Hyperinflation is on the way

Discussion in 'Economics' started by detective, Mar 11, 2008.

  1. Quasi nationalization of mortgage debt by the Fed now taking crap paper which is rated AAA but not worth like a AAA bond. All roads lead to the Fed pumping out more liquidity and flooding the banks with so much cash that they have no other logical choice but to lend it out, even to future deadbeats.

    Credit bubble cannot pop, it must always be reinflated. The perpetual motion machine continues, the fraud is perpetuated until we get a sane Fed chairman or foreigners refuse to accept dollars at these level of interest rates and dump their holdings.
  2. laputa


    I'm not sure if this is the right place to ask but I'm really wondering why the Fed "loan" is affecting the currency market? The dollar went straight up right after the Fed announcement. Is this bullish news for the USD? How so? Everyone says the Fed is printing money but the USD went straight up after the news...

    Is that because the Fed now needs to issue $200B worth of treasuries and thus tightening up the cash market? If so it sounds like a smart move? Freeing up (or at least attempting to) the credit market and at the same time supporting the USD? Hmm... but come to think about it people are not paying the $200B worth of treasuries in cash, they're paying it in craps (CDOs ...etc) and thus the above logic isn't valid... so why the USD rally?
  3. From Howard Simons at Thestreet.com:

    Howard Simons
    Champagne Socialism Indeed
    3/11/2008 10:04 AM EDT
    Great post, Tero. The sad legacy of the Greenspan era (and too bad he exited before his chickens came home to roost) is we had free markets on the upside and government safety nets on the downside. The end result is what we have been seeing.

    We have to confront the possibility the U.S. credit rating will slip in the years to come. A government incapable of balancing its books, willing to finance wars through inflation and willing to stiff its global creditors via dollar debasement now is willing to convert the portfolio of its central bank into a septic tank.

    I wrote on the site in September 2007 how the Federal Reserve destroyed its transparency and in January how we were replicating the Japanese experience. We continue, as you note, to destroy transparency, and now we are putting the final touches on a grand monument to moral hazard.

    Tragic, tragic, tragic.

    Position: Long tragedy, I guess
  4. laputa


    Oh I get it... it's the swap with ECB that supports the dollar...
  5. It's because all of the "Detectives" of the world that constantly frequent these forums on ET bitching and moaning about Bernanke being "Helicopter Ben" have ZERO understanding of basic economics, let alone monetary policy.

    The difference this time around is that the Fed has finally gotten the government bond dealing community into the loop with 28-day loans of Treasury securities, and not just overnight repos. Moreover, they get to use residential mortgage backed securities ( of Fannie and Freddie ) as COLLATERAL for the loans of the Treasury securities. This helps increase liquidity dramatically, because up to this point many of the large money center banks in this country have already "pledged-out" their "good" collateral and thus are not able to make loans anymore.

    And finally, there is a coordinated effort with the ECB and Swiss National Bank to aggressively facilitate swap lines.

    And yes, it is a very SMART move by the Fed. Long overdue in my opinion.
  6. WRONG! The banks that want to lend have ample liquidity, they only will lend money to people with only the best credit ratings and not to those who really need the money. The last thing the banks need is to loan money to deadbeats just because they have cash lying around, extending the credit bubble. The banks should be tighter with cash when the economy is horrid, that's how you reduce debt. In your Pollyanna world, the only way to solve a credit crunch is to hose it down with liquidity and force cash down banks' throats. Inflation be damned.
  7. NO one cares about the inflation. fed cut rates=Stocks go up=i make money
  8. You really don't. The reason they go up is because it takes more dollars to equal what a dollar was worth before the cut. The equities are proxies for an intrinsic value. We all hope they go up proportionally with the rate cut, but they rarely do. The only way you make money is to be faster than the market, book your profits and exchange the currency for something more stable.

    Problem is the Forex market is ruthless and is hyper-efficient compared to equities.

  9. When my MOS stock goes up 8% thats 2x the rate of national inflation in just one day. ..
  10. You're comparing apples to oranges though.

    Your stock goes up 8% because that's what it takes for it to be worth the same amount as it was worth before the cut. That 8% in USD represents a real NET increase of 0% in value.

    #10     Mar 11, 2008