D vs I debate(smokey, mannfm11)

"(Mish):The Fed is a private business unable to give away money (Ras):The Fed serves both at the pleasure of the U.S. Congress AND thePresident of the U.S. At any time, the feds could enact a law--or thePresident issue an executive order--instantly dissolving the Fed andtaking over the monetary process directly. Period." Thatwould be true if the congressional and presidential elections were notsupported by the banks and large financial corporations. Ask G.W. Bushor Jimmy Carter if the Fed served their plaeasure. "(Mish): The Fed would not give away money even if it could. Ultimately it would destroy their own wealth and power. (Ras):That's EXACTLY what the Fed has done for the last one hundred years. Todate, they have given away roughly $1 trillion in Federal Reserve notesin return for buying U.S. government debt.' But, if theFed were to monetize government debt aimed at giving money to citizensand businesses, they would be destroying the banking system andcreating their own worst nightmare... hyperinflation. "(Mish):The Fed can encourage but not force banks to lend or consumers of businesses to borrow. (Ras):Again, true but there is an "800lb Gorilla" in the room that Mish isCOMPLETLY IGNORING: The massive, gargantuan federal government. Here'san example of something the feds could do: Offer to buy up $5 trillionin outstanding MBS. Then, TELL the Fed to monetize them. How's THAT for"demand"?" One problem of many with monetizing hugeamounts of debt at this time is that the money would hyperinflate theexisting bubbles in commodities and energy thereby driving the pricesfor food and fuel much higher exerting deflationary pressures on oureconomy which is based on nonessentials. Also, our allies theEuropean countries and Japan do not want a strong currencies. Hugemonetization would deflate the value of the dollar against thesecurrencies and cripple their export markets. This may be why the Fedonly dropped the target rate by 25 BP at the last meeting. "(Mish):A massive printing campaign that actually found its way intothe market would cause interest rates to rise, further puttingdeflationary pressures on both residential and commercial real estate. (Ras):Uh, Mish baby, where have YOU been these last five years or so as EVERYCATEGORY of debt/monetary base has SKYROCKETED? Yet, look at interestrates worldwide. Not exactly at early 1980's double-digits, now arethey? This is because you are missing the other "800 lb gorilla" in therooom: OTHER central banks who keep buying up our debt, pushinginterest rates lower--all in the name of "beggar thy neighbor" currencypolicies." The monetary inflation which has occurredin the past five years has occurred within a credit bubble where debtinflation fed financial asset inflation. When asset inflation begins toslow as it is now, the collateral for new loans is called intoquestion. The fall in interest rates we see now is due to an aversionto holding other financial assets. Also, due to past monetaryinflation, the foreigners are now beginning to turn away from usingtheir reserves to buy US treasuries. "(Mish):There isrampant overcapacity in housing, commercial real estate, and autos, sothere is no reason for businesses to expand. (Ras): Let me let youin on a little secret, Mishy: People LOVE to spend money (especiallymoney they don't have) and all it would take to continue this littleorgy would be for the feds to execute the $5 trillion MBS buyout andTHEN offer new loans at 4%, for FORTY YEAR TERMS. Sheesh, it would be asheeple's dream." As stated above, the $5 trillion MBSbuyout would exaserbate the price inflation in food and fuel therebytaking money out of the pockets of consumers. And the problem we havenow in housing is not due to interest rates and length of terms. Thereal estate bubble was an asset price bubble. It popped because incomesare insufficient to afford the high prices. "(Mish):Global wage arbitrage is an enormously deflationary force. (Ras):Yeah, right up until Congress decides "enough is enough" and slaps somenasty tariffs on our trading partners or takes other Draconian trademeasures. Don't ever fall into the trap of thinking that it couldn'thappen." There are many who believe that it was theSmoot-Hawley tariffs of 1930 that caused the Great Depression. Theprice inflation that would occur due to tariffs would throw the economyinto a deflationary spiral before it ever realized wages sufficient tosupport those higher prices. *** This is not to say thatthe government will not try to prevent a deflationary spiral. Theyproblably will. But in trying to monetize assets, they may causeexactly what they are trying to prevent. 0.
RE: Ras, buying assets isn't printing money	mannfm11	NEW 12/25/2007 12:34:43 AM
Itis buying the net worth of the holders of the assets. If the banksdidn't have to have cash, there is no way they would give up their bestassets to the Fed. The Fed might have given away $1 trillion for $1trillion in debt, but you let that debt sit there 20 years and see howmuch of that $1 trillion is still in circulation. A negative number ifyou do the math at 5%. That is a $50 billion a year profit off whatamounts to next to nothing invested and the last time I checked, $50billion would still buy a significant amount of property. I think itwill buy 500,000 houses of $100,000 each or if you like 100,000 housesof $500,000 each. Knowing that would come in every year for as long Iwanted and for that matter, I could make the value of the $50 billiongo up at my whim is pretty powerful stuff. Now, what about thegovernment. Governments derive their power out of war and without warthey would probably be done away with as far as having any powergreater than a semi-monopoly. A government knows better than to burnthe hand that finances them because the banks will finance theirenemies. You really don't think China, Singapore and the Middle Eastare bailing these operations out because they love banks do you? No,they are courting favor for financing in the future. Blow up the valueof the money and this power goes right with it. There isn't loyaltyabove and beyond money if money is enough.
