Posted by
rycK on Friday, December 19, 2008 12:43:33 PM
The Fed is Battling
Debt Deflation with More Debt—an Essay in Lunacy.
The Fed
has panicked and is struggling to fight deflation with more debt, the very item
that caused the problem in the beginning. Bush has just agreed to bail out Detroit with 17.4 bln of your money and
that will fail as the auto business is in a depression world-wide. GM owes 60
bln and cannot recover no matte what. O’Bozo
plans to spend a trillion or two more and tax carbon.
From Ambrose Evans-Pritchard of the Telegraph.
“Today we call this "Gladwell's tipping point". Once it goes, you
can't get back up. This is why the Federal Reserve has resorted to emergency
measures that seem mad at first sight.”--Federal
Reserve is damned either way as it battles debt and deflation By Ambrose Evans-Pritchard Last Updated: 6:34PM GMT 18 Dec 2008 [Emphasis is mine in all quotes.]
There is a critical timing point whereby the deflation
will suddenly reverse violently and become hyper inflation as we read here from
the same link:
“Brian Reading from Lombard Street Research has revived this neglected thesis and come up with
some disturbing figures. US household debt is now $13.9 trillion, down just 1pc from its
peak last year. Meanwhile household wealth [This was at 57 trillion last month, ed]
has fallen 14pc as property crashes, a loss of $6.67 trillion. The
debt-to-wealth ratio is rocketing.”
Now, the bond
markets are in jeopardy as their might be a bond bubble. As if we haven’t seen
enough bubbles in this Lawrence Welk Freak Show already.
“For now, the bond markets are
quiet. Futures contracts are pricing
five years of deflation in the US. Yields on 10-year US Treasuries have halved since
early November to 2.09pc, the lowest since the Fed's data began. Three-month
dollar LIBOR has plummeted to 1.53pc.
It is the same pattern across the world. 10-year yields have
fallen to 1.27pc in Japan, 3pc in Germany, 3.2pc in Britain, and 3.49pc in France.
The bond markets seem to be betting
that emergency action by central banks will take a very long time to work, if it works at all. By
cutting to zero, the Fed has come close to shutting down the US 'repo' market that plays a
crucial role in providing liquidity. It has caused havoc to the $3.5 trillion
money markets - as the Bank of Japan, burned by experienced, had
warned. It has become even harder for banks to raise money. Some argue that
extreme monetary policy is already doing more harm than good.”
The world
has never been in this kind of mess before. We wonder why gold
has not soared. Who knows what a ‘bond bubble’ might look like?
This is
not the fault of Bush2 or the US entirely. The world is having a
real estate market drop and equity is vanishing so the debt ratio is rising.
Many people have mortgages that are above the value of their real estate.
People
better think again what Dave Ramsey is saying about debt. Today, the dollar is
stronger and gold went down a bit. Strange.
I am not sure anybody knows how
the system works.
rycK
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