and foremost it creates bonuses for itself. Each year, the wall street herd seeks to maximize that year's bonus. Little else considered. Just look at the incentive structures and the TARP for proof.
Wall streeters truly believe they are entitled to huge yearly bonuses regardless of even solvency. They will do what ever it takes to reap a bonus.
'I haven't left my house in days. I watch the news channels incessantly. All the news stories are about the election; all the commercials are for Viagra and Cialis. Election, erection, election, erection -- either way we're getting screwed!' -- Bette Midler.
Americans were BRED (brainwashed from birth onwards) to be easy to screw over and over and over That is why they are born-and-bred dopes. As I said, I get almost daily confirmations. Yes, American doping was exported (and imported by local crooks, e.g., India) lock stock and barrel. But, Americans remain uniquely bred dopes, the real thing. Copies are nowhere near as good.
Isn't a US Treasury just a promise by the US Government to give you at some future date a certain number of dollars, backed by the Federal Reserve?
Actually, you can demand to be paid back a debt you are owed in treasury notes. It's in the law somewhere, let me dig up the source on that. People have been freaking out their local banks by demanding treasury notes. They look just like dollars, except instead of FEDERAL RESERVE NOTE it says it's a treasury backed note.
§ 411. Issuance to reserve banks; nature of obligation; redemption Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.
So Treasury gives a bank a few billion dollars. The bank decides that it doesn't want to get stuck holding all those billions. So, it turns around and gives the Treasury a couple of billion to hold for three months and pays $100,000 for the privelege.
--
"Can you explain how the Fed's activities are not inflationary?"
Please read Burn-ass-ke. His key policy tool was intended to INCREASE "the Aggregate Demand" for goods and services, or at least keep it from falling more than slightly (shallow recession).
Please tell me for what goods and services the Fed can increase "the Aggregate Demand" to offset those that it can't stop from falling.
Americans are over-housed, over-autoed, over-weight, over-indebted... IT IS OVER FOR AMERICANS IN TERMS OF INCREASING CONSUMPTION. Americans have been consumed!
Chair-moron Burn-ass-ke CANNOT increase the demand all the time after it was pushed to the limit with the expansion of the household debt. It was my Peak Debt thesis.
"They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."
Redeemed for what? Different Federal Reserve notes?
When people use term "devalue" in relation to the dollar, is that the equivalent of inflation (as it relates to prices for goods and services), or is one a symptom or subset of the other?
stealthwii@gmail.com writes:
"They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."
Redeemed for what? Different Federal Reserve notes?
Redeemed for "lawful money," or non federal reserve notes.
lawful money
Definition
Any money (coin or paper) that is issued directly by the United States Treasury and not the Federal Reserve System - this includes gold and silver coin, Notes, Bonds, etc.
Interesting Times writes: Taleb could be a product of "Broken Clock" or have stumbled onto something fundamental. If he can repeat his success, we might have more confidence in him next round.
Not a broken clock, hes done it more than once, first time was the 1987 stock market crash I believe, tells you how and why in Black Swan, a superb book.
Redeemed for what? Different Federal Reserve notes?
Yes. You can furiously trade one stack of dubious paper for other stacks of dubious paper of different colors, patterns and weights. The faster you move it around, the more "value" is created!
"wally writes: stealthwii@gmail.com,
The answer to your question is: Ben may think he is printing, but where is the money going? Have you seen any of it?
It is not getting distributed."
Is this an issue of not producing enough M2 (or whatever), or an issue of inadequate monetary velocity?
Could we have financial system dollars and regular dollars, so that their wanking and stimulus can be self contained to the fake economy, while us real guys can pay an honest buck for a hamburger, a buck whose value is backed by virtue of the fact that it represents actual real labor input to the economy that produced something other than a derivative of a derivative of the shadow of a phantom?
Therein lies the entire seed of this crisis. Previously, only regulated banks could create dollars. And those kept more or less in line with economic output (well, within the margin of error of all human endeavors)
But Uncle Greenie and Bennie, through their free-market, no-regulation kool-aid, let hedge funds and other pigmen mint dollars. Now, there is no way to separate the pigmen dollars from the real economy ones.
In the end, will be that the pigmen dollars get legitimized (it's already in progress). The real economy adjusts to the new total of real economy + pigmen minted dollars. Prices and values gets adjusted to the new number.
Which is good if you are a pigman. You had zero dollars, you minted a billion dollars, and after they get depreciated in value, you still get to have say, a million dollars.
You may lose 900 million, but net you gained a 100 million from zero. Which is good when you had zero to begin with.
Too bad if you saved your real economy output in dollars.
[Dollar carry trade? For foreigners whose currency is depreciating against the dollar, 0% Treasuries make a real return - just as 0% yen denominated debt did in the 90s.
trail ]
High stakes poker. I don't trust what the Fed does. Prefer to watch what they do. They are doing what they can to crank inflation. Sooner or later they will make it happen. Then watch how savage & swift a bubble burst can be.
They have to use the threat of inflation and low investment yields to stop us from hoarding cash right now...they think that if we are buying "stuff" instead of saving money that the economy can be propped up/restarted.
1998 was the last year I bought stocks. I was early. I watched in disbelief as the markets soared higher for two more years.
I also could not believe the media and government's actions. Both were cheer leaders. Same thing with the housing bubble. It's no wonder we're broke.
--Angry Saver
Yes.
I went from a stocks/bonds deferred compensation portfolio to all bonds in the summer of 1998, after the LTCM fiasco. The handwriting was on the wall, the tech bubble getting bigger and bigger, moral hazard out of control, a messianic belief in mathematical modeling. . . . .
I missed those returns, too, but the 10 year looks pretty good, no?
Now, I've locked in interest returns via CDs. Treasuries have been infected by the same mania in reverse that affected tech and housing, and the actions of the government are, yet again, setting the stage for more wealth destruction.
Current devaluation remains a downside risk. Not sure that there is really a way to deal with it other than gold. Foreign bond funds sound superifically appealing (I have one), but, realistically, aren't all the countries that issue such bonds facing the same potential disasters as the US?
Or, to put it differently, are those who believe that the risks of global capitalism can be separated into tranches (the German one, the Japanese one, the US one, the UK one) making the same mistake that CDO purchasers did?
Johnny lee- the bottom of the article linked is potrayed as strongpoint..it scares me..ahhh so do white sharks..
China-Savvy Advisers
The president-elect will be able to turn for help to the China-savvy individuals he has brought into his circle. Timothy Geithner, 47, Obamas choice for Treasury secretary, studied Chinese and has lived in China. His transition team includes Jeffrey Bader, a China specialist with a 27-year career in government that spans trade and national security.
Among the possible candidates for ambassador are John L. Thornton, a former chairman of Goldman Sachs Asia who has been a professor in Beijing; Richard Holbrooke, 67, who dealt with China as Clintons United Nations ambassador; and Shirk, 63, a visiting fellow at the Asia Society in New York.
Lieberthal expects Obamas administration will engage Beijing in what he describes as critical transnational issues of the 21st century.
Jas Jain writes: "Printing Money is a propaganda tool to scare people and keep them in the inflation camp.
All that debt-created money sloshing around the world was what caused the mega-bubbles. Now debt is going poof and the money with it, bigtime. The Fed/Treasury is, on the other hand, pumping it out as fast as they can. At some point, they will succeed and we will THEN have lotsa paper chasing limited real stuff (like gold) and bear in mind that this is in the context of a CPI still going up. One answer does not fit all circumstances. But it is in no way gonna be pretty.
I think we are still reeling from the dot.com bubble and I do not mean stocks. Think of the hardware/software and manpower investments that were made in the mid to late 90's. On a national scale nearly EVERY company needed infrastructure, tech stocks were soaring, productivity increased etc. Eventually a lot of those new tech jobs were no longer needed and the infrastructure projects were complete. As a consequence I think we were headed into a major recession/deflationary episode. The government tried to orchestrate a soft landing and accidently set off the housing bubble. I think we are still trying to get back that 90s version of expansion. Trouble is it was a bubble and should not be viewed as normal.
Trouble is we have excess capacity as a result of the increases in productivity brought about by the technical advances of the 90s. This has resulted in a loss of jobs and an oversupply of goods. Net result is deflationary. The Fed has been trying to actively counteract this for eight years via monetary intervention/interference.
What do you all think?
The government tried to orchestrate a soft landing and accidently set off the housing bubble. I think we are still trying to get back that 90s version of expansion... what do you think?
I agree.
It's a double-top crash.
I believe that Greenspan thought he could fix it by pushing low-interest money out. In theory, over-extended people should have pulled back and consolidated their position.
In reality, they simply borrowed more and make bigger inflation-based bets.
I vote deflation by end 2009 and in a big way. The re-inflate "tarping" of America will (has) fail. there will be millions more out of work with those left employed taking major pay cuts. There will be little purchasing outside of daily necessities. Look for the dollar to still fall in value as the presses keep rolling. However, the drop in price of all other assets and other assest classes will outpace the dollar drop. Commodities and oil will continue their decline. Chaos will ensue if food starts running scarce and if the 2nd and 3rd wave of upcoming foreclosures put 10-15% of the overall populace in the streets. I believe the currently foreclosed, have been to this point, absorbed by family and friends. Just my opinion....
--
"Is there evidence of deflation in food prices?"
mykillk,
Was there any evidence of gasoline price deflation 5 months ago? They are off MORE THAN 50% in 5 months. Did you foresee that? I did, but I had no idea when exactly it was going to start. My forecast for YoY CPI to go negative has been 2009Q2/Q3, but now it looks like I was cautious in my prediction.
McD is running a double w/c on the 99c menu in Atl. That is 100% increase in beef and cheese for the same $. They used to have the regular mini burger for 99c. Just sayin'.
Somebody always dredges up this banal observation. Guess what? You can't eat FRNs either. But you assume you can exchange them for food.
Look up "medium of exchange" in any econ text, and note the attributes necessary for a successful one (limited supply, widely recognized, etc., etc., and most especially the confidence of those who are exchanging).
Then consider what might happen if "Helicopter Ben" follows thru on his monicker.
Maybe have the feds buy services and food from vendors at discounted rate then pass along cupons to citizens....Oh thats right, Wall Street is the only one who can get subsidized. Damn.....Pigvomit
Double cheeseburger = $1.19 today at the Mickey D in South Yarmouth, Mass.
The dairy-free $1 equivalent is now called the "McDouble."
More than you really need to know dept.: I spent $5.45 for a dbl. cheese, McChicken, small soda, small fries and two apple pies.
