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Game changing?

By SP follow SP   2008 Feb 12, 3:59pm 13,174 views   152 comments   watch   nsfw   quote   share    


Okay, give all the racist crap a rest for a while. This seems to be big enough to pay attention to...

What do you guys and gals think of this:
link to article

SOMA
Many observers have expressed disbelief that the Fed is actually aggressively reducing the monetary base, in particular that part of the base which directly affects the trading accounts of 20 of the world�s largest banks, the Fed's Primary Dealers ... The vast majority of market pundits, economists, and quasi-journalists for the mainstream infomercial outlets like Marketwatch, the Wall Street Journal, Bloomberg, and especially CNBC, are totally clueless. To a man and woman, they all think that the Fed has aggressively been adding liquidity to the system.

The proof, they say, is in the pudding and the Fed has just served it up in multicolored, multi-layered glory. The Fed itself is confirming, in graphical form, [that it] has aggressively collapsed the size of the System Open Market Account, beginning slowly last July, then moving aggressively beginning in December. The effect has been to withdraw billions of dollars of what is, in essence, margin buying power from the trading accounts of the Primary Dealers.

A lot of folks here are betting on inflation and commodities, so what do you all think of an actual bubble-deflation at work?
SP

[Racist, Sexist, Xenophobic, and Anti-American comments will be deleted, as will troll-posts.]

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113   DennisN   ignore (1)   2008 Feb 13, 8:27am     ↓ dislike (0)   quote   flag      

I doubt the European Union can survive in its current form.

I've actually begun writing a book in which the UK realizes its mistake and pulls out of the EU. It then joins the US as six states forming the "Great United States", followed shortly thereafter by Canada and Australia.

The present EU is a ponzi scheme in which France and Germany suck funds out of the other countries in order to prop up their otherwise unsupportable welfare states.

114   northernvirginiarenter   ignore (0)   2008 Feb 13, 8:31am     ↓ dislike (0)   quote   flag      

I'm beginning to wonder if we'll see some oil exporter sovereign funds come in and put together a PRish bailout via scale purchase of residential US real estate. Maybe some concessions from the US government, military sales or some other such non-sense, and some billions of USD foreign exchange comes in and buys up 1000's of distressed properties turning them into subsidized rentals.

I could see Chavez endeavoring such a thing. It would be entertaining.

Nah, they probably don't want all the sh*tboxes either.

115   Peter P   ignore (0)   2008 Feb 13, 8:32am     ↓ dislike (0)   quote   flag      

I’ve actually begun writing a book in which the UK realizes its mistake and pulls out of the EU.

Very interesting!

UK is not very European anyway.

Dennis, do you think Turkey gets to join the ponzu scheme before EU dissolves?

116   Peter P   ignore (0)   2008 Feb 13, 8:34am     ↓ dislike (0)   quote   flag      

I’m beginning to wonder if we’ll see some oil exporter sovereign funds come in and put together a PRish bailout via scale purchase of residential US real estate.

Unlikely. They will buy up assets that add to their political influence. Watch out for infrastructure companies and banks!

117   anonymous   ignore (null)   2008 Feb 13, 8:35am     ↓ dislike (0)   quote   flag      

DennisN - I find that hard to believe. No. 1, the UK is part of something called "the commonwealth" along with australia, canada, and I think new zealand. There's no way they'd become six US states. And think of how it would mess up our flag. I don't see the US joining the Commonwealth either, that's just as impossible. But maybe some nice PC term can be come up with for a Union Of English Speaking Nations No We Don't Mean Those Little Bitty Nations Using English Though. I like "The Anglosphere" but it's probably too nerdy sounding.

118   anonymous   ignore (null)   2008 Feb 13, 8:35am     ↓ dislike (0)   quote   flag      

PeeterPee -Mmmmm Ponzu Scheme.... sounds yummy.

You spend a lot of time at Sushi Maru, don't you?

119   Peter P   ignore (0)   2008 Feb 13, 8:37am     ↓ dislike (0)   quote   flag      

You spend a lot of time at Sushi Maru, don’t you?

Haven't been there for a while.

120   anonymous   ignore (null)   2008 Feb 13, 8:38am     ↓ dislike (0)   quote   flag      

Northernvirginiarenter - I actually see something where the Owners, the Landlord Class, in the US becomes a collection of Arabs and Asians. If you're a regular working Joe, you end up slaving your life away for them. Think we can't have prison camps, a'al'China? Think we can't have sharia law, leaning most heavily on the non-Arabs who do all the work? Think again. Who has the gold, makes the rules.

We're really heading into a Fremen vs. Sardaukar situation, for anyone who's read Dune.

