March 11, 2008

I urge you all to read Ben Bernanke's "Deflation: Making Sure "It" Doesn't Happen Here" speech from 2002. He told us. And now he's doing it.

[UPDATE - THE FED HAS JUST INJECTED $200,000,000,000 MORE INTO THE SYSTEM, ALLOWING BIG-BOY INVESTMENT FIRMS ESSENTIALLY UNLIMITED SHORT-TERM LOANS SECURED BY ANY TOXIC MORTGAGE CRAP THEY HAVE HANGING AROUND

NICE JOB HELICOPTER! WE KNEW WE COULD RELY ON YOU!]

Here's the crib notes gameplan for HP'ers. Invest wisely.

* Devalue the dollar (well underway and nowhere close to the bottom)

* Take interest rates to zero (getting close)

* Flood the market with cash (the auctions are underway)

* Finance the government's buying up assets (get ready for RTC2, and for the government to buy up the assets of Fannie, Freddie and failing banks)

* Offer f*cked banks and companies zero-interest loans and take any crap as collateral (the FHLB is doing this already)

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys

Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral

There have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly

In lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.

62 comments:

Anonymous said...

A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases


Umm didnt he steal everyones gold by making it illegal to hold?

What a bunch of rats! All of them!

Anonymous said...

I've been saying for years now that all the gov't does is crank up the printing presses when it needs $. National debt? It's zero. That's why nobody in Washington ever says a $9 trillion debt is bad.....because it isn't $9 trillion when you own the printing presses.

Anonymous said...

Wow Keith,

This is the most I've ever agreed with you. The issue is how they solve the "zero bound" problem and how fast. I think practical implementation has been in the works for a couple years. I wouldn't want to get caught short anything when this gets announced (RTCII etc).

-Matt C

PS. Why don't you clue in Mish about this?

Anonymous said...

If we're going to buy the assets, let's get equity too. No loans secured by toxic debt unless accompanied by warrants in the borrower's equity.

Anonymous said...

Umm didnt he steal everyones gold by making it illegal to hold?

Naive citizens who turned in their gold were compensated ($20.67 an ounce IIRC). After the gold was turned it, The traitorous bastard FDR then revalued it. I don't see anyone turning gold back in to a lying thieving government again.

Anonymous said...

200B is not a bailout ---
1 Trillion is.....sucka's

Anonymous said...

.


Good ol' FDR

A Major player in almost all of our current woes!

Gee, and he was a Dem....Go figure!



.

Anonymous said...

HA HA HA HA HA

markets up 2.5%

keep putting your money in 3% CDs morons

and keep renting while inflation runs at 10% a year

Anonymous said...

.





GOLD TO DA MOON ALICE!!!!!!!!





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Anonymous said...

Buy Gold on the pull-backs people!

Veronica Lodge said...

RE: Big Ben, the funny money man...

Say what you will about Big Ben, but his plan to boost the economy appears to be working. Here's a typical Tuesday morning headline:

"Stocks Up Sharply After Fed Credit Plan."

If anyone is looking for the next big bubble, inflation appears to be it.

Like all fiat currencies, the US dollar will eventually inflate itself into oblivion... sooner, rather than later.

V.L.

Anonymous said...

.


If gold is so worthless why is the government concerned if you have some, or too much?

Why would they make it illegal to hold?

They did once before!

They have royally F**Ked up everything they touch, now they don't want you to try to protect yourself?


What are they afraid of???


They will devalue it, confiscate it, revalue it then every F**King one of them will be wealthy beyond 'our' dreams!

Imagine Ted 'the swimmer' Kennedy with millions in holdings,

or Harry Reid ....what an immense jack-off!




.

Mark in San Diego said...

Trichet (ECB) told Ben - "we will go along with the bailout 200B, BUT you can NOT lower interest rates again" - Trichet was in a panic yesterday (and the Swiss) about the higher Euro (also CHF) against the dollar. . .it is killing their exports - especially to Dollar Zone (China) countries. . .so don't look for any lower rates people. . .the ECB will not allow Ben to do that.

Anonymous said...

Speaking of Ted Kennedy,

Isn't it a bit ironic that he was questioning about what is the definition of water torture?

I guess if anyone would know it would be the Champion of the Chappaquidick!

.

Anonymous said...

.







