http://www.thisislondon.co.uk/news/article...to=newsnow&

Share prices down £50bn as investors reject bail-out promise by world banks
Last updated at 10:52am on 14.12.07

The London stock market nose-dived and share prices plummeted across Europe yesterday as investors rejected a £55billion attempt by the world's central banks to restore confidence.

The Footsie 100 index finished a hefty 195.6 points down on the day at 6,364.2, wiping more than £50billion off share values. The German, French and Dutch markets also fell sharply.

Instead of reassuring markets with their promise of a massive cash injection, the Bank of England, the U.S. Federal Reserve and other leading central banks reawakened fears that the six-month credit crunch is raging on unchecked.

Citi is now so desperate for cash, they're paying large depositors in Germany 5% interest. That's more than EURIBOR.

Nononononoooo! How can this be if it's deflation?

http://www.sptimes.com/2007/12/14/Business...n_is_out_.shtml
Why inflation is out of the Fed's hands

By STEVEN PEARLSTEIN, Washington Post
Published December 14, 2007

The Federal Reserve disappointed Wall Street this week with its measly quarter-point reduction in interest rates. Yes, the Fed said, credit conditions have deteriorated and a recession is possible, but with consumer prices likely to end the year up nearly 4 percent, we're not exactly in the target zone for price stability, either.

....

It's all been great for global economic growth and global investment returns. But it's also become highly inflationary - all the more so since the dollar began its recent decline, increasing the cost of goods imported from any country without a dollar peg. Now, that overseas inflation is being imported into the United States.

I am having a nightmare. This can't be.

http://www.telegraph.co.uk/money/main.jhtm...14/cninf114.xml
Fear of inflation at highest level on record

By Edmund Conway Economics Editor
Last Updated: 4:23am GMT 14/12/2007

Experts issued a major warning to the UK on the possibility of inflation bubbling over in the economy after fresh figures showed that households' expectations for inflation have jumped to the highest level on record.

Q: How much is enough?
A: Hundreds of trillions, not billions.

Of course, injecting that kind of amount is equivalent to destroying all currencies.

http://www.telegraph.co.uk/money/main.jhtm.../ccbanks114.xml
Banks have $100bn, but no magic wand

By Edmund Conway and Iain Dey
Last Updated: 8:42am GMT 14/12/2007

The massive cash injection from the Bank of England, along with funds from its international counterparts, is welcome but too little to calm the fears sweeping money markets

A mere 24 hours after the western world's major central banks banded together to announce an almost unprecedented set of money market rescue operations, by early afternoon yesterday it was all too clear that the medicine was not having the desired effect.

It's not contained, is it? I thought they were managing these.

EDIT: typo.

Yep, the game is up. People are waking up now. Things will only accelerate from here, especially here in Europe since the masters have just decided to go down together with the USA.

Now I am not asking for individual financial advice here...

But just out of interest, what sort of hit can one expect when you buy some gold and then sell it on? It strikes me that it may not be that good a form of wealth protection if the tax man is allowed to dip his hands into your funds twice.

Britannias and sovereigns are exepmt from capital gains tax because they are UK legal tender.

It ain't working. It can't work because the problem is bank insolvency, not illiquidity.

http://www.bloomberg.com/apps/news?pid=206...refer=worldwide
Money-Market Rates Fail to Respond to Bank Measures

By Gavin Finch

Dec. 14 (Bloomberg) -- European money markets failed to respond for a second day to the biggest effort by central banks to restore confidence in the world financial system.

The euro interbank offered rate banks charge each other for three-month loans stayed near a seven-year high, falling 1 basis point to 4.94 percent, the European Banking Federation said today. That's 94 basis points more than the European Central Bank's benchmark interest rate. The two-week rate soared a record 80 basis points to 4.95 percent.

Indeed, as the monster of inflation is really expectations. If the masses now have inflationary expectations, then the genie is out of the bottle, and there's precious f"£$-all they can do about putting it back in - especially in the middle of a critcal meltdown..

Be careful of that.

They can exchange them for paper if you go down that road on a 1:1 basis. Dangerous if things get bad.

I am merely an interested beginner in the world of armchair economics. But I do find the broad usage of the word 'inflation' to be unhelpful. If the planet is invaded by giant apple-eating caterpillars, and apples become very scarce, so the price of them subsequently rockets: is this 'inflation', or is it a price increase due to supply/demand changes?

