Thursday, May 28, 2009
US attempt to control rates failing
Mish: Mortgage market locks up
(stick rattles in bucket) pig-hooey ! "Yesterday 10 year treasury yields went soaring and the mortgage market literally seized up.", this is the US. The plan doesn't seem to be working."Lastly, consider sentiment -- this is a real killer. This massive rate spike may have invalidated hundreds of billions spent to rig the mortgage market literally overnight."
Posted by stillthinking @ 08:35 PM (1514 views) Add Comment
19 Comments
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1. crunchy said...
http://www.youtube.com/watch?v=MCt2yRqlCcQ&feature=related
http://www.youtube.com/watch?v=FnkdfFAqsHA
Some may need to refresh their memory.
2. bellwether said...
ST this was kind of my point earlier re rents, the government is quite not simply going to have the £ to keep that or any other aspects of the manipulation going. If the US are struggling with their debts lets see what happens to the auctions needed to raise £220 billion this year.
"We're (UK) far more vulnerable than Japan ever was," said Albert Edwards, global strategist at Société Générale. "Japan had a huge current account surplus and a strong currency. The UK is a deficit country, at risk of a sterling collapse. Years of UK macro-mismanagement have dragged the UK economy to the edge of a precipice."
3. bellwether said...
sorry mangled that first sentence just saying we are too broke to sustain manipualtion for much longer. Also the £220 billion that needs to be raised is here in the UK
4. happy mondays said...
In the words of Bob Marley..
Could You be Loved - Uprising - 1980
Could you be loved and be loved?
Could you be loved and be loved?
Don't let them fool ya,
Or even try to school ya! Oh, no!
We've got a mind of our own,
So go to hell if what you're thinking is not right!
Love would never leave us alone,
A-yin the darkness there must come out to light.
Could you be loved and be loved?
Could you be loved, wo now! - and be loved?
(The road of life is rocky and you may stumble too,
So while you point your fingers someone else is judging you)
Love your brotherman!
(Could you be - could you be - could you be loved?
Could you be - could you be loved?
Could you be - could you be - could you be loved?
Could you be - could you be loved?)
Don't let them change ya, oh! -
Or even rearrange ya! Oh, no!
We've got a life to live.
They say: only - only -
only the fittest of the fittest shall survive -
Stay alive! Eh!
Could you be loved and be loved?
Could you be loved, wo now! - and be loved?
(You ain't gonna miss your water until your well runs dry;
No matter how you treat him, the man will never be satisfied.)
Say something! (Could you be - could you be - could you be loved?
Could you be - could you be loved?)
Say something! Say something!
(Could you be - could you be - could you be loved?)
Say something! (Could you be - could you be loved?)
Say something! Say something! (Say something!)
Say something! Say something! (Could you be loved?)
Say something! Say something! Reggae, reggae!
Say something! Rockers, rockers!
Say something! Reggae, reggae!
Say something! Rockers, rockers!
Say something! (Could you be loved?)
Say something! Uh!
Say something! Come on!
Say something! (Could you be - could you be - could you be loved?)
Say something! (Could you be - could you be loved?)
Say something! (Could you be - could you be - could you be loved?)
Say something! (Could you be - could you be loved?) [fadeout]
5. Macleod said...
Is it me or does the posting of the entire lyrics of a song annoy everyone?
6. drewster said...
This may not be as significant as it seems. The FT has a different angle on the Treasuries story:
Shock, horror: US government bond rates are jumping. Soon, goes the story, long-term interest rates will leap, the Federal Reserve will monetise, inflation will soar and civilisation will end. Actually, no. What is happening is precisely the normalisation the Fed has sought.
This panic is, happily, over, just as the Fed and the administration wanted. Spreads of corporate bonds over US Treasuries are roughly back where they were last summer. Yields on corporate bonds are well below levels at the end of last year.
What has happened, quite simply, is normalisation of inflation expectations. [...] That is exactly what the Fed desires.
Normalisation is a big success, not a danger.
7. crunchy said...
The Greatest Shortcoming of the human Race is our Inability to Understand the Exponential Function.
Zimbabwe learnt too late! America to follow.
