Our Global economy is currently teetering on the edge of a cliff - caused by a complete collapse of the American Debt bubble and unwinding of the global derivatives complex.
Had American financial policymakers allowed us to take our medicine earlier, we probably could have gotten through this mess, but Alan Greenspan and the Boyz instead decided to follow a consistent policy of delaying our day of reckoning. By lowering rates/increasing liquidity at any inkling of global economic stress (see some of the examples below), they merely covered up the economic problem of the day with more easy credit/debt - which successfully delayed, but significantly increased the size of the problem...
- US Stock Market Crash of 1987
- Japan's Economic Crash of 1990's
- LTCM Hedge Fund Collapse 1994
- Asian Currency Crisis 1997
- Russian Bond Default 1998
- NASDAQ Bubble/Bust
The latest example was the Housing Bubble
Most uninformed Americans actually think the housing bubble created all of our current economic ills, but what they don't realize is: the housing bubble was merely the delayed symptom of easy monetary policies and laxed lending standards - created in large part by Alan Greenspan and his cronies by not wanting to take the harsh economic medicine after the dot-com implosion and 9/11 crisis. Therefore, they delayed the much needed/necessary hardship by lowering/holding rates at 1% (40 year low) - providing the volatile fuel mixture used to inflate the housing bubble.
So, here we are today, sitting on the MASSIVE cumulative effect of all these corrective delays and the problems are GARGANTUAN.
Thus far, in an attempt to save our crumbling foundation of debt, Gvt financial experts (AKA: Plunge Protection Team) have tried three different mortgage work-out plans, pushed through a massive economic stimulus package and simultaneously resorted to a myriad of unprecedented Fed Reserve lending facilities. That wasn't enough, so Bear Stearns was bailed out with your taxpayer dollars, followed by Fannie Mae/Freddie Mac and most recently AIG. Each of these attempt to stop the systemic debt implosion has been more drastic than the previous and each attempt has failed.
It's now being said the proposed $700 Billion Bailout package (a new taxpayer funded Government structure used to buy up the bad debts of sinking US and International banks) will save the day.
So, will it work?
Before answering this question, ask yourself: How many times during this developing economic crisis have our appointed financial wizards told you the crisis is contained - and have they been right even once?
NOT!
Much to Greenspan's despair (because his legacy will now forever change) our inevitable day of reckoning has finally arrived! The problems we now have are far too big for any repair effort - Deleveraging of debt must happen and there is nothing, aside from delaying the inevitable, that Paulson, Bernanke, Cox, Lukken and the rest of this lying band of taxpayer pirates can do about it.
Our system is Hemorrhaging badly and the band aids will slow, but will not stop the massive bloodletting to come.
If you'd like to know more about how we got here and what our future is likely to hold - see link: US Economic Outlook 2008-11+
Lastly, we should never discount the negative implications these bailouts create for the US Dollar - as the World's Reserve: Dollar: Faltering Foundation of US Economic Strength
Regards
Randy
8 comments:
Politico.com today says that "Many of the same economists and opinion-makers who'd provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson's previous moves have quickly begun casting doubts"... and that "Skepticism toward the plan reflected more than the predictable desires of the left to spread the wealth to Main Street or of the right to reject government bailouts, although those sentiments were also expressed."
Link
The New York Post says that "The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post. Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline!"
Link
So if Congress balks at all at the plan on Monday, or if the run on investment banks resumes, the markets could be crushed this week. The bounce on Friday may turn out to be the mother of all dead cat bounces.
Will the MASSIVE Gvt bailout plan work?
Credit to Ender at USAGold for this comment:
Oh my. So they are going to Make a Market for these securities. Ha. There is SO much room for abuse in a plan like this. Sure, it will give liquidity to the markets, but as soon as the particular asset TYPE trades, there will be pressure on all those holding that type of asset/security to Mark it to Market forcing another write down. The lowest bid idea will accelerate failures. Also, these big banks know what they sold to other organizations and they know what they hold. Using a low bit auction will allow them to do targeted takeovers. For instance, bank A may sell a small collection of securities that it knows bank B holds in large numbers. The actions will force bank B underwater and make it ripe for the pickin. Also, organizations that have a specific type of security where they don’t really have competition in the market place will give artificially high prices during the auction. Thus anyone that can claim their asset class is different will get 99 cents on the dollar whereas those with common assets will get pennies – AND be forced to take another write down.
A plan like this will NOT hold up.
Be prepared for massive bank runs.
The system is dead.
Obviously I think the plan is fatally flawed.
But what matters is what the markets think. Three threats this week are if a.) the markets think the plan won't work, or b.) the markets think the plan won't be implimented, or c.) the players just want to get out in case of a or b.
In any bank run the early bird gets the worm.
Top headline on Drudgereport right now:
TREASURY NOW WANTS TO BAIL OUT FOREIGN BANKS?
The word is out. How will this go over with the taxpayer? with congress? with Wall Street? So many questions right now. Don't you wish you were holding some MS right now instead of that heavy gold?
Hi Randy,
It's GLD is looking good. Gold at $1100 an ounce and I would like to
come down and personally meet you and thank you as promised.
Fofoa,
Appreciate the links. Working full time sometimes makes it difficult to stay abreast of key issues. The Armageddon article was a real eye opener!
Tarun,
Your position certainly is looking more favorable by the day - again, got my fingers crossed for ya!
Randy
Printing money never created economic health.
No more bailouts.
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