DrumBeat: August 9, 2007
Posted by Leanan on August 9, 2007 - 9:11am
Topic: Miscellaneous
Jeremy Rifkin: The crisis under the ice
While governments and oil giants are hoping the melting ice will allow them access to the world's last treasure trove of oil and gas, climatologists are deeply worried about something else buried under the ice that, if unearthed, could wreak havoc on the biosphere, with dire consequences for human life.Much of the Siberian sub-Arctic region, an area the size of France and Germany combined, is a vast, frozen peat bog. Before the most recent Ice Age, the area was mostly grassland, teeming with wildlife. The coming of the glaciers entombed the organic matter below the permafrost, where it has remained ever since. Although the surface of Siberia is largely barren, there is as much organic matter buried underneath the permafrost as there is in all of the world's tropical rain forests.
Now the permafrost is thawing on land and along the seabeds. If it occurs in the presence of oxygen on land, the decomposing of organic matter leads to the production of CO2. If the permafrost thaws along lake shelves, in the absence of oxygen, the decomposing matter releases methane. Methane is the most potent of the greenhouse gases, with a greenhouse effect 23 times that of CO2.
Canadian PM vows to defend Arctic
Canada's prime minister has begun a three-day trip to the Arctic in an effort to assert sovereignty over the region a week after Russia symbolically staked a claim to the North Pole by sending submarines...."The Russians sent a submarine to drop a small flag at the bottom of the ocean. We're sending our prime minister to reassert Canadian sovereignty," a senior government official told The Associated Press on condition of anonymity because his language was undiplomatic.
Bridge Disaster Could Mean Gas-Tax Hike
Frank Moretti of TRIP, a national transportation research group, said continuing to oppose higher gasoline taxes could become politically untenable.The bridge collapse "is going to create a fundamental shift," Moretti said. The public would rather pay more taxes "than have to face the consequences of a crumbling infrastructure."
Bush rejects raising gas tax for now
President Bush dismissed Thursday raising the federal gasoline tax to repair the nation’s bridges at least until Congress changes the way it spends highway money.“The way it seems to have worked is that each member on that (Transportation) committee gets to set his or her own priorities first,” Bush said. “That’s not the right way to prioritize the people’s money. Before we raise taxes, which could affect economic growth, I would strongly urge the Congress to examine how they set priorities.”
The “Plunge Protection Team” Working Overtime to Save US Stock Market
US light crude oil briefly shot-up to a new record high of $78.77 per barrel, and the DJI-30 sank further to 13,150. It was looking pretty grim for Wall Street bulls, with PPT chief Paulson, situated far away in Beijing, trying to head-off a trade war between the US Congress and China next year. And when the cat's away, the mice will play. Was the mythical PPT was asleep at the switch while Wall Street burned?But then it happened! At around 3:20 pm EST on August 1st, the DJI-30 began to move up strongly and without hesitation. By the closing bell at 4:00 pm, the DJI-30 had skyrocketed by 230-points above its lows, to close 150-points higher on the day. The mainstream media pointed to the possibility of computer buy programs, which kicked into high gear, after the S&P 500 held above its 200-day moving average.
Biofuels give us food for thought
At first sight, these renewable fuels seem a great idea, cutting the use of the depleting fossil fuel stocks, but the downside is that pressure on land use drives up food costs across the globe.
Sri Lanka Petroleum Minister pledges not to increase fuel price again this year
Sri Lanka Minister of Petroleum and Petroleum Resources Development A.H.M. Fowzie today pledged not to raise the petroleum prices again within this year.The Minister participating in the cabinet press briefing said that the Ceylon Petroleum Corporation (CPC) was not losing now. However, the CPC loses 20% from the fuel supplied to the Ceylon Electricity Board (CEB) at a subsidized rate.
Car rental outfits head in a green direction
Faced with sluggish rentals of sport utility vehicles and eco-conscious consumers demanding cars with higher gas mileage, auto rental companies have scrambled in recent months to stock their fleets with more fuel-efficient vehicles -- including cutting-edge hybrid vehicles and flex-fuel cars that run mainly on ethanol.