I can appreciate that an across-the-board price shift, on a group of items that have no particular supply/demand issues, might be a useful indicator of inflation due to an increase in the money supply. But the idea that some asset classes can 'inflate' while others simultaneously 'deflate' seems intuitively contradictory. It's like saying the 'national annual rainfall' is going up in Birmingham, but down in London. Surely it would be more correct to say that even in an inflationary environment (ie increasing money supply) it's possible for some asset classes to decrease in price, due to (presumably) a decrease in demand?

I appreciate that this is a monetarist view, and that Keynesians (for example) would define inflation differently. But I can't quite get my head around why they've done so. Why, for instance, do they have "cost-push inflation", rather than "Cost-push price rises"? I'd appreciate any clarification on this general point.

There's a quote somewhere about how the term 'inflation' has been deliberately obfuscated over time, in order to hide the issues arising from a fiat currency system, etc. I'm not sure if that's overly paranoid or not, but I think the multiplicity of meanings does make it harder to follow these discussions. So I personally would be grateful if everyone could be more careful in their use of the terms 'inflation' and 'deflation'. Or, indeed, if someone could go into more detail about the alternative meanings, and their implications. Thanks.

The keynesians want to change the definition because they tend to be socialists. Anyone who studies economics for any length of time quickly concludes that government intervention is usually the wrong thing to do. This leaves socialists without their favourite pastime and so they have to rewrite definitions so they can carry on with their wacky schemes.

It's a strategy for excusing political power and interference in people's lives. That's all, really.

Assuming that hyperinflation is what eventually transpires I would be very interested in people's responses to the following:

1. Will house prices still fall in nominal terms? If so, why when hyperinflation is raging?
2. Will there be a gap between houses falling in nominal prices and the advent of serious inflation?
3. If there is a gap will house prices turn right back round and start rising at a rate of knots as inflation takes off?
4. When do people think inflation will become 'serious' (and I don't call the current levels hyperinflation)?

I'd be very interested in what people have to say on the above subject, particulary cgnao.

If we are in for hyperinflation then timing of house purchases is going to be very important for a lot of people.

http://biz.yahoo.com/ap/071214/economy.html



0.8 multiplied by 12 thats err 9.6 annualised percentage points. That's rampant, but not yet hyperinflationary. But if the rate of increase should increase as it has been doing..... genie, bottles

Especially when you consider that in the US more than anywhere else, gasoline prices are at once a consumer end-product and an industry INPUT COST. So the cost of shipping, commuting, farming, manufacturing - basically EVERYTHING gets pushed up, hence even higher consumer inflation than the original gas inflation - a viscious cycle..

I think it is wrong to assume that hyperinflation is what the eventual outcome will be (although I have planed for this by taking out insurance in the shiny stuff).

The powers that be do not want hyper inflation - they want to inflate their debts away gently (the theif in the night) and stay in power - they do not want to preside over a worthless currency and riots in their back gardens - the events that transpire will be a combination of the inevitable and the meddling of governments and central bankers that really should know better than to mess - but mess they will.

The problem is that there is a general fear about the scale of the problem - is it too big that it has genuinely broken the system? or is it a problem whereby the pain can be absorbed? - going by the panick it seems that the CB have taken the view that it has broken the system or that if they do not act now then the system will break - i.e. they have taken a "its better to be proactive stance".

The issue with being proactive is that they are in danger of killing the patient - they are in effect spreading panick and inflation expectations - this can only make the problem even worse in the short term and may even make the problem much worse (hyper inflation) - the party's over but they just don't want the hang over.

The central banks if they carry on like this will hit a fork in the road v soon
1 - keep reducing IR's in spite of massive inflation (started)
- this is likely to accelerate inflation expectations and we will see more bank runs and queing outside stores
as people attempt to off load their cash in exchange for good (including gold and gold and gold and .... property)
- in this case houses will probably hold their own or not crash too much
- anyone with cash saving will be wiped out
2 - realise that the game is up and keep IR's steady or raise them even with evidence of a slow down
- then houses will plummet as the population realise that they have to take the medicine

Most think that they will go down route 1 - I think that it they do then they are stumbling down that route as a lost person would - they know not what they are doing. Hyperinflation is a fast way to a police/military state - maybe they do know what they are doing.