"This is a huge number of calories for $5.45," I said to my mate. Given my semi-semi-"food insecure" position, this sort of detail has become noticeable.
I think you're right, we will get deflation at the CPI level, more apparent in the non-necessities. The real economy is being and will be hammered, nothing like anyone has seen in their lifetime, unless they're 80. The Fed/Treasury meanwhile will create and pump money, will deficit spend, for all they're worth and THAT will come home to roost as inflation, but later. The Dollar will go to trash. Not apparent now, but the timeframe is too short. My opinion, but I'm not a youngster, have been in finance since the 1960's ...
If I understand your question properly, you're concerned the fed is injecting funds into the broad economy at a pace greater than is required to offset asset destruction?
They've made it clear it's not their intention to do so. Rather, they're undertaking to keep banking and exchange functioning - supporting some of the institutions which are taking or will take the worst hits.
The real concern here is that, as we approach an unknown point in time when the unwind - losses recognized and written down (or off) - is nearing completion, the central banks, the treasury, and various congressional programs won't be prompt enough to control these vast pools of credit they've created fast enough to prevent an episode of severe inflation.
We're not at that point but, given their sluggish and confused response to developments to date, it's hard to have confidence they'll be effective in the event.
There are very strong deflationary forces at work at present. It's been the understanding of those both inside and outside the central banks that - right now - the most anyone should undertake to do is to soften or limit the damage done in deflationary recession. They have a number of measures available to them which are simultaneously effective and extremely disagreeable.
Bernanke described that arsenal in some detail years ago. What I don't have any reason to believe about him is that he's just itching to use it, though you sometimes read otherwise.
Wow, this deflation thing seems to be difficult for some people. Is it because it happens so infrequently?
Wally nailed it at 3:52
wally writes:
"Why park the money in 0% tresuries?"
Deflation. There is no 'zero bound' to interest.
Mish has a few words about deflation. If you want to stir him up, try commenting on his blog that you think there is enough "printing money" to overcome credit destruction. heh.
--
Inflation dopes always talk about the food prices and couple of more things. They want an endless argument that inflation is still here and would remain here for as long as the eye can see. They ARE in denial of the deflation that has already begun and would be fully confirmed in negative YoY CPI.
are those who believe that the risks of global capitalism can be separated into tranches (the German one, the Japanese one, the US one, the UK one) making the same mistake that CDO purchasers did?
Richard Estes,
I don't know. I don't follow any foreign markets closely. Everything seems correlated at present though.
I remember back in 2005/2006 arguing with dryfly, who claimed that the Japanese experience could not happen here because Americans were "different than the Japanese". We are not savers, and never would be (you would have to "pry his cold, dead hands off of his plastic" was his comment, I believe).
I have always believed Americans would become savers when given the proper incentives (along with discentives to borrow). And even though nominal interest rates on savings are lower, I believe real interest rates on savings are perceived to be worthwhile. Combined with the expectation of falling prices (on homes, furniture, remodeling jobs, cars, electronics, gas, hotels, etc..), people are starting to see saving as a rational act at this point. Hold that money until tomorrow, and you'll be able to afford much more.
This desire to save will only be strengthened as employment becomes more uncertain (especially given folks newly-downsized 401Ks).
Jas, big fan of your impartial and correct deflationary commentary. Will you try to explain in detail the expansion of the fed balance sheet? I realize a ton of the money is being sterilized but why couldn't the FED bypass the banks and directly give printed fiats to the people?
Keep up the good work and honest discourse as any rational non-dope loves to hear the contrarian view in the marketplace of ideas.
Seems to me the Fed WANTED the banks to park the "bail out" money somewhere instead of lending it. Why else give them interest on reserves? The bottom line is most of these banks are insolvent. So in order to help them remain in business the Fed is paying interest and they are going to take write downs and try to eventually get whole. Once they are lending should resume...
Keep up the good work and honest discourse as any rational non-dope loves to hear the contrarian view in the marketplace of ideas.
Ian from Austin | 12.09.08 - 6:47 pm | #
You know, there are entire forums on the internet devoted to masochism Ian . . .
Pavel, I'll give GWB a measure of credit. He's not been a facilitator for bailout largess and has pressed hard for some of the very terms and conditions I've seen proposed in these pages.
Most recent example is in the proceedings this week on behalf of GM and Chrysler where, through spokespersons, he's asked for an equity stake, voting shares and other features which would - if adopted - make for a more disciplined conservatorship.
Also was quite clear he saw no point in helping business if it were destined to fail eventually anyway - something we say here all the time.
Comrade V writes:
awgee writes:
"The more I think about it, I realize, the only, and I mean ONLY reason someone would accept a negative return is if they have to."
Or they are very afraid.
Comrade V | Homepage | 12.09.08 - 5:08 pm | #
Interesting comment. Since everyone on this board can not seem to understand why yields are 0 or negative, obviously not enough here are afraid yet.
--
"I remember back in 2005/2006 arguing with dryfly, who claimed that the Japanese experience could not happen here because Americans were "different than the Japanese". We are not savers, and never would be (you would have to "pry his cold, dead hands off of his plastic" was his comment, I believe)."
ShortCourage,
Thanks. That was the mantra of born-and-bred American dopes We are not Japan. Actually, I did agree except that we are much worse than the Japanese in the moral dimension as it related to the economy and the concern that those in power had for the ordinary citizens. Japan would fare lot better than America over the coming years.
burnside, I guess you could give Bush a measure of credit for not blowing all our nukes in their silos and immolating the entire nation. Anything beyond that is overly charitable.
In a future editorial (I will post the link) -- WHY and HOW Feds Fight Deflation -- I would attempt to answer your question. I purposely put off this editorial for the past 18 months! (You can understand why based on the hate mail that I get here and in my inbox)
"I'll give GWB a measure of credit. He's not been a facilitator for bailout largess and has pressed hard for some of the very terms and conditions I've seen proposed in these pages."
So that was not Bush's treasury secretary asking for 700B to bailout Goldman Sachs?
You are a pessimist. Everyone who knows me personally knows that I am one of the luckiest persons they know. Yes, I have been luckier than most Americans I have known and many have told me that in person.
Mommy mommy help me mommy
I just read this awful scary story called "treasury Bills Trade Negative"on this blog, called calculatedrisk, and then all the comments, and now i'm all confused, and having terrible nightmares mommy and i can't sleep.
Don't overlook the fact that Lehman's bankruptcy managers are in the process of unwinding millions if not billions of dollars in various paper. It is a very slow process, and as they well stuff off, they no doubt are parking the proceeds in Treasuries. So it's not just solvent institutions and individuals who are looking to Treasuries.
Well, there is a first time for everything.
The opposite of $140/bbl oil.
wow.
Huh?
Haloscan has gone negative on comments. The front page shows 1 comment already, yet I don't see anything.
It's all linked I tell you.
I'll pay you back next tuesday for 1.25 hamburgers today...
frst
Why park the money in 0% tresuries?
This is crazy!
Banks parking TARP funds...holy TRAP.
Welcome, denizens of TARPistan.
Or is the Fed buying Treasuries to keep rates low?
Seriously, is that adding to this Treasury surge?
i'm negative ponies now... great.
nothing to eat OR ride.
Why park the money in 0% tresuries?
Serf Mike | 12.09.08 - 3:47 pm | #
Because putting $1B in a CD is not feasible.
Tarpistan... LOL Someone said Turdistan the other day...
CR,
so where do you see the Stock Market moving?
I might be interested at a lower rate but zero is quite good.
They will pass the bill to Ben & Hank. A great new use for TARP money.....
Bank of America Offers Loans to Republic for Workers (Update1) - Bloomberg.com
Could we have financial system dollars and regular dollars, so that their wanking and stimulus can be self contained to the fake economy, while us real guys can pay an honest buck for a hamburger, a buck whose value is backed by virtue of the fact that it represents actual real labor input to the economy that produced something other than a derivative of a derivative of the shadow of a phantom?
funny chart...drag the mouse, especially off/on opposite sides.
___ THE ECONOMISTS : ECONOMIC FORECASTING ANIMATION ___________________
According to my econ professor, the Federal Reserve now pays interest on deposits that banks make with the Fed. Why would they take that money out and put it into T-Bills? To drive other interest rates down? To keep the government going?
Why park the money in 0% tresuries?
Serf Mike | 12.09.08 - 3:47 pm | #
Because putting $1B in a CD is not feasible.
So they are swimming in to much cash, unable to loan it out fast enough. The excess Tarp cash is being stowed.
Hoopajoops LTD writes:
Could we have financial system dollars and regular dollars, so that their wanking and stimulus can be self contained to the fake economy, while us real guys can pay an honest buck for a hamburger, a buck whose value is backed by virtue of the fact that it represents actual real labor input to the economy that produced something other than a derivative of a derivative of the shadow of a phantom?
You can but it is in coin and minted pre 1964. The rest of the fiat cra* is good for starting fires during a cold winter...
outside:
dont know about CR but i see the stock market moving to mexico. Like all the snowbirds, it usually waits until after the holidays.
So they are swimming in to much cash, unable to loan it out fast enough.
--
something like that, but completely opposite i'd imagine.
So they are swimming in to much cash, unable to loan it out fast enough. The excess Tarp cash is being stowed.
Yes. It is being held until more realistic writedowns occur on Level 3 assets. There are other side effects yet to be realized too.
So, treasuries are a save heaven now, with zero yield?
Zero is better than loss no?
"Why park the money in 0% tresuries?"
Deflation. There is no 'zero bound' to interest.
Bernanke can dump money until hell freezes, but I don't see a wage increase in my future... so I don't see inflation. True, he may start more price bubbles, but that will damn his reputation forever.
They can't loan it out because there is no demand for credit from anyone who is likely to pay it back. They got their fingers singed and they are not lending money to deadbeats anymore. There is so much excess capacity that nobody can see anywhere to invest that is likely to produce a decent return.
It is being held until more realistic writedowns occur on Level 3 assets.
I thought wads of the stuff were being used to plug balance sheet holes. The problem is the leakage/spillover continues.....
It's astonishing that the bankruptcy procedures for Lehman Brothers are not factored into your analysis.
Once Lehman entered Chapter 11 all over her liabilities are frozen and partitioned into buckets or tranches of creditor classes.
The legal spadework to determine just what the priorities are is not quick.
In the meantime, all of Lehmans remaining paper assets mature or spin off cash. (The physical assets have already been sold, mostly. )
There is only one place the Bankruptcy Court will permit the proceeds to flow: Treasury Bills or their equivalent. As a practical matter, its going to be 100% T Bills.