Electricity Deregulation: Taking the Next Step
The North American Electric Reliability Corporation projects a 19 percent growth in peak summer demand for electricity within 10 years - whereas the amount of available power is projected to grow only 6 percent, according to FERC. Available power can be rationed by allowing the market to set prices, or it will be rationed by blackouts and brownouts. However, many consumers will be able to avoid huge price hikes, or at least slow the growth in their energy bills, by using smart technology to manage their electricity use.
John Michael Greer: Cities in the deindustrial future
Go further back and you’ll find the same thing in every secular millennialist movement the United States has seen since the dawn of the 20th century. Whether the apocalypse du jour is nuclear war, pandemic disease, racial conflict, Communist takeover, fascist police state takeover, the imminent arrival of Antichrist, or what have you, the accepted way to deal with it is to flee to some isolated location in the mountains and wait for the rubble to stop bouncing. I’ve tried to challenge the kneejerk application of this same way of thinking to the consequences of peak oil in a number of previous posts, but there’s another side to the picture – the widespread notion that cities in the aftermath of peak oil will be deathtraps by definition.
Are Rising Oil Prices Good For The Economy?
However, as soon as the price of Oil begins to head higher, economists become very nervous and fears of an inflationary shock ala 1973 resurface. Recent history has shown that a near 8 fold increase in the price of oil has not resulted in an outbreak of inflation, a recession or stock market collapse. In fact the stock market has surged higher during this same period which begs the question, are rising Oil prices good for the economy?
Measure targets fatty fuel tax break
The legislation, which passed the Democratic-controlled House easily, doesn't mention ConocoPhillips or Tyson by name.But on page 46, under Sec. 203. Extension and Modification of Credits for Biodiesel and Renewable Diesel, paragraph (b), subparagraph (1), the bill would strike language from the Energy Policy Act of 2005 that reads "using a thermal depolymerization process."
And that reference — oblique as it may be — could prove a painful blow to the two companies.
Nigeria records drop in crude oil production in 2006, says CBN
Aggregate crude oil production declined from an average of 2.53 million barrels per day in 2005 to 2.23 million barrels per day (mbd) in 2006, the Central Bank of Nigeria (CBN) has said.
Russia vs. Canada at the North Pole
Canada and Russia are now at unlikely loggerheads, disputing territory that was out of the question for resource harvests just a few decades ago.But while Canada looks just below the Arctic - to the fabled Northwest Passage now opening between the ice sheets of the country's majority mass, and the bountiful oil sands of Alberta that rocketed Canada up just behind Saudi Arabia in estimated oil reserve rankings - its ultimate goal seems to be the northernmost climes of the Great White North. Canada has promised to build six to eight new patrol ships to monitor the Northwest Passage, though the United States says Canada has no territorial claim. These waters are as diplomatically murky as they are frigid.
Ministry: Moscow Court Okays Seizure of Russneft
All of the shares of Russian oil firm Russneft have been seized as part of a criminal probe into tax evasion and "illegal business practices", the interior ministry said today.On July 31, Moscow's Lefortovo "approved the request to arrest 100 percent of the shares of this company. The shares have now been seized," the ministry said in a statement.
LUKoil unperturbed over possible loss of its American filling stations
Green Oil sustained losses from skyrocketing prices of oil and oil products. The winners in this situation - just as always - are large oil companies that have producing and refining assets, including the three defendants in the current suit.However, the claim that LUKoil, Aramco and PdVSA conspired to raise prices of oil and oil products sounds ridiculous to me, as many other companies could be accused of the same sin.
But is reducing food miles necessarily good for the environment? Researchers at Lincoln University in New Zealand, no doubt responding to Europe’s push for “food miles labeling,” recently published a study challenging the premise that more food miles automatically mean greater fossil fuel consumption. Other scientific studies have undertaken similar investigations. According to this peer-reviewed research, compelling evidence suggests that there is more — or less — to food miles than meets the eye.