HAL

Hi HAL

Agree largely with your post, they are already trying to go down option 1 as you say but trying to do it in a managed way. The question is, will they lose control?

Now given that option 1 is already underway and inflation is (and has been for a while), rising - and yet we are seeing nominal house price falls right now. I wonder at what point nominal falls would be arrested? This is the key question to me and I would guess other holders of cash (although I do have approaching 20% in gold).

I remember the last HPC. Inflation was higher than it is today and yet house prices still fell in nominal terms (substantially).

I'm personally not at all convinced on the hyperinflation front but am fairly convinced that a relatively serious inflation problem is heading our way (RPI > 10% perhaps).

I know it's very difficult to figure out where this is all heading, particulary timings for jumping into housing at the best point but I think it's worthy of discussion given it's importance to a lot of people.

Hi W3

One of the points I was tryng to make is that wage inflation is delayed relative to price inflation - this time around the delay will be even greater (not many strong unions), in addition inflation expectation back then (1990) where in the order of 5-10% with comensurate annual wage inflation.

This time round - we have neither strong unions nor inflated wage expectations, and competition from abroad (twin edged sword) - I think (its only a theory) that this time price inflation will hit consumer spending even harder than last time - leading to less money in the average pocket and more foreclosures - therefore lower HP's than last time and theoretically it should be faster to the bottom.

So inflation will hit food, oil etc and simultaneously HP's will deflate. How long for? Depends what the authorities have up their sleeve, they could reduce tax, freeze IR's on resets etc, keep reducing IR's (to zero) and effetively give some respite while wage inflation catches up.

For me the real indicator will be if we start to see wage push inflation or tax cuts - this will put money into the hands of the masses and these are the people we are competing with. It is just a matter of time before either of these two happens, the question will be how significant will it be.

Oh - I also think GB is burning his bridges wrt wage push inflation (police) so he might go for tax cuts (can't see how he can afford those as he has spent it).

HAL

Up SIV creek without a paddle.


http://www.bloomberg.com/apps/news?pid=206...&refer=home


For the lay-man.

http://www.youtube.com/watch?v=SJ_qK4g6ntM

You'll need a good laugh.

Then you have then melted into ingots and it's always gold.

Can you see what the central bankers' plan is all about now? All currencies will be inflated away together with the dollar.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Dec. 14 (Bloomberg) -- The dollar advanced the most against the euro since May 2005 after the biggest increase in consumer inflation in two years prompted traders to pare expectations for interest-rate reductions.

That sounds careful enough.

Now this is someone who has it spot on, 100% correct, guaranteed.

http://www.nytimes.com/2007/12/14/opinion/...amp;oref=slogin
After the Money’s Gone
By PAUL KRUGMAN
Published: December 14, 2007

On Wednesday, the Federal Reserve announced plans to lend $40 billion to banks. By my count, it’s the fourth high-profile attempt to rescue the financial system since things started falling apart about five months ago. Maybe this one will do the trick, but I wouldn’t count on it.

In past financial crises — the stock market crash of 1987, the aftermath of Russia’s default in 1998 — the Fed has been able to wave its magic wand and make market turmoil disappear. But this time the magic isn’t working.

Why not? Because the problem with the markets isn’t just a lack of liquidity — there’s also a fundamental problem of solvency.

....

That translates into a lot of losses, and explains why liquidity has dried up. What’s going on in the markets isn’t an irrational panic. It’s a wholly rational panic, because there’s a lot of bad debt out there, and you don’t know how much of that bad debt is held by the guy who wants to borrow your money.

...

Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

In case anyone has doubts on exactly what is going on, here is how central banks are now directly buying subprime mortgages and other similar, worthless assets at nominal value.

http://www.federalreserve.gov/newsevents/p...y/20071212a.htm

By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress.

Two stupendous posts CGNAO

You may yet be heralded a foresighted genius

Latest events make the Northern Rock look like a teaparty.

Probably not apocalyptic enough for this thread, so by all means skip it if you don't like level-headed editorial comment from the FT.

Help, not miracles, from central banks

You have a house, a large mortgage and all the usual bills keep coming through the letterbox: electricity, gas, telephone, credit card. You are committed to building an extension to your house, but loans have become expensive and it would use up all of your savings. To make matters worse the housing market is looking shaky.

