They are saying clearly that they think they can print their way out of this mess.

They can't, and will pay for their fatal, arrogant mistake with worldwide hyperinflation.

This is 100% correct, guaranteed.

http://www.telegraph.co.uk/money/main.jhtm...3/ccview103.xml
The Federal Reserve's rescue has failed

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:56am GMT 03/03/2008

The verdict is in. The Fed's emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed.

Yields on two-year US Treasuries plummeted to 1.63pc on Friday in a flight to safety, foretelling financial winter.

The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the US credit universe.

....

The UK hedge fund Peleton Partners misjudged this fresh leg of the crunch. After an 87pc profit last year betting against sub-prime, it switched sides to play the rebound. Last week it had to liquidate a $2bn fund.

Like many, Peleton thought Fed rate cuts from 5.25pc to 3pc (with more to come) would end the panic. But this is not a normal downturn, subject to normal recovery. Leverage is too extreme. Bank capital is too eroded. Monetary traction eludes the Fed. An "Austrian" purge is under way.

Credit Suisse says the cost of the credit debacle will reach $600bn. "Leveraged risk is a cancer in this market."

Try $1trillion, says New York professor Nouriel Roubin. Contagion is moving up the ladder to prime mortgages, commercial property, home equity loans, car loans, credit cards and student loans. We have not even begun Wave Two: the British, Club Med, East European, and Antipodean house busts.

...

The greater risk is slump, says MIT Professor Paul Krugman. "The Fed is studying the Japanese experience with zero rates very closely. The problem is that if they want to cut rates as aggressively as they did in the early 1990s and 2001, they have to go below zero."

This means "quantitative easing" as it was called in Japan. As Ben Bernanke spelled out in November 2002, the Fed can inject money by purchasing great chunks of the bond market.

Section 13 of the Federal Reserve Act allows the bank - in "exigent circumstances" - to lend money to anybody, and take upon itself the credit risk. It has not done so since the 1930s.

Ultimately the big guns have the means to stop descent into an economic Ice Age. But will they act in time?

"We are becoming increasingly concerned that the authorities in the world do not get it," said Bernard Connolly, global strategist at Banque AIG.

"The extent of de-leveraging involves a wholesale destruction of credit. The risk is that the 'shadow banking system' completely collapses," he said.

For the first time since this Greek tragedy began, I am now really frightened.

EDIT typo

Oh dear...

Frightened about the wider economy or frightened about seeing his own job go up in smoke?

Looks like they are trying to add more rails to the end of the rail line, but the train is approaching at 200mph and they can only add 100 yards per day.

It's only a matter of time before the train gets there.

(man, RB should be proud of me for this metaphore)

AKA pushing on a piece of string.

Can't work won't work.

You've just inspired me to look up a brilliant song that I haven't heard for about ten years: http://youtube.com/watch?v=NNre5neZ6QI

The fed has literally thrown the dollar off a cliff (B.A Baracus style) and it is hell-bent on taking the pound with it.

Can the message be any clearer?

I think someone needs a hug ...

riddle me this, they have 'on tap' the best knowledge available, but they did it. Why? Ruin system, in simplistic terms start again ....?

Yes. The blew up this bubble and yes they burst it.

Their only option now is complete and utter currency destruction.

This news is so bad I almost feel an overwhelming urge to purchase precious metals at any price. Using leverage if necessary.

Or admitting they can't do anything and letting deflation take it's course.

I succumbed to that very same urge back in October and haven't looked back.

The global, as in worldwide, house price bubble is collapsing and along with it the realisation that the trillions that built it do not exist.

Ben has hopefully learned the hard way that cutting IR will have the opposite effect in the credit markets where IR are rising in real terms due to risk aversion. The reverse occured under the Greenspan tightening era where IR moved in the opposite direction due to the availability of cheap and easy credit.

The bottom line: IR policy is largely irrelevant in "miracle" type economies where rampant HPI is allowed to form bubble economies. The Fed would be advised to follow the ECBs lead and maintain tight IR and focus on restoring credit through sound fiscal policy.

The crash moves on and recession, worldwide, is 100% certain, guaranteed. It is naive to think that the global crash will only impact the US market. Spain, Ireland and the UK have fed at the same trough.

In its wake will come viscious deflation, first in house prices, then in the labour markets and then in the rest of the economy. You do not remove 10's of trillions of opinion based value without deflating the bubble. That, is "deflating" the bubble as in what happens in a deflationary environment. Once it spreads to the labour market there will be very little credit to inflate anything.

Debt deflation does not mean defaltion.

In the depression, currnecy value increased as the dollar was made from 'physical silver' and was backed by 'physical gold'.

Paper money has no value so will not gain purchasing power as it is simply a 'promise to pay'. I.E - is not worth the paper it's printed on.

A lot of people will need a lot of paper money to pay off their debts and fewer people will be willing to lend it to them. It's supply and demand, innit.

That goldprice curve looks to be heading rapidly towards a vertical tangent. Looks a bit like the house one. Or an optimally growing bacterial culture just before it suddenly dies through overpopulation.

Seem to be an awful lot more people keen to offload gold on ebay recently. I wonder if they need paper money to clear debts?

We'll see. I can't let you goldbugs spin everything as a 100% correct guaranteed hyperinflation when the opposite is the natural order of things. We have different opinions and will have for the next year or two at least I'd say.

How has the value of the paper you're paid in stacked up during this credit crunch?

Gold is, like everything else, cyclical. It spikes quickly and then it drops. Right now the pendulum is swinging fast and hard in the demand side. People are buying whatever they think will protect them from a severe recession and the mass unemployment that follows those scenarios. In the days ahead the basic things of life may take precedence over metal investing.

People may be selling on eBay to pay the bills.

Does this thread now need to be merged with the "GOLD" thread?

Can't we have an 'Exponential curves 4 eva!' thread instead?

Relative to house prices good and getting better. Relative to things that you must have to survive, not good.

For some its swings and roundabouts.

Can you tell me how the government is going to make good on it's obligation of paying out 35k loss of deposits in the even of bank failure?

Please explain.

This one is closer to a Deflation v Inflation kind of topic.

"The greater risk is slump, says MIT Professor Paul Krugman. "The Fed is studying the Japanese experience with zero rates very closely. The problem is that if they want to cut rates as aggressively as they did in the early 1990s and 2001, they have to go below zero."


It is always assumed that the net effect will be inflation. Not so, says MIT Professor Paul Krugman, who is concerned about a slump.

In Japan in the 90's the Central Banks tried to stimulate the economy by lending money at 0%, and with a widespread public building project. It did not work, and Japan faced a 15 year deflation, in spite of the massive savings of the people.

This is different. The banks are not lending to each other, let alone anyone else, and the UK government may well be forced to reduce, not increase, public spending. Also, Mr Joe Public has very little savings.

Contrary to most people on HPC I forsee 1930's style UK deflation, but possibly much worse. In the US, some homes have lost 90% of value, and the sub prime cruch is spreading to other parts of the economy, including the Credit Default Swap market.

It is true that there is inflation in oil and food right now. But governments and banks do not print money, except the Weimar Republic and Zimbabwe. Banks LEND money, normally against assetts like houses. But now they are not.... so we face up to 40% write down of UK £3.5 trillion housing stock, with wages currently not keeping up with inflation.

Why is this different to the UK in the early 1930'? As far as I can see, it isn't!

We will just have to wait and see.

Best wishes,

Housing Bear.

Bank failure doesn't mean that there is NO money to pay ANY creditors; it just means that there isn't ENOUGH to pay ALL creditors EVERYTHING that's owed to them.

I expect they'll give everyone a promissory note or two.

Nationalisation before the bank fails, as it has already shown. Then removing the bank from the lending market, thus ensuring orderly deflation.

Please explain what money is in 2008 compared to 1930 and you have your answer.

No... What happens to the 35k of 'guaranteed' desposits?

Where does the money come from to back these deposits?

Why don't you explain how total failure of the currency brought about by deliberate government / central bank policy helps the government any more than putting banks on life support does?

A promise to pay the full value of a promissory note backed by a promise.

Where does the money come from to nationalise these banks? The government doesn't have any money.

That is an easy question to answer.

Since you don't actually own your gold (the queen does), what makes you think she cant take it from you?

The government doesn't need any money. Have you not noticed what happened with Northern Rock?

Who knows. I'm not a conspiracist.

For a debt-based currency, borrowed into existence at interest, there can never be enough money to repay all creditors.

This is a mathematical property of the system - total debt will always be greater than the total money supply.

New debt must continuously be taken on by someone somewhere to supply the money to repay old debt.

Unless there is massive debt default, the arithmetic difference between total debt and total money supply must increase indefinitely.

I hope you don't happen to work for Northern Rock then cause you wouldn't be getting paid by that logic.

Where did you get this quaint notion from? Anyone know what he's on about??

well summed up ..for me

We're talking about the balance sheet of an individual institution, not about the system as a whole.

That's of course not true. And the recent ascent in gold looks much more sustainable than back in 2006.

Since 2 years I am talking about coming depression. My worst predictions became true...

Sorry to inform you that all money in Weimar was lent too.


To make a famous quote (which seems to be appropriate here): Please protect yourself.

A metaphor without any poisons hatching from the mud is barely worth mentioning.

Poisons hatching from the ballast might fit in

Spot the difference.

Nice try.

Yeah. Let's spot it.

(There arrow ends where we're at today.)