patrick.net

OO,

Till now the Govt/Fed has tried a lot of tricks already and nothing has worked. The deflationary destruction of credit has proven to be far more difficult beast to tame than what was anticipated by the Greenspan worshipers.

The endgame is of course inflation. It has always been the (planned or unplanned) goal for every policymaker.

The end goal is to cause an overall inflation in the economy so that people’s pay will catch up to meet the housing price, not the other way around

Absolutely. But it's going to take a LONG time for incomes to start rising. For that we need job creation. What is happening now, and will happen in near term is job destruction. The deflationary pressure on wages brought by globalization is not going away. A lot more radical changes first need to happen before we talk about that scenario.

What I am trying to say is, it's not going to happen overnight. We will see it coming. Right now it way too early to put a specific timeline on the beginning of the grand asset inflationary cycle.

Anyone who thinks we are near that point, should take on as much fixed rate debt as they can service. The debtors of yesterday do not have that choice. The savers of today have that choice at the lowest levels of interest rate in history. But if you think asset deflation is going to continue, you might want to wait and try to time that bottom - rather than timing the interest rate bottom.

In any case, I disagree about the savers are getting screwed theme. Yes, they are, but that's only half the truth. During this massive deflationary event the savers are going to do better in near term AND will get enough opportunity to switch sides to take advantage of coming inflation. So why the complaining ?

OO,

"Why the complaining ?" question was not to you. It was to the general bubble blogging crowd.

Also, I do not expect it to be easy to time the move to switch the sides. But even a sub-optimal timing will land far better results than what has happened to the current alligator feeders.

Stuck, good points on inflation in commodities vs assets. I've had similar conversations here and concluded the same things.

Yes, I agree declining home prices more than offset the extra amount someone will spend on gas. What some people effectively did point out to me is that it still screws someone maybe a renter, maybe someone who owns their house, basically anyone who is not going to capitalize on the downturn in housing because what little they've saved is now worth less, and those daily living expenses are now less manageable than before. I've read, and seen first-hand that some people are having to quit jobs because the commute now makes it an uneconomical proposition.

I've read some good points yesterday and this morning about balancing the definite need to adjust monetary policy to avert a total meltdown with avoiding hyperinflation. It is definitely a good idea to weigh the impact on those affected who had absolutely nothing to do with this mess. It unpopular but morally sound to recognize the potential abuses of government power to preserve the wealth of a certain irresponsible group at the expense of those working their way up or who have lived conservatively.

I think, both savers and debtors are screwed. In bush economics, rich screw middle towards poor. Policies helped money managers book profits early and take it away. Now losses are booked for 401k's. Reduce interest rates again and game on for money managers.

Some very scary artcels today.
Read Msh. Mish links to a wall street journal article. Read it.

I find myself trying to think where the logical end-game is to all of this financial market turmoil. We have certainly seen extreme action in the recent past (price fixing by Nixon, Greenspan selling the assets of failed S&Ls) and very, very extreme action in the far past - Great Depression actions and New Deal legislation.

The problem as I see it is that the legislature was so much more capable back then. We had serious legislative porfessionals who could make thgouhful decisions on appropriate courses of action.

Now we seem to have people who vote on Turkey genocide, and how much more taxpayer money we can give away to how many more people 'jut to make it fair'.

At the end of the day I will say that many American firms have a pretty strong cash balance. I see the governement, for all of its misteps, not exacerbating the problems as it had done previously. So, no, no Depression.

But hang on to your hats, we are going to see some really scary actions (at least for those of usthat follow such things) from the Fed, Congress, and a host of new agencies that are about to be created. I am also going to move up my prediction about Public Works. Fed spending, within 2 years, will move to massive infrastructure projects. I have no idea if money is to be made there (like buying stock of business construction firms) as I think we will see new laws preventing the kind of contract profiteering we saw in Katrina.
I shoudl mention the cost of Iraq and oil, but I am still forming my opinion on this topic.

Interesting times. Interesting times. . .

MBIA and Ambac ratings downgraded. This is to trigger another round of losses for MBS holders?

Fed spending, within 2 years, will move to massive infrastructure projects.

sounds like massive inflation to me.

Does anyone believe the ratings? I mean, AAA to AA. Come on. I think the market has already factored in the real rating.

Markets aside, Holders have to write down on assets. I am not sure if they have to for AA. Trying to find out.

Ah yes. Sorry. The requirements of certain investors to hold certain levels of assets? So now that MBIA and Ambac are lower, the bonds they back are lower and thus portfolio rebalancing is needed?
Is there a timeframe on that? Like 'Thou hast 90 days to rebalance thine portfolio' and people will either scrqamble like mad, or find someone way to get MBIA nd Ambc lifted back to AAA?

How Tax dollars are spent

The problem as I see it is that the legislature was so much more capable back then. We had serious legislative porfessionals who could make thgouhful decisions on appropriate courses of action.

Market intervention through legislation is NOT the answer.

FDR and Nixon should have CUT TAX.

I am not a fan of Newsom but I think he made the right decision regarding to the torch.

