A new chapter in the financial crisis

[gonegolfin]

Hi Gone:

Maybe you will teach me a thing or two about what the illegal FED is doing here . . .

The significant Fed monetization of government debt that I have been expecting and writing about for several years is now upon us. Today, the Federal Reserve announced that late next week a program of purchasing $300 billion of longer dated treasury debt will commence.

In other words, you are talking about the privately-owned FED printing up more paper to purchase Treasury Debt, when the U.S. Government is broke and the U.S. Treasury (chart) says the US Debt exceeds 65.5 Trillion Dollars (story).

While this is the type of verbage that you see around the internet, the Fed is not printing paper nor is it adding to the money supply here. It is creating bank reserves. A chief operation of the Fed is to add and/or drain reserves from the banking system (manage bank reserve levels). That is what is happening here. The Fed does purchase assets by crediting bank reserves in the form of electronic credits to member institution reserve accounts. This has the potential to increase the money supply (depending on the course of action by the commercial banks). But the operation in and of itself does not increase the money supply. It only increases the monetary base as it increases bank reserves.

The following article I wrote, which was also published on Gary North's website may help.

http://www.usmessageboard.com/econo...y-supply-money-velocity-and-monetization.html

However, the real story is that the USA was 99.2 Trillion Dollars in debt as of August 11, 2008 of last year (story); and the real Debt is obviously higher than 100 Trillion Dollars as we speak. The illegal FED is not ‘buying’ anything at all, because printing money only creates more DEBT and devalues all the dollars in our pockets. Ron Paul knows what is really going on:

This is not real debt. This is potential debt that depends on all outstanding future obligations being honored. And again, the Fed creation of money (increasing bank reserves) does not devalue the Dollar in and of itself. It creates the potential to devalue the Dollar. The Dollar is not devalued if those reserves are not used to lend or invest money into the economy. Finally, creating new money does not create more debt. The Treasury auctioning treasuries creates more debt.

Additionally, purchases of Agency debt have been retargeted to $200 billion from $100 billion. The combination of the purchases of long term Treasury debt along with signification subsidzation of the mortgage securitization market will result in artifically low mortgage lending rates for a period of time and an artificial floor under housing prices.

I disagree 100 percent. The biggest problem we have in the USA right now is most people are focusing on the ‘symptoms’ and not the real cause of the Mortgage/Foreclosure Crisis; which in reality has nothing to do with the banks at all

I do not know what you are disagreeing with here. Everything that I stated in the above paragraph is accurate.

And as for root cause (which I did not mention above), you should search this forum for past articles I have written ... especially concerning root cause.

Brian

 

[wimpy77]

brian i agree with most things you say but i dont buy and have not bought into the mantra of the government should do nothing. but you are a heck of alot smarter than i am

 

[gonegolfin]

brian i agree with most things you say but i dont buy and have not bought into the mantra of the government should do nothing. but you are a heck of alot smarter than i am

So, think about this ... what do you think the government is accomplishing? And at what cost? Think about the last economic contraction earlier this decade, what the government did, and the result of that intervention.

Government is attempting to get the consumer spending again. But that is exactly what got us into this mess to begin with. We need saving, not more spending.

Brian

 

[wimpy77]

i agree with that the government should be less worried about spending and more worried about getting the toxic assets cleaned up.

 

[editec]

What if our government did nothing, as so many here think would have been the best course to follow?

Would most (if not all) banks collapse?

I suspect they might

Are they doing it right now?

I am truly not well informed enough to know.

My instricts tell me that they are saving part of the economy (SOME SMALL SEGMENT of the monied classes) and foisting the cost of doing that onto the backs of ALL of us, rich and poor alike

Well that is the big scare tactic. You probably didn't let it fly when Bush tried to do it with Iraq and WMDs. Why do yo you find the same argument so much more palatable now?

What a goofy presumption.

Given the last paragraph in my post, I find it hard to understand why you presume I find what is happening "palatable".

Does "FOISTING THE COST OF DOING THAT ON THE BACK OF ALL OF" read that I am sanguine about what is happening, Bernie?

Apparently it does to you. To people with the reading comprehension of a reasonably intelligent high school graduate, it does not read that way, however.

I have yet to see much convincing evidence that the economy was going to spiral into a bottomless pit if we didn't let these what these irresponsible companies reap what they had sewn.

The only historical evidence we have is the depression of the 1930s. Does that situation apply to ours? Frankly, I don't know.

What I am quite certain of giving the above article and this one:

90 Bonus Tax Way to Destroy Our Economy: Tech Ticker, Yahoo! Finance

is that our government is only making things worse. They aren't screwing just the little people, they are screwing everyone. it isn't enough to do just do something, anything rather than nothing. You still have to get it right and the democrat controlled government isn't even close to getting it right.