Ted Kennedy part of the problem since 1962!


A Big part!








.

Anonymous said...

They call Ted The Lyon of the Senate!


I think they meant Lying!

Anonymous said...

When you realize that you are just a pawn in lifes game of chess its easier to stomach ... They can & will do what is best for the RICH and by RICH I don't mean large Home & SUV on borrowed money...We are talking Buffett , anyone with Fellow in the last name and the like. Hope you enjoyed the long trips on cheap fuel while it lasted...Your children will only dream of such "Expensive" adventures by the time the gas-man is done with us.

Anonymous said...

200 B is probably not enough.

Anonymous said...

silly renters, rate cuts are for adults

you troglodytes still don't get it. housing will be bailed out. anyone who owns real estate will come out ahead once the dust settles. so will banks and their shareholders. renters on the other hand will come out holding their dicks in their hands. renters are the equivalent of lepers. subhuman creatures that are segregated away from the general society. your thoughts and opinions don't matter. nobody cares what you have to say. whether you live or die is inconsequential.

Anonymous said...

Its as sad day for the Bitter Renters! Didn't we tell you , you either Buy or Loose! Buahahhaha.

Anonymous said...

Yipee, the fed has saved the day!!!
Oh wait, there is still a mountain of debt/poop and somebody is going to have to eat it.

Anonymous said...

Anonymous Anonymous said...

Wow Keith,

This is the most I've everagreed with you....I wouldn't want to get caught short anything when this gets announced (RTCII etc).

-Matt C

PS. Why don't you clue in Mish about this?

Patience Grasshopper. Mish has the long view. (Wow what a concept, the long view)

Anonymous said...

With 6 trillion in leverage out there that 200 $ billion is a drop in the bucket.

good I tulip spread

http://www.itulip.com/forums/showthread.php?p=30006#post30006

borkafatty

Anonymous said...

I don't think the middle class is going to fare well.

Good luck to you all.

Anonymous said...

Instead of calling it inflation we should just call it what it really is "deferred taxation". The Fed likes to promote the idea that inflation is just a natural consequence of a growing economy when the truth is that the Fed is *solely* responsible for inflation.

Read "The Case Against the Fed" if you haven't already. I highly recommend it.

Lost Cause said...

Just try to get money from a bank when you are having a liquidity crisis.

Lost Cause said...

Meanwhile, Bush passes out spending money to the children.

Anonymous said...

I bought a house for $500K in 2001. It was worth $900K in 2005, worth $700K now. But it is irrelevant what it is worth since I have no plans to sell anytime soon.

I have $391K mortgage left. My monthly payment is exactly the same today as it was in 2001. Here is the best part though, it will be the same in 2011. Except that by 2011, the value of that $391K will be nothing given the rampant hyperinflation happening. By 2015 my house will most likely be paid off. I will have a fully paid off house while your rent will be increasing on a monthly basis.

Good luck with that.

Anonymous said...

HA HA HA HA HA
markets up 2.5%
keep putting your money in 3% CDs morons
and keep renting while inflation runs at 10% a year

F*cking idiot. The value of the dollar is way down.

Anonymous said...

Mark in San Diego said...

Trichet (ECB) told Ben - "we will go along with the bailout 200B, BUT you can NOT lower interest rates again" - Trichet was in a panic yesterday (and the Swiss) about the higher Euro (also CHF) against the dollar. . .it is killing their exports - especially to Dollar Zone (China) countries. . .so don't look for any lower rates people. . .the ECB will not allow Ben to do that.

Good, someone needs to supervise Baby Ben. He is outta control.

Anonymous said...

Attention! Attention! Calling all fools to jump into the rigged sucker's rally underway. The crooks on Wall Street need to fleece the sheep at the phony highs. Step forward, DOPES!

Anonymous said...

It's all about holding on with duct tape for another quarter. The Wall Street crooks borrowing money from the secret society Bernanke, aren't lending that money. They're buying Treasuries instead to fake that Balance Sheets look good. That totally kills the purpose. Nobody believes in this American market anymore.

Bernanke is out of control and should be fired! Let's march in the streets and put all these crooks out. Impeach Bush and Cheney, expose Greenspan as a failure, not hero.