Lehmans T Bills position surges each and every day as its huge pile of short term paper matures.
No matter how much the Treasury pumps into the system the cash drains right back to Lehman Brothers ending up in their T Bill position.
It is the RELENTLESS purchase of T Bills by the bankruptcy administrator that is skewing the yield curve. Every purchase is a forced buy interest rate be damned.
How much is involved? Lehman entered Chapter 11 with over 600 Billion dollars of assets marked to market.
Their face value is much higher.
Since only a minority of mortgage debt has soured, which has already been factored into the asset valuations, one must imagine that by now Lehman Brothers has a staggering cash horde.
Such disbursements that the Court will permit ( legal fees and operating expenses) are trivial by comparison.
Tying up this much cash is staggeringly deflationary. This cash drain operates like a black hole sucking in liquidity system wide.
The Treasury needs to use TARP monies to directly buy out creditors holding the senior positions as soon as possible.
The Treasury can then wait for the court to pay off these claims in as much as their already is enough on account, in T Bills, to cover the senior positions.
This is one way to wrap up the bankruptcy and reduce the legal expenses of the creditors.
Such action would at last neutralize the deflating effect of the Lehman bankruptcy.
why not just keep it in Benjamins?
My guess is the banks are parking the TARP money in short term treasuries - and that has pushed the yield to zero.
That doesn't make sense. Banks can now earn interest on reserves.
It's more than the banks.
Rob Dawg Writes: "Negative interest rates imply the possible repudiation of printed dollars at current valuations. That's so scary I don't have a comment."
Hoopajoops LTD writes:
Would you mind thinking out loud about the implications of it? I'm fascinated at what is happening to the dollar and even our conception of money right now.
Rob Dawg(Good) writes:
Flight to safety. The "safer" the allocation the lower the interest rate. Apparently Treasuries are safer than printed cash dollar notes. And notes they are. Pull out a buck. Read the first line; "FEDERAL RESERVE NOTE". Just because they have always "traded" at par doesn't mean they must or will trade at par. Soviet Union had this problem in the 80s. Sell at par redeem at a fraction. Result, massive slowing of the velocity of money, aka chaos de-leveraging. Exactly the opposite of what the Fed hopes to accomplish.
Forgive me if I have misunderstood you, but are you implying that negative treasury rates are explained by individual investors questioning the solvency of the Fed, or the fed's ability to back its own notes? By individual investors dropping their dollar bills (which are federal reserve notes) in favor of treasury bills (which are US Govt notes)?
As in, people are actively contemplating what would happen upon the fed becoming insolvent?
Banks parking TARP funds...holy TRAP.
lama
LOL!
Was the real purpose of TARP to fund a buyback of treasuries because China or someone threatened to dump em all?
So the treasury gives banks money. These banks then use that money to buy treasuries.
Isnt this like cheating on the treasury's part to leverage money you don't have?
Or is this just a zero sum exchange where the tarp funds are doing nothing?
My head hurts.
Off topic: If anyone see offensive ads, please let me know. If you can tell the source (Adsens or Tribal Fusion) and the URL that would help. I've tried to block all flashing, sound, po-ups, sexual ads, etc.
Best to all.
does this mean the terrorists have won?
Zirp zero percent interest
Twirp the worst percent interest
Chirp Christ Help! Percent interest
Birp Bye Bye percent interest
I thought wads of the stuff were being used to plug balance sheet holes. The problem is the leakage/spillover continues.....
No, your first part is correct. But the depth of the holes haven't yet been reported to shareholders. (ABX & CDS in particular). So when those writedowns occur, capital ratios would be an issue if cash wasn't already on hand. So, Voila! TARP money is cash-equivalent.
Therefore, they cannot lend it out, or they will trigger the regulators in the near future.
I think Blert is on to something (but not the whole thing).
for a currency that is soon to be revalued downward, an interest rate of zero is appropriate, no? just whacked!!
Anonymous writes:
funny chart
Thats hilarious!
Fed becoming insolvent results in what? The Amero? The crazy conspiracy stuff?
Liar's poker.
Calculated Risk(Excellent) writes:
Off topic: If anyone see offensive ads, please let me know. If you can tell the source (Adsens or Tribal Fusion) and the URL that would help. I've tried to block all flashing, sound, po-ups, sexual ads, etc.
CR, some ad on this site has definetely infected my work comptuer with spyware. Other people were complaining of this as well. I sispect it's the pen ad but I really have no idea.
And today's 4 week with 0% yield had a bid-to-cover of 4.20. Many left empty handed.
(repost and more appropriate here)
When you conclude that it is a good time to burn dollar bills!
Jas Jain | Homepage | 12.09.08 - 3:47 pm | #
Well it won't be me burning (selling) them... it will be everyone else. I'm now stuck with crappy Canadian dollars and a race to ZIRP.
What are they going to need to see to trigger that panic? I can think of a few scenerios, but we are clearly in bizzaro world now.
"why not just keep it in Benjamins?"
exactly, if I was to hold paper, at least I want the real thing... (light-bulb!!!) that's it, physical money is now trading at a premium to electronic... what does that remind you of?
Anonymous writes:
I thought wads of the stuff were being used to plug balance sheet holes. The problem is the leakage/spillover continues.....
No, your first part is correct. But the depth of the holes haven't yet been reported to shareholders. (ABX & CDS in particular). So when those writedowns occur, capital ratios would be an issue if cash wasn't already on hand. So, Voila! TARP money is cash-equivalent.
Therefore, they cannot lend it out, or they will trigger the regulators in the near future.
Anonymous | 12.09.08 - 3:55 pm | #
--
why are you posting as anonymous, you pretty much nailed it there. shadow system deleveraging means constant drain on cash positions until ?
I dunno about banks parking the TARP funds in treasuries. The banks can get interest on reserves at the Fed, so why would they get 0% when they can get 1%?
Activating Deep-Cynic Mode:
The Overlords have everyone just about where they want 'em. The masses have fled into treasuries, cash, and pure paper money ... and the printing presses can now roll for maximum effect. The true masters will once again retain ownership of the means of production, and halt the deflation by fiat...
As for "100 economists can't be wrong" - history tends to suggest that whenever 100 economists can actually agree, they must be wrong.
blert,
Your analysis doesn't explain the huge drop in yields across all treasury durations.
stealthwii@gmail.com writes:
Fed becoming insolvent results in what? The Amero? The crazy conspiracy stuff?
I have no idea what it means. It breaks my mind to even contemplate the idea of the FED becoming insolvent. I started thinking about thi sissue once I realized that there are some dollar bills in circulation which are backed by the united states treasury itself rather than the federal reserve bank. These bills are distinguished by the fact that they do not say FEDERAL RESERVE NOTE and have a red rather than green seal on them. I've been thinking and wondering for a while why someone would prefer a US Treasury backed dollar bill note rather than a federal reserve backed dollar bill note. It seems to me that the current preference for US Treasuries as a medium of exchange even to the point of accepting negative yields could possibly represent a flight from the FED Reserve backed notes.
Back in the day, banks used to issue their own printed currency which they backed with their own solvency, representing the value of their deposits.
why are you posting as anonymous,
False humility.
We arer all sub-prime. Can we now be negative prime?
Thanks blert. That makes a heck of a lot of sense.
I would like to borrow $1B at zero percent and invest every dime in ultrashorts. I will return the $1B in 3 months and never work again. If I lose the bet, I will go to the TARP.
Seriously. What's the big deal about zero? These aren't December 2008 dollars, these are March 2009 dollars being pledged. Who here think there will be anything close to the same number of dollars three month from now?
The Treasury Note and Bond out years are dropping because the market is expecting a repeat of the Japanese after-bubble.
I think we are seeing the very first signs of a flight away from fiat.
First it was conventional bonds that were shunned, then everyone wanted Treasuries, now those are being discounted... probably by Feb everyone will prefer (and pay a premium for) wheelbarrow's of paper cash, and we know by history where things go from there!
Ben Bernanke, hear this: the Investment Banks do not drive the economy and never did. They live off it. If 700 billion had been handed out on street corners, the investment banks would be OK today and we would all be happier.
This man's "academic theory" is going to be utter disaster before this is all over.
CR, any thoughts on blert's theory?
It sounds reasonable but I have doubts. No offense, blert - very insightful.
I think we are seeing the very first signs of a flight away from fiat.
No, running away from dollars would drive bond prices down (and yields up.) You are witnessing the opposite.
These bills are distinguished by the fact that they do not say FEDERAL RESERVE NOTE and have a red rather than green seal on them.
One theory is that this was the reason Kennedy was killed. Moving away from the Fed...
Perhaps it is the Russians? I read that on Denninger, it makes sense too. Who else has a lot of money they want to keep somewhere safe for a short period?
I read that the t-bills are also almost the only collateral that is accepted for CDSes that necessitate payment.
I agree with those who mention that banks can get higher interest from the Fed, although we do not know what strings the government/Fed attached to the bailouts.
World Bank Predicts Global Gloom:
BBC NEWS | Business | World Bank predicts global gloom
CR,
Things were bad BEFORE crisis:
Yahoo! 404 - Page Not Found
When was the last time you heard floor applause for a 250 point down day? Be very afraid.
--
"Ten year is now yielding 2.67% and the thirty year treasury just over 3.0%."
I am sure that most economists and people here on this blog saw it coming. Hell, they were yelling this outcome ever since Bernanke started his printing press. Ignorant me had no clue.
Jas
A thousand dollars at 0.005% gives you $0.0125 after three months.
This is lunacy.....
.........
ades,
not if there is deflation.
"Perhaps it is the Russians? I read that on Denninger, it makes sense too. Who else has a lot of money they want to keep somewhere safe for a short period?"
I'll ask Volodya next time we have lunch.: )
Talked to hedge fund friend . . . one reason Treasuries are negative is hedge fund/private equity guys from around the world are liquidating everything they can and are buying treasuries. They figure the good times are over and are trying to keep at least some of their winnings.
Does anybody else find it curious that although treasures are paying negative, an incredible sign of deflation, gold is holding it's own; down 3% on the year, up 5% on the month, and up oodles over the last few years?
The World According to TARP.
The new novel by Con Undeserving.
ades writes:
A thousand dollars at 0.005% gives you $0.0125 after three months.
This is lunacy.....
So to put this in perspective:
Retirement is not to far off and your house is down 30%, your holdings are down 30% and you invest in Ts to be safe. Somehow this wont turn out to well, imho.
So, if Wal-mart is doing so well; why did they suspend stock buybacks today?