Growing Our Own And More On The Bullseye Diet
It was mainly Peak Oil that drove me out into my garden with a new mission; no longer just to grow a few tomatoes for fun each summer, but in an effort to grow the majority of the food my family eats. I set out a goal of producing more calories than I consume on my own property and within 5 years. I called my project “Growing My Own.” But there were others factors tugging at me, entreating me to take personal responsibility for the needs of my diet.
Editorial: Urban farming's time has come
Paula Sobie and Martin Scaia started City Harvest in February, advertising on the Internet for people who wanted to use all or part of their property for an urban garden.In return, the homeowner would receive a portion of the organic vegetables, while the couple would sell the rest at markets, to restaurants and through the Small Potatoes Urban Delivery (SPUD) program.
But the couple ran afoul of an Oak Bay bylaw that forbids growing plants for sale, introduced in 2001 after the Beach Drive estate "Riffington" was given farm status because the owners sold more than $2,500 of plants annually from the property's gardens. Farm status meant the property tax bill was slashed; Oak Bay council quickly moved to restrict urban farming and protect its tax base.
Marijuana crops also bad for environment
Come September, marijuana growers who have labored for five months in some of California's most remote country will abandon their secret gardens, taking their multimillion-dollar crops.What will they leave behind? Irrigation tubes that snake for a mile or more over forested ridges. Pesticides that have drained into creeks and entered the food chain, sickening wildlife. Piles of trash and human waste in the most rugged and bucolic drainages.
Sustainable Living: Getting ahead on renewable energy
...Donovan also points out "solar panels feed energy back into the grid during the hottest part of the day, when electricity usage is highest." Common sense would say that electric utilities would love to have help meeting the peak energy demand."NOT SO," said solar homeowner Thurston. "Ever since we divorced the delivery of electricity from the generating of it, utilities no longer have a vested interest in green energy. We've created a disincentive for utilities to net-meter solar energy."
Primary '07: Attack of the Jean Godden Clones
We much prefer Al Runte, the former UW historian who, despite his dismissal in certain other local media venues as "The Nutty Professor," reminds us for many a good reason of Charlie Chong, the glorious gadfly (rest his soul) who shook up the council in the late 1990s with his healthy hostility towards both the infamous "Seattle Way" and the public-private partnerships then festering in City Hall. Runte similarly has expressed a healthy contempt for the influence that developers have had in the City Council's decision-making process in recent years. He also has a strong progressive agenda, including and especially impact fees for new development as part of the solution to creeping gentrification. Crucially for us, Runte is apparently the only council candidate who considers Peak Oil to be a credible sustainability issue; he wants to see a heavy emphasis on hydro and electric power in future local transportation initiatives, to prepare Seattle for a low-carbon future. Call that "nutty" if you must; we prefer to call it "independent thinking"--in other words, leadership.
Snazzy parking meter upgrades show a Catch-22 in transit funding
And in a city that officials like to tout as bike friendly and getting in gear for a carless Peak Oil world, the meter upgrades also represent more than the Portland Office of Transportation wants to spend on bicycle safety improvements—$300,000—in the next fiscal year.
Opec 'need not boost output in September'
Opec does not need to raise oil output at a meeting on September 11, despite calls from consumers for more crude to lower prices from near a record high, an Opec delegate said yesterday.The comments are the latest indication that Opec, source of more than a third of the world’s oil, is holding firm in the face of calls from the US and the International Energy Agency for higher oil output.
US should consider gas tax: Ford chief
The United States should consider imposing a European-style gasoline tax if it hopes to improve energy security and tackle global warming, the head of Ford Motor Co. said Wednesday."The way to get at is to make an economic decision just like in Europe where the fuel prices are seven or eight dollars a gallon," Ford chief executive officer Allan Mulally said. "Then our behavior would change dramatically."