Anonymous said...

markets up 2.5%

keep putting your money in 3% CDs morons


Whoop-dee-doo, the fake rally is up 2%. How much is it down for the year? -14%? Keep putting money in this rigged market, sheep, because tomorrow of after, the bankrupt market will nosedive again and you'll lose your shirt. The idiots who were buying at lows, months ago and who would come here to brag, have lost their shirts already. The retards who followed Cramer have lost their shirts, too.

There's no hope for America with so many imbeciles living amongst us. It's a lost cause.

Anonymous said...

Its as sad day for the Bitter Renters! Didn't we tell you , you either Buy or Loose! Buahahhaha.



Buy or LOOSE? What a f**kng genius.

SeattleMoose said...

How much of the "new money" will just end up in big CEO bonuses and other perks for the crooks running the country?

Why is recession a bad thing? It is simply the much needed correction. Seems that the more you put off the "real pain" the worse it is gonna get...

What happened to "let the markets take care of it"....oh yea, that is for us "little people", not the "Gods" on Mt. WallStreet!!!

Anonymous said...

silly renters, rate cuts are for adults

you troglodytes still don't get it. housing will be bailed out. anyone who owns real estate will come out ahead once the dust settles.


Keep the faith and the illusion, troll. Mass unemployment underway, huge amount of foreclosures which translate into rotten credit reports, huge amounts of bad revolving credit which translates into skyrocketing rates, no more subprime tricks, no more Liar's Loans, rigorous underwriting, skyrocketing inflation and gas prices which eat wages, 20% down required, oversupply of homes and condos throughout the country, recession (if not depression), record negative savings rate (try to save when you're unemployed and raging inflation). Sure troll, real estate will come back in 10 years, and until then your cancer house that your master bank owns will be worth 60% less.

If you're holding a house now, you're a financial retard. If you're planning to buy one now, either. See, you better wake up for that home ownership scam created by bankers.

Paul E. Math said...

Is it just me, or is this a bank bailout?

The fed will now accept non-gse mbs as collateral - but isn't part of the problem that with falling home prices, stagnant incomes, increased unemployment and adjusting rates, many borrowers will default on their mortgages?

These MBSes are crap so the banks' collateral value will, in reality, continue to decline. Why would the banks not say to the fed "you know what? you keep the crap collateral and we'll keep this free cash you just gave us. thanks".

This is nothing but a bank bailout, pure and simple. What kind of system is this? Seriously.

Anonymous said...

renters are the equivalent of lepers. subhuman creatures that are segregated away from the general society.

Hello, some realtwhore or f*cked homedebtor slave just lost it. Hurting badly, eh? bwahahahaha This is just the beginning, as it'll get a lot worse, sheep.

This Bernanke move was just to help bankers fake their Balance Sheets for one more quarter. No change here. Bankers are using the money to buy Treasuries and not lending.

Anonymous said...

This will not work folks. What has the fed done:

lowered rates multiple times, and going lower.

Increased Opem Market Operations

TAF

Now, take MBS as collateral.

It will not work, just as the other stuff has not work. We will see deflation here like it or not. Just as housing is experiencing.


Dny

Anonymous said...

Anon 12:35

Keith won't clue Mish, because Mish is right. I havent seen anyone explain economy better than Mish.

Schiff, you have been good, but look out for Mish. In the end, he will be the man.

Dny

Anonymous said...

"you either Buy or Loose! Buahahhaha."

PWNED FOR LIFE

HAHAHAHAHAHAHAHAHA

Eric said...

"I will have a fully paid off house while your rent will be increasing on a monthly basis.

Good luck with that."

My rent hasn't gone up in 2 years

plus all of these expenses that I don't pay for.

- Property taxes up
- Roof Replaced
- New landscaping
- 2 New hot water heaters
- water damage due to broken hot
water heater
- Fresh paint
- New faucet in kitchen
- Water damage in kitchen
- New shower door
- Water damage due to broken
shower door
- New driveway
- New backyard fence

You get the point.

I don't mind paying rent because I am paying someone else to take the risks of ownership. Your mortgage might be paid off, but you will have increasing costs due to taxes, upkeep, and insurance, all of which will track inflation. Additionally, I have the ability easily relocate to follow the job market.

I have no problem renting now and forever.

Anonymous said...

I bought a house for $500K in 2001. It was worth $900K in 2005, worth $700K now.

