patrick.net

Americans just need to come to grasp that the fall of USD is inevitable, the best case is an orderly exit. It is not just Alan Greenspan or BB, it has been a long slippery slope since we came off the gold standard. Deficits, trade imbalances, hallowed-out manufacturing sectors, these are not just problems that just showed up on the door in the last decade. Ever since the emergence of the 4 little tigers, this has been the case.

I don't think hyperinflation is going to happen, but high inflation is the path of least resistance for all parties involved. I don't buy the scenario of deflation because the last deflation (1929) happened when we were still on the gold standard. What about Japan? Japan is unique because of two reasons:
1) Without the status of the world's reserve currency, Japanese government doesn't have the printing ability that we have, their major way of pumping money is through selling Yen treasuries - to their own citizens!
2) Portion of the money pumped into the system was "leaked" to Yen carry trades, so their reflationary policy cannot possibly be effective.

As the world's reserve currency, we can print as much as we want. Until we hit 1% interest rate, there won't be much of a USD carry trade opporunity with other major currencies. When Yen carry trade happened, the interest rate difference between USD and Yen is north of 5%! Also, our deficit is financed through sale of USD treasuries to foreigners, reducing USD circulation outside of the US but not within the US.

BB has held up quite well so far, the USD devaluation is still done in an orderly manner with occasional reversal like what we have now. This is all very healthy, and quite painless for most people involved in the unwinding of the financial mess.

It is not just Alan Greenspan or BB, it has been a long slippery slope since we came off the gold standard.

Ron Paul will save us all.

>> Ron Paul will save us all.

Yes, I am voting for this honest and wise main in 2008....

> Ron Paul will save us all.

If I could vote, that is what I would do too. I did donate yesterday for tea party 07, though. It felt good.

Ron Paul will just be another Hoover, but I don't think he has any chance of getting elected.

The biggest issue of this election is Medicare, not the Iraq War. Ron Paul is completely clueless on Medicare, quite an irony for an obgyn. Not that the other candidates have any great plans, but at least they have one. Ron Paul doesn't have a plan for Medicare, free market is not going to take care of this one.

I think Mitt Romney is a more practical and wise candidate.

Going back to the gold standard is also completely impractical (I hoard a substantial position of physical gold), fiat is here to stay.

Ron Paul represents some extreme kind of libertarian ideals that even a self-labeled conservative like myself cannot embrace.

Ron Paul is completely clueless on Medicare, quite an irony for an obgyn.

The only solution is to privatize health care and have free market bring down the costs.

free market is not going to take care of this one.

If Free Market cannot solve a problem, only God can, through divine (not market) intervention.

Ron Paul represents some extreme kind of libertarian ideals that even a self-labeled conservative like myself cannot embrace.

Huh?

Americans just need to come to grasp that the fall of USD is inevitable, the best case is an orderly exit....I don’t think hyperinflation is going to happen, but high inflation is the path of least resistance for all parties involved.

100% agree. When consumer and government (not just federal, but also state + local) debt levels are at all-time highs relative to GDP, and future obligations are impossible to finance with future taxes (think Medicare & S.S. for retiring Boomers), all roads inevitably lead to inflation.

Of course, as others have pointed out before, when you have broad-based inflation of necessary consumable goods (oil, energy, food, machinery, durable goods, etc.) but no corresponding increase in wages, the consumer has even *less* money to spend on housing as a share of (rapidly diminishing in real terms) incomes --a type of stagflation. As a result, housing prices can deflate even in *nominal* terms, as the price of almost everything else goes up.

Just because Mr. Specuvestor "needs" $1.3 million for his moldy McCrapshack in Crappertino (hat tip @eburbed) does not mean the average Amerikan peon can devote 250% of his take-home pay to financing it. Even the various teaser-freezer proposals cannot change this situation --they can only delay the inevitable day of reckoning and drag the correction cycle into extra innings. Of course, for those of us who have already endured the RE bubble for years and want our affordable shelter-house *right now*, this is bad enough.