Seoul to invest billions for energy resources
South Korea will spend 10 trillion won in the next decade to compete with China and India to secure oil and natural gas supplies as an expanding global economy lifts energy prices.
Russia hardens EU resolve to seek new energy supply
Renewed tension between Russia and Belarus has yet to disrupt energy flows, but still it has sharpened Western Europe's desire to curb dependency on Moscow if it possibly can.
Malaysia defies doubts, history with pipeline plan
Some analysts say it remains cheaper and potentially quicker to sail around Singapore than to unload a super-tanker at Yan, pipe the crude to Bachok and put it on another tanker.OSK Research cited the cost to ship oil from the Gulf to the Far East using a very large crude carrier at $2.28 per barrel, and using the pipeline at $2.92.
Russia has eyes for Iraq's oil (audio)
Iraq might be ready to do some big-time oil trading with Russia to make good on old debts. But first the two nations would have to figure out the not-small issue of security in Iraq.
Nigeria captors free Briton, Bulgarian
Kidnappers released a British and a Bulgarian hostage in Nigeria's restive southern oil region Wednesday, while the young son of a local legislator was seized in a separate incident and gunbattles raged for a third day.
Oil drilling off Alaska: Cheney's ill-advised crusade
On June 29 the Bush administration quietly approved a keystone of Vice President Dick Cheney's energy policy: furthering our addiction to oil through the 5-Year Outer Continental Shelf Oil and Gas Leasing Program. The program governs the sale of all offshore oil and gas leases in federal waters over the next five years and anticipates the drilling of more than 10 billion barrels of oil and more than 45 trillion cubic feet of natural gas in some of our most pristine and sensitive marine habitats.
Nigeria: Solar Energy And Competitive Advantage
Solar electric power systems are an effective energy conservation programme because they conserve costly conventional power for urban areas and town market centres including industrial, commercial and private uses. This will allow for decentralised solar generated power for lighting and satisfying basic electrical needs.
Biofuels shift seen to put major squeeze on food prices
A global shift toward renewable energy could jack up food prices by up to 80 percent as crops and farmland are diverted to producing biofuels, an international agricultural think-tank warned Thursday.
Japan looks to turn straw into biofuel amid price crunch
Japan will study turning inedible crops, such as straw, into biofuel to run cars amid concern that the growing popularity of ethanol is inflating food prices, an official said Friday.
Smaller, Cheaper Biofuel Reactors
Researchers at the University of Minnesota have developed a fast way to convert sawdust and waste biomass directly into a mixture of gases that can be burned to generate electricity or made into liquid fuels such as diesel. If the process can be scaled up, it could be a more energy-efficient method for making biofuels by allowing for small, fast reactors located close to biomass sources.
Data centers suck down energy, mostly for AC
The extremely air-conditioned computer farms known as data centers are the gas-guzzling jalopies of the technology world. Some require 40 or 50 times more power than comparably sized office space.So with energy costs high and environmental friendliness making for good public relations, more tech companies are touting ways they are "greening" data centers, which serve up Web pages, swap Internet traffic, and process and store business information.
But it's a lot easier to put out a news release than to build a data center with a significantly smaller environmental footprint. Even as efficiency improvements are reducing the energy gulped by many kinds of hardware, the industry's overall electricity consumption could double from 2006 to 2011 as demand grows.
Wow! Bloodbath out there
ECB Offers Unlimited Cash as Bank Lending Costs Soar
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3BgW.MHBVfE&refer=h...
Triumvirate of collapse - Economy, Ecosystem, Energy
Unfortunately, once market psychology has shifted from complacency to fear, that sort of move can easily end up being interpreted as desperation, and therefore cause even more money to be taken off the table. Fear can remove liquidity faster than central banks can pump it in.
Fear is extremely catching because we have evolved to react to each other's state of alarm - just like deer which 'run first and ask questions later' if one of their number flashes the white underside of its tail, or beavers which all dive if one of their number slaps its tail on the water to warn of danger. Markets are not rational at the best of times (as most participants have very little real information and therefore tend to follow momentum as a herd), and are even less so than usual when in the grip of an extreme of greed or fear.