121   Peter P   ignore (0)   2008 Feb 13, 8:38am     ↓ dislike (0)   quote   flag      

How about...

Dominion of Englishland

122   anonymous   ignore (null)   2008 Feb 13, 8:41am     ↓ dislike (0)   quote   flag      

LOL good one PeeterPee!

123   SP   ignore (0)   2008 Feb 13, 8:41am     ↓ dislike (0)   quote   flag      

Am wondering what this means... this is from Bloomberg http://tinyurl.com/ywt6z5

Auction-Bond Failures Roil Munis, Pushing Rates Up
Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg.

124   Peter P   ignore (0)   2008 Feb 13, 8:44am     ↓ dislike (0)   quote   flag      

Am wondering what this means…

It means the highest bid was so low that it implied a yield of 20%.

This may indicate a several liquidity crunch in that market.

125   northernvirginiarenter   ignore (0)   2008 Feb 13, 8:46am     ↓ dislike (0)   quote   flag      

@Netdance

Google is failing me also, without a significant effort of time. I don't recall exactly where I read this stuff but I did "buy it" at the time.

Here's something I found quickly via google below from relevant and recent treasury secretary testimony, and I'm sorry this is not hard data and sound analysis. Also, trade deficit and manufacturing base are obviously two different things. We just happen to consume most of what we produce ourselves.

"Q In terms of long-term growth, a lot of people are saying because the manufacturing base is gone, where do you see, in the next two to three years, long-term growth? What sectors in this economy?

SECRETARY PAULSON: Well, let me start. I want to give you more detail than you want on the manufacturing base because I would say it's fascinating when you look at it. You may not know it, but who is the largest manufacturer in the world? The U.S., by a lot. It's fascinating. When I had looked at the data in 1950, we had about 30 million -- manufacturing jobs in the U.S. were about 30 percent of the country then, and there are about 15 million manufacturing jobs, okay?

Today, we've got the same 15 million manufacturing jobs; they're about 10 percent. But the output has gone up seven times over that period, and we -- you know, our manufacturing base is two-and-a-half times larger to China, it's bigger than Japan, it's bigger than Germany. This is a story about automation. And I would say to you, we have a broad-based, diverse economy in the U.S.

And when people think of services, they very often think, well, gee, those are low-quality jobs, et cetera. There are many high-quality, high-paying service jobs in many sectors. So our economy is more diverse, stronger, more -- you know, I've traveled all around the world and I will tell you, the more I'm outside of the country, the more I see that even though we've got our problems, I would put us up against any country in the world in terms of our economy and our ability to compete."

126   HelloKitty   ignore (0)   2008 Feb 13, 8:50am     ↓ dislike (0)   quote   flag      

Bush signed sign the 730k limit bill (masked as the rebate check bill in the MSM) so I will now move to France where the government REALLY knows how to control things....because 90% of the country is a gov employee like soon to be US. (#1 employer in US is federal government).

127   OO   ignore (0)   2008 Feb 13, 9:03am     ↓ dislike (0)   quote   flag      

HK,

can you please tell me how can we move to France too? I hear that they have socialized medicare :-)

128   northernvirginiarenter   ignore (0)   2008 Feb 13, 9:04am     ↓ dislike (0)   quote   flag      

@SP

Auction-Bond Failures Roil Munis, Pushing Rates Up

Wow, thats a find. If that does not smooth out thats a big systemic problem, even a call 911 emergency type problem. Fed will not standby and let stand, I wonder what they can and will do. I bet we will see some reaction as soon as tomorrow, big story with serious implications.

129   HARM   ignore (0)   2008 Feb 13, 9:15am     ↓ dislike (0)   quote   flag      

Bush signed the 730k limit bill

In a related story, the new median price of a house in CA is expected to be $729,999.99 by the end of March.

130   SP   ignore (0)   2008 Feb 13, 9:18am     ↓ dislike (0)   quote   flag      

Peter P Says:
It means the highest bid was so low that it implied a yield of 20%.

Thanks, I got that part by reading the article. :-)

I meant that I am wondering what it means. Clearly, going from 4.3% yesterday to a failed 20% bid today isn't ordinary. In another story in my newsfeed, I saw something about more than two-thirds of today's auctions failed.

But hey, the top-story in my Reuters RSS says that Paulson declared "No recession ahead", so I guess nothing to worry now.

131   Peter P   ignore (0)   2008 Feb 13, 9:22am     ↓ dislike (0)   quote   flag      

Clearly, going from 4.3% yesterday to a failed 20% bid today isn’t ordinary.

It is more like having the highest bidder of a house being a low-balling patrick-dot-netter.

