Friday, February 20, 2009

The Fed is nearly out of the picture, federal Gov now propping up the debt bubble

U.S. Federal Government Fighting Deflation by Propping Up Debt Bubble

The ultimate source of all the bad credit in the U.S. financial system is Congress...Germany, for example, has issued mortgage-backed securities with a value equal to 0.2 percent of its annual GDP, the U.S. has issued them so ferociously that their value has reached 49.6 percent of annual GDP, a multiple of 250 times Germany's rate...“What's to stop the U.S. government from simply adopting all bad debts, keeping the credit bubble inflated?” Answer: The U.S. government's IOUs have a price...So the question comes down to this: Will the public put up with more financial exploitation? To date, that's exactly what it has done, but social mood is declining, and voters are likely to become far less complacent, and more belligerent, than they have been for the past 76 years.

Posted by mountain goat @ 12:18 AM (1073 views)
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3 thoughts on “The Fed is nearly out of the picture, federal Gov now propping up the debt bubble

  • MG – you posted a couple of things the other day that i saw but couldnt respond to as ive been quite busy. Anyway the comparison between Germany and the US when it comes to fighting the ‘flations was interesting and something of a watching brief. As for Cocoa (i think it was Cocoa) futures junction is pretty good because he tells you where the problem reversal points are,i.e. not only the most LIKELY count and the alternative if it goes t*ts up. There is always an alternative and thats where people who only apply it superficially throw it away because “it dont work”, what they fail to grasp is that EVERYTHING works until it doesnt.

    So good luck and i am glad you found it helpful – although personally when i first traded based on E Wave i never had any help (pre – internet) and i just came across the book which i found fascinating (its got quite a lot of non market stuff) and it wasnt until after about 6 months to a year later (depending on market) that i started to apply the concepts.

    Personally my positions are ALWAYS defensive, i look for what i perceive as low risk – i give it some room with quite big stops and i look to reduce the stop to a risk-free level asap (i learnt that if the market goes your way but then doesnt continue to do where you think it will go you either get out or reduce the risk). Its then a question of taking out some of the position at different targets each clearly having a lower probability than the previous internediate target. Sure sometimes you will be wrong (infact you arte ALWAYS wrong – if it goes your way you dont have enough and if it doesnt you have too much), but you should never get wedded to a position “it MUST do this” is a nightmare – take your medicine and live to fight another day. “If you manage the losses the profits take care of themselves” – not 100% true but no-one ever won the premiership with a crap defence.

    As for the article above today there is an interesting free piece on the EWI website – Particularly these two paras:

    “In an environment of pessimism, corporations likewise reduce borrowing for expansion and acquisition, fearing the burden more than they believe in the opportunity. Consumers adopt a defensive strategy at such times by opting to save and conserve rather than to borrow, invest and spend. Anything the Fed does in such a climate will be seen through the lens of cynicism and fear. In such a mental state, people will interpret Fed actions differently from the way that they did when they were inclined toward confidence and hope.

    If people and corporations are unwilling to borrow or unable to finance debt, and if banks and investors are disinclined to lend, central banks cannot force them to do so. During deflation, they cannot even induce them to do so with a zero interest rate. That’s what has been happening in Japan for over a decade, where rates have fallen effectively to zero but the volume of credit is still contracting. Thus, regardless of assertions to the contrary, the Fed’s purported “control” of borrowing, lending and interest rates ultimately depends upon an accommodating market psychology and cannot be set by decree.”

    And that itself is an excerpt from the Conquer the Crash book – my copy is 2004.

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  • i will probably be busy till lunchtime today but i forgot to ask you if you have taken a look at the 60 page “deflation handbook”….. I havent yet but will.

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  • TM – I have not looked at the book, although read an article summarising it (which I posted as a comment a while ago). Looks interesting.

    Yes the whole area of defence in trading is something I need to learn. I tend to go long everything I invest in i.e. ask myself “would I be happy to hold this for 5 years?” If it shoots up unexpectedly I sometimes sell and buy back later when it falls again. So this cocoa trade was just that. Cocoa shot up after the global sell-off in November because of fear for the crop in Africa, caterpillar plague. So i expected a correction and the EWI technical analysis confirmed this.

    In terms of inflation and deflation. It is interesting to think about but it doesn’t influence me that much. Both happen in a monetary crisis, as we have. So I think the issue is the monetary crisis not the response by the authorities which might lead to inflation or deflation. The thing I liked about this article by Pretcher was the insight that the Fed’s role is almost played out. There is a limit to what they can do now so it falls to the federal government bailouts. For me that is a new idea. This is why I read Market Oracle articles in the first place. Insights like this only tend to appear in the mainstream media months later, always behind the curve.

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