Edit:
Stocks Plunge on Rising Credit Anxiety
You are entirely correct about the power of fear and panic to remove liquidity faster than central banks can pump it in. However, one of the main jobs of central banks is to prevent panic, and for the past sixty years they have been pretty darn good at doing that. I recall what happened in October 1987, when Alan Greenspan stepped off an airplane to find that the Dow Jones Industrial Average had fallen almost twenty-five percent in one day: He called a news conferance to reassure financial markets that the Fed would do whatever it took to keep markets liquid and functioning. His statement worked; it was Greenspan's finest hour.
There is nowhere near the panic in the market now that there was that day in 1987, and there is no need for Ben to call a special news conferance. But when the time comes it will come down to a contest of fear and panic on the one side versus soothing words (and appropriate actions) on the part of the Fed.
As I've stated earlier, my twenty cents worth is betting on the power of the Fed to jawbone the situation and also to inject liquidity when and where and in whatever amounts when the time comes. In the space of one hour, the Fed has the power to increase bank reserves by any number of hundreds of billions dollars; all it has to do is to buy T-Bills and other U.S. government securities in the open market. Everybody knows this. And I think people in the financial world have confidence that the Fed will monetize the deficit before it allows debt deflation.
It is all about perceptions and expectations.
We live in interesting times, and I think we'll see if I'm correct within a matter of months--and possibly much sooner.
I agree that we aren't seeing real panic yet, or consequently a fully developed credit crunch. It just looks like panic because IMO people have forgotten - over the years of easy money, low risk, and extreme complacency - what a real panic looks like. Ordinary people haven't even noticed yet.
You have far more faith in the Fed than I do and I hope you're right. I agree that we won't have long to wait to see which way this will play out.
What everyone so far has overlooked and failed to address is why the ECB has chosen to make their money injection such a public spectacle. Normally these guys operate far from media scrutiny, after all.
That reason is precisely what Stoneleigh mentioned earlier though: fear and panic. By looking for headlines in the world's main media, the ECB tries to prevent a panic. It also gives off a signal, though, that it's afraid such a panic might ensue.
BNP is France's largest bank. If it reneges on obligations, there will be many a French nerve that starts twisting. Two German banks are in trouble since a few days, and a little-known Dutch investment bank cut short a substantial funding bid. All is not well that side of the Atlantic.
My guess is that European holdings of US securities are much higher than they're telling us. We'll soon start to see what pension funds, mutual funds and insurance companies have in their portfolio. A lot of it will be found to be way past its fit-for-consumption date. Something rottten in the state of Denmark, so to speak.
$100 billion doesn't seem nearly enough to turn anything around. There are many $trillions at stake here.
That's exactly the issue - emergency liquidty injections are very much a double-edged sword. They play out differently depending on the mood of the market. (See the quote I added to my comment second from the top on the reaction of the market today.)
And these two quotes from the Bloomberg article are scary:
Triumvirate of collapse - Economy, Ecosystem, Energy
'Black Friday' as Asian Markets Plunge Deep into the Red
http://www.news.com.au/story/0,23599,22220587-2,00.html?from=public_rss
"News that the Bank of Japan had pumped cash into the financial system to try to ease a liquidity squeeze failed to staunch the losses."
Asian Markets in a Bloodbath
Sydney off near 4%, Rest of Asia off over 3%
http://news.bbc.co.uk/2/hi/business/6939757.stm
Not a Liquidity Problem, A Credit/Insolvency Problem
"Thus, while the Fed and the ECB had no option today but to provide massive liquidity in the presence of a most severe liquidity crunch and run, they should not delude themselves that this liquidity injections can resolve the deep insolvency problems of many overstretched borrowers: households, financial institutions, corporates. Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing. We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch. The risks of a systemic crisis are rising: liquidity injections and lender of last resort bail out of insolvent borrowers - however necessary and unavoidable during a liquidity panic- will not work; they will only pospone and exacerbate the eventual and unavoidable insolvencies."
http://www.rgemonitor.com/blog/roubini
http://business.guardian.co.uk/story/0,,2145760,00.html?gusrc=rss&feed=2...