8. stillthinking said...
bellwether, little p put a comment on that to the effect that you can find out how much the state pays and they have deep pockets. take a look at the thread a last time. having said that, I am basically suggesting that the government have artificially kept the price of something too high, which would express itself in the end as oversupply. whether planning restrictions were enough or not, I suppose we will have to see how much further rents fall. I don't believe they bottomed. perhaps it was all a cunning plan all along to boost housing supply...probably we have more accomodation than without a historically sized bubble.
yes, I think so too, we are going to run out of cash.
oh sh*t because i bet we don't stop spending.
buy backs for the foreign holders and stuff the pension funds seems to have a natural limit. but they have already set down a path, increased servicing costs will have to be taken, increased debt, increased qe. the sad fact is that money printing is not necessarily inflationry, provided the money spent increases the wealth inside the economy, if the economy grows an equivalent amount no problem. Mass house building program anybody? No, thought not. all this bond high jinkery is proof that the money is being completely wasted and hasn't grown the economy one iota.
maybe brown will kill the uk, and maybe he won't. I think he will sink us but how can you know? maybe he will realise at the last minute, maybe mervyn will face him down.
housing will probably be cheaper in the future though :)
9. stillthinking said...
I should qualify that, because I still think the huge deflationary flood is coming, irrespective of panicky bond holders, who are scared of default more than inflation.
10. crunchy said...
7. stillthinking said...increased debt, increased qe. the sad fact is that money printing is not necessarily inflationry, provided the money spent increases the wealth inside the economy, if the economy grows an equivalent amount no problem.
Bolloks.. It would never be able to grow enough. Enough for the rich perhaps, but what about the majority.
That is the kind of statement I would expect from G. Brown.
stillthinking, keepthinking. I am suprised to hear such short sighted thinking from you!
11. crunchy said...
I am getting worried for your sanity stillthinking.
12. crunchy said...
Back to basics... When they create the money supply they don't create the interest.
One cannot stimulate true capital with false capital.
You are advocating a monetary policy that is inherently flawed and is destructive beyond belief.
13. bellwether said...
Looks like Crunchy is getting tired and fractous.
Anyway Drewster, appreciate your post really interested in the alternative perspective that this is not an ongoing meltdown and explantions why. There is a dearth of stuff out there or at least I'm not finding it.
The normalisation argument isn't really doing it for me at 2 levels. One if yeilds keep increasing on issuance what looked like normalisation will just be a brief stop on the way up to ever greater yeilds. The writer kind of acknowleges this at end of article.
The second is that in what sense is constantly creating inflation expectations a normalisation. The idea is where cash is ultimately devaluing and therefore disposable we feelmight as well spend now and that spending will drive the ecomony on. The problem with this is spending is not production andeventally it will not buy someone elses production. Then you just have paper and no economy at which point you have to deflate.
ie there is limit beyond which you either get deflation or chose hyper inflation and hyper inflation leads to deflation in the end when the currency breaks down.
I guess like summer winter etc Deflation and inflation need to coexist and deflation is what allows the credit expansion to start again but if you don't deflate the market does not reprice.
Think what I'm saying is that you can't keep expanding forever there needs to be creative destruction and that is what we have been desperately trying to avert since 1999.
Put another way for how long can the west remain able to afford to consume what the east is producing. There is a battle going on might not even buy production if the producers start putting their prices up
that is Does this mean nobody needs to worry? Certainly not. Desirable normalisation could yet become a panic over the massive prospective bond issuance. Now that the worst of the panic has passed, the administration and Congress need to agree a credible plan for elimination of the huge structural fiscal deficits. As the Congressional Budget Office’s forecasts demonstrate, President Barack Obama’s budget proposal is not such a plan: it leaves deficits of between 4 and 6 per cent of gross domestic product as far as the eye can see. This will need to change soon. But, right now, everybody needs to keep calm. Normalisation is a big success, not a danger
14. crunchy said...
Just getting tired of the elaborate BS. Money is very, very SIMPLE.
Things go bad when people like you and bankers over complicate it. Go figure clever boys.
I'm not as fractious as your spelling!
15. drewster said...
bellwether,
Interesting analysis. I agree that this "return to normality" could just be a blip.
For my money, I think we're still on course for a Japanese-style lost decade, in which asset prices keep slipping downwards year after year. I don't foresee any wage inflation. There will probably be inflation in food and oil prices, but that is "bad inflation": it leaves people with less disposable income and therefore less spare cash to pump into property.
16. debtfree said...
@8. stillthinking
history shows that ALL hyperinflationary events happen in a deflationary environment.
if we are going to face a deflationary flood as you put it, then the chances of hyperinflation are quite high.
should bond holders be scared of hyperinflation more than inflation ?
