They're Printing The Money As Fast As They Can -- While Inflated Markets Rapidly Detumesce
anima...@yahoo.com
Central Banks Add Cash to Avert Crisis of Confidence (Update6)
By Scott Lanman and Christian Vits
Aug. 10 (Bloomberg) -- Central banks in the U.S., Europe, Japan,
Australia and Canada added about $135.7 billion to the banking system
in an attempt to avert a crisis of confidence in global credit
markets.
The Federal Reserve, in a second day of action in concert with the
European Central Bank, provided $38 billion of reserves and pledged
further funds ``as necessary,'' in a statement unprecedented since the
aftermath of the Sept. 11, 2001, attacks. The European Central Bank
loaned 61.05 billion euros ($83.6 billion) after injecting a record
amount yesterday.
``This is a situation of great uncertainty,'' said Alice Rivlin, a
former Fed vice chairman who's now at the Brookings Institution in
Washington. Central banks ``are all injecting credit in hopes that
collectively they can stabilize things.''
Central banks in Japan and Australia also added funds as money-market
rates rose. The subprime crisis is spreading after international
investors in the past year piled into the U.S. market for debt backed
by mortgages.
In the U.S., the federal funds rate opened at 6 percent, the highest
in six years. The rate fell to 5.25 percent after the New York Fed
bought $19 billion of assets including mortgage-backed securities and
then followed up with $16 billion of funds in a second operation. The
bank later did a $3 billion operation.
`Unlimited' Ability
``The Fed has almost unlimited ability to supply liquidity if they
feel that is appropriate,'' Rivlin said. She noted that it was
``symbolic'' that the New York Fed's first operation today involved
mortgage-backed debt -- the type of securities that investors are
unloading.
Fed policy makers just three days ago held their target for the
federal funds rate, the overnight lending rate between banks, at 5.25
percent. Fed Chairman Ben S. Bernanke and his colleagues acknowledged
in their statement that markets were ``volatile'' and risks to growth
had risen. Yet they reiterated, in language used since March, that
inflation was the ``predominant'' concern.
Today, the Fed said in an unscheduled statement that it will add money
to the system as needed to steer the federal funds rate ``close to''
the 5.25 percent target. Officials also noted that direct loans
through the Fed's discount window are available ``as always.''
``This happens only during a crisis, so this is certainly an
indication that funding problems in the market now are very severe,''
said Chris Rupkey, senior financial economist at Bank of Tokyo-
Mitsubishi UFJ Ltd. in New York. ``This could be all it takes to
stabilize market conditions here.''
European Rates
Overnight euro rates again rose as high as 4.27 percent today,
compared with the ECB's benchmark rate of 4 percent. Yesterday, the
bank loaned an unprecedented 94.8 billion euros to assuage a credit
crunch. Banks pay back that money today.
The ECB is ``giving the markets the appropriate liquidity,'' ECB
President Jean-Claude Trichet told daily newspaper Ouest- France in an
interview. The bank is paying ``great attention to the markets,'' he
said.
``When risk aversion boils over it's clear that demand for liquidity
will rise,'' said Joerg Kraemer, chief economist at Commerzbank AG in
Frankfurt. ``The ECB has used its tools in a good way to calm the
situation.''
The Bank of Japan added 1 trillion yen ($8.5 billion) today and the
Reserve Bank of Australia lent $4.2 billion, the most in more than
three years. The Fed added $24 billion in temporary reserves
yesterday, the most since April. Central banks in Norway and
Switzerland also injected money into the financial system and
countries including Denmark, Indonesia and South Korea said they're
ready to provide cash.
Europe Vulnerable
The credit-market turmoil worsened this week after European banks
acknowledged their vulnerability to rising delinquencies on American
subprime mortgages. In the U.S., American Home Mortgage Investment
Corp. this week became the country's second-biggest home lender to
file for bankruptcy.
BNP Paribas SA, France's biggest bank, was forced to halt withdrawals
from three of its investment funds. Just last week, BNP Chief
Executive Officer Baudouin Prot said the bank wasn't at risk.
Germany's government had to organize a bailout of IKB Deutsche
Industriebank AG as the Dusseldorf-based bank unveiled potential
losses of as much as 3.5 billion euros.
Countrywide Financial Corp., the biggest U.S. mortgage lender, today
said it faces ``unprecedented disruptions'' that may hurt profit.
Countrywide won't be able to sell as many of its loans as expected
because investor demand has dried up, the Calabasas, California-based
company said. NIBC Bank NV in the Netherlands posted losses from U.S.
credit investments.
Japan Monitoring
``The effect of U.S. subprime loans is spreading to financial markets
around the world,'' said Hiroko Ota, Japan's minister in charge of
economic and fiscal policy. ``We need to carefully monitor how this
will affect the economy.''
Stocks declined worldwide today as concern increased that the widening
credit crunch may hurt economic growth and earnings. The Morgan
Stanley Capital International World Index lost 1.7 percent to 1528.16,
while the Standard & Poor's 500 Index dropped 0.4 percent to 1,447.88
at 2:16 p.m. in New York.
Vid...@tcq.net
now who would have ever thought that world wide finances were inter-
connected? surely not the ones who preach all day to the serfs that
they are on their own in this brave new inter-connected world
the wild card is how much money will the conservative controlled
central banks throw at the pull yourself up by your bootstraps, rugged
individual, self reliance, self responsible crowd again?
jerryams
> The following is from Bloomberg.
>
> Central Banks Add Cash to Avert Crisis of Confidence (Update6)
>
> By Scott Lanman and Christian Vits
The Feb can pump money into the banking system permanently (by
creating money from thin air to buy back securities outright) or
temporarily (by repurchase agreements called repos). According to
Washington Post it appears to be the latter (See
http://www.washingtonpost.com/wp-dyn/content/graphic/2007/08/10/GR2007081001524.html?hpid=topnews)
The banks normally pay them back in 1 to 65 days, which means the
Banks are only relieved temporarily but not bailed out outright.
The Fed has to pump these 36 billion into the banking system because
the Federal funds rate rose to 6% overnight, and Fed needed to
maintain the 5.25% target rate.
The ECB (European Central Bank) pumped in around 200 billion to the
banking system at 4% on Thursday and Friday. It could be temporary
too. And it is reported that the going rate jumped to 4.75% again
after the relief. Maybe the ECB will pump more into the banking system
on Monday to bring it down?
Vid...@tcq.net
> On Aug 10, 12:26 pm, animamin...@yahoo.com wrote:
>
> > The following is from Bloomberg.
>
> > Central Banks Add Cash to Avert Crisis of Confidence (Update6)
>
> > By Scott Lanman and Christian Vits
>
> The Feb can pump money into the banking system permanently (by
> creating money from thin air to buy back securities outright) or
> temporarily (by repurchase agreements called repos). According to
> The banks normally pay them back in 1 to 65 days, which means the
> Banks are only relieved temporarily but not bailed out outright.
>
> The Fed has to pump these 36 billion into the banking system because
> the Federal funds rate rose to 6% overnight, and Fed needed to
> maintain the 5.25% target rate.
>
> The ECB (European Central Bank) pumped in around 200 billion to the
> banking system at 4% on Thursday and Friday. It could be temporary
> too. And it is reported that the going rate jumped to 4.75% again
> after the relief. Maybe the ECB will pump more into the banking system
> on Monday to bring it down?
when will i get preferential treatment like that. this is the third
time since the conservative/libertrain rugged individual, pull
yourself up by your boot straps, self reliant, self responsible crowd
got control of the world economy.
do you think perhaps that they have been fooling us, and that they
are the "do as your told, not as i do crowd":)
jxr...@yahoo.com
> On Aug 10, 12:26 pm, animamin...@yahoo.com wrote:
>
> > The following is from Bloomberg.