Perhaps the numbers are not looking good for Christmas shopping?
"I am interested in topic R Dawg opened up in last thread about dollar devaluation. In fiat system with no PM standard, how does this occur? Does it have to be an outright exchange? And seriously, what is the possibility of this happening, and what are the precursors? What are the social implications (how are current wages/prices affected?)"
It won't be an exchange. The Treasury/Fed will simply increase the amount of money in circulation and hand it out as they see fit. They already are (check the H.3 and H.4.1 reports at . They will continue to do so until the deflation stops. They will probably overshoot and no one knows by how much.
Federal Reserve Bank Credit has more than doubled in the past few months. See e.g.
FRB: H.4.1 Release--Factors Affecting Reserve Balances--December 3, 2009
Monetary Base has nearly doubled in past 2 months, see e.g.
FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009
Looks like banks are pumping up the Fed and the "negative non-borrowed reserves" (i.e. "borrowed" bank reserves) are returning to "normal".
Pavel. Please do ask him. It must be nice to know these important people.
Jas writes: Ignorant me had no clue.
Close, but it would be better worded as: What do I know, I'm just an indian-born dope.
Treasuries are the next bubble.
Bucky's death rattle is still only barely audible, but it is audible.
The realization that 'change' is nothing more than good marketing will catalyze the great Amerikan reboot.
Standard of living is the only thing really deflating in America. That will be clear soon enough.
Pavel, when you two chat: Please look deep in his eyes for me. I bet he has a pretty soul - somewhere - way deep - where its very hot.
Am I missing something or is this what's happening:
1) We are borrowing money by issuing treasuries
2) The borrowed money is given to banks
3) Banks take that money and buy treasuries
Isn't it just an infinite loop?
"They figure the good times are over and are trying to keep at least some of their winnings."
Stuff like that plus global wages are awfully strong deflationary wind for the Fed to sail into.
Not saying they won't try- they are promising everyone up and down the street that they can and will inflate, but even as of this late hour they haven't even touched the wage question.
Wisdom Seeker,
The US has been handing it out... to no effect. To date, Bernanke has been proven utterly wrong.
At some point it may all break loose and go the other way - out of control inflation - but we are a long, long way from that situation.
If you were a bank now and had gamed Paulson out of billions, who would you loan it to? The auto industry? techs? real estate developers? homebuilders? shippers? retail chains? mortgage lenders? other banks?
nova writes:
So, if Wal-mart is doing so well; why did they suspend stock buybacks today?
Perhaps the numbers are not looking good for Christmas shopping?
You mean trading on inside information? Perish the thought.
Standard of living is the only thing really deflating in America.
But since it was artificially high before, this is no surprise.
if that is what they are doing - more proof of how smart these guys are. Pay the Treasury 5% after tax and receive 0% pre tax. Maybe they can make it up on volume?
Not to worry about the buck, though, because most of the rest of the world has it as bad or worse than we do... the dollar exchange rates will probably hold up reasonably well?
BINGO.
Pay the man Shirley.
awgee writes:
I read that the t-bills are also almost the only collateral that is accepted for CDSes that necessitate payment.
awgee | 12.09.08 - 4:05 pm | #
The Treasury/Fed can't hand out money as they see fit. It requires either government spending or bank lending to get new money into circulation. The Fed is pushing on a string.
Asked about a new car deal on an inexpensive model. Was told I could have $5000 special discounts if I financed. I would have to finance with a Bank of their choice and they didn't want me to pay off too quickly.
Asked what kind of discount I could have if I paid cash. Answer was, No Discount. I would have to pay full price. WTF?
See, they could afford to pay the discount because the bank can give them the kickback because the bank is getting money from the fed. If they don't get the bank in on the deal, the bank doesn't reward them with a fraction of the newly printed money, so they can't afford to discount.
Steve
It's an increase in the money supply.
Ben is printing faster than the debt destruction is happening....because quite frankly the real big debts are being allowed to be destroyed.
All of this IS going to click at some point...and then it will spread like wild fire. Zimbabwe is an amateur!
Automotive Bailout ... or ...
Alternative Motive, Frail Clout ?
Two Financial systems......
Cuba has already beat the US there, one Financial System for the Have's and one for The Have-NOTS...
Maybe that's where The Tarp Model came from. The Banks are the have's and the taxpayer's are the Have-NOTS.
Standard of living is going down for some, up for others. Standard of living is going up for people with cash, down for people in debt.
The Treasury/Fed can't hand out money as they see fit. It requireseither government spending or bank lending to get new money intocirculation. The Fed is pushing on a string.
\t trail | \t\t\t\t12.09.08 - 4:19 pm |
Not really true. The Fed can buy equities, if the mood strikes it. (With printed money.)
@Steve: "Isn't it just an infinite loop?"
You missed the part where the money that was borrowed went from being "yours" to being "the banks"...
@wally: "If you were a bank now and had gamed Paulson out of billions, who would you loan it to?"
Anyone with savings is effectively a bank. Who are you lending to? Why?
We are all trying to figure out who other than the Treasury (and the ultrashort ETFs) is capable of paying us back.
Note that there is a deeper moral question here, which most investors have avoided for decades: who should we lend to, and why?
Infinite? No.
Just a matter of price discovery, that is at what price do folks look
at other stuff as having value as opposed to the derivative scrip.
Steve writes:
Am I missing something or is this what's happening:
1) We are borrowing money by issuing treasuries
2) The borrowed money is given to banks
3) Banks take that money and buy treasuries
Isn't it just an infinite loop?
--
What % of born-and-bred Americans have been inflationists for at least a year?
Every inflationist for the past year must be one irate dope. Dopes are in full force today, it seems.
Bernanke must be dumbfounded. His schemes aren't producing the desired results. Are Central Planners meet their preordained fate. Bernanke faithful can only be characterized as dopes. No?
Jas
Dizard: "Put the credit default swaps market out of its misery" - Dec 9, 2008
naked capitalism
Interesting commentary on CDS, re some of above comments
Gives new meaning to "zero coupon".
AH warnings:
ADC
EA (plus job losses)
I repeat, the reasons are:
CDS collateral, and foreign money diving in (especially from unstable countries).
Treasury bill yields can be large when converted back into another currency which is devaluing vs the dollar. 0% T-bills would have yielded a nice return in Euros, Pounds, Rubles, Rupees, or Reals over the past 3-6 months.
Anonymous - yes,you are right - they can buy equities. But they never have. That's a brave new world. It would be interesting to see what would happen.
More negativity...
@"Gives new meaning to "zero coupon". "
We're all zeroes now!
Jas Jain(Irritating) writes: Bernanke faithful can only be characterized as dopes. No?
For that matter, even the non- Bernanke faithful can be characterized as dopes.
By the way jas, you should invest some time in learning the correct usage of the word "only." You wouldn't want to expose your Dopeland origins too quickly, would you?
What's the effect on my money market fund in my 401k?
Dollar carry trade? For foreigners whose currency is depreciating against the dollar, 0% Treasuries make a real return - just as 0% yen denominated debt did in the 90s.
--
Safety First!
But not for dopes. Dopes despise caution. Every dope believes that he, or she, takes calculated risk (NOT intended for CR) only. Safety is lot easier to calculate than risk!
Take cover.
Jas
I know jas is one crazy crank, but on a macro level he has been right on. I remember when he was laughed at for predicting 40/bbl oil...
If I were a Chinese, Japanese, or Saudi central bank, I would give serious consideration to selling US t-bills right about now.
Anonymous - yes,you are right - they can buy equities. But they never have. That's a brave new world. It would be interesting to see what would happen.
trail | 12.09.08 - 4:24 pm | #
Didn't mean to imply they had. Naturally, the recent alphabet soup tells us that we are in uncharted waters.
Anyway, the bigger point is that the Fed has very broad abilities to print money. I only named one method of injecting it into the economy; there are others.
The Fed and Treasury take all the toxic assets onto their balance sheets. The banks take the free money given and consolidate buying up smaller institutions. The banking system concentrates performing assets into a few institutions and destroy the competition. The taxpayer takes the hit and the good assets are owned by a powerful few.
Questions?
awgee
the news lately is that they all have...and have been buying up gold.
It seems to me that the current preference for US Treasuries as a medium of exchange even to the point of accepting negative yields could possibly represent a flight from the FED Reserve backed notes.
Hoopajoops LTD | 12.09.08 - 3:59 pm | #
And gold/oil/silver is not preferred, because ?
As a saver, I'm always worried about inflation.
I'm totally at ease with my dopiness.
--
If only I had fewer fans, or dedictaed readers, here. That is my wish from Santa.
Jas
Huh?
-> Government borrows money to fund TARP.
-> TARP recipients use moneys to lend to government.
And the cycle is complete. We can all go home now.
Saudi Arabia buys $3.5bn of gold in two weeks « ArabianMoney.Net
"Rick Dreher, director of the state's bureau of revenue, cash flow and debt, said Pennsylvania's bonds drew five bids and were priced at a true interest cost of 5.05 percent. While that was 104 basis points above what its debt fetched in June, it was within the market rise in yields since then"
My theory is that insurance companies and pension funds are moving into Treasuries because they are being mandated. I'm not sure who is mandating.
Regulators, rating agencies, boards of directors, etc.
Insurance companies and pension funds are the largest domestic buyers of diverse fixed-income instruments. They will all go broke keeping money in Treaasuries at these yields any length of time. But it works for now to keep them solvent.
I know jas is one crazy crank, but on a macro level he has been right on.
See CRs earlier smackdown. And Jas has been no more right than many of the long time posters here. Note: his puerile name-calling has gotten him banned at other blogs.
Let me then shine a positive light..
After we pop the bond bubble what will be the next bubble to inflate?
American chutzpah.
Maybe we have to be punched in the face to realize we can take a punch instead of just gorging at the punch bowl.
America will come out of this dust-up with swagger, probably ticking most folks off who feel we should have been meted more punishment.
We'll be able to turn the page faster than others.
Timeline? a decade tops... but not 50 years as some folks might hope.
Over the long term don't short Sam.
FFDIC writes:
More negativity...
FFDIC | 12.09.08 - 4:25 pm | #
--
Angry,
Worrying about low probablity events is not a good habit.
The happiest saver and a happy speculator,
Jas
"0% T-bills would have yielded a nice return in Euros, Pounds, Rubles, Rupees, or Reals over the past 3-6 months."
Can I spend those at our favorite food co-op in southern Maryland?
Darth - You think it is true. I see no reason to disbelieve it.