I wish I had your confidence that I KNEW what the effect of allowing AIG and most of the banks in America (and apparently Europe, too) go down.

You seem to think that the fallout of that massive bank failure wouldn't have been too bad.

That, or you doubt that the banks would have failed.

I don't really know what would have happened.

How is it that you are SO confident that you do?

Pray tell, Bernie, please tell us what would have happened to our economy and the worlds if we had done nothing.

Do by all means show us that you are smarter than the advisors of both Bush II and Obama.

We await your brilliance.

 

[Terral]

Hi wimpy:

i agree with that the government should be less worried about spending and more worried about getting the toxic assets cleaned up.

What is your plan for getting the toxic assets cleaned up? I do believe that many of you are in DENIAL that the “New Chapter In The U.S./Global Financial Crisis” shows things spirally completely out of control! There is no such thing as ‘the government’ getting the toxic assets cleaned up! These banks handed out the loans to sellers in an artificially inflated ‘bubble’ market that has already popped! That means 300,000 dollars has already been given away to a seller for a house that is now worth 125,000 dollars ‘and’ the selling price is going down every day in this ‘deflationary’ housing market spiral (stories) where more and more homeowners are going under water. Our US Gov’t is between 100 and 200 Trillion dollars IN DEBT (my Page 1 post) and you are talking about borrowing and printing up more money INCLUDING INTEREST for buying up toxic assets that are only going DOWN IN VALUE. The only way that We The People begin paying BANKS (this is ridiculous) to remove ‘bad paper’ assets from their balance sheets is to force our children and their children to foot the bill!

Even if you force our children to pour trillions and trillions more dollars down into the bottomless DEBT ABYSS, then the banks will only dump the ‘distressed property’ back onto the open market at LOWER PRICES and devalue every other house in the neighborhood. I have seen ‘For Sale’ signs for houses in my neighborhood for 69,000 dollars and now 44,000 dollars, because people are becoming even more desperate as housing prices continue to tumble, amid 10,000 foreclosures EVERY DAY, and the employment picture continues to get WORSE. Again (like Post #9), the illegal FED is figuring out a way to put toxic asset debt onto the National Debt, so future generations can suffer even longer in poverty, and we have not even started seeing the gigantic problems coming from the commercial real estate collapse, or the student loan crisis, or the credit card crisis, so on and so forth.

Here is what I did today in preparation for the coming Economic Implosion: I went out to SurvivalSeedBank.com (link) and purchased two of their Survival Seed Packages. There are only three kinds of people walking around on this earth: There are people who ‘make things happen,’ and those who ‘let things happen,’ and those who say “What happened?”.

Everything the Gov’t has done throughout this Crisis has only made things worse and what they are about to do (Tim Geithner holds the key) is going to kick the bottom out of the housing market and make the Economic Implosion a certainty.

Wake the hell up before it is too late . . .

GL,

Terral

 

[wimpy77]

terral why dont you the fuck out of here with your stupid dumbass conspiracy theories. welcome to my ignore list.

 

[Paulie]

i agree with that the government should be less worried about spending and more worried about getting the toxic assets cleaned up.

Why should the government even get involved with those assets? It was a private sector matter when it began, and it should STAY a private sector matter. At some point in time those assets will regain some value, and if for some reason they never do, then so be it. The government can not manipulate prices forever. At some point the market becomes too broad and too strong for the government to sustain its manipulation.

The assets will either have value or they won't. The market will either see profit potential, or they'll realize that they're worthless. Why not just let nature take its inevitable course?

 

[B94]

gonegolfin

Enter the Fed with a program to purchase massive amounts of longer term Treasury debt in the open market.

Where does the Fed get the money to make these purchases?

 

[wimpy77]

gonegolfin

Enter the Fed with a program to purchase massive amounts of longer term Treasury debt in the open market.

Where does the Fed get the money to make these purchases?

they print it.

 

[Skull Pilot]

Inflation and possibly hyperinflation has been part of the Obama "plan" from the beginning.

Did you really fall for all the "outrage" over the AIG bonuses? You know that whopping 1% of the bailout money that AIG received. Those bonuses that were specifically protected in the Screwulus bill?

You saw all the out rage and didn't realize it was a smoke screen. the fed printed a trillion dollars on the sly folks while your dream weaver, the leader of hope and stimuli clucked over a few million dollars.

What better way to pay multiple trillion dollar debts than with hyperinflated dollars?

And PS get ready for 9, 10,.....14%.......20% interest rates.

 

[gonegolfin]

gonegolfin

Enter the Fed with a program to purchase massive amounts of longer term Treasury debt in the open market.

