patrick.net

Cash is King.

For more than a year the dollar has been appreciating in real terms.

Today the dollar buys more than it did a year ago:

It buys more real estate than a year ago.
It buys more stock than a year ago.
It buys more oil than a year ago.
It buys more lumber than a year ago.
It buys more copper than a year ago.
It buys more TVs than a year ago.
It buys more Car than a year ago.
It buys more gas than a year ago.

And now everything is on discount sale at the stores.

It is very easy to break the deflationary trap.

Give everyone $10K, $100K. Luckily that Obama sees the solution and his team is already acting on it. Once everyone of us gets $10K, $100K, it will be hard not to see inflation again.

I have a better solution for them. Instead of giving rebates, give cash coupons that expire in 3 months. It will take them a while, but they will get there.

OO, for a long time, I've thought your theory of extreme inflation was kind of silly. But I will admit, even amidst the inane actions of the last few months, the most recent announcements have shaken my faith in an equilibrium system. I retain my 2/3 cash position (including short term CDs), but I have averaged into the stock market, and I am seriously contemplating taking a physical position in PMs.

A year ago, I would have thought that was absolutely ridiculous. Now it seems like an intelligent hedge.

Wow.

Nonfarm payroll employment fell sharply (-533,000) in November, and
the unemployment rate rose from 6.5 to 6.7 percent, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. November's
drop in payroll employment followed declines of 403,000 in September and
320,000 in October, as revised. Job losses were large and widespread
across the major industry sectors in November.

Wow.

I have a better solution for them. Instead of giving rebates, give cash coupons that expire in 3 months. It will take them a while, but they will get there.

I also see that coming.

Or give everyone a debit card that 'expires' monthly. Use it or lose it. The Fed could credit it with 'stimulus' payments as needed.

Of course, I would just buy silver coins with it.

"It is very easy to break the deflationary trap.
Give everyone $10K, $100K."

The famous Bernanke helicopter cash drop.

“It is very easy to break the deflationary trap.
Give everyone $10K, $100K.”

If you gave everyone $100k, half the population would quit working. You would essential expand welfare entitlement to all.

A lesser amount, like the $10k, would be used mostly to pay off debt or buy Chinese imports. A few Zephyrs may invest. The handout would do very little to prime the pump and expand US jobs.

It seems that a better way is to allow the deflation to occur. Use that "stimulus" money to hire the unemployed with government programs to rebuild infrastructure, research technology, clean the environment, etc. The real problem with deflation is the lack of jobs, so a direct hire approach beats the print to prosperity method.

TOB :

Thanks for the video link in previous thread.

Oh, and I meant to post another kind of related link.

http://www.theatlantic.com/doc/200812/fallows-chinese-banker

Please go past the provoking title of the post. This man - Gao Xiqing, president of the China Investment Corporation - understands economy. Unlike our leaders who have no clue.

I was particularly touched by his comments about engineering jobs v/s finance jobs. But there are some great gems of thoughts as well.

Good article.

Is it not interesting how clear matters can be when explained by a person that is not beholden to US political machinery. Gao Xiqing just said it the way it is.

No person saying what he said could win a political office in the US.....not even Obama.

It was a god article. I like his notion of respect.
However, he is perfectly wrong.
The US is living on borrowed dollars because it is convenient to do so. They enable it. Take that away and wewill be just fine. We will switch to internal production. We still have the best capital markets in the world and we can shift to internal production faster than any nation on earth.
Who really needs who here? Do we need them to send cheap exports or do they need us to provide them cash so they can move 800million people from unproductive peasantry to a modern industrialized nation?

Can internal production meet our energy needs? Particularly oil?

Beyond that, I'm perfectly fine with the Chinese keeping their toxic food and crappy goods to themselves.

I'm perfectly happy to pay more for quality goods manufactured in America.

Answering "Who needs whom more ?" is only a partial - and I will argue - not so important from economics viewpoint. Yes, it's politically charged question and important for posturing and negotiating. But not the real story.