132   anonymous   ignore (null)   2008 Feb 13, 9:25am     ↓ dislike (0)   quote   flag      

I agree with that on service jobs - lots of service jobs are very high paying. High end hairdressers are one example. CPAs I believe are service workers and they're generally high paid.

Also, some of the stuff you'd never suspect, pay quite well. over at the NCN (national caricaturists network) site many have come into that field because it paid more with a lot less hassle than what they did before. These street performers of various types out on the streets around the BA were making more than they did as engineers, it's all in line with the warehouse guys making more than the skilled repair tech.

But most service jobs are low-paid, it's true.

133   Peter P   ignore (0)   2008 Feb 13, 9:28am     ↓ dislike (0)   quote   flag      

Is debt servicing a highly-paid "job?" :)

134   DennisN   ignore (1)   2008 Feb 13, 9:29am     ↓ dislike (0)   quote   flag      

I worked as an attorney: that's a service job. Same thing for doctors.

135   Peter P   ignore (0)   2008 Feb 13, 9:31am     ↓ dislike (0)   quote   flag      

POTUS is also a service job, though not highly paid.

136   northernvirginiarenter   ignore (0)   2008 Feb 13, 9:48am     ↓ dislike (0)   quote   flag      

So little faith in muni bond insurers currently. Less faith in the quality of the rating guys.

Our local governments and public entities might all need revisited from ratings guys in light of the contagion of a declining real estate market. With declining economic activity and tax base erosion, ratings downgrades expected. Man we got us credit contagion.

Our local government can't borrow cheaply to pay for schools, roads, prisons, libraries, and all the other non-sense. Wow.

That's an economic death spiral if I've ever seen one. Faith and trust in our economic institutions cannot be rebuilt overnight, and maybe this gets at the core of this problem.

137   B.A.C.A.H.   ignore (0)   2008 Feb 13, 9:50am     ↓ dislike (0)   quote   flag      

If you say so.

But it could also be that what elites and institutions DON'T say is more informing than what they DO SAY.

And what they don't say, is anything about M-3, but some economists try to estimate it anyway.

http://www.shadowstats.com/alternate_data

If all those dollars hafta come home, well then that's what happened after we went off the gold standard, too.

138   B.A.C.A.H.   ignore (0)   2008 Feb 13, 10:25am     ↓ dislike (0)   quote   flag      

Service industry, eh? Like the big retail banks. Or the airlines. Or the "legal profession", or the cable company. Yeah, sometimes you might feel like someone did a service job on you.

From http://www.merriam-webster.com/dictionary/service , among the eleven different definitions for "service":

9: the act of bringing a legal writ, process, or summons to notice as prescribed by law

10: the act of a male animal copulating with a female animal

139   northernvirginiarenter   ignore (0)   2008 Feb 13, 10:35am     ↓ dislike (0)   quote   flag      

@sybrib

lol defintions. Well done.

140   apostasy   ignore (0)   2008 Feb 13, 10:59am     ↓ dislike (0)   quote   flag      

@OO

Don’t worry, FED will go back and re-hash another mechanism to get everybody take the money.

Is that "take the money", or "take the debt"? When I read the first analyses several months ago that highlighted the difference between liquidity and solvency in our current situation, I did a double-take before I wrapped my head around what the analysts (mainly Mish) were trying to point out.

I look at it this way, and hopefully I've got it right. The Fed (and other central banks) cannot inject wealth. At best, they can inject markers for future claims upon wealth; i.e., debt. Pushing on a string is the market telling the central banks that all foreseeable wealth creation in the market at the moment is spoken for, and the market doesn't want any more debt to service additional wealth creation activity because it can't find any additional wealth creation activity.

141   OO   ignore (0)   2008 Feb 13, 11:21am     ↓ dislike (0)   quote   flag      

apostay,

the Fed cannot inject wealth, it can only make the debt cheaper, temporarily.

However, the government CAN inject, well, not wealth but money into your pocket through government job creation and government socialist programs.

US national debt as a % of GDP still has way to go before the final blow-up. Our national debt is *only* 37% of GDP, compared to Japan's 160% (or 180% as of the latest) of its GDP, and Japan is far from collapsing.

Which brings to my point, wrt to US government printing money trying to get us out of the mess, you ain't seen nothing yet. We still have at least another 100% of our GDP to print before we go over the cliff.

142   OO   ignore (0)   2008 Feb 13, 11:22am     ↓ dislike (0)   quote   flag      

apostay,

the Fed cannot inject wealth, it can only make the debt cheaper, temporarily.

However, the government CAN inject, well, not wealth but money into your pocket through government job creation and government welfare programs.

US national debt as a % of GDP still has way to go before the final blow-up. Our national debt is *only* 37% of GDP, compared to Japan’s 160% (or 180% as of the latest) of its GDP, and Japan is far from collapsing.