Countrywide in Trouble
Countrywide's biggest problem is that they are being forced to eat their own bad loans as the secondary market has stopped buying.
"Countrywide said it was no longer trying to sell $1 billion of subprime mortgage loans and would instead hold them as investments."
"Shares of Countrywide, which have lost a third of their value this year, fell to $25 in late trading from $28.66 at yesterday's close in New York Stock Exchange composite trading."
``We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,'' Countrywide Chief Executive Officer Angelo Mozilo said during a conference call with investors"
http://quote.bloomberg.com/apps/news?pid=20601087&sid=awWmNtGguiq0
The business model of making bad loans and dumping them in someone else's lap is no longer viable.
European Markets open 2% lower
http://www.cnn.com/2007/BUSINESS/08/10/global.markets.reut/index.html?se...
Markets now down over 3% across Europe
There is nowhere near the panic in the market now that there was that day in 1987 Not yet anyway!
I think the Fed better step up to the plate and show the markets what its made of pretty soon. Looks like the whole pack of cards is beginning to collapse. The Fed will probably only get one shot at this.
Luminent Mortgage Says Lenders Sent Default Notices
http://www.bloomberg.com/apps/news?pid=20601103&sid=aAr.a3qiNLrw&refer=u...
Triumvirate of collapse - Economy, Ecosystem, Energy
But...but...they told us the subprime crisis was contained...that means...[sniff]...they weren't being 100% honest?
Hahahaha!
Just yesterday with the DOW back up to 13,600 CNBC was celebrating BAU with those pesky subprime problems behind us. "The stock market has gotten beyond them now".
The bull market sentiment still has a long way to go though. The PTB have instilled a very deep sense that things will always get better again. So all this noise about credit and liquidity problems is nothing but a buying opportunity.
-Don
I have a very naive question about money, especially the electronic kind.
So we have a number of mortgages that were set up based on inflated house prices that have rates too high for the borrower. These loans are not being paid back causing a liquidity crunch to the institutions that created the money for the loan.
So in my simple mind, as these properties go into default and devalue, some of the money just evaporated. This is just the reverse of how the money was created in the first place, it was blinked into existence via the mortgage loan process.
The fall out of this is that the currency that was created on paper is not being paid back in reality, or at least not enough of it is getting back to the bank to maintain a positive cash flow. Ultimately this means the properties will lose value and not all of the money created will get back to the lender.
My question is this. Why can't the Fed and other central banks bail this out by giving enough cash directly to the lenders to cover their shortfalls of defaulting payments and allow them to rework their long term income stream back to a positive cash flow?
Some percentage of that mortgage created money is gone for good but the Fed can just create some new money to take its place that can be used for something other than originating mortgages.
I don't see it as a requirement that the Fed has to cover the entire defaulted value in 2007 (many of the loans must be 15 years or longer with interest accruing all the time), just keep the cash flow close to what was planned. Over time the housing stock will be revalued (but still retain value above $0) and allow everyone involved to cope with much lower profits than expected. My thinking is that all the new houses built did add assets to the economy just not nearly as much as the loan valuations projected.
I would think the goal of the Fed and Central banks is to get cash into the hands of these big originators but prevent them from using it to originate new risky loans going forward. This keeps the money circulating but gradually shrinks the risky debt back to a manageable small percentage. What's missing in my assessment of why this won't work?
Hopefully there are competing posts addressing this so I get a better scope of how the money supply works.
NC,
The Federal Reserve is restricted and cannot buy private securities (mortgage debt). This is the job of Fannie Mae and Freddie Mac -- gov't "sponsored" enterprises (originally) to help finance mortgages and promote homeownership which the government wanted to promote. Later they were "privatized" into companies.