In last century, USA became a great nation on its own. A few hundred years ago China was a great nation on its own.

Question is how to sustain that greatness. I am more impressed with his views far more that those of our current leaders.

Today, the interdependence between countries is significantly high. Many country pairs are both competitors and customers of each other. So who needs whom more, the right answer is often closer to "both".

The grand moment of Fed's raw printing has started today, let's celebrate it.

A small step for the Fed, a big step for our economic system.

http://www.newyorkfed.org/markets/pomo/display/index.cfm

I am not saying giving out $100K will work long term, I am just thinking like the Fed and the bankers, putting myself in their shoes.

If I were to run this country, these WS crooks would have been shot multiple times till such a "profession" of pushing paper around is socially despised and disdained.

But, the Fed and our government is backed into a corner. Giving out $10K, $100K per household is their next logical step if you think like them.

Another example of smart governance in China, unlike here ....

NEW YORK (MarketWatch) -- China plans next month to raise tax on regular gasoline by five fold and diesel fuel tax by eight fold, in a move to take advantage of falling crude prices and encourage energy conservation, state-run media reported Friday.

Under the proposed measures, gasoline tax will go from 0.2 yuan a liter (3 U.S. cents) currently to 1 yuan, and diesel tax will rise from 0.1 yuan per liter to 0.8 yuan, effective Jan. 1, Xinhua news agency reported, citing a government statement.

The problem with physical gold is, you really need to be fast.

Unless you are able to buy 200, 300 ounces per transaction, retail physical gold is drying up very fast, and the premium is ridiculous these days. Do not expect to get your hands on physical gold at anything even remotely close to the "paper spot" anywhere.

Only wholesale gold can still transact physical gold at a price close to spot, but god knows how long that will last.

OO,

Good call. I wonder if POMO (Permanent Open Market Operations) always is equivalent to raw printing, or not?

(It's funny, in the link above I read .../pomo/display/... as /.../fed/po*no/display/...
I bet I was not the only one, but then this link really *is* Fed-po*n, and in more ways than one to some people :-)).

Our political leaders understand economy as well, do not think for a moment that they are stupid. The chance is, they are smarter than all of us on this blog.

But, their goal is slightly different from yours and mine. Their goal is to preserve their power base at whatever it costs the nation, our kids and our grandkids, as long as they get to keep their power one more day. That is how skewed the considerations are.

That's why you have to evaluate their next move from their angle, not from the perspective of what makes sense for all of us. We don't mean shit to these people. The most important thing for them, is to keep the current game going, because fractional reserve system requires ever growing credit, and ever growing asset value to survive. Once that stops, the fractional reserve system falls apart, and so will the key stakeholders behind the whole system.

And sure fractional reserve system will fall apart in the end, but holding the fiat means you go down together with it.

Yes, POMO is raw print, and they are very refrained from doing this, so it happened very rarely before. When Fed engages in loosening credit, it is always REPO, and there is collateral to account for it.

Well, you can argue that the Fed has taken in over a trillion rubbish in exchange for T, that is in essence printing, because it knowingly attached a higher value than the collateral is really worth.

The Fed has been printing in stealth mode or it couldn't have grown its balance sheet a trillion within 3 months. But this is big, because this is out in the open, and it is following what Ben said in his helicopter speech, setting a cap rate in MBS, GSE, and eventually T.

When Fed sets a cap rate at long-term T, USD collapses.

What's the deal with physical gold? A bullion bubble maybe?

Or is it just paranoid gold bugs?

Could it be something more sinister?

The government mints are shutting down supply to the small guys.

If gold is worthless, why is that Fed has not sold one ounce of its gold? Why is that you go to IMF, it has section reporting on gold reserve at each country's Treasury?

When countries transact gold with each other, they don't buy gold ETF. They take deliveries from each other. So paper gold is the bubble and it will become worthless at some point due to manipulation, physical is never a bubble.