DinOR :

As I speak w/ other people in the industry I get the distinct impression neither camp is very pleased with him now.

That's my impression too from reading the media reports. Bulls or bears, no one is happy with him. That's understandable. If deflation needs to be avoided by injecting liquidity, then these quarter point cuts are not going to be helpful. And whether quarter point or a full point, USD will be in trouble and savers will be hurt.

Maybe he is trying that delicate balance. I am not so sure. No matter how much I hate Greenspan, he was quite good at manipulating the media. Fed chairman is not just an economic post, it has political influence as well. So Greenspan's media mastery fostered a belief in Fed that helped in maintaining stability. BB's lack of inspiring awe is not good for what he is trying to accomplish.

Ron Paul is a bit too laissez-faire/"hands off" extreme for me too (I believe some forms of consumer-friendly industry policing/regulation are necessary), but he is still better than almost everyone else out there. Naturally, he is consistently spun (or ignored) by the corporate-owned media as an "extreme"/racist nutcase, so "can't win". Must put all the money & weight behind pro-bankster/neoliberal globalists like Hillary & the Romneytron 6000.

@DinOR,

Yeah, I should try being straight-forward from now on. ;-)

I have noticed a trend of quoting chapter and verse from Randy H (especially now that he is not actively posting). Why don't we just get it over with and beatify the guy -- oh wait, he's not dead yet :-) Rather interesting as this quote from him has really stuck with me.
Money markets are considered cash for all practical purposes in our banking system. If they are allowed to even falter a tad all hell will break loose. Literally. It will be seen as The Great Depression. The Fed will shut down the banks, everything will stop, and they’ll reset the system. And…all cash will be honored even if it’s more than the FDIC limit; even if they have to print it up for you; even if they have to prohibit the sale or ownership of gold. Banking failure in the modern economy is not a tolerable option. It would derail society. They’ll just go start big wars first.

Given the recent closing of some "not-quite-a-money market funds", I've assumed we've entered the "defend the money market by any means necessary phase". The backdoor auction seems to be part of that plan. Also interesting to me is the banks "repatriating" their SIVs (did the Fed have an influence in this decision? Was the SuperSIV a smokescreen)? Initial bailout money for the banks looks to be from foreign dollar holders buying out our financial infrastructure. Don't think I ever read about that on any of the housing blogs a year ago (other than jokes about foreign interests becoming landlords through the MBSs). Other than some credit unions going into convertorship, we haven't seen many of the local "construction loans-r-us" banks fail. I think 2008, unfortunately, will be their year. The majors then buy them up with what? Foreign or Fed dollars?

OO,

Are you being serious re: RP & Romney?

Ron Paul is a bit too laissez-faire/”hands off” extreme for me too (I believe some forms of consumer-friendly industry policing/regulation are necessary), but he is still better than almost everyone else out there.

HARM, consumer-friendly industry policing/regulation usually implies corporate welfare.

How can RP be seen as "racist" ?

FYI (in case anyone was wondering when the 'real' bankster bailout proposal was coming):

Paulson Favors Fannie, Freddie Buying Jumbo Mortgages

Paulson said he agreed with Federal Reserve Chairman Ben S. Bernanke, who suggested to lawmakers that they consider allowing Fannie Mae and Freddie Mac into the jumbo mortgage market. ``I think Ben Bernanke and I are on the same page,'' Paulson said.

Bernanke indicated in a Nov. 8 hearing that he favored letting Fannie Mae and Freddie Mac buy mortgages of up to $1 million. He noted that it was up to Congress to determine the amount.

StuckinBA,

I agree. We have all been around (or been handed) some real messy turn-overs. If ever there was a guy w/ a legit claim he'd been handed a lit stick of dynamite, it's Ben. The sheer scale of this thing has GOT to keep him up most every night! (I've only recently been able to "let go" and have the chips fall where they may)

It's not reasonable for us expect J6P and Mr. Howmuchamonth to appreciate just what a mess they WERE creating but it's imperative they have their nose rubbed in it this and each day forth.