If you are a Middle East oil producer or sovereign wealth fund, you should do the same to fund current operations.
Simutaneously, you should keep your oil in the docks or in the ground (instead of selling it now) and sell it forward a year or two. You can earn 8-11% on the contango, which is a lot better than zero in t-bills.
By the way, I'm continuing to watch the backwardation story in silver.
While there is no clear trend yet, it continues to be interesting. As some silver bulls have pointed out, there's no law that says a silver squeeze has to happen overnight. It could emerge over several months.
I'll keep you posted.
Worrying about low probablity events is not a good habit.
I hope you are right. Still, inflation is what will hurt me most so it bears watching.
More on the question of "what would you invest in, if you were a bank (and yes, all investors are effectively banks)":
So I was reading Galbraith's "The Great Crash, 1929" book, and in it he mentions the concept of "bezzle", which is the amount of money that has been embezzled from the banks and is no longer there. The trouble with bezzle is that you don't know how big it is during the boom (no one is looking), and then in the crunch everyone starts auditing like mad and it's all revealed.
Thanks to Tanta and others, we know that the pre-2008 credit environment was loaded with tons of stuff that was effectively the same as bezzle: "assets" that everyone thought was worth something, until they woke up and realized it wasn't.
Then we had the problem that investors weren't being given enough confidence to put their money at risk, because of the lack of transparency. Indeterminate bezzle is a poor bedfellow, even for Barney Frank. As a result, all non-transparent assets were punished nearly indiscriminately.
We chose to TARP that problem over, and pray that sick banks could be healed with injections alone.
Now we're stuck even worse because the failure to actually fix the real problems has generated a global lack of confidence that has cascaded into the broader economy. In an environment with that much uncertainty, it's even more difficult to tell where things are going. The prospects of even honest businesses are now so murky that risk premiums are being forced skyward by the newly-reluctant capitalists...
Instead of bailouts we need perp walks. The best news I saw all day was the apparently-corrupt Illinois Governor getting taken down.
Brilliant IDEA® : maybe GM can pay me to drive one of their cars!
It seems to me that the current preference for US Treasuries as a medium of exchange even to the point of accepting negative yields could possibly represent a flight from the FED Reserve backed notes.
Hoopajoops LTD | 12.09.08 - 3:59 pm | #
And gold/oil/silver is not preferred, because ?
Interesting Times | 12.09.08 - 4:29 pm | #
Perhaps because the central banks are sitting on massive holdings of gold and can threaten to dump it at any time to depress its value? They choose to stockpile the one true competition to a fiat currency so that they can flood the market and wipe out anyone making any major moves towards it as a replacement for fiat currency. Genius.
ice analysis, blert.
The dollar HAS to die in order for all of this to be over.
Since we won't let the debts die. The currency must.
Somebody's gotta go.
Bucky is the new Jesus.
Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest? Is it too inconvenient, or is it a vote of no confidence in the banking system?
I admit, I can't understand these bond threads as well as I'd like.
TARP figures just released at the US Treasury
http://www.treas.gov/initiatives/eesa/docs/CPPTransaction%20ReportDec%209.pdf
You can earn 8-11% on the contango, which is a lot better than zero in t-bills.
rich | 12.09.08 - 4:37 pm | #
What if dollars are down more that 11% by then, relative to other currencies, commodities?
I think comparing anything to dollars now is like a divide/0 issue. NAN !
The dollar HAS to die in order for all of this to be over.
Alternatively, we can let bankruptcies run their course, which will punish those that lived beyond their means and made stupid investments. Your solution will reward those that lived beyond their means, but penalize all investments.
Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest?
Because when you are trying to find a home for $1B, personal banking options (like CDs) are not feasible.
Workers win, this one anyway, but they're still going to lose their jobs:
Workers win: Bank to give credit to Chicago plant
Isn't it just an infinite loop?
Certainly. And it exactly why Bernanke's program has been ineffective - he thinks he is creating money to stimulate the economy, but his grand plan is being sandbagged.
I've said this for a long, long time: the Fed can throw money out the door, but it cannot control where the money goes after that. That is the flaw in the whole program and it should have been obvious when the Greenspan bubbles happened. If there is no proper allocation for capital, improper allocdation will occur. This is not rocket science; this is where academic theory grinds up against reality.
@Jas: "Worrying about low probablity events is not a good habit."
In the name of Taleb, I call Bulls**t on that comment. The global absence of that VERY GOOD HABIT among financial decision makers is what got us into the current mess.
Alternatively, we can let bankruptcies run their course, which will punish those that lived beyond their means and made stupid investments.
I like it. Rescind the TARP to speed up the process.
"Alternatively, we can let bankruptcies run their course,"
WE don't have a word in what happens. WE called our congresspeople to oppose TARP.
WE just get to pay the financial industry: as customers first, then as taxpayers.
Geez, as long as we are going to be a completely socialist country, I vote to give or loan the TARP and other bailout money to folks who need health care. That has gotta be a better use than a bunch of wealthy bankers.
ray writes:
"What's the effect on my money market fund in my 401k?"
Hey this was an interesting question. Is there a risk that negative T yields may force MM Treasury funds to "breaking the buck", and how quickly? That could be huge, if possible.
Genius.
Hoopajoops LTD | 12.09.08 - 4:39 pm | #
Thanks! Yes, it would be genius. Holding gold as ransom... assuming it's all still there.
I have $4 Trillion in gold in my underground bunker and no, you can't look at it
But here's a piece of paper that proves it.
Bucky is the new Jesus.
Darth Paulson | 12.09.08 - 4:40 pm | #
Bucky died on the cross-currency trade for our sins and all I got was this lousy TARP?
Anon
I am well aware.
But let's face it. The leadership will protect business over labor until labor starves and revolts.
Wisdom Seeker,
Taleb has it all wrong. Anytime you lend trillions of dollars to liars it's going to end in tears. Taleb over-complicated the facts to sell a book.
"Every inflationist for the past year must be one irate dope."
Not as irate and grouchy as those who held short positions in the past 5 trading days (excepting today)...
When/If this trend changes (yields increase), will it be gradual or violent?
Can the Fed control rates going the other way?
"By the way, I'm continuing to watch the backwardation story in silver.
While there is no clear trend yet, it continues to be interesting. As some silver bulls have pointed out, there's no law that says a silver squeeze has to happen overnight. It could emerge over several months."
Folks seem to use the term backwardation differently. Are you refering to the basis and the front month, or the front month and the next farther out?
So, putting money is your mattress or burying it in the backyard is not such a bad ideal?
"When/If this trend changes (yields increase), will it be gradual or violent?
Can the Fed control rates going the other way?"
Not without great pain.
stealthwii@gmail.com(Unrated) writes:
So the treasury gives banks money. These banks then use that money to buy treasuries.
Isnt this like cheating on the treasury's part to leverage money you don't have?
Just exactly like that.
@Angry Saver - and it was the failure of those borrowers to consider the "low probability event" that the market might not rise forever which led them to their tears.
"Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest? Is it too inconvenient, or is it a vote of no confidence in the banking system?"
Because, if ya got $100,000,000, it ain't covered by the FDIC.
If money is soon to be worthless...I don't think hoarding it will do you any good.
Land, food, books, guns & ammo...
Many deflationists on here, care to comment on the statement below? Refute with reasons? Thanks.
Darth Paulson writes:
Steve
It's an increase in the money supply.
Ben is printing faster than the debt destruction is happening....because quite frankly the real big debts are being allowed to be destroyed.
All of this IS going to click at some point...and then it will spread like wild fire. Zimbabwe is an amateur!
Darth Paulson | 12.09.08 - 4:20 pm | #
Anonymous writes:
Dumb question: If yields are negative, why not just put your money into a bank and receive a little bit of interest? Is it too inconvenient, or is it a vote of no confidence in the banking system?
Because a dollar is a federal reserve note, backed by the federal reserve, while a US Treasury is a US Government note, backed by the United States itself? One of these two has just publicized that about half of its balance sheet consists of worthless assets.
If monetary theory and such is so complex and convoluted, with such diverse and polar opinions on how it actually works, fraught with so many moral hazards and opportunities for fraud and deception, and if the sheeple are so ignorant as to what is or might be going on behind the scenes, nor can anyone consisely pinpoint where the money supply actually stands at, not to mention what should be considered money,
why would any sane intelligent person what to store their wealth in anything but gold and silver?
The big picture on the workers getting their money is the precedent being set. The bank rolled over when pressed.
Look for congress to pass a bill next week guaranteeing severance and vacation pay for bankrupt companies. Especially union affiliated companies.
Side note: Talk of Greece's government collapsing. Delicious irony that Greece leads the way in capitulating to citizen's fighting for change.
BBC NEWS | Europe | Rebellion deeply embedded in Greece
One of these two has just publicized that about half of its balance sheet consists of worthless assets.
Hoopajoops LTD | 12.09.08 - 4:49 pm | #
And the other is the Federal Reserve (see what I did there?)
i think i recognize the money supply source of inflation theory, is it from the Austrian school of economics? correct me if i'm wrong.
I'll pay you to give me less money?
Why am I not 100% gold yet?
I am still waiting for a lot more deleveraging and insolvency first.
Now on a national scale.
--
"In the name of Taleb, I call Bulls**t on that comment. The global absence of that VERY GOOD HABIT among financial decision makers is what got us into the current mess."
Wisdom Seeker,
You have a point but you missed my emphasis on safety and caution. One should worry about every possible outcome? One should hide in a cocoon??
I am a big Taleb fan. As a speculator, I was also positioned for the Black Swan event as was he.
Jas
why would any sane intelligent person what to store their wealth in anything but gold and silver?
Relax.
We'll be getting to that part of the panic soon enough.
To think I was getting 5% on t-bills 2 short years ago.
CR, I hope you hold it on this bond thread until "we" figure it all out.
@Jas: "Worrying about low probablity events is not a good habit."
I'll chime in on the bullsh!t call here, though that is a matter of it being incomplete.
First, the ability to make an accurate probability assessment is problematic, and the toughest area to do this is at low probabilities, aka out in the tails. However, the statement does hold water for low probability and low impact events.
Assessing impacts and the costs of mitigation can typically be done much more accurately than the probability assessment of occurence. Spend time on low probability, high impact, reasonable mitigation cost events...just sayi
rationaljeff writes:
TARP figures just released at the US Treasury
Thanks for the link, have a question though for Manhattan Bancorp...what did you put up as collateral for that $1700? a Rolex?