Of course physical gold could be a bubble.

Anything can be a bubble. Tulips, tech stocks, houses, beanie babies... anything really.

Once everyone figures out the end is not nigh (yet) they will sell their hoarded gold and go chase after the next big thing.

Unless you are able to buy 200, 300 ounces per transaction, retail physical gold is drying up very fast, and the premium is ridiculous these days.

Isn't this saying that small guys (usually wrong) are buying while the professionals are not?

Of course physical gold could be a bubble.

Small denomination gold coins may be in a bubble.

Not investment advice.

OK, I stand corrected, physical gold is never a bubble when you have a fiat raw print going on.

Peter P, don't worry, the raw print is only going to increase in scale, first they raw print only a $300B, then this will obviously not be enough, so they keep driving the rates down by printing more, like $1T, 2T, 5T, and the market is not going to react overnight, but there will be a last straw, as the camel is doing more and more heavy lifting.

I expect Ben to start raw printing on Treasury within 6 months. He probably has already started, but I bet that he will make it obvious with POMO to buy Treasury by 2009.

Honestly from an academic point of view, this will be so exciting to watch, how many people in history get to watch the collapse of a world reserve fiat with 6-7 years of warning on a PHD thesis paper? I can't wait.

@OO

I agree with your comment that our leaders are not stupid. They are getting exactly what they want - the results are helping them - not helping us the common man.

There actions are beyond being self centered. They are very sociopathic - no conscience, no remorse, no moral compass.

This feels like Biblical end times.

This feels like Biblical end times.

4 more years to Mayan end times. :)

Yes, POMO is raw print, and they are very refrained from doing this, so it happened very rarely before. When Fed engages in loosening credit, it is always REPO, and there is collateral to account for it.
Now that's just wrong. Look at the historical data. The Fed, under normal conditions, purchases and sells Treasuries to rebalance the SOMA accounts (with as much as $50billion swings per year, depending on their bias). They just ended a streak of selling off a massive ($300+billion) amount of their securities to fund the special lending facilities (TAF, PDFC, etc).
It is worth noting that what is historical (and maybe this is what has you fired up) is that they are purchasing agency coupons (Fannie, Freddie, FHLB). No reason to suggest they are at the raw print stage. As I pointed out earlier, they actually paid back the Treasury ~$40Billion last week. These are the operations (previously announced) to try and drive down the mortgage rates. If any "printing" happens at this stage, it will be from the collateral dropping below "haircut" valuations and the Fed not calling the loans, or the agency coupons going sour.

If the Fed was raw printing we should be experiencing a weaker dollar and more inflation than we currently are.

Maybe we should give Boom-Boom more credit?

"The real problem with deflation is the lack of jobs, so a direct hire approach beats the print to prosperity method."

That didn't work in Japan. You can't spend yourself to prosperity.

EBGuy,

thanks for the clarification.

OK, looking for the next week for them to start raw printing in public. Postpone beer for one week.

Weaker dollar will come, when the Treasury bubble bursts.

Treasury is the biggest bubble around, when that bursts, you will get far more than a weak dollar.

EBGuy :

What's a best book/blog/website/article etc for a layman like me to understand what Fed does, and how it affects the money supply ?

Thanks.

Stuck, I read mostly Fed propaganda (see newyorkfed.org) and have probably been brainwashed by the Rothschilds. For all I know, Ben has a printing press in his basement. If you find any good "independent" sources, please share with the blog. Still trying to get a grip on the rapid expansion of the monetary base these past couple of months...

Floyd Norris gets us caught up with Donald Trump's latest effort to wiggle out of repaying $40 million to Deutsche Bank as part of his new Chicago hotel-condo development deal.

He points to a "force majeure" clause in the lending agreement that allows the borrower to delay completion of the building if construction is delayed by things like riots, floods or strikes. That clause has a catchall section covering "any other event or circumstance not within the reasonable control of the borrower," and Trump figures that lets him out, even though construction is continuing.