EBGuy :

The Fed has allowed some banks to fail. Netbank failed and was not 'completely" rescued. Accounts below 100K were protected to their full amount. IIRC, accounts over 100K received only 50 cents to the dollar.

The discount window, accepting any collateral, TAF etc are attempts to save money market funds, IMHO. If a true MM fund broke the buck it will be a big event. I think we may see it soon. I have moved all my money to Treasury MM fund and CA Muni MM fund. I have no idea what type of CP any MM fund invests in, and I don't want to know.

@Peter P,

I don't like things like taxpayer-guaranteed jumbo option-ARMs, preferential tax treatment for RE speculation, or oil/gas/sugar/corn subsisidies, but I sure do like having food and toys tested for lead & other toxins. I would also prefer not to have my local water table and the air I must breathe contaminated with chemicals, pollutants and other too-expensive-to-fix "externalities". I would also prefer not to have to compete with the *entire* Third World for jobs and my overall standard of living, but that's just me goin' off my meds (again).

but I sure do like having food and toys tested for lead & other toxins

Not that they are doing that well now... Besides, consumer advocacy groups can do similar things at fraction of the cost.

I would also prefer not to have my local water table and the air I must breathe contaminated with chemicals, pollutants and other too-expensive-to-fix “externalities”.

I agree. But that should be handled at the state/local level. What is the point of having a federal environmental agency?

compete with the *entire* Third World for jobs

How can the government stop that? With lower tax rates, America will be more competitive and jobs will stay here.

With any luck, God willing, Ron Paul will be elected, and perhaps we won't have to worry about the Fed any more :-)

With any luck, God willing, Ron Paul will be elected

Even if God is willing, we would still need a WHOLE LOT of luck for that to happen...

I think universal peace is more likely.

@Peter P,

How can RP be seen as “racist” ?

This is how: http://www.latestpolitics.com/blog/2007/05/ron-pauls.html

Anything to discredit an anti-war, anti-globalist, I suppose.

Well, apparently referring to crime statistics make one a racist, yet believing in "global warming" statistics makes one a good guy.

The fact that neo-cons and the extreme left are both maligning Ron Paul, is proof enough that they are scared of the ideas he represents.

And that is good enough for me.

proof enough that they are scared of the ideas he represents

Humankind cannot bear very much reality.
--T. S. Eliot

One factor in BB's decision making is secondary gain, meaning, what does BB get out of all this. Assuming he's no altruistic Ghandi, which I think is a fair assumption, his decisions are powered by (a) a need to leave a positive legacy in the history books as Fed chair, and (b) the need to a job at the least, and lots of cash more likely after he's done at the Fed. This means either private sector consulting, or going back to academia. Given history, he's likely to go into consulting, meaning that he needs to keep the wheels greased on Wall Street for his post-Fed career.

Legacy-wise, that may be one reason he has not completely capitulated to WS and slashed and burned rates. Those guys clearly knew about the lousy CPI data before their rate decision vote. They couldn't risk slashing 50bp or more in light of bad inflation data. in that sense, it would make no sense for him to want to tank the US economy. He's really hosed, with no good options.

Not that they are doing that well now… Besides, consumer advocacy groups can do similar things at fraction of the cost.

I am a pragmatist at heart. If private companies can do it better/cheaper, let them do it. If the government can do it better/cheaper, let the government do it. However, there are some 'good' things private companies will do *only* if it's mandated by government, mainly because it's expensive and no company wants to 'go first' and be at a competitive disadvantage to other companies (e.g., pollution controls, product safety testing, etc.). And there are some 'bad' things they will do if it's not explicitly outlawed (e.g., using slave/child/illegal labor, >forcing 40-hour work weeks, unsafe working conditions, etc.).

And there are some ‘bad’ things they will do if it’s not explicitly outlawed (e.g., using slave/child/illegal labor...

If it is not outlawed then no one can hire illegal labor. ;)

I see what you are saying.