12/5/2008 Manhattan Bancorp El Segundo CA Purchase Preferred Stock w/Warrants 1,700,000 Par
How many of these US Treasury notes do I need to collect to swap for something solid, like say Alcatraz Island, or Rhode Island, or Texas?
Is there any fixed ratio between total number of treasury notes and land area of the nation, or anything else? Or can they just inflate these too?
Wisdom Seeker,
Bubbles always burst. It's a certainty, not a low probability event.
Also, bubbles require delusional thinking not consideration of probabilities.
I liked Taleb's book, but I think he over-complicated the issue.
The more I think about it, I realize, the only, and I mean ONLY reason someone would accept a negative return is if they have to.
Do they still sell EE's? Wasn't there some sort of minimum yield on them?
I am a big Taleb fan. As a speculator, I was also positioned for the Black Swan event as was he.
Jas Jain | Homepage | 12.09.08 - 4:52 pm | #
Ditto. He advocates 80-90% safety and 10-20% very high risk.
Worked out great for me.
The mightiest economic nation on earth has been brought to its knees, and now China(?) wealth and power are to be tapped to restore us?
Didn't they self-destruct and go back to the stone age just a few years ago? Cultural Revolution?
But if they can implode and then lurch to lead the world out of depression, I suppose it can't be too bad for us.
Obama to Borrow China’s Wealth, Clout in Effort to Steady World - Bloomberg.com
actually, negative return nominally can equal postive real return in the setting of deflation
but I'm with CR, the banks are parking their TARP like dead carp
why would a bank want to lend when it can just walk and moan like a zombie?
"Look for congress to pass a bill next week guaranteeing severance and vacation pay for bankrupt companies. Especially union affiliated companies."
Maybe, but they're still being sacked. This has to be attended to as a national, and social, priority.
@Jas - I suspect we are "in violent agreement" but I had to point out that considering low-probability but high-impact outcomes is a critical element of making financial decisions:
"One should worry about every possible outcome?"
Absolutely. (...with realistic assessments of probability, impact, and your course of action in the event...)
"One should hide in a cocoon?"
Of course not. In particular, because there is no such thing.
In the particular context of deflation/inflation - it is precisely because the dominant trend right now is deflationary that one should be worried about the low-probability inflationary possibility. That's the only way to spot the turning point at the right time. It's the same argument that we all made regarding the real estate bubble and the impact its end would have on the economy. The fact that the deflation may not be returned to inflation anytime soon doesn't make the question less important.
Remember the old CR joke, "It's different here.", regarding RE? Transpose that statement to our country and it's future. Discussions of what happens when economies collapse is being demonstrated all over the world. Look outside our borders to understand the consequences of what is happening here. The US is just a lagging indicator to the rest of the world or maybe we do believe it's really different here?
Yesterday I purchased an A-rated corporate bond maturing in mid 2009 with a 21% yield. The bond rating was recently upgraded.
These yield spreads are insane. You know a market is out of whack when the people making money on it are concerned about the nutty prices.
CR should have a reader poll. Will 2009 be deflationary or inflationary?
By 2009 I mean end of 2009, what is the end monitary result. Can I buy more with $1 now, or at the end of 2009?
Ditto. He advocates 80-90% safety and 10-20% very high risk.
As a general rule, I couldn't disagree more. Taleb's asset allocations are only suitable at inflection points like now. He's blinded by his own success.
Variable change. As events unfold, you have to react.
But the housing bubble was a pyramid of fraud. I don't view it as a low probability event at all.
That's ridiculous. The biggest layoffs right now are in the smallest companies.
Companies with less than 50 employees are panicking and you can't blame them.
It would not be fair to employees of small companies to guarantee benefits for bigger companies or unions only. And how can the federal govt. bail out employees of every hole-in-the-wall business that closes? That's a license for fraud.
But in the vast majority of America's cities and towns, economic conditions never fully reached the prosperity that marked the beginning of the decade.
Yahoo! 404 - Page Not Found
Reposted that link from upthread, just got to reading it (I often click links and leave while catching up on a thread). Quote is from link, comment is this is a supporting observation for the perspective that this downturn is really a continuation of the recession from 2001...
Can I buy more with $1 now, or at the end of 2009?
stealthwii@gmail.com | Homepage | 12.09.08 - 5:01 pm | #
US dollar? Ask China. You definitely can't buy more Yens today than 1 year ago....
some investor guy writes:
Yesterday I purchased an A-rated corporate bond maturing in mid ...
can you tell us which one?
@Angry Saver - again, we agree that the bubble had to burst. But it was all the other decision-makers who chose to ignore that, who considered it a "low probability event" not worth their time, who made the bubble as bad as it was in the first place.
The only way investors can make sure they recognize the "inevitable outcome" is to consider all possible outcomes. Because we all suffer from confirmation and other biases, that lead many of us astray much of the time...
stealthwii@gmail.com,
The answer to your question is: Ben may think he is printing, but where is the money going? Have you seen any of it?
It is not getting distributed.
The rub is that the banks that Bernanke and Paulson thought were essential hubs of the economy were not and are not performing the job that the word 'banks' means to most people. They do not loan or distribute money; they 'invest'. We have gone down the wrong road on the 'bailout' program and have handed out money that merely has been locked up back in Treasuries.
"Rope-a-doped" is a phrase that comes to mind.
Variable change. As events unfold, you have to react.
But the housing bubble was a pyramid of fraud. I don't view it as a low probability event at all.
Angry Saver | 12.09.08 - 5:02 pm | #
Variable change. I think that's where the magic happens too. And why we are all here.
Taleb could be a product of "Broken Clock" or have stumbled onto something fundamental. If he can repeat his success, we might have more confidence in him next round.
Jas, this "inflationist" missed your speech and wants to know what the gist of it was. --That falling Treasury yields indicate deflation and falling prices? Can you explain how the Fed's activities are not inflationary?
That's ridiculous.
rich | 12.09.08 - 5:03 pm | #
Yes, rich, it is. But remember - we're talking about Congress.
awgee writes:
"The more I think about it, I realize, the only, and I mean ONLY reason someone would accept a negative return is if they have to."
Or they are very afraid.
It sounds like the Treasury is basically doing a balance transfer with the national debt onto a zero percent credit card.
Isn't that good?
The workers effectively seized the assets of the company. The blame was laid at the feet of BofA. The sit in received huge support from local politicians and the police were not used to clear the factory. The bank released the funds so they and not the workers get the factory. Any worker paying attention and with any ability to organize can do the same thing. Short sighted to not pay a few hundred thousand dollars when fire can burn down a few million dollar asset. That is the reason you'll see a bill passed. Make the taxpayer responsible and not the banks.
Greece is an example to the banks/government of how easily the citezenry can be set off. Trying not to give them a rallying point is crucial.
H. Potter writes:
It sounds like the Treasury is basically doing a balance transfer with the national debt onto a zero percent credit card.
Isn't that good?
H. Potter | 12.09.08 - 5:09 pm | #
Until the universal default provision is invoked...
Make the taxpayer responsible and not the banks.
GM | 12.09.08 - 5:09 pm | #
Aren't banks also taxpayers?
Just jack up corporate taxes.
My guess is the banks are parking the TARP money in short term treasuries
I thought the banks were parking everything extra back at the Fed. St. Louis Fed: Series: EXCRESNS, Excess Reserves of Depository Institutions
Of course banks could have so much money they have to stuff it into several different mattresses.
"Variable change" is why some kind of dynamic asset allocation (including a "black swan fund") seems the way to go...
So what other than cash and shorts are people moving into for the next wave?
stealthwii:
The difficulty I have with Darth's inflation construct is his idea of debt destruction outstripping all attempts to reinflate.
It's clear to me the value of various asset classes are under fire. But debt? It's that annoying lump under the carpet.
Further - and this is merely a quibble - I'd say there are attempts to prevent a debt/deflationary spiral. Not really the same thing as setting out to reinflate.
"So what other than cash and shorts are people moving into for the next wave?"
Gold
Regarding Taleb and low probability events.
I'm way too familiar with wall street to buy into Talebs thesis. Jas's "scam market" is far closer to the truth.
Wall street is a bonus factory. First and foremost it creates bonuses for itself. Each year, the wall street herd seeks to maximize that year's bonus. Little else considered. Just look at the incentive structures and the TARP for proof.
Wall streeters truly believe they are entitled to huge yearly bonuses regardless of even solvency. They will do what ever it takes to reap a bonus.
So what other than cash and shorts are people moving into for the next wave?
Wisdom Seeker | Homepage | 12.09.08 - 5:12 pm | #
I hear gun sales are way up.
Seriously, protection of value seems to be the game now. It's a personal choice what what you think will have value.
Today:
Safey (guns, T-bills, dollars) = value.
Isn't a US Treasury just a promise by the US Government to give you at some future date a certain number of dollars, backed by the Federal Reserve?
--
Quote of the day:
'I haven't left my house in days. I watch the news channels incessantly. All the news stories are about the election; all the commercials are for Viagra and Cialis. Election, erection, election, erection -- either way we're getting screwed!' -- Bette Midler.
Americans were BRED (brainwashed from birth onwards) to be easy to screw over and over and over That is why they are born-and-bred dopes. As I said, I get almost daily confirmations. Yes, American doping was exported (and imported by local crooks, e.g., India) lock stock and barrel. But, Americans remain uniquely bred dopes, the real thing. Copies are nowhere near as good.
Jas
Isn't a US Treasury just a promise by the US Government to give you at some future date a certain number of dollars, backed by the Federal Reserve?
Actually, you can demand to be paid back a debt you are owed in treasury notes. It's in the law somewhere, let me dig up the source on that. People have been freaking out their local banks by demanding treasury notes. They look just like dollars, except instead of FEDERAL RESERVE NOTE it says it's a treasury backed note.
--
Angry saver,
FWIW, I came up with terms Scam Options and the Scam market in 1998.
Jas
My Forever Stamps now have a higher yield than the 4 week treasury,now THAT is special.
§ 411. Issuance to reserve banks; nature of obligation; redemption
Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank.
Argentina's private pension funds have been nationalized.
So Treasury gives a bank a few billion dollars. The bank decides that it doesn't want to get stuck holding all those billions. So, it turns around and gives the Treasury a couple of billion to hold for three months and pays $100,000 for the privelege.
Insane.
hoops, does that mean anyone can go to their local FED with a stack of FRN's and have them redeemed with US notes?
Trogdor strikes again!
burnside,
Thanks. So "debt" isnt destroyed, just value.
But how does that disprove the argument that the fed is overprinting to account for reduced asset value?