There was a "rumor" printed in the Financial Times recently that Fannie and Freddie are going to be authorized to buy sub-prime (which they currently don't). Offically, I think, Fannie and Freddie are "private", but hardly anyone in finance thinks that they would remain strictly "private" in a mortgage debacle. I think they have their own regulator (OFHEO is it?).
Anyhow, the government/politicians will step in once people are shown on TV getting booted out of homes, re-federalize Fannie and Freddie (turn them back into "Federal National Mortgage and Federal Home Loan or whatever they were called"), and buy sub-prime mortgages, and eat the losses -- that's what the government is for! -- the ultimate bag holder! (note to libertarians: this is where libertarian policies go astray).
Thanks for the reply.
So I take it the closer the entity is to owning mortgages (as opposed to originally providing funds to those entities) the more the Feds hands are tied. I can see that the liquidity crunch will "appear" at the level of mortgage holders and can spread in both directions - down to people owning houses and up to investers - faster than the Fed can intervene.
"faster than the Fed can intervene"
...and faster than the politicians even.
Interestingly, as I've posted elsewhere, it appears that sub-prime CDO investments were sold primarily to European and Asian investors -- so that may be why more investment blow-ups are happening overseas (while only the creators / facilitators are having problems here in the US). The ECB is doing much more "stabilizing" right now than the Fed.
A funny anecdote recently is that a US hedge fund was suing a mortgage servicing bank for re-structuring delinquent loans in a portfolio of sub-primes (which is the bank's fiduciary responsibility) because the hedge fund was "short" the mortgages -- what this means is that the hedge fund, which already had a 90% profit on the short position, wanted the banks to default the loans so the hedgies could make more money. Can you image the trial? -- "We've made 90%, and the bank is preventing us from making more! Kick those squatters out!". Good luck with a jury on that one.
Well they just did;
Fed Adds $19 Billion in Funds by Buying Mortgage Debt (Update3)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ.cxsJa71xg&refer=h...
So the federal government, which is running a deficit (aka debt) is using debt money to buy debt money which was probably chasing after debt money to begin with. And this is supposed to make people feel better? Right.
This is very reminiscent of some events that transpired during the crash of 1929. In that case it was the big banks who stepped in and loaned money. And Richard Whitney, vice-president of the NYSE made very public purchases of 20-30 $million worth of stock (probably as a representative of a banking consortium) , not chickenfeed in those days temporarily shoring up the market(the bankers slowly and surreptitiously liquidated over the next few days). So even if the Fed was holding back under the guise of 'fighting inflation' there was a large public display of big money confidence (emphasis on the 'con') in the market.
All of course was for naught and the crash continued to finally bottom out ca. 1932, three years later and the market took 25 years to fully recover.
I agree that we'll see if you "are correct within a matter of months -- possibly sooner."
I'll give a couple of arguments in the other direction:
1. There is at least $800bn worth of subprimes whose initial teaser rates expire in something like the next 10 to 16 months. This means an increase of as much as 6 points above the current rates. Lots of defaults now -- what happens then?
2. Any meaningful rescue moves by the Fed will weaken the dollar, and risks provoking foreign lenders into running instead of walking away from the dollar.
3. The US is losing in Iraq and Afghanistan, and yet the powers-that-be are quite determined not to lose. The public is losing stomach for the war here. Some Iraqi's join the National Guard at the high risk of death. Why? Unemployment is 60-70% and they have to feed their families. Solution for the elite here? Let the economy tank. There are already signs they are willing to do that if you listen to Bush and ilk.
The only thing is that this is happening a little too soon for the Bush crew, so they might be attempting to delay it slightly. There is more talk about another terrorist attack, more edicts boosting executive power in an emergency, etc. I believe we are headed for a perfect storm, economic and political.
Hitler had the advantage of using military buildup to bring Germany out of the Depression. The neocons don't have that -- they are conducting war in relative prosperity. But it doesn't work. The military buildup has to be made to appear as the solution, not the problem. It's a tricky maneuver: how does one evade responsibility? A terror attack is the trick they know. Will they try it again?
