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With the stock market tanking today... the BBC has this today.
"European stocks have joined a global sell-off, after concerns about the US economy and mortgage industry hurt markets in Asia and dented Wall Street."
Isn't that exactly what we were talking about on this blog yesterday.
It's likely not the truth, but sometimes I swear this blog is haunted by very powerful people who are starting to take cues from the overiding sentiment.
Perhaps it's more a case of this blog reflect wider sentiment about the economy and such, and that is now creeping into investors in the equity markets.
Like someone said here yesterday, it definitely appears as though the equity markets are signaling a major downturn in the economy. We'll see if that causes some demand destruction, because if it doesn't and SA doesn't respond, then it could be a very tough 2008.
More from the mortage front: "The Fading American Dream"
Scary math: More homes, fewer buyers
Record foreclosures in fourth quarter
Aaachooo! Markets are catching subprime flu.
http://biz.yahoo.com/ap/070314/world_markets.html?.v=16
Lets see you are the Fed what are you going to do?
1) Drop rates to stimulated more debt? (Is this even an option at this point).
2) Increase rates because the Chinese are looking for a higher return on thier money than they are getting from US treasuries?
3) Print more $, get helicopter Ben into his flight jacket.
hmmm...
If there is a recession/depression, demand will plummet, which should counteract the inflation we've been seeing. The feds will then be able to drop interest rates and try to juice the system.
At least that's what I'm hoping. I'd love to be able to refinance down to a 15 year mortgage at 4.5%.
We'll see if the feds have a surprise rate cut this meeting.
Garth
Not this meeting, but the next maybe...if these proceeds with speed, then yes this year, but the FED is hung up on inflation at least in their comments.
Inflation won't be counteracted because by lowering rates, they make money cheaper which causes inflation. Econ 101 - Rates go down, MS goes up. Money supply increases by definition are inflationary.
http://thefinancedude.blogspot.com
Creating new money makes money cheaper, and they do it by creating debt via fractional reserve banking and by printing new money. Everything else is a side effect of that.
The feds don't give a damn about inflation....they just want you to think they do. They are fearful of foreigners bailing out of US debt instruments --- which is essentially everything: US Bonds and Treasuries and the US Dollar. What they haven't been telling you is that foreigners have already been bailing from our bonds in record numbers and many countries have announced diversification out of the US$.
The worst of the inflation will hit food/energy/medical. I expect deflation to hit everywhere else. The fed has created this financial pickle and they won't be able to fix it. I expect they will continue to create massive amounts of new money to try and stimulate the economy while holding interest rates higher for longer than anyone expects to try and keep the foreigners invested in the bubble.
Because of peak oil, I expect this will be the last boom/bust cycle that the fed creates in the US for a very long time. And guess what, the boom part is now over.
And the Tresury Dept. has just accused North Korea of counterfeiting U.S. Currency identical to the real thing.
A Cover for our own flooding the market?
You mean the Super Bill? Those have been talked about for at least a decade now. Nothing new really.
http://en.wikipedia.org/wiki/Superdollar
This bit is fairly new:
Like these, maybe?
The source is interesting - the FAZ is roughly (very roughly) the German version of the Wall Street Journal, and is proably the most pro-American major media outlet (not that many Americans are likely to understand that - the FAZ doesn't feel the need to hide reality to spare the feelings of torturers and kidnappers, for example). It is also the hometown newspaper, so to speak, of the European Central Bank and the Bundesbank.
With such stories, you never know where the hall of mirrors leads - as the FAZ, like any major newspaper, is one player in never-ending games.
But still, if there was a German newspaper you would expect to dismiss such a story if printed in any other German source, it is the FAZ, which makes the sourcing alone notable.
Thanks for the perspective. I had been inclined to dismiss this since I didn't have a clue about the reliability of the source. I'll be interested to see where this leads. If the story has legs, you would expect others to pick it up.
I guess they started feeling bad about all those drugs making it into the country so they started printing money instead....oh wait...they still are. Must be making some nice coin. I take it this is used to pay warlords and such, but where do the bills show up when they are detected? I mean these are those notes that make it past all but the best scanners, right?
http://thefinancedude.blogspot.com
Go back to econ classes because fractional reserve banking does not make money cheaper it increases the velocity of the money and how many times it spent. Money is a commodity and it has a price just like everything else and that price is called a discount rate or interest rate.
