March 19, 2008
Elaine Meinel Supkis
As per usual, the Fed cut rates far, far below the rate of inflation that is hammering domestic budgets. Bernanke is the Bush architect of the Bush economy. The first four years of the 1% bubble/bubble combined with record government overspending and overtax cutting combined with fatal trade deficits is HIS baby. Now that it has grown into a monster and is destroying the global economy, what is his solution? Why, to make Baby bigger! The joy on Wall Street which has been party to this destructive system is giddy with anticipation of more bubble/bubble baby bail-outs. And so we go down the tubes, trying to fix a banking crisis by pretty much destroying the banks and capitalism.
'Helicopter Ben' and his 0% remedy for Depression
Six years ago he famously said the Fed could resort to cutting interest rates to zero and, quoting from Milton Friedman, suggested dropping money from helicopters if the US economy slid into deflation or falling prices. That earned him the label Helicopter Ben from critics who disliked the idea of expanding the money supply in that way.The 54-year old was chief of George Bush's council of economic advisers for four years before taking the top job at the Fed. During his academic career at MIT, Stanford and Princeton he wrote extensively about the Great Depression and acknowledged in a speech at Friedman's 90th birthday party in 2002 that the Fed was at fault during the Depression for not expanding demand.
"I would like to say to Milton and Anna [Friedman] regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." Now with house prices in freefall Bernanke is widely expected by economists to cut interest rates ultimately to 1% or even zero as he does whatever he can to prevent a slump.
The US has lured itself into a trap of our own making. I pointed out back when Bernanke was Bush's financial advisor and Greenspan was in charge of the Fed, 'Having both the world's #1 and #2 economies pursuing the same 0% interest rate system will lead to global inflation. And with one building reserves to incredible heights while the other drops reserves to $0 is totally unbalanced and very dangerous.' Well, it was back when Greenspan dropped things to 1% and it is bad when Bernanke copies him. I remember vividly the excuses given while Greenspan did this. The Dot Com Bubble popped! We need 'liquidity' to save our markets!
I said, back then, the US has a big trade deficit and should concentrate on that, not boosting Wall Street which is at fault, anyway, for all this. Before 9/11, Greenspan dropped rates like a rock. Bush and Bernanke cut taxes like crazy. I said, 'This is insane. You can't cut taxes while increasing spending and at the same time, cut interest rates. This will cause GLOBAL inflation.' And it did! To fix that, the government encouraged and enabled out-sourcing and offshoring. This ravaged the US industrial base and reduced wages to workers. To further fix inflation, they quietly opened the doors to illegal immigrants who rushed in and caused wages in say, construction, to collapse. Carpenters who earned $25 an hour were lucky to get work at $10 an hour. Then 9/11 happened and Bush and Bernanke told us to go shopping. They increased government spending and cut more taxes. They went to war. In more than one country.
All wars cause inflation. As inflation took off like a rocket, they enabled even more of the same 'solutions' they used in the past to kill the effects of inflation. The trade deficit was around $500 billion. At that time, a number of economics pundits expressed strong worry. But after 9/11, all worry vanished as the US decided collectively, the best way to heal from that attack and destruction of a hunk of our financial base, is to spend wildly, import more and not pay for our own government's operations. In other words, we wanted a free ride as we made the Middle East an even worse hell hole.
All the political and economical forces that were in play in 2000 are still in play. We fixed the Dot Com Bubble by making a secondary housing/Wall Street bubble. This madcap solution proved to be a complete and utter failure. The 1% regime while inflation raged back in 2000 has only made things worse and yet here we are, applying the exact same remedy as before to a much, much worse problem! And why is it much, much worse?
We increased government and private as well as corporate debt tremendously between 2000 and today. And we cannot, it is literally impossible, to continue increasing these debts forever. There is a bar to this, it will suddenly be activated just as we saw Bear Stearns go from positive flow to complete collapse in only one month. The instant our creditors cease to give us credit, we fail. And who are these creditors?
Japan, China and the oil pumping nations. And the United Kingdom which is NOT richer than us. But buys our government and other debts in order to funnel them through pirate coves and tax havens! These people handing us our credit are doing so for dire reasons: several of them want us DEAD in the long run! And many of them are boycotting our government bond sales which forces the Fed to buy up these bonds in order to keep them cheap.