>
> > Central Banks Add Cash to Avert Crisis of Confidence (Update6)
>
> > By Scott Lanman and Christian Vits
>
> The Feb can pump money into the banking system permanently (by
> creating money from thin air to buy back securities outright) or
> temporarily (by repurchase agreements called repos). According to
> The banks normally pay them back in 1 to 65 days, which means the
> Banks are only relieved temporarily but not bailed out outright.
>
> The Fed has to pump these 36 billion into the banking system because
> the Federal funds rate rose to 6% overnight, and Fed needed to
> maintain the 5.25% target rate.
>
> The ECB (European Central Bank) pumped in around 200 billion to the
> banking system at 4% on Thursday and Friday. It could be temporary
> too. And it is reported that the going rate jumped to 4.75% again
> after the relief. Maybe the ECB will pump more into the banking system
> on Monday to bring it down?
I don't think I understand the mechanism being described
here.
Surely we are not talking about commodity or fiat money.
If we were we would hear about gold bricks or bundles of
paper bills being delivered to the banks, or favored
borrowers. If that was what was happening, we would
soon be observing inflation as the money made its way
into the population and people began spending it.
Instead it seems we are talking about something more
gaseous -- credit. But I am not sure what actually is
happening. For sure nothing is being pumped here
except hot air. Is it virtual money? Something that
will pop out of existence if a poor person gets hold of
it? If not, how can more than 300 billion dollars
not cause serious inflation?
*Anarcissie*
I think they are trying to counteract the disappearance
of the money which was temporarily created by
private credit. They are trying to forestall sudden
and radical deflation in the more inflated realms,
like real estate, stocks, and collectibles.
"Virtual money" might be a good term. This is
stuff that unlike paper money can disappear in
the twinkling of an eye.
Econotron
"*Anarcissie*" <anarc...@gmail.com> wrote in message
news:1186849354.7...@d55g2000hsg.googlegroups.com...
otherwise disappears from the regular sources. This way they hope to stave
off credit collapse spiral, where credit contraction drives the value of the
collateral down, and the latter further reduces the amount of credit. By
using reserves, instead of printing new money, CBs intend to prevent spike
in interest rates and possible run on the currency. However, either by burst
or by managed reduction, the asset bubble will have to be deflated anyway.
e.
brique
<jxr...@yahoo.com> wrote in message
news:1186844413.8...@b79g2000hse.googlegroups.com...
Essentially, the governments are underwriting the risks long predicted for
the sub-prime market and now coming to fruition. Rather than have the banks
and investment houses write off their losses ( and the consequent effect on
the markets), the state is guaranteeing their value by 'buying' them in.
Thereby the banks and investors get a return and have the liquidity to keep
the markets ticking over until they find the next high risk financial
instrument necessary to keep the credit pyramid viable.
At present most of the life-boat activity is being presented as a short-term
form of 'loan' until the market stabilises, which is so much smoke and
mirrors, if the banks can get the state to pay off their burden, then they
will talke the money because the state has now tipped its hand to show it
will not allow them to go bust. It's become a no-lose situation for them.
It's not unlike the currency speculation scandals of a few decades ago, when
various nations kept pumping money into the money markets and the likes of
Soros happily pocketed it because as long as the speculators applied
pressure to a curency, that state would pay to 'relieve' it.
Davinchi
getting to high. I've often had people scold me because
they thought I was talking about growth, and hence
development, as opposed to the value rate of change.
I believe what they are supplying is overnite credits to
banks at the discount window, which spreads across the
bank/brokerage accounts to shore up the the overall risk
assessments that affect the secondary market. Does that
sound right?
Michael A. Clem
>
> when will i get preferential treatment like that. this is the third
> time since the conservative/libertrain rugged individual, pull
> yourself up by your boot straps, self reliant, self responsible crowd
> got control of the world economy.
> do you think perhaps that they have been fooling us, and that they
> are the "do as your told, not as i do crowd":)
>
They're fooling themselves. Tampering with the money supply certainly
has an effect on nominal prices, but it does little to change real
wealth: goods and services. And the real libertarians want to get the
goverment out of the currency biz--it's not government's job.
anonymous
So how can speculators benefit from the this fiasco?
Do we have to sell USD and buy something like Euro or Sterling?
Or short US stocks maybe? Perhaps just the finance sector?
Soros/Buffett have been short the Dollar for ages, haven't they?
--
Anon
James A. Donald
> I believe what they are supplying is overnite credits
> to banks at the discount window, which spreads across
> the bank/brokerage accounts to shore up the the
> overall risk assessments that affect the secondary
> market. Does that sound right?
Yes.
What has happened is that mortgages were being used like
money - "money market accounts", and of course bad money
drives out the good - thus people were trading mortgages
made out to deadbeats on the basis of inflated property
valuations made by crooked valuers.
Suddenly, the music stops, and they are all stuck with
bad mortgages that they can no longer shift to the next
person in line.
But the central banks are not buying up bad mortgages in
the way that they used to buy up bad money from the
likes of George Soros. The people holding bad mortgages
are still stuck with them. Instead, they have to
mobilize other, better quality collateral, and the banks
are buying up this better collateral, and the central
banks lending to the banks.
What happened was that when bad mortgages froze up,
people had a liquidity crisis that was adversely
affecting good collateral. It is good collateral, not
bad collateral, that the central banks are stabilizing.
--
----------------------
We have the right to defend ourselves and our property, because
of the kind of animals that we are. True law derives from this
right, not from the arbitrary power of the omnipotent state.
http://www.jim.com/ James A. Donald
forbi...@msn.com
wrote:
We need to be on the watch for insider trading. It can have a real
effect on the distribution of goods and services.
Lantern
"I don't think I understand the mechanism being desvribed here."
I don't think the journalists writng about the subprime infusion
understand either. Is cash being infused into the market? I don't
think so. I think just the opposite...credit... is being infused into
the market. When the FOMC wants to increase the money supply, they buy
securities. They buy from dealers who increase their and their client
banks' reserves. And with a fractional reserve banking system, for
every dollar the reserves are increased, the credit supply increases
by a factor of 10. Lotsa reserves and hence lotsa credit being made
available. Very complicated. Too complicated to understand and control?
jxr...@yahoo.com
It is certainly too complicated for me to understand
so far.
Let us say a dollar is any thing that can obtain a certain
amount of basic, minimum-wage labor, or food, or oil,
etc. The dollar could be constituted in various ways:
as a certain amount of a commodity (gold or silver,
usually) or it could be paper money which is supposed
to represent the commodities or it could be fiat money
which is merely printed paper but which people still
believe in. All that I understand as "cash". Money
could also be credit in the sense that someone can
write an I.O.U. for a dollar and if people believe in the
I.O.U. they will treat it sort of like a dollar. But there is
a difference because the other forms of money were
not created from nothing -- even the paper dollar
relies on the ability of the government to seize goods
and force payments, whereas the credit money seems
to be issued only on belief. Belief on the part of the
issuers that ultimately they will be able to come up
with the goods or services the money is supposed
to represent.
What I don't understand about the present
situation is where is the money? I don't see any
money. I am sure when I read about the ECB
loaning somebody -- who? -- billions of euros
they did not go down into the vaults and start
carrying bags of gold coins to -- whoever? --
or start printing new euros like crazy. It
appears that someone wrote someone else
an I.O.U., but who? What was it based on?
I'm not getting an answer from the journalists,
they're still talking about cash.
Pardon my ignorance -- but I don't know
what's going on. It doesn't seem to make a
lot of sense. I have a feeling as if I am
present at a game of three-card monte.
*Anarcissie*
wrote:
However, tampering with the money supply gives the
government an enormous amount of power and
repute, so I don't think they're going to give it up
easily.
I am wondering, though, what the money supply
actually _is_. It seems to me the government not
only tampers with it, they blow bubbles of it at
will.