Only a small perspective based comment...who's to say the US is losing? Media?
Ha...the media.
What if it all is going according to plan...bases built, oil fields secured, greenzone beautiful, more than enough soldiers to subdue(or worse) the population if(when) the rules change.
It's the rules change part that worries me.
Exactly. Halliburton is certainly winning, and so are many other defense related contractors.
Ah but this is the economic and political reality of our system. But let's not change it. Let's not bother changing our society. We can just learn to conserve a little and use more solar/wind/nuclear and things will be much better!
"You can never solve a problem on the level on which it was created."
Albert Einstein
Don, doesn't monetize the deficit essentially mean "print up a lot more money" and dump it into the market? It would seem at some point that you will end up with hyper-inflation due to plunging value of the dollar. It already seems that China is getting less sanguine about sustaining endless US debt and their comments are actually making into the MSM. Eventually something "has to give". At some point the rest of the world is going to tire of keeping fat American asses comfortably ensconced in SUVs while their people make shirts for 10 cents an hour.
Whether we ever get to hyperinflation is anybody's guess. I do expect increasing inflation, at least to double digits over the next dozen years.
The easy way for the Fed to pump liquidity into the system is to buy massive amounts of Treasury bills (and notes and bonds) on the open market. Every time the Fed "writes a check" bank reserves (and hence liquidity) appear out of thin air.
If any major U.S. bank (say any of the twelve largest) gets into trouble, the Fed has (more or less officially) said that these banks are too large to be allowed to fail, and the Fed would lend directly to them to ease any problem from bad loans or a credit crunch.
As I've said before, the Fed is not going to twiddle its thumbs and allow the economy to go into a debt deflation. The Fed has the tools, it has the will, and it has the leadership needed to navigate rough waters.
Damn...I wish I owned a bank and could get all the free money I needed.
And so Don you describe my worst fear but also what I consider to be the most likely outcome - an inflationary cycle to destroy consumer and government debt.
Stoneleigh has often discussed deflation where holding cash makes sense - is it possible we see defaltion first followed by a mega-inflationary phase?
And during inflation what best to own? - I'm currently thinking land a real estate - and hang the fact they look over priced - you still own em and they are durable - so long as title is backed by a robust legal system like we have in the UK.
And how's the sailing going? You been over the pole yet?
is it possible we see defaltion first followed by a mega-inflationary phase?
That's what I see coming.
Like a diver on a high dive doing a cannonball or jackknife, First the water level gets sucked down with the diver, then it goes straight up in a water spout.
Waaaahoooosse.
Deflation while everyone liquidates and pays out bills etc.
Then Inflation when everyone figures out "What Is Of Value".
So Heavy Metal (Au/Ag) goes down while everyone sells off everything for liquidity, then up and away.
Land, Same thing.
You need money, too much of it even, to get inflation.
What money will cause that? Are we playing a game here, where some sort of sinus wave weaves a path through our wallets? Economic cycles? Like when, 60 years from now?
Sailing is going great. Now that I'm retired, teaching young beautiful wild women to sail is one of the main ways I spend my time. Though I have an MBA in finance and have written an economics textbook, I do not spend a lot of time looking at financial markets and am no longer interested in making money--because I have enough. Most of my extra funds I give away to the Nature Conservancy, and at my age I no longer have to save up for my old age, because it is here.
If you expect inflation to worsen, one of the best things you can have is a large fixed-rate mortgage on a desirable property. Because I expect inflation and not deflation, I am not afraid of low-interest long-term debt.
So far as investments go, I like TIPs, Treasury Inflation Protected securities, which are easy to purchase in certain mutual funds, e.g. Vanguard, which has very low fees.
Except for my Teachers Retirement Association pension fund, I have been out of the stock market for years.
In an inflationary scenario, would China start selling off USD? Earlier this week, in the Telegraph, a high ranking Chinese politician and an academic suggested that: