The ignorance (or evil cunning) of our politician's today are fooling no one with their band-aid stimulus plans that don't even stick. Stock market indexes have confirmed the lack of faith in the ability of "big brother" to step in, just look at last week's chart of the ^DJI:
In case you were wondering that chart reflects a loss of 420.46 points for a 5% loss in a single week. This all occurred in real time as Geithner, Obama and other political "superstars" such as Barney Frank unsuccessfully tried inspire confidence in their proposed "stimulus" plan. What about other markets:
I highlighted in red the change form last month, which reflects a huge reversal in confidence in the government to fix the problem by issuing nearly $1 trillion in bonds, bills and notes, which inspires the ultimate fear play:
Gold has been rising dramatically in the past 30 days. So why the sudden mistrust in treasuries after their position over the past several years as a safe haven? The following charts help explain:
The above chart is a bit fuzzy (my apologies) but it paints a clear picture. The US has managed to leverage itself in both public and private debt 3.5 to 1 (as of 3/31/2008). Considering the explosion of government spending since then, this figure has grown even more. Furthermore GDP is shrinking.
Now there is criticism out in the financial community that a bit of double accounting exists in the total debt figure for this chart, but regardless the message is clear. A few more charts should help convince anyone that there is a real debt problem of "unprecedented" magnitude:
Americans are deleveraging right now at historically low interest rates, yet debt levels are so high that debt service to income is 3% higher than the double digit interest rate environment of the 1980's. What happens if interest rates spike? Of course we know, the economy completely tanks as defaults spike.
What ails Bernanke at night is that he must know that there is only one realistic outcome of this crisis that leaves him utterly powerless. Consider the hyperinflationary outcome from outright monetization of all this debt. Interest rates would spike, commodoties would soar and public and foreign government outcry would ensue. Bernanke couldn't possibly consider monetizing all this debt because as a result the dollar (the world's reserve currency) would lose its standing and foreign governments would lose all faith in the American economy. This loss of power is a far worse scenario to the Fed and politicians than a deflationary depression.
Now after reviewing all the above charts, how can politician's like Barney Frank continually call for banks to lend?
Here is the scenario: The Fed was not the actor but the author in this modern day opera, fractional reserve banking the main character and credit the dominant factor.
Yes there were many other actors; the rating agency cartel, securitization markets, govenment intervention, etc. However for all intensive purposes these are political sideshows and every call from representatives like Barney frank for reform of these actors will be welcome, but will not solve the underlying problem which is the credit based monetary system itself.
It follows as such; once a credit boom ensues the availability of productive investment dwindles, which leads to malinvestment namely in asset speculation (bubbles). Entrepreneurs are specualtors in nature and is not necessarily a bad thing, but the excesses of credit disort expectations on rates of return, which leads to irrational credit induced booms which are ultimately unsustainable and will come crashing down once the rate of credit expansion slows.
This has already been underway for some time and there is nothing anyone can do unless they sacrifice the credibility of our entire economy by monetizing a truly massive amount of debt outstanding. The only reasonable outcome is the necessary purging of debt that must occur.
In case you were wondering that chart reflects a loss of 420.46 points for a 5% loss in a single week. This all occurred in real time as Geithner, Obama and other political "superstars" such as Barney Frank unsuccessfully tried inspire confidence in their proposed "stimulus" plan. What about other markets:
I highlighted in red the change form last month, which reflects a huge reversal in confidence in the government to fix the problem by issuing nearly $1 trillion in bonds, bills and notes, which inspires the ultimate fear play:Gold has been rising dramatically in the past 30 days. So why the sudden mistrust in treasuries after their position over the past several years as a safe haven? The following charts help explain:
The above chart is a bit fuzzy (my apologies) but it paints a clear picture. The US has managed to leverage itself in both public and private debt 3.5 to 1 (as of 3/31/2008). Considering the explosion of government spending since then, this figure has grown even more. Furthermore GDP is shrinking.Now there is criticism out in the financial community that a bit of double accounting exists in the total debt figure for this chart, but regardless the message is clear. A few more charts should help convince anyone that there is a real debt problem of "unprecedented" magnitude:
Americans are deleveraging right now at historically low interest rates, yet debt levels are so high that debt service to income is 3% higher than the double digit interest rate environment of the 1980's. What happens if interest rates spike? Of course we know, the economy completely tanks as defaults spike.
What ails Bernanke at night is that he must know that there is only one realistic outcome of this crisis that leaves him utterly powerless. Consider the hyperinflationary outcome from outright monetization of all this debt. Interest rates would spike, commodoties would soar and public and foreign government outcry would ensue. Bernanke couldn't possibly consider monetizing all this debt because as a result the dollar (the world's reserve currency) would lose its standing and foreign governments would lose all faith in the American economy. This loss of power is a far worse scenario to the Fed and politicians than a deflationary depression.
Now after reviewing all the above charts, how can politician's like Barney Frank continually call for banks to lend?
Here is the scenario: The Fed was not the actor but the author in this modern day opera, fractional reserve banking the main character and credit the dominant factor.
Yes there were many other actors; the rating agency cartel, securitization markets, govenment intervention, etc. However for all intensive purposes these are political sideshows and every call from representatives like Barney frank for reform of these actors will be welcome, but will not solve the underlying problem which is the credit based monetary system itself.
It follows as such; once a credit boom ensues the availability of productive investment dwindles, which leads to malinvestment namely in asset speculation (bubbles). Entrepreneurs are specualtors in nature and is not necessarily a bad thing, but the excesses of credit disort expectations on rates of return, which leads to irrational credit induced booms which are ultimately unsustainable and will come crashing down once the rate of credit expansion slows.
This has already been underway for some time and there is nothing anyone can do unless they sacrifice the credibility of our entire economy by monetizing a truly massive amount of debt outstanding. The only reasonable outcome is the necessary purging of debt that must occur.
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