I refuse to support any human rights group unless they recognize that right to property is as important a fundamental human right as other perceived rights.

I expect them to fight excessive taxation with the same fervor.

Of course, they will do no such thing.

I wonder how many Senators actually hold builder shares themselves to pass such a mindless tax break to bankrupt builders. What public good does it serve to bail out rich executives and shareholders?

What's next after bailing out FNM, Freddie, mortgage lenders, investment banks holding mortgage sh*t, now we are starting to bail out homebuilders.

Very soon we will be bailing out Home Depot, William Sonoma, and eventually Target. All these bailouts are achieved through robbing personal asset from you and me.

One can never underestimate the creativity and determination of the powers to secure their interest while passing on all the costs to the rest of us.

I think the President will veto the bill in its current format for exactly the reason stated - it is silly to give bulders retro-active taxbreaks. Even if ALL builders went bankrupt, the barrier to entry for restarting home construction firms from scratch is like 0. And, according to all statistics, we do not need new homes for a very long time.

But we need to be careful not to complain too loudly about the unfair builder taxbreaks less Congress say, "You are right! Here is YOUR tax-break to help you cover this years loss with the taxes you've paid over the last many years"

Umm HELLO! The bill comes due at some point. Quit shoveling money at everything. How about a little corporate and personal reponsibility!

OO,

I thought the reason was obvious. A month or so ago, the NAHB issued a press release saying it will not make campaign contributions as the Congress has failed to act and help the housing industry.

http://www.nahb.org/news_details.aspx?sectionID=0&newsID=6210

There is no cynicism, conspiracy theory in what I am saying. This corruption is happening in broad daylight and being legalized. No one is even pretending otherwise.

Bernanke: Breakdown in Credit Model Caused Crisis

Now we know what went wrong.

stuck,

I had read that news before. The lame answer is "everybody else is doing the same so why not builders".

... only support post-birth human rights.

Of course. I am well aware of that. But I don't think McClintock will be our next governor. :(

(Actually, the liberals will not even support property right as a fundamental human right.)

Bap33

sorry, I just found that link and posted here. Don't have much details nor an expert on the topic.

It's Thursday, so it must be H.4.1 time. Big news is that the Fed sold $28 billion of Treasuries (only $560 billion to go). Some cash came off the street this week, but a lot went out the door with repos ($21 billion). "Discount window to non-depositories" (aka Primary dealer credit facility) is down by $5 billion but the depositories took $3 billion of that back at the discount window. Oh, and the great Treasury swap meet (aka TSLF) is proving popular; the account hit the half way mark at $100 billion.

OO will get on me if I don't mention the H.3 data too. So, bottom line, non-borrowed reserves almost hit $100 bilion, which, surprise!, is what TAF currently stands at. Someone help me out here, but doesn't his mean the vault would be empty if not for the Fed's generosity? Doesn't exactly make one sleep well at night.

OK, 2 weeks ago the Fed held $629B Treasury. 2 weeks later, they are down to $560B. Roughly we are looking at a burn rate of $69Bx2 = $138B per month.

We shall be able to blow through that $560B by end of summer.

Btw, I have to applaud Newsom for what he did yesterday.

Chinese Consulate and their CIA-equivalent has been extremely active in organizing the SF Parade to show hand. I have received at least 6 emails from different sources urging people of Chinese ethnicity to go. The Consulate rounded up buses departing from South Bay from as far as San Jose, they also bus'd a lot of people from Arizona and LA as well. I am not sure what the turn out is, I think it is around 5000-8000 people, which far outnumbered the pro-Tibetans.

If the torch were to pass through this crowd, there would be almost no risk of protester violence because, frankly, there were way too many Chinese out there. However, that would have provided a very good venue for the Chinese government to leverage this media opportunity to broadcast the patriotism of their people on OUR LAND, which I don't like. The Chinese consulate started planning this since 2 weeks ago so this is a major effort for them.

Newsom must have seen through all this. So his last-minute diversion was brilliant. If I were in his shoes, I would have done exactly the same, while saving face for the Chinese government, he didn't give them anything back either.

Chinese Consulate and their CIA-equivalent has been extremely active in organizing the SF Parade to show hand.

They have a culinary institute too?

sorry, show down. Yeah, if they advertised free gourmet food I would have gone.

I couldn't find the press release on the Fed site, but this would be welcome news (unless it means that they've run out of "acceptable collateral") :
Wall Street bond dealers bid for less than the $50 billion of Treasuries that the Federal Reserve offered at an auction today, a sign that strains in credit markets may be easing.

The New York Fed's third weekly auction under the new Term Securities Lending Facility drew $34 billion in bids for the available securities, for a bid-to-cover ratio of 0.68, the central bank said on its Web site today. The two previous auctions of $75 billion and $25 billion had bid-to-cover ratios of more than 1.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aW6E8UIovljk

Claire and others,

Did you notice that there is 25 new listings in Mountain View since last Friday, but the total listings barely has budget from ~160? Me thinks the local realtors are heavily pruning old/expired/unsold listings to keep the total from rising.