Vid...@tcq.net
On Aug 11, 3:28 pm, "Michael A. Clem" <macsnafuatintergatedotcom>
wrote:
not so. its in the constitution.
the real problem is that our government outsourced its duty to the
private sector. if you want to stop this, take away the printing
press's from the silver spoon crowd.
the fire wall between wall street and the private sector that runs
the fed is nothing more than paper mache, they are one and the same.
and i goofed, this is the forth time we have bailed out the silver
spoons since ray-guts appointed a libertarian to run a private sector
scheme to charge us a interest rate to print our own money.
Vid...@tcq.net
On Aug 11, 6:55 pm, James A. Donald <jam...@echeque.com> wrote:
> On Sat, 11 Aug 2007 16:00:26 -0400, Davinchi
>
> > I believe what they are supplying is overnite credits
> > to banks at the discount window, which spreads across
> > the bank/brokerage accounts to shore up the the
> > overall risk assessments that affect the secondary
> > market. Does that sound right?
>
> Yes.
>
> What has happened is that mortgages were being used like
> money - "money market accounts", and of course bad money
> drives out the good - thus people were trading mortgages
> made out to deadbeats on the basis of inflated property
> valuations made by crooked valuers.
>
bingo! yes, they were using debt as money, something that is
impossible to do, and the chickens are coming home to roost.
they repackaged i.o.u.'s with little or no collateral, and called
that liquidity.
> Suddenly, the music stops, and they are all stuck with
> bad mortgages that they can no longer shift to the next
> person in line.
>
ponzi scheme.
> But the central banks are not buying up bad mortgages in
> the way that they used to buy up bad money from the
> likes of George Soros.
free trade has finally started to bite them in the butt. what was the
old saying, give a capitalist enough rope, and they will hang
themselves every time.
i am sure that the officials of the chinese communist party who were
quick to tell us what not to do, know this quote quite well. and they
sleep soundly knowing they pulled it off.
The people holding bad mortgages
> are still stuck with them.
tsk, tsk.
Instead, they have to
> mobilize other, better quality collateral, and the banks
> are buying up this better collateral, and the central
> banks lending to the banks.
>
which means that down the road, there will be a big adjustment in
market capitalization of each one of these ponzi schemes. if they
survive.
> What happened was that when bad mortgages froze up,
> people had a liquidity crisis that was adversely
> affecting good collateral. It is good collateral, not
> bad collateral, that the central banks are stabilizing.
>
which many who were warning of the domino effect, who were demonized,
or called paranoid, were correct.
in a inter-conneceted free market, there are no backstops. so the
contagion spreads fast because the players deep down know this.
after all, they are simply wolves.
Vid...@tcq.net
and i goofed, its the forth time.
i think that is why that bank in france shut the water off so fast.
the free market scam artists would have gotten theirs by selling off
what they could, then leaving the way overpriced worthless paper for
the rest of the gullible.
you can only imagine how many investors will be linked to this, who
think they are immune, who think their investments are conservative,
solid. it might be a blood bath. and the central banks know it.
Vid...@tcq.net
but its the private sector that is the fed. most presidents, nor
congress have any say about fed policy.
*Anarcissie*
Yes; I'm thinking -- _is_ there any good collateral?
No doubt there is some but it may be much too small
to answer to the very large amounts of money (should
I put "money" in quotes?) which have been generated.
Are we not talking about stuff like real estate and
stocks, which have probably been grossly
overinflated in the last several years?
How much money is there, anyway?
*Anarcissie*
> <jxro...@yahoo.com> wrote in message
During the stock market crisis in 1987, the Federal
Government let the specialists and other major traders
know that there would be as much money as might be
needed. I take it that's what's going on now.
Andy F.
<jxr...@yahoo.com> wrote in message
news:1186844413.8...@b79g2000hse.googlegroups.com...
It's fiat money - the electronic equivalent of bundles of banknotes.But it
hasn't found its way to the public yet.
>
> Instead it seems we are talking about something more
> gaseous -- credit. But I am not sure what actually is
> happening. For sure nothing is being pumped here
> except hot air. Is it virtual money? Something that
> will pop out of existence if a poor person gets hold of
> it? If not, how can more than 300 billion dollars
> not cause serious inflation?
>
Most of the 'money' in the economy is actually bank credit.The 'money
supply' increases each time a bank makes a loan and decreases when a loan is
paid off.
Now if the banks were to stop making loans (e.g. if they were worried about
the borrowers all going bankrupt because of the mortgage crisis) the money
supply would go down and there would be a danger of deflation. This is what
the central banks are trying to avoid.
brique
I waiting for this newsgroups leading libertarian lights to protest this
gross sate interference in the market place and tell us how it will lead to
slave-camps, mass-murder and the usual socialist terror that state
interventions inevitably produce......
brique
anonymous <n...@spam.spam> wrote in message
news:pan.2007.08.11....@spam.spam...
Many ways to benefit, once someone effectively guarantees you against loss
as the governments are doing.
jxr...@yahoo.com
> <jxro...@yahoo.com> wrote in message
Can you tell me how this is being done in this
particular case? Does a government simply declare
that the money exists in some account somewhere?
Also, how will they keep the money from exerting
an inflationary pressure on prices?
> > Instead it seems we are talking about something more
> > gaseous -- credit. But I am not sure what actually is
> > happening. For sure nothing is being pumped here
> > except hot air. Is it virtual money? Something that
> > will pop out of existence if a poor person gets hold of
> > it? If not, how can more than 300 billion dollars
> > not cause serious inflation?
>
> Most of the 'money' in the economy is actually bank credit.The 'money
> supply' increases each time a bank makes a loan and decreases when a loan is
> paid off.
> Now if the banks were to stop making loans (e.g. if they were worried about
> the borrowers all going bankrupt because of the mortgage crisis) the money
> supply would go down and there would be a danger of deflation. This is what
> the central banks are trying to avoid.
So they are replacing credit money with fiat money?
I had the idea they might be changing one kind of
credit money into another.
brique
James A. Donald <jam...@echeque.com> wrote in message
news:1jisb3he0jr669bka...@4ax.com...
So, no outrage at this government intervention in the marketplace then?
Mani Deli
high that people realize they are victims of a Ponzi scheme.
Read About Ponzi
http://home.nycap.rr.com/useless/ponzi/
Mani Deli
<anarc...@gmail.com> wrote:
>I am wondering, though, what the money supply
>actually _is_.
No M3 report. Keep wondering.
Mani Deli
<jam...@echeque.com> wrote:
>--- people were trading mortgages
>made out to deadbeats on the basis of inflated property
>valuations made by crooked valuers.
>
>Suddenly, the music stops, and they are all stuck with
>bad mortgages that they can no longer shift to the next
>person in line.
>
>But the central banks are not buying up bad mortgages in
>the way that they used to buy up bad money from the
>likes of George Soros. The people holding bad mortgages
>are still stuck with them. Instead, they have to
>mobilize other, better quality collateral, and the banks
>are buying up this better collateral, and the central
>banks lending to the banks.
>
>What happened was that when bad mortgages froze up,
>people had a liquidity crisis that was adversely
>affecting good collateral. It is good collateral, not
>bad collateral, that the central banks are stabilizing.
Worthless paper breeds worthless paper. Eventually the stack gets so
high that people realize they are victims of a Ponzi scheme.
Lantern
> > > > The Feb can pump money into the banking system permanently (by
> > > > creating money from thin air to buy back securities outright) or
> > > > temporarily (by repurchase agreements called repos). According to
> > > > Washington Post it appears to be the latter
Regarding the current goings-on in our financial system, using the
term 'Creating money from thin air" is much better than using the
analogy, " Printing money." When the Federal Open Market Committee
intervened in the credit market last week, they bought securities.
They paid for these purchases with FED Checks. These FED Checks are
checks written by the FED.....Walla! ...Money created out of thin air.
Right?
bowman
> No M3 report. Keep wondering.
Don't need it anymore. Nothing to see here, just keep moving.
--
Posted via a free Usenet account from http://www.teranews.com
bowman
> I waiting for this newsgroups leading libertarian lights to protest this
> gross sate interference in the market place and tell us how it will lead
> to slave-camps, mass-murder and the usual socialist terror that state
> interventions inevitably produce......
You missed the part of the libertarian manifesto that says "no government
interference unless it affects my bank account."
Vid...@tcq.net
i do not know the answer to your question because the fed, a private
sector entity, will no longer provide that statistic.
but you are probably right on the collateral issue.
the panic sets in like right now, when the hucksters fear the jig is
up. i bet you are correct, there is really not much backing up all of
these so-called bonds, loans made to buy more stock, hedges, and bets.
that is why the private sector uses the peoples press's so freely,
they are providing the collateral right now, our money.
which means its a house of cards. the wind is blowing, but what will
the conservatives/libertarians who control the press's do to bail out
themselves, as well as wall street, whom they are inter-connected to
thru their own business dealing? a real conflict of interest if i ever
saw one.
but i bet that the private sector will not bail out the homeowners
who were gullible, or in many cases victims of fraud. i bet there will
be the usual cries of self reliance, self responsibility coming from
the guys who bailed themselves out with our money.
Vid...@tcq.net
it sounds that way. but at what rate are they getting the credit, and
what are the terms of the payback? the chinese have said no lower
interest rates. we will see who blinks first.
parasites like wall street will do whatever it takes to remain a
parasite. the fed is joined at the hip to wall street.
Vid...@tcq.net
> *Anarcissie* <anarcis...@gmail.com> wrote in message
they are to busy sweating up a storm worrying if the central banks
are going to bail them out of their risky bets.
what will happen is that they will crawl out from under their slime
infested rocks, after they have been bailed out, to cry like the
banshee's they are if the responsible people in governments point out
that if the big guys get bailed out, how about the little guys. then
you will see them in action, saving us from government.
Vid...@tcq.net
hehehehe, well said.
Vid...@tcq.net
Vid...@tcq.net
hehehehe, and a double snicker, so true.
jxr...@yahoo.com
Is it? This is what I don't understand. The news stories
talk about "cash" but it is clear there is no cash, nobody
went and got tens of billions of dollars and threw it on the
floor of the stock exchange. Sometimes the news stories
talking about "injecting" or "pumping" "liquidity" into the
markets. Liquidity just means I can sell my stock or bond
of whatever, it doesn't say how. I did read about "buying
securities" -- IOUs? What are they giving in exchange
for these IOUs, if that's what they are? If they wrote a
check on the Treasury, isn't that just another IOU? I
am trying to understand what's going on and I am
not getting it.
One thing -- there is a big difference between now and
1987. In 1987 it was just the stock market that was
inflated. Mostly rich people were involved. This time
around real estate is involved which affects middle-
income people and also low-income through their
landlords. If they are really blowing new money into
the system they will not be able to deny that serious
inflation has taken hold.
brique
bowman <bow...@montana.com> wrote in message
news:2148765.E...@montana.com...
> brique wrote:
>
> > I waiting for this newsgroups leading libertarian lights to protest this
> > gross sate interference in the market place and tell us how it will lead
> > to slave-camps, mass-murder and the usual socialist terror that state
> > interventions inevitably produce......
>
> You missed the part of the libertarian manifesto that says "no government
> interference unless it affects my bank account."
Must have been in the small print, you know, just after 'But it's okay to
use taxes to kill people I don't like' and before 'My dog told me he might
be a thief so I shot him, what you complaining about?'
James A. Donald
> > What happened was that when bad mortgages froze up,
> > people had a liquidity crisis that was adversely
> > affecting good collateral. It is good collateral,
> > not bad collateral, that the central banks are
> > stabilizing.
"brique"
> So, no outrage at this government intervention in the
> marketplace then?
If the intervention saves American Mortgage and Bear
Stein's bank, by in effect buying bad mortgages, in the
way they used to bail out George Soros from time to time
by buying bad foreign debt, then I will be plenty
outraged.
In theory, government can do right - public good
problems, externalities, and all that. Just it usually
does wrong.
Mark M.
> We have the right to defend ourselves and our property, because
> of the kind of animals that we are. True law derives from this
> right, not from the arbitrary power of the omnipotent state.
We each have the obligation to protect children, regardless of property laws and
other constructs of the state. This is because we are the kind of animals that
need plenty of protection when we are young.
Mark M.
Edmund Esterbauer
at the level it wants. The injection of money is negligible and is in the
overnight cash market and will be redeemed later with interest. There is no
'thin air' manipulation. If it was based on gold, the Reserve would add
gold to the system with little effect on gold reserves (actually in reality
it would be simply a piece of paper that is theoretically redeemable in
gold, but never would be redeemed because of the high transaction costs and
the short term nature of the transaction). Later it can redeem that gold
with no net effect. To advocate that bankruptcy and possible financial
collapse as a better solution seems rather short-sighted.
"Mani Deli" <ma...@sympatico.ca> wrote in message
news:tldub39gsjfqis87m...@4ax.com...
*Anarcissie*
gold, or gold-based paper, and what is happening at the
moment, in that it appears that various central banks are
creating money _ex_nihilo_. They are not even bothering
to print it. It seems that this creation of money would have
to lead to sharp inflation and a concomitant rise in
interest rates which the US government will find very
inconvenient due to its debt position.
However, there is another possibility which is that most
money is not created by governments but by private
parties, based on their and others' belief in their
ability to pay at some time in the future. This money
could disappear instantly if people stopped believing,
causing radical deflation. There is some basis for
this loss of faith: the easy money of recent years, for
the rich, anyway, has lead to grossly inflated prices
for real estate, stock, collectibles and the like. The
ultimate value of money, its ability to claim real
goods and services, has become more and more
doubtful. The creation of yet more money to avert
downfall may actually exacerbate the loss of faith.
On Aug 13, 7:44 am, "Edmund Esterbauer" <eesterba...@bigpond.com>
wrote:
> Mani, the Reserve is merely holding the short term (overnight) interest rate
> at the level it wants. The injection of money is negligible and is in the
> overnight cash market and will be redeemed later with interest. There is no
> 'thin air' manipulation. If it was based on gold, the Reserve would add
> gold to the system with little effect on gold reserves (actually in reality
> it would be simply a piece of paper that is theoretically redeemable in
> gold, but never would be redeemed because of the high transaction costs and
> the short term nature of the transaction). Later it can redeem that gold
> with no net effect. To advocate that bankruptcy and possible financial
> collapse as a better solution seems rather short-sighted.
>
> "Mani Deli" <m...@sympatico.ca> wrote in message
Andy F.
<jxr...@yahoo.com> wrote in message
news:1186921491....@r34g2000hsd.googlegroups.com...
Yes. each bank will have a deposit account with the central bank. Deposits
in these accounts are counted as money - they are basically the same thing
as banknotes, but in a more convenient form. When the central bank lends
money to a bank, they credit it into one of these accounts.
>
Edmund Esterbauer
Even if there was an inflationary impact this would be still better than a
financial crisis and a systemic failure of banks. Inflation can always
later be controlled within the limits deemed acceptable by the Reserve
without causing the mass disruption to economic activity and the associated
social costs of financial meltdown. There is a moral hazard associated with
a bale-out but this is the cost of an unanticipated shock to the financial
system and it can be dealt with through a regulatory framework developed in
the future after the current problems have been resolved.
The issue with gold was that the injection into the cash market is minimal
relative to the money supply (or in a gold system the gold supply held in
some vault) and that the inhjection would make not one bit of difference if
it was gold-based, other than inconvenient transaction costs and the reduced
efficiency of the financial system associated with a gold-based system. In
reality if the financial system was based on gold, the claims would still be
paper claims as there would be no real movements of gold. This is because
it would be too expensive to shuffle gold from one vault to another.
The idea that private money is an alternative model for the financial system
is fraught with knowledge problems and would be a recipe for disaster.
Private money would have such a high risk premium attached to it that it
would be only a fool who accepted it.
"*Anarcissie*" <anarc...@gmail.com> wrote in message
news:1187007821.5...@w3g2000hsg.googlegroups.com...
*Anarcissie*
wrote:
> If the money is redeemed i.e. sterilised it has no inflationary impact. .
> Even if there was an inflationary impact this would be still better than a
> financial crisis and a systemic failure of banks. Inflation can always
> later be controlled within the limits deemed acceptable by the Reserve
> without causing the mass disruption to economic activity and the associated
> social costs of financial meltdown. There is a moral hazard associated with
> a bale-out but this is the cost of an unanticipated shock to the financial
> system and it can be dealt with through a regulatory framework developed in
> the future after the current problems have been resolved.
>
> The issue with gold was that the injection into the cash market is minimal
> relative to the money supply (or in a gold system the gold supply held in
> some vault) and that the inhjection would make not one bit of difference if
> it was gold-based, other than inconvenient transaction costs and the reduced
> efficiency of the financial system associated with a gold-based system. In
> reality if the financial system was based on gold, the claims would still be
> paper claims as there would be no real movements of gold. This is because
> it would be too expensive to shuffle gold from one vault to another.
>
> The idea that private money is an alternative model for the financial system
> is fraught with knowledge problems and would be a recipe for disaster.
> Private money would have such a high risk premium attached to it that it
> would be only a fool who accepted it.
I was recently reading W. F. Hummel and he seems
to believe we already, and for some time, have had
private money, that is, most of the money in existence
and use has been created by private credit. I may be
misunderstanding him, but that's what I got from
a first, superficial reading. (See http://wfhummel.net/ )
If you think I'm wrong or Hummel is wrong, I'd be
interested in a correction.
If Hummel is right then the major thing the central
banks have done is not create money but let the
private people creating money know that it is all
right for _them_ to keep creating it. This is I think
what happened in 1987: when the overpriced stock
market began to fold up, the Federal government
let the major participants know that as much money
as necessary would be created for them to uphold
the inflated prices. Thus a few billion from a
central bank could result in the actual creation of
ten or twenty times as much money, or, in the
present case, could save ten or twenty times as
much money from winking out of existence.
In any case, we can't say that there has been no
inflation in the last few years (say, since 1997).
There has been tremendous inflation is some areas,
and it has been handled so far by declaring these
areas off the board. These have included real estate,
energy and food, as if no one needs to eat, buy gas,
or live anywhere. However, the inflation has been
mostly confined to the realms normally inhabited
by rich people, or people at least playing rich for
the moment: real estate, stocks, collectibles. The
price of uncredentialled labor hasn't gone up much,
in fact, in some areas, like computer programming,
it has gone down. Likewise food, clothing, and
the toys the working class make and buy haven't
changed much in price.
However, I don't see how this situation can go on
forever. Eventually, if there is all this gaseous
money floating around among rich people, aren't
some of them going to attempt to exert its
theoretical claim on real value, that is, actual
goods and services? Or is that somehow
supposed to never happen? How is the money to
be kept out of the hands of the poor, so that the
rich can continue to pretend there is no inflation
and get low interest rates from the Chinese?
brique
Edmund Esterbauer <eeste...@bigpond.com> wrote in message
news:DuXvi.19930$4A1....@news-server.bigpond.net.au...
> Mani, the Reserve is merely holding the short term (overnight) interest
rate
> at the level it wants. The injection of money is negligible and is in the
> overnight cash market and will be redeemed later with interest. There is
no
> 'thin air' manipulation. If it was based on gold, the Reserve would add
> gold to the system with little effect on gold reserves (actually in
reality
> it would be simply a piece of paper that is theoretically redeemable in
> gold, but never would be redeemed because of the high transaction costs
and
> the short term nature of the transaction). Later it can redeem that gold
> with no net effect. To advocate that bankruptcy and possible financial
> collapse as a better solution seems rather short-sighted.
The report I read said that the reserve banks were guaranteeing a set
interest rate (4%) on the financial instruments in question.The object being
to bolster their 'value' as assets backing other loans and mortgages and
thus preventing a total meltdown of the current credit bubble which is
funding much of the stock markets activities.
This will prevent, in the main, those who took a high-risk venture in buying
these instruments from the consequences of their folly. It will not,
however, protect those defaulting on their mortgages which is the true cause
of the crisis. They will lose their homes with consequent trauma and social
impact while those who lent the money, knowing it was high-risk and charging
a high interest rate accordingly, will suffer no loss at all. They got the
high interest when the loan was being repaid, now they get their money back
when it defaults. So, just who was taking the risk that warranted the higher
rates? The corporate welfare queens strike again.
*Anarcissie*
> . . .
> This will prevent, in the main, those who took a high-risk venture in buying
> these instruments from the consequences of their folly. It will not,
> however, protect those defaulting on their mortgages which is the true cause
> of the crisis. They will lose their homes with consequent trauma and social
> impact while those who lent the money, knowing it was high-risk and charging
> a high interest rate accordingly, will suffer no loss at all. They got the
> high interest when the loan was being repaid, now they get their money back
> when it defaults. So, just who was taking the risk that warranted the higher
> rates? The corporate welfare queens strike again.
I imagine if the system manages to pull out of the
current problem without serious disorder, there will
be important political pressure to bail out the
mortgage defaulters at the expense of people of
the same economic class who haven't defaulted
(yet). This is the usual approach to economic
distress: war communism for the poor.
I don't think this can work long-term, however.
Some kind of rectification is going to occur between
the inflated valuations of real estate and stock, and
the less inflated valuations of real goods and services.
Mani Deli
<eeste...@bigpond.com> wrote:
>Mani, the Reserve is merely holding the short term (overnight) interest rate
>at the level it wants. The injection of money is negligible and is in the
>overnight cash market and will be redeemed later with interest. There is no
>'thin air' manipulation. If it was based on gold, the Reserve would add
>gold to the system with little effect on gold reserves (actually in reality
>it would be simply a piece of paper that is theoretically redeemable in
>gold, but never would be redeemed because of the high transaction costs and
>the short term nature of the transaction). Later it can redeem that gold
>with no net effect. To advocate that bankruptcy and possible financial
>collapse as a better solution seems rather short-sighted.
I don't disagree with your points. The infusion of money may work or
it may not. This was done many times before. What was done was better
then just letting the banking system collapse.
I believe the system will hemorrhage in spite of this because the
statistics are fake. There are no savings and Americans are mostly all
in debt. I might add that I hope I'm wrong. If I'm not, the mess won't
make anyone happy.
Michael A. Clem
>
> but its the private sector that is the fed. most presidents, nor
> congress have any say about fed policy.
>
Technically private sector, but the President appoints the Fed Chairman
with Congressional approval.
Name another private company that operates like that...
Michael A. Clem
>
>
> not so. its in the constitution.
Constitution or not, that still doesn't make it a legitimate function of
government.
> the real problem is that our government outsourced its duty to the
> private sector. if you want to stop this, take away the printing
> press's from the silver spoon crowd.
The government "out-sourced" the money supply back in 1913, long before
Ronnie Raygun's time. But it's still a government-backed monopoly, and
hardly a free market system of currency.
> the fire wall between wall street and the private sector that runs
> the fed is nothing more than paper mache, they are one and the same.
> and i goofed, this is the forth time we have bailed out the silver
> spoons since ray-guts appointed a libertarian to run a private sector
> scheme to charge us a interest rate to print our own money.
>
Reagan and Greenspan talked a good game, but still had trouble following
through and "libertizing" government. The S&L mess is a good example of
a half-assed attempt.