17. stillthinking said...
debtfree, in the end fiat money is worthless. maybe that happens after we shuffle off the mortal coil. who knows. I think there will be problem inflation at some point, but I just don't see any immediate end to deflation and the risk is certainly the Japanese scenario. deflation is a self-reinforcing spiral. give everybody in the UK a million quid and a brutal savings mentality and we would still get rising unemployment and lowered consumption.
isn't the problem that the government cannot reverse the -real- value decline, only the nominal decline. so for a british house buyer for example, nominal and real both falling. But maybe they stop the nominal falls by sacrificing the pound, that doesn't stop the real fall, people shift to a stable currency and see in euros the real fall continues. or they see stagflation, food prices shoot up and houses continue to fall relative to food. the government cannot change real adjust values, only nominal values, which doesn't seem to be capable of lifting consumption. in a way they did do this, because if everybody with a deposit, the delayed purchasers, had got into euros last year, given that there has been a 50% fall in euros, maybe they would have jumped back in. but unfortunately nobody shifted their deposit to euros. for housing, it is -real-ly too expensive.
what the governments are trying to do, for the population, is not to lift the cost of company borrowing, and then announce ta-da interest rates are high we are all saved. The goal is to stop the shrinkage of the real economy by increasing stalled consumption. Yields,interest rates, inflation are tools to stop the shrinkage in people really doing something like making tables out of wood, and then sticking them in a kitchen or whatever.
That borrowing costs rise is not indicative of demand pull inflation returning, a healthy sign of consumption and demand, but instead because the costs are rising due to fear of default, not inflation. The market is saying you can't reflate in that manner. China is saying you cannot reflate in that manner. So back to monetisation, the nuclear option.
Really, if China are concerned now, and wetting themselves about printing, the worst cannot be past. This is getting worse now. Not better.
debtfree, if I was a saver I would be scared of monetisation. a deliberate effective tax on my holdings. I would be scared(in a greedy way) of deflation ending and ironically also scared of deflation's counterpart of default. I would be scared of holdings in the US or the UK because in real terms everything in these countries, price of labour, housing, they are all overpriced, the oft-quoted wile.coyote suspension.
18. stillthinking said...
one additional post, sorry.
I can sum up my thinking. Basically I think the deflation has already occurred, which is why we can't get out of deflation. What is happening now is that we are realising that the dollar and the pound are actually worth much more than we think, and we have borrowed on the basis of a mistaken valuation and our debts are much higher than we expect. Consider this narrative;
US President & Chinese Premier.
CP: Hello
USP: Hi. I wanted to talk about our debts. You remember when we decided in the US that 10 dollars was worth one hour of a highly trained US citizen serving hamburgers, and we also decided that it was worth ten Chinese people working for a week in a factory. Remember?
CP: Oh yes. I remember very well. You took on a lot of debt. Thank you. Your future labours will be magnificent and lengthy indeed.
USP: Well, that was kind of what I wanted to talk about. Basically it has all turned out to be a big mistake. We got the value wrong on the American side.
CP: uh huh.
USP: Yeah, it turns out the value of the US worker is much less than we thought.
CP: uh huh
USP: Yeah, and also, sheesh, we were borrowing kind of on the basis of that.
CP: uh huh
USP: yep, anyway, now we realised the mistake on our side. kind of tricky because everybody's wage is too too high so nobody is buying anything anymore, and we sort of thought well the debt looks a bit problematic now too.
CP: uh huh
USP: so we kind of came up with a solution. more debt!
CP: but you won't be able to pay it back...
USP: well, I am coming to that. because we got the labour-dollar valuation wrong, and we can't adjust the price of labour up.... ummm, we though maybe we could just print dollars and, of course, hand them over to you, no doubt about that, and promise to pay more attention in future.
CP: good luck sunshine. you will be fighting us and also the wealthy americans.
19. debtfree said...
stillthinking
" I would be scared of holdings in the US or the UK because in real terms everything in these countries, price of labour, housing, they are all overpriced"
Talking to someone earlier and they were quoted by UK website developers £400 for just evaluating the website to be built and creating some samples.
Evaluated, designed and built for £600 in eastern europe. No need for flights and meetings, all done by email and the work electronically sent.
The UK is not exactly the 'French Riveria' and is about to come crashing back down to earth.