First of all, says who that your house is worth $700k now? Nobody would buy your house, but you're picking up rosy scenarios to convince yourself that you're not a financial imbecile. Sorry to break news to bad people, but you are.

But let's do a back-of-the envelope calculation here. Let's be extremely optimist and say that you had put 5% down on your cancer mortgage, or $25k. A mortgage of $475k for 30 years @ 6% has a monthly payment of about $3k. Now add rip-off HOA and rip-off property taxes for another $700 / month + maintenance + PMI. That's a total monthly payment of about $4k for your cancer house that the banker owns and not you. For you to be financially secure, with that amount of housing cost, you should be earning at least $14k / month in wages or $168k yearly.

Since only 19% of the American population earns $100k / year, and a much less percentage earns $168k / year (let's say 5%?), are you trying to convince us here, that you can afford your cancer house? Me thinks that's very unlikely, because the numbers don't lie.

We aren't even considering that you bought the house in the boonies and need to commute hours to work, with gas prices skyrocketing. Plus you have larger utility bills, too.

You've been throwing all that money in the trash bin to hold a depreciating monster (which I refuse to call it an "asset"), while you could, like many of us HP'ers, been investing that money into precious metals, foreign currencies, energy, and emerging markets, for a huge return?

Sorry but your logic is totally flawed. Home ownership is for suckers.

Steve said...

For a very long time some very bright people spent their time fruitlessly in the attempt to turn base metals into gold. In our new and much more successful alchemy, the Fed is now accepting what amounts to shit and is calling it gold. Depend upon it, while the cover story that those 200 billion in virtually worthless mortgage backed securities are supposedly going to be accepted as collatoral in the short term, that period will be constantly extended. Uncle Sam will end up the proud owner of a lot of garbage securities and the taxpayer will pick up the tab.

Anonymous said...

Get your money out of dollars, now! The Chinese government is already imposing $50K annual limits on the amount of dollars you can move there. No one wants our stinkin' dollars anymore.

Get out before it's too late!

sam said...

"I've been saying for years now that all the gov't does is crank up the printing presses when it needs $. National debt? It's zero. That's why nobody in Washington ever says a $9 trillion debt is bad.....because it isn't $9 trillion when you own the printing presses."

Sorry to break the news, but most of the debt is funded on a short term basis (less than 2 years), not with 30 year or even 10 year notes.

So your solution only seems to work if you are going to immediately stop running current account deficits (trade + budget) for as many years as it takes for investors to forget your uncreditworthieness.

sam said...

Paul E Math-

No. The next step is a bailout when gubmint starts buying the assets. The banks still hold the risk in the 30 day repo (unless they go belly using their new found liquidity to lend more money to fools)

9:36 (Dow Jones) Tony Crescenzi, bond strategist at Miller Tabak, says while Fed's expansion of its securities lending program to include mortgage-backed securities isn't large compared to the huge size of that market, "it is a way for dealers to liquefy assets difficult to gain liquidity from. The next step is outright purchases, either by the Fed of Uncle Sam," he writes. (BB)

Anonymous said...

I have $391K mortgage left. My monthly payment is exactly the same today as it was in 2001. Here is the best part though, it will be the same in 2011. Except that by 2011, the value of that $391K will be nothing given the rampant hyperinflation happening. By 2015 my house will most likely be paid off. I will have a fully paid off house while your rent will be increasing on a monthly basis.

Congratuations, you've cracked the code! This is the one major cost-of-living expense that the average person can get control of in an inflationary world. Don't expect people who do rent-v-buy analyses looking out one year into the future to get it, though.

O wait, like so many people here, you could have sold your house at the top, put all the money into emerging markets, then bailed out at the top last year and piled into gold and oil, then...well, you get the idea, you could have perfectly timed every bubble that's come along and been ahead. Odds that you'd have done that? Odds that someone who claims to have done it will continue to do so in the future?

Anonymous said...

That cwazy wabbit! Keeps jumpin out of the hat! Will someone please shoot that wabbit!

Get ready for more job losses. The fed is just telling bond investors don't buy bonds! Bad news for mortgages means bad news for housing which means bad news for the economy!

Noone will ever buy housing bonds until the banks and brokerages fess up and write off the losses. Simple as that! The longer we defer the losses the bigger the losses will get.

Trevor Cordes said...