The crime here is, the government wants 0% interest so it can run in the red forever and not tax the rich. The rich want this because they are traitors and don't care if this destroys our nation. And Americans want this because we imagine we will get cheap loans again. Except, like in Japan, these loans will not be extended to us. We will have to pay high rates that are more realistic. Someone has to foot the bill. The rich don't want to. And our trade partners have no intention of doing this, either. Let's go to the news now to see how this is being analyzed or explained:
Bernanke Confounds Rate-Cut Calls, Avoids Rattling Investors
Federal Reserve Chairman Ben S. Bernanke bucked investors' bets on a deeper interest-rate cut without spoiling the biggest U.S. stock-market rally in five years.Policy makers yesterday lowered their benchmark rate by 0.75 percentage point, falling short of traders' bets for at least a full percentage point. The Federal Open Market Committee, in its announcement, left the door open for further reductions. At the same time, it restored language saying inflation has picked up.
``The Fed still has its primary focus on growth and the threat to growth from markets,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``This is still a huge move,'' given that Alan Greenspan, Bernanke's predecessor, never lowered rates more than a half-point at a single meeting, O'Sullivan said.
I remember back then, not being totally senile yet. Greenspan raised rates until Bush was sworn into office. Then he began to drop them rapidly but not too fast or people like me would have been yelling about his obvious political interference with the 2000 election/coup. He had to make it all look rational. After all, the Dot Com Bubble popped well before the election but Greenspan kept raising rates! Once it was all swept under history's filthy rug, the need to give out free money to the biggest investment houses was a pressing matter. But Bush was also cutting taxes so Greenspan had to pretend that he was being 'cautious' as he dropped rates towards 0%. The economy didn't rise rapidly and Bush was increasingly unpopular until 9/11. Then they got the green light to aim for 0%. Even so, they didn't dare drop it in 100 basis points increments because of obvious inflation. As they approached 1%, I was utterly horrified. 'This will cause debts to balloon!' I said. And the #1 debt to balloon was the US government's debts. Already, Bush is telling us the deficit for THIS year will probably be over $400 billion! This is about 40% of our true military budget including the two wars and the coming war with Iran. If the US has even a slight contraction, the budget deficit will double to $800 billion which is totally unsustainable even if interest is only 1%. And this is because 40-60% of our government overspending was bought by our trade partners. And their participation in this market has collapsed to only 5%!
Stocks, Dollar Surge; Treasuries Drop on Fed Cut, Lehman Report
``This is maybe the start of the Fed trying to walk the market back from the brink,'' said Joseph Veranth, who helps manage about $2.8 billion as chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin. ``All in all, the Fed has to be pleased with the market reaction.''The central bank is trying to restore confidence in the financial markets by slashing rates at the most aggressive pace in two decades and injecting cash into the banking system. The credit freeze sparked by the subprime-mortgage market's collapse pushed the S&P 500 to within 0.4 percentage point of a bear market yesterday, sent the dollar to an all-time low against the euro and prompted investors to seek safety in government debt.
See? INVESTORS who are not other governments are being FORCED to buy cheap government bonds when our government is overspending and obviously heading towards bankruptcy! If the interest rates on other things are higher, they go there. And this is certainly true: many are heading overseas and buying bonds in other countries that have a better rate of return. Over time, there will be fewer and fewer willing to park their liquidity here. Right now, the biggest investment houses are expecting lots of goodies from the government so they reciprocate by bolstering the Fed's bonds. But both are heading down the same slope. Insolvent bankers can't support an insolvent government forever. Especially if they are also running all other systems in the red.
Also note the childish glee the Fed has with the fact that they used artifical means to get the stock market to shoot up! ALL bear markets have this dynamic: as the inevitable crash unfolds, the bankers and the government play games that boost the markets. But these games are toxic and make the underlying problem worse since it is nearly always due to overspending, too much debt creation at the wrong interest rate and wild loans to countries or businesses that can't pay them back! The BIGGEST stock rises in our history going all the way back in time are ALWAYS when a really bad bear market takes hold. Markets that are going up and up have incremental climbs. A collapsing market has off the cliff falls, a week or a month of floundering at the new low levels then it shoots up as frantic bankers and governments pour in more debts. Happy with this easy lending, the market will shoot upwards only to peak and then crash to a lower level. This can go on for up to three years as we saw in the Great Depression. The banking system didn't completely collapse until 1933. But before then, the biggest rises in Wall Street history happened in 1930 and 1931.