Which brings to my point, wrt to US government printing money trying to get us out of the mess, you ain’t seen nothing yet. We still have at least another 100% of our GDP to print before we go over the cliff.

143   OO   ignore (0)   2008 Feb 13, 11:41am     ↓ dislike (0)   quote   flag      

The fact that despite Japanese government's effort to reflate, all the extra money pumped into the system went straight into carry trade shows that the government can print, but cannot direct where the money goes. So Japan's deflation is also partially caused by this Yen "leakage" to more lucrative avenues.

Money, once created out of thin air, has a mind of its own. Those closest to the money will find better use, usually on speculation of some asset with good fundamentals, rather than paying off debt. It is not the Americans who invented Yen carry-trade, it is the Japanese financial institutions themselves that pioneered this lucrative arbitrage.

When US government reflates with unprecedented scale, the money will find its own way into some sort of US dollar carry trades as well.

Deflation is the end game, but before deflation, there will be lots of reflation, inflation and stagflation. If you don't play the game of reflation, inflation and stagflation, your wealth will be reduced to nothing when we eventually arrive at deflation. In other words, if you stay in cash from today onwards, you won't get to reap the benefit of deflation, even if you are right about the end, you miss the details of how we get there.

144   northernvirginiarenter   ignore (0)   2008 Feb 13, 12:20pm     ↓ dislike (0)   quote   flag      

@OO 7:41pm post

That's good and interesting stuff.

What if the Fed decides to reflate and inject via new and creative channels to counter this dilemma you describe?

For instance, how about a massive government VC effort. The DOD and CIA have both embraced early stage VC model to incubate early stage tech in which they have a strategic interest. Interesting jobs plan to go that route with an "injection".

Probably we will not be that smart.

145   anonymous   ignore (null)   2008 Feb 13, 2:46pm     ↓ dislike (0)   quote   flag      

Hey it's time for a giggle....

Someone on Craig's List came up with this idea, names for the week like:

Mail in the keys Monday
Teardown Tuesday
Walkaway Wednesday
etc.

Maybe we can think of a good set of day-names for the new housing regime we're in!

146   justme   ignore (0)   2008 Feb 13, 4:48pm     ↓ dislike (0)   quote   flag      

OO,

That brings up an interesting point. Is it not the relatively modern concept of free flow of capital that is the reason that the Japanese government could not re-inflate the economy. With some new restrictions on international capital flow, could not this "problem" be avoided?

How did this use to work before the age of gloabl and free-wheeling hyper-captitalism?

147   SP   ignore (0)   2008 Feb 13, 11:02pm     ↓ dislike (0)   quote   flag      

justme Says:
How did this use to work before the age of gloabl and free-wheeling hyper-captitalism?

As recently as the 1980's, many countries of the developing world had current-account controls that prevented or inhibited bulk conversions of currency. However, western currencies (USD, GBP, FFR, etc.) were still freely convertible, so my guess is that the opportunity to arbitrage was limited until the Japanese adopted ZIRP.

148   justme   ignore (0)   2008 Feb 14, 12:34am     ↓ dislike (0)   quote   flag      

NVR,

Perhaps one of the reasons for the public works created during the great depressions of the 1930s was that they were guaranteed to have a domestic economic effect, rather than the money flowing elsewhere in search of bigger gains.

149   justme   ignore (0)   2008 Feb 14, 12:36am     ↓ dislike (0)   quote   flag      

SP,

That;s they way I remember it, too, but I think even some western countries had currency limits in 1980.

150   SP   ignore (0)   2008 Feb 14, 1:33am     ↓ dislike (0)   quote   flag      

# justme Says:
That;s they way I remember it, too, but I think even some western countries had currency limits in 1980.

I guess it is relative. It was a huge hassle to convert from a controlled currency to USD/GBP/etc. - I remember my dad used to leave large amounts of local currency (worth like 100 USD) to tip hotel staff instead of bothering to fill out a dozen forms for the local bureaucracy.

The western currencies seemed very free in comparison. Even in France :-) , it took only about 15-30 minutes at a bank to exchange a couple of thousand in travelers checks.

151   SP   ignore (0)   2008 Feb 14, 1:35am     ↓ dislike (0)   quote   flag      

New thread has been started. This one will be closed shortly. Thanks a lot everybody, for a very interesting discussion.
SP

152   SP   ignore (0)   2008 Feb 14, 1:36pm     ↓ dislike (0)   quote   flag      

Thread closed. Thanks for your participation.

I deleted some posts that I felt were inappropriate, and I hope you found the rest of the discussion as useful and informative as I did.
SP

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