I'll say it again: short all rallies! Can you say dead-cat bounce? So the DJIA is up 3.5%. It barely gets it to the level from *2 DAYS AGO*. Woowwoo, big rally there. Look what is at 12400, roughly 100 points from today: the 50dma, and it will provide massive resistance.

Every time the fed pulls a rabbit out of the hat, the market drools and jumps until a couple days later it realizes the rabbit was dead.

My guess is we see an up day tomorrow, but with around 100 points down sometime during the day. The rally will fizzle at the 50dma or slightly above.

SHORT ALL RALLIES.

Now, to address the Fed's move today. I thought the Fed was private and for-profit? Why would they take garbage MBS that they may get stuck with? It doesn't make sense. There has to be some extra terms that have not yet been reported. The Fed will not allow themselves to get stuck with worthless collateral and take the loss. Anyone care to take a stab at explaining this?

Anonymous said...

the stock market is officially rigged.......F@ck it I give up. Bernanke can kiss my ( )*( )

troll hunter said...

Buy or LOOSE? What a f**kng genius.

---

and the funny thing is he still doesnt get what you are talking about ...

I notice the trolls never left us. They tend to lurk until things turn there way before jumping in.

Anonymous said...

I will have a fully paid off house while your rent will be increasing on a monthly basis.

Good luck with that."

My rent hasn't gone up in 2 years

plus all of these expenses that I don't pay for.

- Property taxes up
- Roof Replaced
- New landscaping
- 2 New hot water heaters
- water damage due to broken hot
water heater
- Fresh paint
- New faucet in kitchen
- Water damage in kitchen
- New shower door
- Water damage due to broken
shower door
- New driveway
- New backyard fence

You get the point.


Dude, You lose all credit, 2 hot water heater in 2 years. Sounds like that place is a dive, will all those awesome places to rent you rent a place that needs all those repairs. Yeah right!!!
Yes I too will own my house in the future, I bought at the right time and can afford all the cost of owning.

Anonymous said...

Once the majority of the banks are out of the danger zone, he will raise rates to 15%

Get your cheap credit while you still can

Anonymous said...

The fed has become a financial toxic waste dump.

Burn Baby Burn

Anonymous said...

FDR was a great man and there is another FDR heading your way. I do not know who he or she is but when things get this far out of alignment someone will step in and make things right again. CEO pay at 600 times the worker get real!

Burn Baby Burn

thomas jefferson said...

"HA HA HA HA HA

markets up 2.5%

keep putting your money in 3% CDs morons

and keep renting while inflation runs at 10% a year"

Yeah. That 2.5 percent gain makes up for the last three days of losses! Duh.

slyHaK said...

Is it just me or did anyone notice the DOW just end today with a gain of 416.66. 666, talk about the mark of Satan. We are in more trouble than we thought.

Anonymous said...

Last week Bernake told the banks to writedown the mortgage balances so homedebtors could refinance on better terms. Today he is lending the banks money on the same wildly overvalued mortgages. Forgive me if im missing something....but what the hell is going on here?

Anonymous said...

Buy or LOOSE? What a f**kng genius.

---

and the funny thing is he still doesnt get what you are talking about ...

I notice the trolls never left us. They tend to lurk until things turn there way before jumping in.

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Wow what a bunch of clowns. Poking on a misspelled word. Bunch of babies. Woohoooooo. Now keep renting bitches! buahahahahaha.

Anonymous said...

Anonymous said...
I bought a house for $500K in 2001. It was worth $900K in 2005, worth $700K now. But it is irrelevant what it is worth since I have no plans to sell anytime soon.

I have $391K mortgage left. My monthly payment is exactly the same today as it was in 2001. Here is the best part though, it will be the same in 2011. Except that by 2011, the value of that $391K will be nothing given the rampant hyperinflation happening. By 2015 my house will most likely be paid off. I will have a fully paid off house while your rent will be increasing on a monthly basis.

Good luck with that.




Yea, your cracker jack house, according to many reputable analysts will be worth a lot less in 2010 than it was sold for in 2000. Sucks to be you...

Anonymous said...

Yea, your cracker jack house, according to many reputable analysts will be worth a lot less in 2010 than it was sold for in 2000. Sucks to be you...

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No no, it sucks to be you, your just throwing your money away sucker! The markets will bounce back they always do idiot. This is America so wake up!