So it is here: these amazing rises are not a good thing. It is like a sick man's fever taking off.
One big step the Fed took this weekend to alleviate stress on the financial system was to open its lending window directly to the 20 primary dealers, which includes all the Wall Street investment banks. Borrowing from the discount window had been a privilege previously reserved for deposit banks.Having direct access to the Fed's trove of government securities gives the brokerages a significant advantage in raising cash that they didn't have until Monday. And it shows the Fed's willingness to step in, even at the risk of a moral hazard, to prevent systemic failure in the financial markets.
"We believe the Fed's initiatives have substantially reduced the risk of another liquidity crunch on a bank or a primary dealer," said Goldman banking analyst William Tanona.
Inflation is a fever in the economy. The Fed, by reducing interest rates, has made this worse, not better. But the inability to understand this plagues many commentators. This is because the game here is not to understand or analyze but to coddle babies and to make people do stupid and reckless things. The risk for another liquidity crunch or banking collapse has INCREASED, not decreased! The collapse of the entire banking system is at hand, not receding. At hand means, based on what we know about the Great Depression, the collapse of all our banks will happen in 2011. If not earlier if the Chinese get pissed off as the G7 nations decide to boycott the games. And they are working hard on that project, by the way! To my mind, it is inevitable. First, many can't afford to send teams, anyway. If our economic systems are in full collapse, this will be a great excuse. China is bad! But then, the Chinese will slam us to the floor by flooding world banking with trillions of useless dollars.
The secret plan is for this to happen, anyway. The government can then introduce the Amero. Which they deny, of course. But they always lie about their intentions and plans.
Visa raises $17.9 billion, a record for U.S. IPO
Visa shares, trading on under the "V" ticker symbol, are scheduled to begin trading Wednesday on the New York Stock Exchange. The San Francisco-based company will debut with a market value of about $36 billion.About $10 billion of the IPO proceeds are being used to buy back some of the shares owned by the banks that have helped build Visa during the past 50 years.
The money is expected to help banks strengthen their balance sheets as they write off billions of dollars in loans that have soured amid the worst housing slump since the 1930s.
Up until now, Visa hung onto its private ownership. It is HUGE money maker. Being a usury organization more ruthless than the Mafia, they didn't need any capitalization. 30% is of course, a hideous interest rate especially when they could get money at 1%. The spread between loans from the government and loans given out to workers desperate for credit is now a yawning chasm. And very profitable to Visa and other card companies. But defaults are now soaring. The over-extended consumer who is suffering dropping wages is now reaching its upper limit. Time to dump this risk into the laps of investors who are desperate for some way of beating obvious inflation. Certainly, no one sane will simply save money at banks! Not when the rates will collapse to 0%.
The banks that are the sole co-owners of Visa need cash fast due to their collapsing credit market values. So they will get $10 billion. Which they need so they can write more loans. Only this madness is insane! Heh. OK: they need to give out loans. But to do this, they need people who can take on more debt. But the US is rapidly reaching the point where it can't take on more debt. So the only way to deal with this is to zero out interest rates and thus have our system on a 'teaser rate' regime. This means, the minute we have any profits or money, the rates shoot up! Eh? Or the money is confiscated suddenly when the government introduces the Amero and you have to pay $2 for each Amero which is $1. A 50% haircut for the US public.
Federal Reserve Cuts Key Interest Rate
The rate cut came after two weeks in which the Fed has intervened in the workings of Wall Street to an unprecedented degree, most dramatically by opening a new line of credit for major investment banks and by engineering and backing the sale of investment firm Bear Stearns.Whereas those efforts were designed to get financial markets functioning normally, the rate cut today was intended to address the interrelated problems in the economy as a whole. The job market has been worsening and corporate America is pulling back, trends that are both a cause of and result of the problems on Wall Street.