Where does the Fed get the money to make these purchases?

The Fed obtains this money from its right to issue credit money in the form of bank reserves. When the Fed desires to make a purchase, it simply creates a book entry in the form of a credit to the appropriate reserve account (of the member institution from which it is purchasing -- usually one of its primary dealers). But these reserves are not inflationary (do not increase the money supply) until they are lent or invested into the economy.

Brian

 

[Paulie]

But these reserves are not inflationary (do not increase the money supply) until they are lent or invested into the economy.

Which basically leaves us between a rock and a hard place, because if they simply sit on the money forever and don't lend it, the economy stays stagnant for a significant period of time until prices correct and people put their newly acquired savings to work. But if they take that unprecedented monetary base and lend it out and invest it, we're looking at staggering inflation.

So it begs the question...the Federal Reserve is necessary, why?

 

[gonegolfin]

But these reserves are not inflationary (do not increase the money supply) until they are lent or invested into the economy.

Which basically leaves us between a rock and a hard place, because if they simply sit on the money forever and don't lend it, the economy stays stagnant for a significant period of time until prices correct and people put their newly acquired savings to work. But if they take that unprecedented monetary base and lend it out and invest it, we're looking at staggering inflation.

Yes ... or more accurately, lends off of this monetary base (lends off of the bank reserves). Strictly speaking, reserves are not lent. Banks lend new money off of their reserve base (new money is created when it is lent). But it is their reserves that allow for the lending to take place.

And to think about it another way ... banks cannot increase or decreases aggregate reserves in the banking system. The increase and contraction of money supply due to lending and investing does not impact aggregate reserve levels. Only the Fed can increase or decrease aggregate reserve levels.

The banks will not sit on these reserves forever. Lending and investing is what keeps them alive in the longer term. If they do not lend and invest, they will die.

[
So it begs the question...the Federal Reserve is necessary, why?

How else would the banking and financial elite confiscate wealth and savings for itself?

Brian

 

[Paulie]

How else would the banking and financial elite confiscate wealth and savings for itself?

Brian

Probably no other worthwhile, much less fruitful way, considering they've spent their entire existence fighting for the establishment of central banks.

 

[editec]

brian, most economist think in the short term what the fed did was a good thing but will pose problems down the line mainly with inflation which i agree with. how long will the fed institute this program and you predict a dollar collapse like some people jim rogers are predicting today.

Yes, it seems that a number of sources are worried about the current tripling of the money supply, and the coming inflation.

These sources need to understand the difference between the monetary base and the money supply. The money supply has not tripled. In fact, neither has the monetary base, but the base has had impressive growth. The money supply is actually up only modestly since extensive bank reserve creation has commenced (last September).

Brian

I presume, since they're NOT just printing up money, but instead borrowing it, that this inflation everyone is so fearful of is NOT going to happen.

I actually would be much more pleased to hear they're recapitalizing the banks with fiat dollars to be honest.

At least then, the US people would not be on the hook to pay them back at interest to people who, to be honest, I don't think really have any money to loan us to begin with.

The vast majority of us have no so little money, that inflation isn't a boogieman to us.

Inflation is the threat of those with (or owed) money, not those of us in debt.

 

[wimpy77]

oh no there will be inflation down the line question is how much.

 

[Zoomie1980]

brian, most economist think in the short term what the fed did was a good thing but will pose problems down the line mainly with inflation which i agree with. how long will the fed institute this program and you predict a dollar collapse like some people jim rogers are predicting today.

Yes, it seems that a number of sources are worried about the current tripling of the money supply, and the coming inflation.

Where is the foresight? What is going to happen to morgages of those elderly and others who still have a mortgage, and are faced with rampant inflation?

And how do you counter inflation? Yup, government induced recession.

Nothing if in fixed mortgages.

 

[Zoomie1980]

oh no there will be inflation down the line question is how much.

It could be excessive. In fact it very probably will be excessive. And for the wise investor...and opportunity, just as this "crisis" has been an ENORMOUS opportunity to load up on a lot of cheap stuff....which will pay HUGE dividends in the coming inflation bubble about to hit us.

 

[Zoomie1980]

But these reserves are not inflationary (do not increase the money supply) until they are lent or invested into the economy.

Which basically leaves us between a rock and a hard place, because if they simply sit on the money forever and don't lend it, the economy stays stagnant for a significant period of time until prices correct and people put their newly acquired savings to work. But if they take that unprecedented monetary base and lend it out and invest it, we're looking at staggering inflation.

So it begs the question...the Federal Reserve is necessary, why?

I hope you Gold bugs give it up soon.

Now is the time to be buying quality stocks.....and NOW is the time to be buying some oil if you are into the commidity thing....but ditch your gold.