*Anarcissie*
of funny money, the markets didn't go up. In other words,
without the ECB, Federal Reserve, etc.'s creating several
hundred billion dollars, the markets would have crashed.
brique
I notice today that the Bank of England is not one of the reserve banks
undertaking this rescue operation. Oddly, the London market did not crash
and burn either.
Which does raise the queation, is this 'crisis' being played up by the
markets to encourage the reserve banks to enter the markets and underwrite
the inevitable losses that have been long predicetd for this sector?
brique
James A. Donald <jam...@echeque.com> wrote in message
news:tcd1c31jmnmgdjkmb...@4ax.com...
> rOn Mon, 13 Aug 2007 18:45:51 +0100, "brique" <briqu...@freeuk.c0m>
> wrote:
>
> > This will prevent, in the main, those who took a high-risk venture in
buying
> > these instruments from the consequences of their folly. It will not,
> > however, protect those defaulting on their mortgages which is the true
cause
> > of the crisis. They will lose their homes with consequent trauma and
social
> > impact while those who lent the money, knowing it was high-risk and
charging
> > a high interest rate accordingly, will suffer no loss at all. They got
the
> > high interest when the loan was being repaid, now they get their money
back
> > when it defaults.
>
> not what is happening. On the other hand, on past performance of the
> central banks, the past performance that made Soros rich, quite likely
> you are right.
>
> What is supposedly happening is that the central banks are funding the
> purchase of good collateral, not bad collateral.
They are preventing bad collateral from being squeezed out of the market in
favour of 'good', or, in another view, they are making the 'bad' into 'good'
by underwriting the losses thereby making its retention more desirable and
thus, they hope, stopping a market meltdown as everyone rushes for the best
collateral of all in troubled stock markets : sell the lot and hold cash
until the dice stop tumbling.
The central banks are guaranteeing a 4% return on the financial instruments
underpinning the credit pyramid. Basically, if the instrument owners can't
get that rate elsewhere ( which is the problem) then the central banks will
pay it until the markets settle and rates in that sector generally return to
that level. It's a massive subsidy, in effect.
Interestingly, at present, the Bank of England is _not_ doing so. As London
is a major financial centre it will be a useful, if not unusual, comparator
as to the effectiveness of the strategy..
Vid...@tcq.net
wrote:
the word "appoints" says it all. didn't hindenberg appoint hitler?
what leverage does the president, or congress have on the private
sector fed once he has been appointed? nothing real that i know of.
Vid...@tcq.net
wrote:
> Vide...@tcq.net wrote:
>
> > not so. its in the constitution.
>
> Constitution or not, that still doesn't make it a legitimate function of
> government.
>
yea lets ignore the part of the constitution that does not comply
with our ideology, and enforce only the parts our ideology agrees
with, correct?
> > the real problem is that our government outsourced its duty to the
> > private sector. if you want to stop this, take away the printing
> > press's from the silver spoon crowd.
>
> The government "out-sourced" the money supply back in 1913, long before
> Ronnie Raygun's time.
correct. that does not mean we should let it go on.
But it's still a government-backed monopoly, and
> hardly a free market system of currency.
>
baloney. another poster as i have said that the private sector has
been issuing its own money for years, and boy look how they handled
it.
> > the fire wall between wall street and the private sector that runs
> > the fed is nothing more than paper mache, they are one and the same.
> > and i goofed, this is the forth time we have bailed out the silver
> > spoons since ray-guts appointed a libertarian to run a private sector
> > scheme to charge us a interest rate to print our own money.
>
> Reagan and Greenspan talked a good game, but still had trouble following
> through and "libertizing" government.
your liberties are what we are going thru right now. go to somalia.
The S&L mess is a good example of
> a half-assed attempt.
yea, they allowed them to do as they please. self regulation never
works.
Vid...@tcq.net
how much real collateral is backing all of these so-called bonds, and
bets. i bet the original collateral for most of this stuff has been
way over inflated, and or borrowed and hedged against so many times
that the reason for the panic is because there may only be pennies on
the dollar if that, to cover all of this debt.
Davinchi
even if it's half the book value, that's a huge loss that is
just around the corner. There's no way that such a loss
will not severely affect the market, no matter what the fed
does.
Davinchi
work for them in the future. Real estate in Eng. would
appear to be facing the same problems down the road. While
it's a lot easier to rationalize the internal rate of
inflation for RE on an island, if the investiture losses
it's income stream and the secondary market becomes unstable
then you will have a very similar credit problem as y9u have
here in the US. The mix of the cause is different, but the
results are similar.
--
Experience demands that man is the only animal which
devours his own kind, for I can apply no milder term to the
general prey of the rich on the poor. --Thomas Jefferson
--
###
Andy F.
"brique" <briqu...@freeuk.c0m> wrote in message
news:118702736...@proxy00.news.clara.net...
anyone.They're LENDING money to banks and getting paid 4% interest.The
reason they're doing that is to stop interest rates from rising.
The subprime lenders ARE losing money.This is why a lot of share prices have
gone down.
Andy F.
created money is measured in 'dollars'. It's the Fed which controls how much
a 'dollar' is actually worth.
The prices of real estate and stocks behave differently from other goods.
The price of a long term asset is determined by expected future rents or
profits, discounted at the expected long term interest rate. Uncertainty
about the future makes these prices volatile.
Booms and busts in the real estate and stock markets have been going on for
centuries - long before fiat money was invented.
*Anarcissie*
<dotmulldrdo...@noat.nodotnodot.reversethis.liamg.com> wrote:
If I have this figured out properly, then I have to say
you guys are not with the program. This money, any
money that exists in significant quantities today, is
not based on existent collateral; it is based on faith,
faith that at some point in the future the money
being created by faith, by credit, will be made good
in some way.
Governments can create faith because they have
armies that can seize the goods and sometimes the
labor of their citizens. You might say the repute of
the government is based on its power to steal, its
power to do violence. But it can also compel the
acceptance of payment. This power isn't
infinite, but it is effective within certain limits.
The government lends its credit to a central bank.
The central bank creates money, not quite out of
thin air, but out of its credit. The banks and other
parties then go through a great deal of formalistic
rigmarole to parcel the money out, as if it were a
valuable material commodity. This conceals the
essential fiction of what has taken place. Private
parties are also allowed, indeed encouraged, to
create credit money by writing checks, making
loans, and so forth -- in effect, the central banks
and the subordinate banks impart their credit to
other parties, like corporations and individuals,
who can further expand what they are granted
by the banks. All of this works as long as the
money creation does not get out of hand.
What has happened in the last several years
is that apparently credit money was allowed
to inflate real estate, stocks and collectibles,
but it was not extended (as much) to working-
class labor, food, clothing, and so on. This
made it possible to claim that there was no
inflation to speak of. I am still not sure exactly
how this was done but it seems it would be
easier to do with something as vaporous as
credit money, than with concrete although
semi-fictional fiat money in the form of
paper.
I suspect the "collateral" you are talking about
above does not exist except in the sense of the
government power to seize goods, which is not
going to amount to much if people stop believing
in the system and stop working. It is not pennies
on the dollar, it could be zero on the dollar.
Vid...@tcq.net
<dotmulldrdo...@noat.nodotnodot.reversethis.liamg.com> wrote:
correct, but, if the loss's far exceed the true value of the
collateral, will that not drag down the value of the collateral? so
who knows what the collateral's worth will settle at.
i wonder if in the 1929 crash, much real collateral that was worth
its real value, plummeted because no one dared to take a risk.
my contention is that a free market lazzie faire type of economy
could easily zero itself in value.
there are really no backstops, checks and balances except the central
bank to stop economic panics, or to ensure speculation does not get
out of hand.
the checks and balances are a high progressive tax rate that clips
the power of a economic aristocracy.
a capital gains tax that slows down stock market manipulation and
speculative fever.
regulations that are enforced that keeps firewalls up between
corporations that limits their wealth and power.
regulation of trade so that corporations will not find a foreign way
around the above.
i am sure there is more, labor and environmental come to mind.
brique
Davinchi <dotmull...@noat.nodotnodot.reversethis.liamg.com> wrote in
message news:46c153b4$0$16603$4c36...@roadrunner.com...