The Washington Post article clearly shows the insanity there. The rate cut, far from addressing the interrelated problems of our economic mess, made them WORSE. It didn't balance the US government budget. It didn't stop the trade deficits. It did weaken the dollar but the trade partners who flood us with imports are dealing with this by dropping THEIR rates, too! At least, desperate Japan is. China is firmly moving in the exact opposite direction. This week, they raised reserve rates to 15.5% which is the highest of all the top economies' rates. They are raising interest rates while Europe freezes theirs and the US, England and Japan drop theirs. This interest rate collapse has one purpose only: to create credit-fuelled bubbles!
Only, perversely, these are forming in commodities, the worst possible inflationary place.
Stocks: Nikkei Opens 3% Higher On Fed's Rate Cut, Weaker Yen
TOKYO (Kyodo)--Tokyo stocks opened some 3 percent higher Wednesday with the key Nikkei index soaring past the 12,000 mark on a bold rate cut by the U.S. Federal Reserve and the yen's sharp depreciation.
There is a battle raging in Japan over who will run the Bank of Japan. The LDP wants to put in a rate cutter who will keep the fake depression going there. They are seeing a downturn in commerce so they want their sick system to continue. Cutting wages to workers, making them eat all the inflation while dropping rates back to 0%. This is insanity. But the status quo benefits Toyota so they will continue this as long as humanly possible even if this means killing off the next generation entirely. Childbearing is nearly impossible now for the lower classes who have given up all hope.
But I think the really troubling thing about this development is the rapidity with which Bear's capital seems to have disappeared in smoke. It looks to me like the correct language to describe what happened is that of a classic bank run-- Bear's short term creditors said "no mas", and it was impossible to liquidate long-term assets fast enough to cover the gap.Some are saying that this was ultimately an error by the Fed, in failing to provide interim liquidity to Bear sufficiently quickly. But that we have been marching toward a day like last Friday should have been very clear to everyone for at least a year now. Stability of the system is supposed to be achieved by ensuring that any institution that is borrowing short and lending long holds a sufficient cushion of net equity so as to be able to absorb the losses from short-term liquidation. Whatever the true meaning of the $13.4 trillion notional exposure, that number was "only" $8.74 trillion in 2006. It appears that Bear was unable or unwilling to work itself into a position of lower leverage and higher equity even with one year's advance warning. For which, I say, the owners and managers should and will suffer.
This commentary was one of the few mainstream that accurately assessed the situation in a limited way. But a little is a lot better than none. Most comments were along the lines of, 'This will save our asses.'
With the fear of counterparty risk possibility causing liquidity problems for other banks on Wall Street, the Federal Reserve is still on high alert. Despite the historic move, they will not be able to sit back and relax just because they stepped up monetary easing. In fact, the futures market is pricing in further rate cuts and creativity is vital if the central bank wants to prevent the US from turning into Japan. In the 1990s, Japan fell into 10 years of stagnation after a similarly severe banking crisis.
The legendary story is, Japan didn't 'clean house' by taking down their 'bad banks' but instead, tried to prop them up. Well, what is happening here? Aren't we doing the exact same thing? Japan didn't have high inflation in 1992 and once the higher rates choked off the insane bubble there, the Bank of Japan dropped rates as fast as they dared. The US is doing it much faster today not because we are daring but because we are ten times more irresponsible than the Japanese! They ran up a huge government deficit during the bad years. We ran up a huge government deficit during GOOD years! And Japan wasn't at war with a billion Muslims, either. We are. And we are far from retreating on this front. Lately, military planes have been strafing my farm. Just two days ago, one giant troop transport plane flew BELOW my house's level, down in the valley. It turned over the opposite farmer's fields and then roared over my own fields. My horse panicked.
They are doing this at night, too! And this is because Iran has mountains so they practice here. I am 100% against attacking Iran. And if we think oil is expensive today, imagine when we expand our expensive war to Iran. With three Zionist warmongering tools running for Chief Executor, we will have more wars and will continue our slide into destitution.
The rapidly rising price of diesel fuel has the potential to spread through the economy, complicating the Federal Reserve's goal of containing inflation while stimulating growth. According to the American Trucking Association, trucking accounts for about 70 percent of U.S. freight transportation. Last year, the volume of goods shipped by truck fell 1.5 percent from the previous year, the association said.