A kind friend – let’s call him Fred – says: “Don’t worry, I’ll lend as much as you need to get through the month. Just pay me a little above the bank rate. No need to worry about collateral, but if you insist then pledge that car of yours.” The car is new – a 2006 CDOx model that looks great but is terribly unreliable. Good luck to Fred if he ever has to sell it.

It is a tremendous relief: your immediate problems are solved. The loan will help to pay the builders and Fred is a decent bloke, so you can probably roll it over for a few months if need be.

But you will still have to pay Fred back, you are still stuck with the wretched car and the housing market still looks weak. Fred’s loan has got you out of a hole, but it has not made you any wealthier. You may be able to pay the bills, but you will still have to cut back on spending and you are certainly not going to lend money to anybody else.

Many banks in Europe and North America – small banks in particular – are in a similar position. They are being forced to absorb billions of dollars in assets that their off-balance sheet vehicles can no longer finance. The quality of those assets looks questionable and the banks are struggling to borrow money at a reasonable rate.

This week the central banks of the US, the eurozone, Canada, Switzerland and the UK agreed to act as Fred, providing cheap short-term loans to commercial banks. Yet given fear about losses on subprime mortgages, and therefore fear about the solvency of every bank in the system, having cash to hand may still not be enough to persuade banks to lend to each other.

Fred can help. If he would only lend enough to repay the mortgage and build the extension, all at a low interest rate and with no fixed date for repayment, then all your troubles would be over. Central banks, if they are willing to accept the credit risk, can do this by lending an unlimited amount, against any collateral, at their base rate. They should do this – as the Bank of Japan did in 2001 – if the alternative is a complete halt to new bank lending. But it should be a last resort.

No matter what central banks do, they cannot, in an instant, end the stress on the credit markets. Nor can they prevent that stress causing a significant economic slowdown. Bad loans have been made. US house prices are falling and the rest of the world may soon follow. The excesses of recent years will have to be worked off, one loan at a time. Fred can ease the pain – but he cannot cure the disease.

Cgnao I have had a thought.

If all this money injected to save the banks stops the banks going bust and defaulting on deposits.

Yet lending still declines from recent peaks.

The money injected will not get into general circulation and so not cause inflation.

It will simply prevent deflation - banks going bust and defaulting on deposits is very deflationary.

New money injected that is simply used to pay down debts vanishes in the act of paying the debt off and so does not cause inflation or does it?

Could this be B52 Ben's big idea?

How can the money injected be prevented from going into circulation?

The levees are cracked and the water is rising.

Yesterday and today central banks intervened jointly in the currency markets and forced the speculators into a USD short covering squeeze.

All central banks are trying to prevent further appreciation of their currencies vs the dollar which is at serious risk of sudden collapse. The only way this can be achieved is to increase their own money supply to buy more USD.

This is extremely inflationary, 100% correct, guaranteed.

This was what bugged me until Wednesday night, when I had a bit of an epiphany - it's not the money that Ben has helicoptered in that gets out into general circulation, it's the money that was already out there that normally would have done the same job that causes the inflation. When they generated the MBSs the banks had a customer in mind who had the money, but that customer is no longer interested in the toxic waste, so the money they had to invest is still out there. Maybe it will be used to buy oil, wheat, gold, or perhaps just the banks themselves.

How can anyone not see what's going on? It's so fundamentally simple. Jawbone the people, make them believe that price rises cause inflation (it actually is the exact opposite), and that the central banks are fighting it. Meanwhile, save the bankers by inflating rhe money supply to keep interest rates low.

They are playing with fire because when (not if) the masses understand the scam, it'll all happen suddenly like a massive dam bursting.

http://www.forbes.com/2007/12/14/trichet-e...facescan01.html
Trichet's Dilemma
Vidya Ram, 12.14.07, 3:35 PM ET

LONDON - John-Claude Trichet, the governor of the European Central Bank, has an unenviable task ahead of him.

Inflation within the Eurozone rose by 3.1% during November, according to data published by Eurostat on Friday, pointing to the dangers that higher prices pose to the European economy. At the same time, ongoing troubles within the banking sector and a strong euro will keep him under intense pressure from European leaders to cut interest rates.

Soaring costs for basic foods, including for milk, cheese and eggs, coupled with high oil prices sent inflation within the 13-nation Eurozone to its highest level since 2002, Eurostat said on Friday.