I agree, the UK housing market is well overdue for a similar 'adjustment'
which saw massive repossessions and 'negative equity' during the last Tory
government. general credit liability is growing too.
But I don't think that the UK mortgage market is as tied to sub-prime
lending and the consequent financial instruments derived from it at the same
rate as the US. I suspect most of Londons exposure is to the American market
rather than its own, in that sense. The structure of mortgage lending is
somewhat different too, fewer strictly 'mortgage' lenders, its more that
mortgage lending is part of a mixed range of lending activities undertaken
by banks underpinned by savings and current account customers, rather than
the lender borrowing on the market to finance their business.
But the overall credit-orgy, mainly used to finance housing and consumption
will have to be dealt with at some point. Sooner or later, it has to be
either paid back, with the consequent fall in consumption and retail
activity, or defaulted, with the consequent social and financial impact
that brings.
As for the ciurrent 'crisis: Perhaps the BofE is just being a bit clever,
the Central European Bank is pumping in vast sums and maybe they think that
will be enough to settle the European end of the financial connections, thus
London will then benefit from a more stable market without having had to pay
for it.
brique
Andy F. <never...@tesco.net> wrote in message
news:5idhjgF...@mid.individual.net...
Put bluntly, that is not so. Massive loans are taken out on these 'bundled
mortgages'. That borrowing has underpinned vast amounts of stocks and shares
activity, notably the boom in 'private equity' acquisitions. With the fall
in value, due to the increase in default rates ( and, more importantly
perhaps, the loss of confidence in the instruments), the lenders are
demanding other forms of collateral to back those loans. Thus the borrowers
are having to either sell them ( but no-one wants to buy them) or
renegotiate the loans at higher interest rates ( but the banks want an
extremely high interest rate now which makes the whole market untenable).
The other choice is to sell what other assets they hold and pay down the
loans to an acceptable level.
That is the 'liquidity' problem, everyone wants to sell, nobody has the
money to buy, or wishes to buy so the market deflates, prices tumble then
other mechanisms come into play. Falling share values trigger other
problems, otherwise sound loans based on company values become vulnerable,
players liquidate their positions to avoid more losses, values fall again
prompting more players to liquidate their positions and so on. The banks
freak and stopping loaning except at very high rates and there you have your
real broad-based financial crisis.
By becoming the 'lender of last resort' and guaranteeing a fixed low-rate
loan regardless, the hope is the borrowers will not have to liquidate their
holdings, the pressure on other financial dealings, such as stocks and
shares will ease, everyone will calm down, not sell and push the market down
any further and, at some future date, the whole problem will unravel itself
and the central banks can withdraw leaving business to carry on as before,
but maybe wiser.
But here is the thing, already some banks are creating 'vulture funds' to
buy up these instruments at their depressed values, knowing that, for now,
there is bugger all risk as the central banks are underwriting the value of
them. they know the central banks will maintain that cover until the market
settles and the percieved value returns. It's a no-lose situation. Oddly,
the liquidity for such ventures is not so hard to come by, Goldmans, with
partners, have just pumped $3billion into such a fund.
> The subprime lenders ARE losing money.This is why a lot of share prices
have
> gone down.
The sub-prime lenders are not making as much money as before, but they are
now not going to lose it all either. Unlike the mortgage defaulters, of
course.
brique
Years ago, I had a conversation with a shop-keeper, I had given him a rather
grubby note and he inspected it very thoroughly before accepting it. I joked
that it was a good one as I had printed it the night before. His reply was
interesting, he said he didn't mind forgeries, as long as everyone agreed
they were 'real', they worked just the same as genuine notes. It was only
when some-one yelled 'fake!' that it became worthless......
*Anarcissie*
I don't really see how any of the social-democratic
stuff you mention will necessarily keep the virtual
dollar from being inflated. In the present case, the
governments, the US, anyway, have been at work
in precisely the opposite direction -- it has been
encouraging inflation to keep the stock market
going, leading to enormous bubbles in both the
dot-com stocks and the real estate markets. The
trick of inflating money can be applied to almost
any kind of economy: as the Soviet workers used
to say, "They pretend to pay us, and we pretend
to work."
Vid...@tcq.net
you need to look at the era of 1933-till about 1970 or so. once you
allow the financial types to be the tail that wags the dog, then the
tail wags the dog. it started in the early 1970's.
the tail is wagging the federal reserve right now. no countries
remain successful that do not shackle the rich.
we had many clever kludges in those years that were enforced. we also
had a peg to gold, it was very clever. it did not allow the holders of
gold to be the tail, because they could not pay their bills in gold.
it allowed the dog to control the power of gold.
i am not saying that we can accumalte internal debt forever, and in
such quantities that we endure hyper inflation.
but we can weed out much of the external debt, such as free trade,
and imperialism, both of which are one and the same.
if you look at the new deal years. we invested heavily in our people,
we dumped free trade, we taxed the shit out of parasites, we fought
wwII, we rebuilt europe, and we paid our bills, and had a stable
currency.
you cannot do all of the above when your life blood and equity is
draining into the cess pool known as free market economics.
James A. Donald
> They are preventing bad collateral from being squeezed
> out of the market in favour of 'good', or, in another
> view, they are making the 'bad' into 'good' by
> underwriting the losses thereby making its retention
> more desirable and thus
Quite possibly that is what they are really doing, but
what they are supposedly doing is ensuring that when bad
collateral takes Bear Stein's bank and American mortgage
under, it does not harm holders of good collateral.
If Bear Stein goes under and its top executives become
unemployed, then we will know that the Fed was not
overly corrupt this time around.
--
----------------------
We have the right to defend ourselves and our property, because
of the kind of animals that we are. True law derives from this
right, not from the arbitrary power of the omnipotent state.
http://www.jim.com/ James A. Donald
Andy F.
"brique" <briqu...@freeuk.c0m> wrote in message
According to the reports I've read, what seems to have happened is that the
European Central Bank has been lending large amounts of money to European
banks at 4% interest.
4% was the going rate for interbank loans in thr Euro zone before the
crisis. So basically what the ECB is doing is providing enough liquidity to
keep interest rates stable.The Federal Reserve in the US has been doing
something similar.
Central banks do this all the time.The only difference is the amounts have
been unusually large recently.
I'm not sure what you mean when you say the central banks are 'underwriting'
mortgage debt. Are you saying that if someone in America doesn't pay their
mortgage, the ECB pays it instead? (That's what 'underwriting' usually
means.)
It would be very unusual if central banks were doing anything like that.If
you've got some evidence that's what they're doing I'd be interested to read
it.
*Anarcissie*
> "brique"
>
> > They are preventing bad collateral from being squeezed
> > out of the market in favour of 'good', or, in another
> > view, they are making the 'bad' into 'good' by
> > underwriting the losses thereby making its retention
> > more desirable and thus
>
> Quite possibly that is what they are really doing, but
> what they are supposedly doing is ensuring that when bad
> collateral takes Bear Stein's bank and American mortgage
> under, it does not harm holders of good collateral.
I think this may not be possible. The system of
stock and real estate prices is fairly self-referential,
that is, what makes belief in one stock possible is
partly belief in the money value of other stocks
and of course in the near-future price of all
stocks and related instruments.
One of the places where the rubber of imaginary
prices meets the road of actual value is the
subprime mortgage where the mortgagors are
persons of low or dubious assets and
marginal ability to make the mortgage payment
with money they must obtain from selling their
labor, not from asset inflation, etc. Clearly the
anticipation of the subprime lenders was that,
like the used-car salesman in a poor
neighborhood, they could profit by selling the
same thing more than once. But once faith in
real estate is shaken, this cannot necessarily
be carried forward. Meanwhile the poor
persons' money, not being tied to asset
inflation but to labor, will often prove
inadequate to its task.