I use a lot of diesel. And the price here has shot from $3.50 last month to $4.50 this month. OUCH. And it is going to get worse and worse, thanks a lot. Inflation is embedded at the core of our economic system. Note how, in this story above, the truckers are eating these costs. Like the Japanese workers, the ideal for our government is to force the lowest levels of workers to eat all the inflation they produce via wars and reckless lending. And making money out of thin air to bail out bankers ad finance pirates.
Fannie Mae, Freddie Mac May Be Freed From Capital Requirements
Fannie Mae and Freddie Mac are required by Ofheo to hold an extra 30 percent capital cushion to protect against losses on the mortgages they own and guarantee. An easing could amount to an extra $200 billion to $300 billion of purchases from the companies, Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in a report to clients yesterday.An easing would ``go a long way to stabilizing panicky markets,'' Shapiro said.
The constraints most recently tied up as much as $53 billion in cash at the two companies combined -- based on surplus capital on Dec. 31 -- that could have been invested in the mortgage market.
40% of all mortgages created by our freaky banks land in the government's lap. And there was an upper limit here. Which is now being tossed aside so bankers can be even more reckless with writing loans! Already, we are in trouble due to them doing this. By reducing the protections within the system, it will be worse, not better. Giving loans to dead beats is not a good solution. But they will do this no matter what, of course.
`Big Rally' for Stocks to Continue, Jim Rogers Says
U.S. stocks, which surged the most in five years yesterday, will likely continue their rally this year because the ``out of control'' Federal Reserve is cutting interest rates to save investment banks from collapse, investor Jim Rogers said.The Fed's support is ``why we're having a big rally, but that's not going to solve the problem,'' Rogers, chairman of Rogers Holdings and co-founder of the Quantum Hedge Fund with George Soros, said during an interview with Bloomberg Television from Singapore. ``The system is terribly corroded.''
I suspect Rogers may be somewhat wrong here. Yes, the market will have a demi-balloon just like all Great Depression markets. And this may last for even about 6 months, if we are lucky and the Chinese don't yank the rug out from under us. But the chances of this happening are not good. If we continue the wars and they are all getting worse, the number of US dead is climbing again, Israel is fighting the people in the Gaza Ghetto even harder, NATO is fighting the Serbs while Europe and the US yell at China about fighting the Tibetans...things are evolving the wrong direction for a bull market. US overspending is slated to increase dramatically. But the hope is, super-low 1% rates will save us yet again like it did in 2001. And of course, this made our economy much weaker!
The Horns of Dilemma grind us into this stone wall. Jumping in and out frying pans and fires is destroying our basic economy. Nationalizing our banking system by having our bankers take over our nation is fascism. And fascists always go to war. And note how Germany and Japan ended up. Are we going to do as they did? Note how we are in deep debt to both nations now. Maybe, after we are destroyed, we can be reborn the same way?
But not if we resort to nuclear war. This is the evil outcome of insane policies. Will America follow this fatal path all the way to the bitter end? History says 'Quite likely'. And I say, 'Please, don't even think of doing this!'
In 2000, A dem ( Al Gore ) was expected to beat GWB, The Fed raised rates all through the election year, choked the economy and helped muchly in electing GWB. ( Even with the fed's help it was a close run thing, they had to bring in the supremes to make it work ).
Now in another election year with the dems out of office, the expectation is for a dem win, the Fed is doing its best to jigger the economy and the election to avoid the Bush/McCain depression.
If either of the dems win, they had best remove Bernanke immediately or he will give them the Dem depression of 2009.
The problem is that most of the suitable replacements for Bernanke are also rethug tools.
Posted by: CK | March 19, 2008 at 09:10 AM
Whoever comes in will have to NOT be Santa Claus. This is the problem. And Bernanke is Santa right now. But will turn to Satan if Obama is President. He will raise rates rapidly.
Posted by: Elaine Meinel Supkis | March 19, 2008 at 10:20 AM
BENNIE...ONE WAY TO EXPAND DEMAND IS TO BLOW EVERYTHING UP... AND THUS THE DEMAND FOR BUILDING MATERIALS.....AHOLE
Posted by: MILO | March 19, 2008 at 02:52 PM
A BIG hole.
Posted by: Elaine Meinel Supkis | March 19, 2008 at 03:11 PM