"Would you consider the biggest depression we have had in this country since 1929 to be such an event? I would," he asked in an interview, adding, "A depression is not within the control of the borrower."

He wants a state judge in New York to order the bank to delay efforts to collect the loan until "a reasonable time" after the financial crisis ends.

Deutsche Bank thinks the idea that an economic downturn should free people from the obligation to pay their debts is laughable.

Trump, it may be noted, does not want everyone to be treated in the same way. When I asked him if he would let remorseful buyers walk away from contracts to buy condominiums at pre-depression prices, he said he would not. "They don't have a force majeure clause," he explained.

A survey by Inside Mortgage Finance and Campbell Communications of 2,508 real estate brokers nationwide found that two-thirds of those polled are expecting a housing bottom in 2009. Well, actually, here’s how it broke down …

REALTORS
=======
17.1% saying it’s already occurred; or will happen sometime before end of 2008
66.4% saying in 2009
14% saying 2010
1.6% saying 2011
0.9% saying ‘12 or later

HOME OWNERS OR BUYERS
==================
It has, or will by year's end 447% of all votes
'09 12822% of all votes
'10 19934% of all votes
'11 11720% of all votes
'12 or later 10618% of all votes

Total Votes: 594

Why is this data not surprising?

Both surveys simply asked about a "housing bottom".

As a result, both survey results may prove to be correct - realtors forecasting a bottom in sales volume next year and respondents forecasting a bottom in sales price in 2010.

It should become painfully clear that realtors care a lot more about making the sale than they do about the sale price.

For example if a $300,000 home is sold through a realtor, a six percent commission would result in $18,000 to be divvied up between the agents and brokers for the buyer and seller. If the sale is not made, the commission is zero. Whether the sale price is a little higher or lower has no significant impact on the commission amount, relatively speaking. What's important is that the sale is made.

Realtors will naturally think of a "housing bottom" in terms of home sales and the number of commissions they are likely to generate rather than home prices and the size of those commissions.

Correction:

It has, or will by year’s end ==> 44 7% of all votes
‘09 ==> 128 22% of all votes
‘10 ==> 199 34% of all votes
‘11 ==> 117 20% of all votes
‘12 or later ==> 106 18% of all votes
==================================
Total Votes: 594 100%

The ever-growing Obama stimulus package
Thursday, December 04, 2008
While the $50 billion economic stimulus package proposed during his presidential campaign now looks almost laughable after the events of the last few months, the size of the plan now thought to wind up on President Obama's desk come inauguration day is anything but.

As there are no real numbers to report since legislators have yet to sharpen their pencils and get to work, all that is available at the moment are informed guesses as to the total cost, and these estimates seem to grow by the day.

Some time ago, conventional wisdom had it that something in excess of $300 billion would be needed. Then Senator Charles Schumer (D-New York) got on one of those Sunday morning talk shows and cited $500 to $700 billion as a reasonable size - about five percent of GDP.

But, with the recession now believed to be of a longer duration than first thought, this seems to have morphed into $500 to $700 billion for each of the next two years bringing the total to at least 20-times the size of President-elect Obama's original figure.

And it could go even higher.

This report from Bloomberg fills in some of the details:

Calls for $1 Trillion Stimulus Package Grow as Economy Tumbles
By Rich Miller and Matt Benjamin

Dec. 4 (Bloomberg) -- The one thing that isn’t shrinking in the U.S. economy these days is the size of the stimulus package that financial experts say is needed to turn it around.

With automobile sales dropping, payrolls plunging and manufacturing contracting, economists from across the political spectrum are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost.

Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, and Joseph Stiglitz, a Nobel Prize winner who served in President Bill Clinton’s White House, are among those who say President- elect Barack Obama should push for a package of that size.

“They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption,” said Rogoff, a former chief economist at the International Monetary Fund.