Thanks. I dont have an opinion on this, just trying to learn.
So what other than cash and shorts are people moving into for the next wave?
Well, gun sales are doing well.
.
FWIW, I came up with terms Scam Options and the Scam market in 1998.
Jas,
1998 was the last year I bought stocks. I was early. I watched in disbelief as the markets soared higher for two more years.
I also could not believe the media and government's actions. Both were cheer leaders. Same thing with the housing bubble. It's no wonder we're broke.
All cons have one thing in common: the promise of something for nothing.
All cons have one thing in common: the promise of something for nothing.
Angry Saver | 12.09.08 - 5:26 pm | #
Shhhh you're scaring the TARP monster.
Robert Reich is now arguing it's time to can the TARP and just let the banks go Ch. 11.
Sony to close Pennsylvania plant; about 560 workers affected
--
"Can you explain how the Fed's activities are not inflationary?"
Please read Burn-ass-ke. His key policy tool was intended to INCREASE "the Aggregate Demand" for goods and services, or at least keep it from falling more than slightly (shallow recession).
Please tell me for what goods and services the Fed can increase "the Aggregate Demand" to offset those that it can't stop from falling.
Americans are over-housed, over-autoed, over-weight, over-indebted... IT IS OVER FOR AMERICANS IN TERMS OF INCREASING CONSUMPTION. Americans have been consumed!
Chair-moron Burn-ass-ke CANNOT increase the demand all the time after it was pushed to the limit with the expansion of the household debt. It was my Peak Debt thesis.
Jas
"They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."
Redeemed for what? Different Federal Reserve notes?
Sematical question:
When people use term "devalue" in relation to the dollar, is that the equivalent of inflation (as it relates to prices for goods and services), or is one a symptom or subset of the other?
Ben is printing faster than the debt destruction is happening
That is not correct.
Americans are over-housed, over-autoed, over-weight, over-indebted
Hey, I'm none of these!
I'm under-employed!
.
Would still appreciate comment on earlier question whether negative T yields could cause MM in Treasuries to break the buck?
Wisdom Seeker, thanks for your reply to my earlier question on prior thread. Appreciated your time and effort.
stealthwii@gmail.com writes:
"They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."
Redeemed for what? Different Federal Reserve notes?
Redeemed for "lawful money," or non federal reserve notes.
lawful money
Definition
Any money (coin or paper) that is issued directly by the United States Treasury and not the Federal Reserve System - this includes gold and silver coin, Notes, Bonds, etc.
Interesting Times writes: Taleb could be a product of "Broken Clock" or have stumbled onto something fundamental. If he can repeat his success, we might have more confidence in him next round.
Not a broken clock, hes done it more than once, first time was the 1987 stock market crash I believe, tells you how and why in Black Swan, a superb book.
Another thirty five Tarp Banks become listed. Maybe old news to most on this board, but thought worth sharing.
Coming soon to a town near you.....Tarp
http://www.treas.gov/initiatives/eesa/transactions.shtml
Link 12/9/2008 covers all to date.
Redeemed for what? Different Federal Reserve notes?
Yes. You can furiously trade one stack of dubious paper for other stacks of dubious paper of different colors, patterns and weights. The faster you move it around, the more "value" is created!
Ho!
"wally writes:
stealthwii@gmail.com,
The answer to your question is: Ben may think he is printing, but where is the money going? Have you seen any of it?
It is not getting distributed."
Is this an issue of not producing enough M2 (or whatever), or an issue of inadequate monetary velocity?
Could we have financial system dollars and regular dollars, so that their wanking and stimulus can be self contained to the fake economy, while us real guys can pay an honest buck for a hamburger, a buck whose value is backed by virtue of the fact that it represents actual real labor input to the economy that produced something other than a derivative of a derivative of the shadow of a phantom?
Therein lies the entire seed of this crisis. Previously, only regulated banks could create dollars. And those kept more or less in line with economic output (well, within the margin of error of all human endeavors)
But Uncle Greenie and Bennie, through their free-market, no-regulation kool-aid, let hedge funds and other pigmen mint dollars. Now, there is no way to separate the pigmen dollars from the real economy ones.
In the end, will be that the pigmen dollars get legitimized (it's already in progress). The real economy adjusts to the new total of real economy + pigmen minted dollars. Prices and values gets adjusted to the new number.
Which is good if you are a pigman. You had zero dollars, you minted a billion dollars, and after they get depreciated in value, you still get to have say, a million dollars.
You may lose 900 million, but net you gained a 100 million from zero. Which is good when you had zero to begin with.
Too bad if you saved your real economy output in dollars.
going to the FED enmasse to exchange FRN's for US minted currency might be an very interesting idea for a citizen's action...
--
"Printing Money" inflationist dopes remain dopes no matter what the evidence. That is what dopes are all about.
"Printing Money" is a propaganda tool to scare people and keep them in the inflation camp.
Jas
[Dollar carry trade? For foreigners whose currency is depreciating against the dollar, 0% Treasuries make a real return - just as 0% yen denominated debt did in the 90s.
trail ]
High stakes poker. I don't trust what the Fed does. Prefer to watch what they do. They are doing what they can to crank inflation. Sooner or later they will make it happen. Then watch how savage & swift a bubble burst can be.
They have to use the threat of inflation and low investment yields to stop us from hoarding cash right now...they think that if we are buying "stuff" instead of saving money that the economy can be propped up/restarted.
errr... I don't trust what the Fed says.
stealthwii@gmail.com writes: Redeemed for what? Different Federal Reserve notes?
Roger that. Trading questionable promises.
inflation would be awesome for me as far as i can tell.
since i can set the level of my wages (increase billing rates) and my debt is fixed.
sounds sweet right?
Nobody knows what the hell they are doing.
Some will luck out and some won't.
We are all idiots now.
Is there any indication that food prices are coming down? I'm certainly not seeing it in my grocery bills.
1998 was the last year I bought stocks. I was early. I watched in disbelief as the markets soared higher for two more years.
I also could not believe the media and government's actions. Both were cheer leaders. Same thing with the housing bubble. It's no wonder we're broke.
--Angry Saver
Yes.
I went from a stocks/bonds deferred compensation portfolio to all bonds in the summer of 1998, after the LTCM fiasco. The handwriting was on the wall, the tech bubble getting bigger and bigger, moral hazard out of control, a messianic belief in mathematical modeling. . . . .
I missed those returns, too, but the 10 year looks pretty good, no?
Now, I've locked in interest returns via CDs. Treasuries have been infected by the same mania in reverse that affected tech and housing, and the actions of the government are, yet again, setting the stage for more wealth destruction.
Current devaluation remains a downside risk. Not sure that there is really a way to deal with it other than gold. Foreign bond funds sound superifically appealing (I have one), but, realistically, aren't all the countries that issue such bonds facing the same potential disasters as the US?
Or, to put it differently, are those who believe that the risks of global capitalism can be separated into tranches (the German one, the Japanese one, the US one, the UK one) making the same mistake that CDO purchasers did?
Johnny lee- the bottom of the article linked is potrayed as strongpoint..it scares me..ahhh so do white sharks..
China-Savvy Advisers
The president-elect will be able to turn for help to the China-savvy individuals he has brought into his circle. Timothy Geithner, 47, Obamas choice for Treasury secretary, studied Chinese and has lived in China. His transition team includes Jeffrey Bader, a China specialist with a 27-year career in government that spans trade and national security.
Among the possible candidates for ambassador are John L. Thornton, a former chairman of Goldman Sachs Asia who has been a professor in Beijing; Richard Holbrooke, 67, who dealt with China as Clintons United Nations ambassador; and Shirk, 63, a visiting fellow at the Asia Society in New York.
Lieberthal expects Obamas administration will engage Beijing in what he describes as critical transnational issues of the 21st century.
Food & restaurants are definitely more expensive. But I don't think anything else is.
My secy told me she hasn't bought one thing for Christmas yet and she has a big family. Might be others in that position.
Jas Jain writes: "Printing Money is a propaganda tool to scare people and keep them in the inflation camp.
All that debt-created money sloshing around the world was what caused the mega-bubbles. Now debt is going poof and the money with it, bigtime. The Fed/Treasury is, on the other hand, pumping it out as fast as they can. At some point, they will succeed and we will THEN have lotsa paper chasing limited real stuff (like gold) and bear in mind that this is in the context of a CPI still going up. One answer does not fit all circumstances. But it is in no way gonna be pretty.
I think we are still reeling from the dot.com bubble and I do not mean stocks. Think of the hardware/software and manpower investments that were made in the mid to late 90's. On a national scale nearly EVERY company needed infrastructure, tech stocks were soaring, productivity increased etc. Eventually a lot of those new tech jobs were no longer needed and the infrastructure projects were complete. As a consequence I think we were headed into a major recession/deflationary episode. The government tried to orchestrate a soft landing and accidently set off the housing bubble. I think we are still trying to get back that 90s version of expansion. Trouble is it was a bubble and should not be viewed as normal.
Trouble is we have excess capacity as a result of the increases in productivity brought about by the technical advances of the 90s. This has resulted in a loss of jobs and an oversupply of goods. Net result is deflationary. The Fed has been trying to actively counteract this for eight years via monetary intervention/interference.
What do you all think?
Just remember, you can not eat gold.
Just remember, you can not eat gold.
Well, you can but it's not very nutricious.
stretch002-
um, what you said. sounds strangely familiar!
--
" and bear in mind that this is in the context of a CPI still going up. "
Phaedrus,
Please keep your facts straight, or correct.
Jul-08\t219.964
Aug-08\t219.086
Sep-08\t218.783
Oct-08\t216.573
Falling or "going up?"
Next month expect 215.xxx, if not 214.xxx.
DEFLATION IS HERE IN SPADES.
Jas
The government tried to orchestrate a soft landing and accidently set off the housing bubble. I think we are still trying to get back that 90s version of expansion... what do you think?
I agree.
It's a double-top crash.
I believe that Greenspan thought he could fix it by pushing low-interest money out. In theory, over-extended people should have pulled back and consolidated their position.
In reality, they simply borrowed more and make bigger inflation-based bets.
Didn't blert explain this completely?
parking 600 Billion dollars of Lehman assets is going to have an effect plus expectations we'll be implementing the Japanese post-bubble approach
"We are all idiots now."
The voice of wisdom.
Jas,
Good to see the CPI dropping somewhat, a recent event, but one nit pick does not a solid argument make.
Jas,
Is there evidence of deflation in food prices?