100% correct, guaranteed.

So, the money already borrowed in now in circulation.

As the debts are repaid this leaves circulation and new loans replace it.

Liquidity injections mean the removal part of the equation stops, but new loan money keeps piling into circulation = increased money supply = inflation.

This makes sense.

cgnao this subject is not simple.

The bankers and the government are trying to bamboozle us all.

Understanding Fraction Reserve Banking is a challenge for me.

I can understand gold in your possesion is an asset that the bankers cannot inflate away, cream off a percentage over time that compounds etc.

It's actually quite simple. It's just that the amount of institutional, systematic misinformation and mass brainwashing is extreme, thus making it difficult to recognize the truth.

If you want to learn more, there are many outstanding books downloadable for free at

http://www.mises.org/studyguide.aspx?actio...ject&Id=117

I recommend you start with

http://www.mises.org/books/inflation.pdf

Co-ordinated, deliberate hyperinflation of all currencies, and it is still not enough for the derivative beast.

http://www.bloomberg.com/apps/news?pid=206...;refer=currency
Pound Falls as Banks' Funding Plan Fails to Lower Lending Rates

By Kim-Mai Cutler

Dec. 15 (Bloomberg) -- The pound declined for a third week against the dollar as money-market rates for the U.K. currency failed to respond for a second day to combined action by central banks to ease a year-end credit squeeze.

The cost of borrowing pounds for three-months fell 1 basis point to 6.5 percent, the British Bankers' Association said Dec. 14, 1 percentage point more than the Bank of England's benchmark lending rate.

``Concerns about the high level of Libor rates in the U.K. and euro zone and the essential failure of the central banks' liquidity additions'' account for some of the pound's decline, said Adrian Schmidt, a senior foreign-exchange strategist at Royal Bank of Scotland Plc in London. More currency weakness is priced into the U.S. and ``going forward the risks are greater in the U.K. and Europe.''

The credit problem is:

1. Omnipresent
2. Not determined according to size.
3. Without definition of who really has a call on the collateral.
4. So far not reflecting the actions of the massive liquidity injection into credit markets which therefore indicates the problem is raging on.
5. The subject of the meeting of the major derivative dealers packaging this garbage at the New York Federal Reserve Bank over a year ago. The spin was this meeting had to do with the backlog jams on these items.
6. Without any PRACTICAL solution.

jsmineset.com

MUHAHAHAHAHAHAHAHHAHAHAHAHAHHAHA

Of course they'll change the rules.

http://www.telegraph.co.uk/money/main.jhtm...nbanking115.xml
Call to relax Basel banking rules

By Edmund Conway, Economics Editor
Last Updated: 2:13am GMT 15/12/2007

The Government must suspend a set of key banking regulations at the heart of the current financial crisis or risk seeing the economy spiral towards a future that could "make 1929 look like a walk in the park", one of Britain's leading economists has warned.

Why do you keep quoting Jim Sinclair without giving credit?

I do try to ocasionally. I would have thought it was obviously from his site anyway (which, by the way, is excellent, and can be found at jsmineset.com)

My aim is just to get the information out there to as many people as possible. People have to know what is going on in order to protect themselves from what is going to happen.

Ahh 1929, that well known period of massive worldwide hyperinflation

100% correct guaranteed

The gold standard has gone since then

Never ever will be deflation with fiat money IMHO

The clever government will create more money to spend if there is a sniff of
money apprciating.

Gold will assume its historic position and be king

Good as gold eh

Other books with that are equally credible and have the same degree of acceptance by mainstream economists include,

"Close Encounters With The Loch Ness Monster"

"The Bumper Book of Alien Abductions"

"How To Become A Mooney"

Do you mean the same guys who:
(1) did not forsee the credit crunch,
(2) totally misjudge the current situation,
(3) have no idea what to do and how to resolve this situation?

Talking about Jim Sinclair, his 'formula' kicks now into gear as the following breaking news show:

Schwarzenegger Will 'Declare Fiscal Emergency' In Weeks
http://www.nbc11.com/news/14858065/detail.html

Well this Guy does



Despite billion-dollar writedowns and housing market woes, a man in a gorilla suit can still lift the mood of the nation's consumers.

And what is he ramping, Chocolate, the Girl`s Gold.

it WAS for Germany wasn't it?