I agree fractionally reserve banking is egregious, however let's get the facts right.
http://thefinancedude.blogspot.com
Yes, it increases the velocity of money. But it also increases the money supply. Increasing the money supply decreases the value of the money in circulation, hence the devaluation of the dollar. That's what I meant by making money cheaper. I just used the wrong term --- it should have been dollar devaluation.
"If there is a recession/depression, demand will plummet, which should counteract the inflation
we've been seeing."
There's no fundamental law that says we can't have both depression and inflation, although as someone down the threat notes, inflation won't be uniform. Wages and salaries won't inflate nearly as much, for example.
And another one...
As rates soar, 2.2 million Americans risk losing homes this year
Yes, she should have known better, but the mortgage brokers bear some responsibility, too.
"It's likely not the truth, but sometimes I swear this blog is haunted by very powerful people who are starting to take cues from the overiding sentiment."
I would say that this blog is frequented by a lot of really smart people who haven't drunk the kool-aid. Most of the problems happening have been there, plain as day, for years. The amazing thing is that so few people see them or think they'll be affected. The US *will* inflate its way out of its debt problems, there *will* be recession (maybe at the same time), oil prices *will* rise until demand is reduced, demand *will* be reduced, the US way of life *will* be renegotiated.
The only questions are how bad the problems will be, how soon, and whether people will go quietly. It looks like we'll get some important clues this year. Frankly, I think the recent stock market dips, the current state of oil inventories, and the malaise in the housing markets are all preliminary answers, with the one caveat that everyone forgets - the way inflation is calculated, increasing rents mean higher inflation. Since many people losing their houses will become renters, housing market collapse is not as deflationary as many people think. The 70s started with the housing market tanking, moved to a recession with inflation, then had even higher inflation. Welcome back.
Not that I want to get to deep into this. But the US is a huge debtor nation now with no savings this was not true in the 1970. A inflationary monetary policy under the current conditions could easily trigger hyper-inflation.
We have already been in a very inflationary time with low interest rates and loose lending. Japan's attempts at hyperinflation to counteract their own deflation is one of the reasons we are here today. Throwing more fuel on the fire so to speak will just make us crash harder. The global economy needs to deflate and become more efficient and most of all balanced.
We need to take the red pill and get it over with.
But we won't.
That's why the fed quit reporting M3 last year. A few intrepid analysts have been calculating M3 using all of the tools the fed used. They calc that the fed has been creating new money at a rate of around 10% per year -- approximately the same as it has been since 2001. But the past few months has not only seen that rate increase, but the rate of increase is also increasing. They have no intention of halting the money parade.
The clincher is that not only will they continue, they will do so exponentially. That's the only way to keep the wheels from coming off.
And then after a while the engine will blow up. But you still have the wheels.
But those wheels will be wobbly when there isn't enough fuel to propel them....
They'll be utterly useless without an engine.
But rather than admit the engine failed, they will find a scapegoat. And rather than accept cold, hard facts, the public will accept the emotional release provided by persecuting said scapegoat.
Ghawar Is Dying
The greatest shortcoming of the human race is our inability to understand the exponential function. - Dr. Albert Bartlett
The scapegoat will likely be China, since that is who they've been trying to blame for a while,,,
Here is a site which recalculates the US M3
http://www.nowandfutures.com/key_stats.html
The M3 rate of change has dropped from just above 12%/year in Jan 2007 to about 11.5% in the first week of Mar 2007. As the M3 rate drops, the Fed will cut interest rates probably before June 2007.
and another site which keeps track of the bad home mortgage lenders - total today is 38
http://ml-implode.com/
And John Williams of Shadow Government Stats calculates M3 is going the other way....up.
Thanks for that info!
Here is the John Williams' link:
http://www.shadowstats.com/cgi-bin/sgs/data
John Williams is showing a small drop in his M3 rate in 2007 so far. You're right that M3 rate has been going up from early 2006 to late 2006.
I also agree with his alternate CPI which measures the GDP annual growth rate as negative which means that the USA has been in a recession since 2005.
The US Gov't measures CPI in its own way to reduce benefit payments and give the illusion that the US economy is not in a recession.