Tuesday, September 9, 2008

We are on our own now


And you won't want your daddy then, will you?
I wonder what the future holds!
-- Bauhaus, the sky's gone out


It is clear now, the FED has committed the last of its balance sheet to supporting FRAMAE. I used to talk about shock absorbers, the last of it is on the line. Hopefully it will be enough to provide a "safe-crash". I don't mean safe landing, I mean safe crash. If and when markets crash there is no santa to ride in this time. The FED has cut the rates it could cut the FED is all in.

Hopefully the Treasuries will not become virally infected by sub-prime with this latest move and the rest of the market can work out its issues in the meantime. Time will tell if the US central bank is to thank for buying us time as they sink with the nuclear stuff or whether the EU central bank is right by practicing tough love. Something tells me inflation will mask deflation in a weird global nominal GDP stag-nation.

4 comments:

Wayt said...

The American Century is over. Paulson et al. don't have the balls to let the mortgage mess reach bottom quickly and painfully. Instead, methinks we're in for a Japan-style slog for several years here in the US of A. I'm still almost completely in US bonds, but I'm about to switch over to my long-term allocation: 70% global equity, 30% global bonds. The American Century is history; Eurosclerosis is our fate.

Long live the Pacific Rim!

wayt

Marcf said...

feedback loops lead to non-linear dynamics, on the way up and down. On the way down it is called a bubble on the way down it is healthy as it is fast but may kill you.

I think it is the kill you part that paulson reacted to. Possible interpretations are lack of balls, outright corruption and criminal behavior (was reading about Enron style cooking on the GSEs over at Roubini's) and just poor schmuck stuck with the largest banking crisis ever. I am more of an optimist on human nature, I don't think malice or incompetence is to blame. It is not a question of balls, it is a rational behavior in a limited timeframe. They are not the culprit they are dealing with an unknown environment under timelines that make me dizzy.

We will see.

Army No Va said...

Ahhh, come on! Paulson/Ben B can just have one of their guys open fill in whatever amount they need and buy Treasuries or transfer the money to whatever org needs it. Of course, this eventually leads to inflation (but the money needs to get to people who need it to drive consumer inflation to double or triple digits). Otherwise it drives prices up for stocks, real estate, gold, art, collectibles, commodities whatever. Won't be RE for quite a long while...for sale and latent inventory far outstrips demand, prices are too high in many places vs true economic value (rent) and people are being eliminated from the buyers pool every day by foreclosure.

He did what he had to do to keep the "faith". The distraction of the entertainment in the election cycle helps too :-) ... (need to fire up American Idol pretty quick too).

Of course, if history repeats or even rhymes, then we can expect gasoline to cost north of $10 / gallon, (milk too), etc... anything we import will go up over time, especially.

The thing that seems to hold this back is that the Euro is in trouble too and there really isn't anything else to bet on except the dollar. Gold / silver are being manipulated down in the futures markets (govts destroying inflation expectations) while the physical market is tighter than a drum (hard to get certain increments of gold and silver now).

At some point, one can see a Russian/Chinese/or Asian currency supercede both the Euro and the Dollar...however, well, both those govts have this nasty repuatation of confiscation!

So we were are tossed in the storm driven seas with no rudder and the engine is sputtering. Maybe we will land on Gilligan's Island :-)...

Marcf said...

Sure you can always create "money" but as you point out in this case it only allocates it to trouble spots and on a global scale is just monetary inflation.

The theoretical debate I do not wish to have is efficiency of the masses vs central bank interventionism. By the same logic, we could bring taxes to ZERO, and just debt spend. IT WOULD BE THE SAME FINANCIALLY.
In any case the point would be moot since interventionism is what the authorities are doing.

This is confiscation as well btw, it is what governments do. It makes me giggle, the contrast between the rhetoric of the election, the grand talk about free-markets and then the chicken shit facts on the ground.

Goldilocks my ass.