I vote deflation by end 2009 and in a big way. The re-inflate "tarping" of America will (has) fail. there will be millions more out of work with those left employed taking major pay cuts. There will be little purchasing outside of daily necessities. Look for the dollar to still fall in value as the presses keep rolling. However, the drop in price of all other assets and other assest classes will outpace the dollar drop. Commodities and oil will continue their decline. Chaos will ensue if food starts running scarce and if the 2nd and 3rd wave of upcoming foreclosures put 10-15% of the overall populace in the streets. I believe the currently foreclosed, have been to this point, absorbed by family and friends. Just my opinion....
...food prices are about the same: (6)of my tomatoes still get (4) 1-inch thick ribeye steaks or a box of 9mm ammo...
Is there evidence of deflation in food prices?
mykillk
McD's took the dbl cheeseburger off the $1 menu. Inflatio
It makes sense for the Treasury to charge people to park their money. Doesn't it? That's why the rate is negative, so they can get their parking fee.
"There were people who saw this coming. Two of them were George W. Bush and John McCain. "
A jaw-dropping comment from another blog, not financial. Anyone want to comment?
McD's took the dbl cheeseburger off the $1 menu. Inflation
Ha ha.
I track my McDonald's prices.
Quarter Pounder meal is up from $4.25 in summer of 2005 to $5.69, in increase of 34% in 40 months.
And they just raised the price of my fricking #3 breakfast meal by 7.7%.
.
--
"Is there evidence of deflation in food prices?"
mykillk,
Was there any evidence of gasoline price deflation 5 months ago? They are off MORE THAN 50% in 5 months. Did you foresee that? I did, but I had no idea when exactly it was going to start. My forecast for YoY CPI to go negative has been 2009Q2/Q3, but now it looks like I was cautious in my prediction.
Jas
McD is running a double w/c on the 99c menu in Atl. That is 100% increase in beef and cheese for the same $. They used to have the regular mini burger for 99c. Just sayin'.
Just remember, you can not eat gold.
Somebody always dredges up this banal observation. Guess what? You can't eat FRNs either. But you assume you can exchange them for food.
Look up "medium of exchange" in any econ text, and note the attributes necessary for a successful one (limited supply, widely recognized, etc., etc., and most especially the confidence of those who are exchanging).
Then consider what might happen if "Helicopter Ben" follows thru on his monicker.
Maybe have the feds buy services and food from vendors at discounted rate then pass along cupons to citizens....Oh thats right, Wall Street is the only one who can get subsidized. Damn.....Pigvomit
Double cheeseburger = $1.19 today at the Mickey D in South Yarmouth, Mass.
The dairy-free $1 equivalent is now called the "McDouble."
More than you really need to know dept.: I spent $5.45 for a dbl. cheese, McChicken, small soda, small fries and two apple pies.
"This is a huge number of calories for $5.45," I said to my mate. Given my semi-semi-"food insecure" position, this sort of detail has become noticeable.
Jas,
I think you're right, we will get deflation at the CPI level, more apparent in the non-necessities. The real economy is being and will be hammered, nothing like anyone has seen in their lifetime, unless they're 80. The Fed/Treasury meanwhile will create and pump money, will deficit spend, for all they're worth and THAT will come home to roost as inflation, but later. The Dollar will go to trash. Not apparent now, but the timeframe is too short. My opinion, but I'm not a youngster, have been in finance since the 1960's ...
Stealthwii:
Sorry. Got sidetracked.
If I understand your question properly, you're concerned the fed is injecting funds into the broad economy at a pace greater than is required to offset asset destruction?
They've made it clear it's not their intention to do so. Rather, they're undertaking to keep banking and exchange functioning - supporting some of the institutions which are taking or will take the worst hits.
The real concern here is that, as we approach an unknown point in time when the unwind - losses recognized and written down (or off) - is nearing completion, the central banks, the treasury, and various congressional programs won't be prompt enough to control these vast pools of credit they've created fast enough to prevent an episode of severe inflation.
We're not at that point but, given their sluggish and confused response to developments to date, it's hard to have confidence they'll be effective in the event.
There are very strong deflationary forces at work at present. It's been the understanding of those both inside and outside the central banks that - right now - the most anyone should undertake to do is to soften or limit the damage done in deflationary recession. They have a number of measures available to them which are simultaneously effective and extremely disagreeable.
Bernanke described that arsenal in some detail years ago. What I don't have any reason to believe about him is that he's just itching to use it, though you sometimes read otherwise.
Wow, this deflation thing seems to be difficult for some people. Is it because it happens so infrequently?
Wally nailed it at 3:52
wally writes:
"Why park the money in 0% tresuries?"
Deflation. There is no 'zero bound' to interest.
Mish has a few words about deflation. If you want to stir him up, try commenting on his blog that you think there is enough "printing money" to overcome credit destruction. heh.
Mish's Global Economic Trend Analysis: Deflation In A Fiat Regime?
.
--
Inflation dopes always talk about the food prices and couple of more things. They want an endless argument that inflation is still here and would remain here for as long as the eye can see. They ARE in denial of the deflation that has already begun and would be fully confirmed in negative YoY CPI.
Jas
Does this mean I can short tbills, and receive interest on my position?
are those who believe that the risks of global capitalism can be separated into tranches (the German one, the Japanese one, the US one, the UK one) making the same mistake that CDO purchasers did?
Richard Estes,
I don't know. I don't follow any foreign markets closely. Everything seems correlated at present though.
Currency bets are a fools errand imo.
I remember back in 2005/2006 arguing with dryfly, who claimed that the Japanese experience could not happen here because Americans were "different than the Japanese". We are not savers, and never would be (you would have to "pry his cold, dead hands off of his plastic" was his comment, I believe).
I have always believed Americans would become savers when given the proper incentives (along with discentives to borrow). And even though nominal interest rates on savings are lower, I believe real interest rates on savings are perceived to be worthwhile. Combined with the expectation of falling prices (on homes, furniture, remodeling jobs, cars, electronics, gas, hotels, etc..), people are starting to see saving as a rational act at this point. Hold that money until tomorrow, and you'll be able to afford much more.
This desire to save will only be strengthened as employment becomes more uncertain (especially given folks newly-downsized 401Ks).
Jas, big fan of your impartial and correct deflationary commentary. Will you try to explain in detail the expansion of the fed balance sheet? I realize a ton of the money is being sterilized but why couldn't the FED bypass the banks and directly give printed fiats to the people?
Keep up the good work and honest discourse as any rational non-dope loves to hear the contrarian view in the marketplace of ideas.
Seems to me the Fed WANTED the banks to park the "bail out" money somewhere instead of lending it. Why else give them interest on reserves? The bottom line is most of these banks are insolvent. So in order to help them remain in business the Fed is paying interest and they are going to take write downs and try to eventually get whole. Once they are lending should resume...
Keep up the good work and honest discourse as any rational non-dope loves to hear the contrarian view in the marketplace of ideas.
Ian from Austin | 12.09.08 - 6:47 pm | #
You know, there are entire forums on the internet devoted to masochism Ian . . .
Pavel, I'll give GWB a measure of credit. He's not been a facilitator for bailout largess and has pressed hard for some of the very terms and conditions I've seen proposed in these pages.
Most recent example is in the proceedings this week on behalf of GM and Chrysler where, through spokespersons, he's asked for an equity stake, voting shares and other features which would - if adopted - make for a more disciplined conservatorship.
Also was quite clear he saw no point in helping business if it were destined to fail eventually anyway - something we say here all the time.
Comrade V writes:
awgee writes:
"The more I think about it, I realize, the only, and I mean ONLY reason someone would accept a negative return is if they have to."
Or they are very afraid.
Comrade V | Homepage | 12.09.08 - 5:08 pm | #
Interesting comment. Since everyone on this board can not seem to understand why yields are 0 or negative, obviously not enough here are afraid yet.
--
"I remember back in 2005/2006 arguing with dryfly, who claimed that the Japanese experience could not happen here because Americans were "different than the Japanese". We are not savers, and never would be (you would have to "pry his cold, dead hands off of his plastic" was his comment, I believe)."
ShortCourage,
Thanks. That was the mantra of born-and-bred American dopes We are not Japan. Actually, I did agree except that we are much worse than the Japanese in the moral dimension as it related to the economy and the concern that those in power had for the ordinary citizens. Japan would fare lot better than America over the coming years.
Jas
burnside, I guess you could give Bush a measure of credit for not blowing all our nukes in their silos and immolating the entire nation. Anything beyond that is overly charitable.
--
Ian from Austin,
Thanks.
In a future editorial (I will post the link) -- WHY and HOW Feds Fight Deflation -- I would attempt to answer your question. I purposely put off this editorial for the past 18 months! (You can understand why based on the hate mail that I get here and in my inbox)
Jas
Gary, I'm no Bush apologist. But what I said is true and correct. I'm well aware of the man's record.
Jas
Jas Jain :
I don't care about deflation.
Why I don't think deflation can last is because it would be my best case scenario.
I've never been that lucky.
"No, running away from dollars would drive bond prices down (and yields up.) You are witnessing the opposite.
Anonymous | 12.09.08 - 4:04 pm | #"
Dollars are not the only fiat. Who goes down last?
"I'll give GWB a measure of credit. He's not been a facilitator for bailout largess and has pressed hard for some of the very terms and conditions I've seen proposed in these pages."
So that was not Bush's treasury secretary asking for 700B to bailout Goldman Sachs?
You see, he actually voted for the bailout largesse before he voted against it.
--
"I've never been that lucky."
DANM,
You are a pessimist. Everyone who knows me personally knows that I am one of the luckiest persons they know. Yes, I have been luckier than most Americans I have known and many have told me that in person.
Jas
Mommy mommy help me mommy
I just read this awful scary story called "treasury Bills Trade Negative"on this blog, called calculatedrisk, and then all the comments, and now i'm all confused, and having terrible nightmares mommy and i can't sleep.
i'll give dubya a measure of credit
at least he did for the republican party
what he did for america
Don't overlook the fact that Lehman's bankruptcy managers are in the process of unwinding millions if not billions of dollars in various paper. It is a very slow process, and as they well stuff off, they no doubt are parking the proceeds in Treasuries. So it's not just solvent institutions and individuals who are looking to Treasuries.
""Printing Money" is a propaganda tool to scare people and keep them in the inflation camp.
Jas
Jas Jain | Homepage | 12.09.08 - 5:44 pm | # "
Sure, until the Treasury actually prints money.
"Because when you are trying to find a home for $1B, personal banking options (like CDs) are not feasible."
Yeah, I think that's a little beyond the FDIC account insurance limits.