Bernanke Is Clueless

I don't agree on your conclusion of food prices.

I guess at the end of the day I would prefer this country to get hit hard now and then emerge stronger later, rather than just feebly get by like it is doing now. I like how people say "save the homeowners" when in fact these people are the biggest gamblers/risktakers and deserve to go down in flames.

 

ok, so we had a bad jobs report (lost 4k jobs)..theres over 300 ml people in this country..how cares about a petty 4,000 jobs?... someone explain this?

cm

 

Consumer won't be helped by rate cuts
Debts are huge. Consumer economy is over.
Savings must be encouraged and rate cuts and negative returns on saving accounts is way to nowhere
Most US people already can't afford to goto Europe and just 5 years ago it was such inexpensive trip

in another 3 year vacation anywhere outside US won't be affordable and in 10 years US will be new Soviet Union - poor country with a huge army and nuclear weapon

The last resort for us is US$ based oil prices. When it's over you will forget what is to drive a car as gas wll cost much more

 

spot on.
but to be honest i don't mind that americans stopped coming to europe recently. equally i like coming to tiffany's in new york.

 

You guys need to study your history. It's really very simple: look at the Seventies.
That era, financially, started in March 1968, with the ending of the London Gold Pool, which according to some was the de facto end of Bretton Woods. Officially, it came to an end in August 1971 when Nixon finally put the poor thing out of its misery.
Did the dollar collapse vs other currencies? Nope. All currencies collapsed versus gold. Entirely different thing.
This time will be pretty much the same scenario, except that the politicians' and central bankers' names will be different. If you think Europe or Japan are going to escape this, you're very much mistaken. This crisis is hitting the European financial system at least as hard as it is the US. In 1968, after the dollar crisis of the London Gold Pool, the franc came under pressure later in the year, much to the surprise and mortification of De Gaulle. This time, Trichet has just had to do a climb down simultaneous with Bernanke's on rates. Why, given this, you would think the euro is going to come out of this any better than the USD, I have no idea. You're obviously not paying attention to what is actually going on out there, and you're certainly not learning the lessons of history.
This will pass, like that first set of crises in 1968. But like that one, this one is a signal that the current currency regime is about to get scrambled. No major currency will be unscathed when it's over.

 

Go to the zoo and stand at the chimp exhibit, you'll likely see one of them take a dump in their hand and hurl it at the tourists

this is how the BLS calculates unemployment

if you look at the business birth/death model, the BLS created 120K jobs out of thin air, so the adj. bullshit number is actually -124K....

and if you look at the household survey, the job losses are running about -300K per month

so the next time you go to the zoo, take a power crap in your hand and throw it back at the BLS

 

There are other important differencies between today and Seventies. No need to go into it, these braniacs will repeat USD,U.S. collapse forever no matter what.

 

My post about tiffany alluded to the fact that USD is already collapsing. I can go to NY and sleep in the most expensive hotel easily - in Europe it is kind of tough anywhere.
USD is down 40% against EUR in the past decade if you did not notice. It is not down that much against Asian currencies only because of CB's interventions or their explicit FX regimes in place.

I will be the last one who says seriously that US go down the drain. However one can not be blind to the facts that are happening in the past few years. Also one can easily see that US influence is going down wherever you look (we could start with military or more broadly with international diplomacy)

In fact one of the only reasons why US matter today is The Consumer. Asian economies have a general problem of stimulation of domestic demand and their reliance on export growth is implicitly lending influence to US. Unfortunately US does not have monies to buy all that foreigner stuff anymore - therefore 1+1=2... If the US consumer goes down in relative importance the US will become 5% of the world economy – not the present 25% or whatever that is based on various statistics. And that will likely happen in the next 10-15 years.

The next interesting aspect is oil. Why do you think US is in the Gulf after all? As long as oil is quoted in USD Americans can breath freely. But what if this changes? – it will get nasty. And what do you think Gulf states will do if USD accelerates its decline? Well they will likely start to shift their business to other currencies. Initially it will likely be on a bilateral basis – until a new currency benchmark appears (if ever). But even then it means that any more weakness in USD will push oil price higher in even more correlated fashion than today – run 1 year correlation for the past 10 years for yourself – it has already begun.

And here we come – the magic word inflation appears (not the core bullshit anymore). So with a little bit of exaggeration you could say that Fed is fighting the same (losing) war as a soldier in Iraq. The big difference is what horizon their have in mind. In case of a soldier – he is a part of a political election cycle therefore he is ordered to think with horizon of up to 5 years.
With Fed it is different (assuming Fed is independent). In addition Ben is an academic – therefore he is likely to be even more biased to long term growth prospects than anybody before him. I assume he believes more or less in Solow’s model of growth. This model relies largely on the saving rate, which effectively determines the long-term growth. Why I say that? Well if you want to prepare the country for decline from fame the best way you can do it is to make sure that country remain strong even after that happens (not like Rome). And one way according to Solow is to have high saving rate. You do not achieve that by cutting rates because the saving is determined largely by real rate of return. Cutting rates today will feed inflation (via commodity and dollar), which dents long-term money and therefore savings. The best way out of today’s trouble is to mop all that liquidity that Greenspan recklessly left in the system.

The last point justifies more focus. Many people are brainwashed (this thread is a good example) that rates are too high and that all happened because of inverted curve and all the bullshit. The only reason why we are here is that we have too much money in the system. The banks did not lend to subprime because Fed fund rates were low or high but because they did not know what to do with all that money floating around. That’s why the curve was inverted (+ few other less important factors) and why borrowing was that cheap. People were chasing each and every basis point.
You don’t fight the effects (inversion), you need to fight the causes (high liquidity). To cut rates now is madness. It will only accelerate dollar decline, inflation, moral hazard, productivity slowdown etc but most importantly it will do it all when US is weak (no savings).

I could go on and on (especially because I am sick at home today) but I think some people like to do thinking on their own so I will stop here.

Cheers



To trefoil: thanks for an abstract of mostly irrelevant history passage. However the know-how of learning from previous mistakes/experience does not depend on literal knowledge of past facts but rather on ability to interpret these facts in new concepts.

 

this week's Barrons has a decent summary of the credit crisis in the Up and Down Wall Street section

 

"The banks did not lend to subprime because Fed fund rates were low or high but because they did not know what to do with all that money floating around."

that was a very nice post, but i disagree with the above statement. it was negative real rates that influenced borrowing - the money floating around was a result of low rates - the cost of money was below the rate of inflation; credit growth is money creation & banks were not throttled-back with higher reserve requirements, tighter lending standards, etc, and margin requirements were not increased for SM investing... i the borrowing spurred asset bubble in real estate and SM, and promoted spending via MEW (mortgage-equity withdrawl), and via "wealth effect." so now here we sit with asset prices declining and debt-destruction. the bubbles were encouraged. these guys are so arrogant that they think that they are gonna micro-manage everything perfectly. savers have been punished for years - the way to increase savinsg rate is to raise rates, which would also support USD.

the way i look at it, the FED can "save" real estate or USD, but not both.... if USD wasnt the reserve currency, the USA's debt/liability level would make Argentina's debt default look like a "cake walk."

sorry you're feeling poorly.