I was looking for a new Quote of the Day from Bernanke's "I missed subprime" speech. In the process, I ran across an incredible find on naked capitalism.
Many will recall Bernanke's call for a rousing housing recovery starting in May of 2007. At which time he admitted he hadn't understood the subprime scandal, and estimated his mistake could cost the taxpayers as much as $50-$100B in total market losses.
That was several trillion dollars ago.
As embarrassing as it is that Bernanke proudly paraded his utter incompetence in front of the world, it is far more chilling that his clueless testimony has been deleted:
http://www.federalreserve.gov/boarddocs/hh/2007/july/testimony.htm
Link Reference:
http://www.marketwatch.com/story/subprime-losses-are-bumps-in-road-of-innovation-bernanke
Monday, September 28, 2009
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ReplyDeleteMAD AS HELL.
FDR can the FED cause deflation or accelerate it? I thought that deflation is inevitable and inspite of FED? The FED can do nothing to prevent it or cause it.Is that assertion wrong?
ReplyDeleteI know the Total Debt doesn't matter per se but the interest payable does.... so what would happen if the Gov just decided to devalue the the dollar by a factor of 10 or even 100 ?
ReplyDelete"FDR can the FED cause deflation or accelerate it? I thought that deflation is inevitable and inspite of FED? The FED can do nothing to prevent it or cause it.Is that assertion wrong?"
ReplyDeleteThe Fed can definitely cause deflation by making it difficult or impossible to borrow. That will stop even willing borrowers.
The Fed can try to cause inflation by making it easy to borrow, but they can't create willing borrowers. If there are fewer willing borrowers than yesterday, the Fed can't print a dime no matter what they do.
"I know the Total Debt doesn't matter per se but the interest payable does.... so what would happen if the Gov just decided to devalue the the dollar by a factor of 10 or even 100 ?"
ReplyDeleteA new currency is always a possibility, but it would have to come from private banks since the US govt currently has no say in monetary policy.
ok but why would private banks go for a devaluation ? that can't be in their interest. i know why the Gov might want to, but a private for provit central bank ? surely they want as much as they can get!
ReplyDeleteThe Fed can try to cause inflation by making it easy to borrow, but they can't create willing borrowers. If there are fewer willing borrowers than yesterday, the Fed can't print a dime no matter what they do.
ReplyDeleteWon't there always be speculators (such as hedgefunds) willing to borrow free/cheap money? Heads I win, tails you lose, why wouldn't the funds take that proposition?
"Won't there always be speculators (such as hedgefunds) willing to borrow free/cheap money?"
ReplyDeleteSure. The question is whether sum total bank borrowing today is greater or less than it was during the subprime craze.
in theory, these speculators could borrow as much as the fed wants to lend them, right (i.e. the demand for free money is infinite)? so it all comes down to the fed's intent. i think you make a strong argument that the banksters want to have a deflationary environment and will therefore monetize just enough to make the implosion politically palatable. but there is an argument on the other side as well, if all we're talking about is intent, and not ability to execute on that intent.
ReplyDeleteFDR wrote: "Sure. The question is whether sum total bank borrowing today is greater or less than it was during the subprime craze."
ReplyDeleteNo, that's not the question at all. That only tells you whether or not currency inflation will be as high as it was during the subprime craze.
The question is what the balance of loan payments versus loan issuance is. If the loan payments dominate the equation then you have currency deflation. If the loan issuances dominate then you have currency inflation.
It really is that simple. Except, it's not. Currency inflation/deflation doesn't give you a complete picture at all.
You can have relative economic prosperity while the currency supply is deflating or stagnant (the latter being FDR's favorite currency scenario) and you can have economic misery under exactly the same conditions (e.g., now). Similarly, you can have economic prosperity while the currency supply is inflating (the U.S. for a decade or two after World War II) and you can have economic misery while it's inflating, too (Zimbabwe, for instance).
Currency inflation/deflation doesn't tell you the whole story at all, because in particular it doesn't tell you what the prices of goods and services are doing RELATIVE TO INCOMES. And *that* is what *really* matters to the vast majority of people out there, since the vast majority earn a wage of some kind.
You really have to look at the entire picture when evaluating an economy. If you're in tune with things you can do quite well (e.g., holding assets during currency inflation and holding cash during currency deflation), but in both cases the economy as a whole may be crashing around your feet, and that brings a whole host of problems, some of which could have a real impact on you.
In the end, it ain't all about the money, despite what some may think.
FDR wrote: The Fed can try to cause inflation by making it easy to borrow, but they can't create willing borrowers. If there are fewer willing borrowers than yesterday, the Fed can't print a dime no matter what they do."
ReplyDeleteFortunately for the Fed, the U.S. government is always a willing borrower, and it is a constantly growing entity, thus satisfying the requirement that the Fed continue to lend more money than is being paid back.
"Fortunately for the Fed, the U.S. government is always a willing borrower, and it is a constantly growing entity, thus satisfying the requirement that the Fed continue to lend more money than is being paid back."
ReplyDeleteI have to agree with FDR that there comes a point when your willing borrower can no longer payback(or your arrangement is no longer profitable) At that point the for profit "Fed" says less loans and comes up with fake news that make its decision look as necessary.
Ex. As the $ loses credibility the Fed chooses the lesser of 2 evils raising interest rates to ...
This could very well be a future headline. Since they control the media it is easy for them to fabricate a story.
"The Fed can definitely cause deflation by making it difficult or impossible to borrow. That will stop even willing borrowers.
ReplyDeleteThe Fed can try to cause inflation by making it easy to borrow, but they can't create willing borrowers. If there are fewer willing borrowers than yesterday, the Fed can't print a dime no matter what they do."
FDR, what if the force us to borrow through healthcare reform, FDIC prop ups, bailouts, and the like?
Is this not an easy way for the inflation game to go on in an unending fashion?
"FDR, what if the force us to borrow through healthcare reform, FDIC prop ups, bailouts, and the like?"
ReplyDeleteThey are trying to force people to borrow. But the whole of the free economy dwarfs "them."
0% interest rates on their fire sale marked down inflationary cash proves that no one wants to borrow their worthless paper.
It is quite transparent that deflation has already defeated them.
FDR wrote: "0% interest rates on their fire sale marked down inflationary cash proves that no one wants to borrow their worthless paper."
ReplyDeletePerhaps. But as I said, the government is a willing borrower, and always will be. The difference, as a borrower, between the U.S. government and any other borrower is that the U.S. government can and does collect the money to pay the loans back at gunpoint. Which means, essentially, that the Fed is able to issue loans at gunpoint if it so chooses, simply by loaning to the U.S. government. Remember, the government IS NOW AN INSTRUMENT OF THE FED.
The 0% interest rate is for "free market" entities, not entities controlled by the Fed. I fully expect that the loans being made to the U.S. government have a greater than 0% interest rate attached to them. And why not? An entity that collects its money at gunpoint *and* is controlled by the Fed? It doesn't get any better than that!