I agree with the assetion that any country with a credible milatary can tell any other nation to stuff their debt. However, the US sells its debt as Treasury Bonds and there is no way to say, "We are not honoring YOUR T-Bills, but we are honoring our own domestically owned T-Bills." Which is to say we can't affect the same options as places like Russia without facing a great deal of internal strife.
I kinda see the currency thing as pretty funny. China has set up a manufacture for export economy, partnered with the US and then pegged the yuan to our dollar. We buy goods today, then devaule our dollars effectively giving ourselves a big discount after the fact. China has as options to sell elsewhere or (more importantly) to sell more domestically. However, that means they need to pay themselves more and their formerly exported inflation becomes good 'ol domestic inflation. That is going to have a rather interesting negative effect on investment flowing to China.
Much like the articles that say "This bank is too big to fail" the US itself is too big for the world to allow to fail. For now. The foreign rescue dollars are flowing into our discounted industries (financials) because they must. If we go insolvent, woa to the world.
I would say that the rescue of the US will be currency devaluation, inflation, and 'the next big thing.' At a guess I would say that is more military sales, more super-computing tech sales, or something very interesting in bio-medical. Even Milken sees the cure to cancer as worth a few trillion. Vat-grown replacement organs can mean a lot to repatriating US dollars.
So, I am going to have to disagree. The day of the US economic hegenomy is not yet over. But we do need to close our wealth gap, we need MUCH better leadership, and let me throw in a pet favorite of mine, tort reform. The day US companies started spending mre money on lawsuit defense compared to R&D was a sad day indeed.

I donated to Ron Paul yesterday as well.

Imagine, for the next election, if the choices were Huckabee and Hillary. That is a very scary thought!

Those guys clearly knew about the lousy CPI data before their rate decision vote. They couldn’t risk slashing 50bp or more in light of bad inflation data.

That was exactly my reaction to the 25bp cut ! I was expecting at least 50bp, and much more for continued 'shock and awe' therapy. The 25bp clearly telegraphed a nasty CPI report. Even BB wouldn't like a basket of eggs splashed on his face.

I was also surprised that the Govt is allowing CPI to be reported as high. Shouldn't they be changing the calculation method now ?

I am with OO and HARM on the Ron Paul issue. He is completely impractical. I like Ayn Rand books, I agree to a lot of arguments. But I would never vote for someone so ... naive ... if you will. Political leaders should be pragmatic and shrewed.

Political leaders should be pragmatic and shrewed.

Naive?

What about devising policies as if human activities can really change the climate?

Oh BTW, Paulson supports Freddie mac and Fannie Mae buying jumbo loans

http://www.bloomberg.com/apps/news?pid=20601087&sid=aax4zzPqV9dk&refer=home

Apparently, he is proudly on the same page as Bendover Ben.

I think Ron Paul is very pragmatic and shrewd. SIBA, it is one thing to disagree but why do you indicate that you agree but think he is not shrewd or pragmatic?

Sriram :

SIBA, it is one thing to disagree but why do you indicate that you agree but think he is not shrewd or pragmatic?

This is from Wikipedia on Ron Paul
Having pledged never to raise taxes, he has long advocated ending the federal income tax and reducing government spending by abolishing most federal agencies; he favors hard money and opposes the Federal Reserve.

Ending federal tax ? Ending fiat money ? Why shouldn't I consider him impractical ? (NOTE : I am not arguing in favor or against his views.)

SIBA,

There are a lot of things that RP has stated that he believes in that he will not do as the highest priority once in power. He has been very open about that too.

He has said that once he becomes president he will focus on reforming the foreign policy, save money there - so that we will be actually able to afford the domestic spending.

For the various domestic programs, he understands that there are people who depend on them so we cannot get rid of them immediately but would give the option to opt-out for younger citizens.

And so on.

Also, he is just going to be the president, not the entire government. He will veto spending bills but congress and he will be in a deadlock most of the time, which is good.

His principles are sound. And if you read about how he plans to execute his policies, you will find them to be far more practical than you think.

Again, I don't agree with all he says but at this stage, this country needs a real change.

Also, for example, he might not be able end fiat money. But if he can curb all this money that is being created out of thin air, that itself would be a huge benefit to the economy.