RE: Mashing Mish's misconceptions	BLUE MAN	NEW 12/24/2007 7:42:13 PM
Mishis a little naive when it comes to the relationship between the FederalReserve, The Treasury Dept., Corporate America, and Central Banks ingeneral. Exhibit 1 B. of A's infusion of capital to Countrywide,Exhibit 2 Paulsen's rate freeze program Exhibit 3 Northern Rock inGreat Britian. I could go on. I think Mish is delusional sometimes. Agovernment that gave away debit cards to people who literally couldn'tget out of the rain and trailers to live in for years at no cost. Itell Mish Mash get a grip. His analysis, although well thought out,lacks one thing: The assumption that we are dealing with responsibleand on the up and up institutions.
RE: Mashing Mish's misconceptions	smokey	NEW 12/24/2007 8:13:21 PM
None of these three "Exhibits" have stopped asset deflation. They have been little more than band-aids. BofA and Countrywide are still bleeding. Northern Rock is still a basket case. And Paulson is 0 for 1 in his proposed solutions. (the super SIV) Meanwhile write-downs are proliferating like wild fires. Itis very difficult for the programmed mind to accept the fact thatmonetary inflation at this point is at best useless, and at worst, amatch in the gas tank. 0.
RE: Hunting deflationists? Peter Schiff ...	senor_science	NEW 12/24/2007 4:16:44 PM
Inflationists take note. There is nothing that you could invest in that will be worth more in a year or two? Would you like to borrow at zero interest? Merry Christmas
RE: Hunting deflationists? Peter Schiff ...	mannfm11	NEW 12/25/2007 12:24:44 AM
Itis too late for me to read all this stuff, but the only reason I cansee that there would be deflation is if credit issuance to the generalpublic collapses. I think this isn't only possible, but almostguaranteed to happen. The securitization of credit is a done deal andthe capacity to put tons on junk out there in portfolios is going toprohibit large amounts of poor credit being extended. This board has noidea that the reason most of you have money in the bank is becausethere is so much poor credit created on the other end of this money andyou hoarded your money or paper or what ever you want to call it. Thepaper assets go straight to hell in a deflation, so most people have noother means to exist other than to spend their cash. What are you goingto do, sell your stock for zero and spend that or sell your house forless than the mortgage and spend that? You going to wait for theChinese to spend their yang money? You going to wait for some idiot togive the homeless and the illegals more credit? In fact, I think it wasBank of America that had the bright idea to give illegals credit cardsand the article above cites them as being the low man on the creditcard totem pole. The problem is that the credit machine breaksand the flow of money to the rich stops. The Federal government caninflate, but they are going to have to inflate at the cost of the rich,as the poor have no assets. If they inflate at the cost of no one thenthe paper does as the gold bugs say it does, becomes worth nothing asdoes most of the other currency in the world simply because it iscollateralized also by dollars. In fact, of the major industrialcountries of the world, the US has a better balance sheet than therest, including the Socialist Republic of Germany. Thosebetting on a collapse of the dollar better pack their sack lunch ifdemand collapses. I don't know how demand isn't going to collapse withcredit ceasing to be a right and becoming an absolute luxury or forthat matter rarer than gold. What we circulate is credit and itconsumes itself. It also accumulates on one end and accrues on theother, meaning when it quits accruing, it will also quit accumulatingand start shrinking. The Fed creates liquidity between banks. What wewill see when the crap hits the fan is prison sentances for hoardingcash, not helicopter drops. What we are seeing right now is as close tohelicopter drops as we are going to get, the bankers giving up theirbest assets for above market loans. This is money to keep the bankssolvent between themselves, not to throw out in the street. Iam tempted to fill out one of these credit card apps and see if theywill give me a card. I don't have any cards because I didn't want toget into debt and being a lazy guy didn't want to work my way out ofdebt. I want a card that won't have an annual fee and has a graceperiod in case I have to use it or for that matter don't use it. Thateliminates Capital One and its group of loan sharks. But,this is beside the point. The real point is that at some point they aregoing to have to blow up the debt. Otherwise the officers of GoldmanSachs are going to be swinging on the end of a rope along with othersin high places. The world can't be held hostage over whether the banksare going to get their interest and the depositors their money out ofthis deal, as they are irretriveably linked. There is going to have tobe some kind of settlement to get this unblocked and it is probablygoing to be an entirely new financial system with settlement at pennieson the dollar, which in fact means inflation. The difference is whathappens in the meantime and the meantime is a meantime. I think RobertPrechter made one great forecast in At the Crest and it involved thisvery idea I propose, that they will defend then have to blow up whatthey defended. All of what circulates as specie is credit and if creditslows down which is the only discussion we can have at this point onthe bear case, then the relative supply of specie also has to declineas does the aggregate demand of manufacutured and agricultural productsalong with minerals and luxuries. There won't be demand for thousandsof tons of gold for jewelry in China and India, but instead the meltingof gold in China and India to get something to eat.
RE: Stagflation	mannfm11	NEW 12/25/2007 12:42:56 AM
Thatis a term that is thrown around quite a bit on this board and in themedia. When I was in college its definition was this and only this: Thesituation where the general rate of return minus inflation and taxesresulted in a negative number. The current return on t-bills is instagflation. If taxes were zero, stagflation would be highly unlikelyover any considerable period of time and most likely inflation wouldregulate itself. This was more of a problem in the 1970's when the 50%tax bracket was prevalent. 8% interest was stagflation in a 4.1%inflation environment. I think today that prices for assets would dropand regulate whether stagflation existed or not. I do believe that thebulls would have to recognize stagflation in another sense in that ifthey couldn't pass on price increases fast enough that the price ofstocks would have to decline. Interestingly, I think it has beeninflation that has fattened earnings in stocks and we are now seeingthe payback, which is going to be an earnings winter.