This is not an isolated thing. It is the
canary in the mine keeling over. The
money which has been generated to inflate
stock and real estate prices cannot call
forth real labor, goods and services because
there is too much of it.
JuanElorza
> On Aug 10, 12:26 pm, animamin...@yahoo.com wrote:
>> The following is from Bloomberg.
>>
>> Central Banks Add Cash to Avert Crisis of Confidence (Update6)
>>
>> By Scott Lanman and Christian Vits
>
>
> The Feb can pump money into the banking system permanently (by
> creating money from thin air to buy back securities outright) or
> temporarily (by repurchase agreements called repos). According to
> Washington Post it appears to be the latter (See
> http://www.washingtonpost.com/wp-dyn/content/graphic/2007/08/10/GR2007081001524.html?hpid=topnews)
> The banks normally pay them back in 1 to 65 days, which means the
> Banks are only relieved temporarily but not bailed out outright.
>
> The Fed has to pump these 36 billion into the banking system because
> the Federal funds rate rose to 6% overnight, and Fed needed to
> maintain the 5.25% target rate.
>
> The ECB (European Central Bank) pumped in around 200 billion to the
> banking system at 4% on Thursday and Friday. It could be temporary
> too. And it is reported that the going rate jumped to 4.75% again
> after the relief. Maybe the ECB will pump more into the banking system
> on Monday to bring it down?
>
http://socserv.mcmaster.ca/econ/ugcm/3ll3/bagehot/lombard.html
Walter Bagehot - Lombard Street 1874
In opposition to what might be at first sight supposed, the best way for
the bank or banks who have the custody of the bank reserve to deal with
a drain arising from internal discredit, is to lend freely. The first
instinct of everyone is the contrary. There being a large demand on a
fund which you want to preserve, the most obvious way to preserve it is
to hoard itto get in as much as you can, and to let nothing go out which
you can help. But every banker knows that this is not the way to
diminish discredit. This discredit means, `an opinion that you have not
got any money,' and to dissipate that opinion, you must, if possible,
show that you have money: you must employ it for the public benefit in
order that the public may know that you have it. The time for economy
and for accumulation is before. A good banker will have accumulated in
ordinary times the reserve he is to make use of in extraordinary times.
brique
The point is the original borrower on the mortgage doesn't get a thing , it
is the traders along the line who use that debt to leverage more loans which
get used to fund activity in other areas, like acquisitions, who will
benefit. Rather than possessing a virtually valueless financial instrument
bearing a high interest cost, the central banks will fund banks to loan at
4% rate on that item as if it was _not_ a virtually worthless financial
instrument. That makes it worth keeping, that makes it sufficient collateral
to back other loans, that means the cash keeps flowing that keeps the whole
ball game rolling.
That is the underwriting going on, the central reserve banks are telling the
trading banks to pretend the bundled mortgages are still valuable and if the
financial shit hits the fan, dont worry, we will pick up the tab.
*Anarcissie*
> http://socserv.mcmaster.ca/econ/ugcm/3ll3/bagehot/lombard.html
> Walter Bagehot - Lombard Street 1874
>
> In opposition to what might be at first sight supposed, the best way for
> the bank or banks who have the custody of the bank reserve to deal with
> a drain arising from internal discredit, is to lend freely. The first
> instinct of everyone is the contrary. There being a large demand on a
> fund which you want to preserve, the most obvious way to preserve it is
> to hoard itto get in as much as you can, and to let nothing go out which
> you can help. But every banker knows that this is not the way to
> diminish discredit. This discredit means, `an opinion that you have not
> got any money,' and to dissipate that opinion, you must, if possible,
> show that you have money: you must employ it for the public benefit in
> order that the public may know that you have it. The time for economy
> and for accumulation is before. A good banker will have accumulated in
> ordinary times the reserve he is to make use of in extraordinary times.
The central banks don't need a reserve. They just
create the money out of nothing. However, there is
a limit to how long this can go on before something
gives way, because their credit is not infinite.
James A. Donald
> The point is the original borrower on the mortgage
> doesn't get a thing , it is the traders along the line
> who use that debt to leverage more loans which get
> used to fund activity in other areas, like
> acquisitions, who will benefit. Rather than possessing
> a virtually valueless financial instrument bearing a
> high interest cost, the central banks will fund banks
> to loan at 4% rate on that item as if it was _not_ a
> virtually worthless financial instrument.
You have no evidence that that is what they are doing,
and that is not what they say they are doing.
Of course I would not put it past them (recall the
shenanigans when the World Bank repeatedly rode to the
rescue of George Soros at taxpayer expense) - but I
doubt that is what they are doing.
Andy F.
"brique" <briqu...@freeuk.c0m> wrote in message
profit margin.Just as they were doing before the crisis.Anyone trying to use
subprime mortgages as collateral now is going to find that the risk premium
is very high, if they can get a loan at all.So it doesn't stop the lenders
from losing money.
*Anarcissie*
> "brique" <briquen...@freeuk.c0m> wrote in message
> > > . . .
> > The point is the original borrower on the mortgage doesn't get a thing ,
> > it
> > is the traders along the line who use that debt to leverage more loans
> > which
> > get used to fund activity in other areas, like acquisitions, who will
> > benefit. Rather than possessing a virtually valueless financial instrument
> > bearing a high interest cost, the central banks will fund banks to loan at
> > 4% rate on that item as if it was _not_ a virtually worthless financial
> > instrument. That makes it worth keeping, that makes it sufficient
> > collateral
> > to back other loans, that means the cash keeps flowing that keeps the
> > whole
> > ball game rolling.
>
> > That is the underwriting going on, the central reserve banks are telling
> > the
> > trading banks to pretend the bundled mortgages are still valuable and if
> > the
> > financial shit hits the fan, dont worry, we will pick up the tab.
>
> The banks don't lend money at 4%. They lend at 4% + a risk premium + their
> profit margin.Just as they were doing before the crisis.Anyone trying to use
> subprime mortgages as collateral now is going to find that the risk premium
> is very high, if they can get a loan at all.So it doesn't stop the lenders
> from losing money.
The lenders who can keep borrowing money -- because the
government keeps "printing" it for them -- don't have to lose, at
least not until the government stops "printing" and lending.
It is true that private credit may disappear very rapidly, but
since credit can be created out of nothing almost instantly
by the government they can probably keep up the amount
of credit money necessary to compensate for the
disappearance.
The present administration(s), both bank and national, are
willing to do this for the rich, or rather, the respectable
institutions they own and operate. There will soon be a lot
of political pressure to extend this funny money further down
the economic food chain. There is a Democratic congress
which needs somewhere to go, having failed to do anything
significant about Bush's wars and other foibles. (They can't
even get rid of the wretched Alberto Gonzales.)
Once the funny money hits the lower levels, however, it
will also be spent for consumer goods, which there are no
more of than there were before. Result: rapid inflation, and
much higher interest rates for everyone, which is a problem
for the Federal government and many others because of
their enormous debts. Although the government has the
power to "print" money they don't have the power to
compel infinite belief in it.
Andy F.
So you think the banks are going to give unlimited credit to subprime
mortgage lenders?
Mark M.
land prices go in a barter economy? How high could land sales prices go in an
economy where money stands in for man-made goods and nothing but already produced
goods? Would there be any difference in land price in these two economies? How
high could land prices go in an economy where money can be created at will by
mortgage lends who are restrained by nothing but the rare possibility that land
prices will generally decrease? In such an economy is it not inevitable that land
prices will increase until people can no longer afford to pay them and then they
will abruptly decrease?
Mark M.
*Anarcissie*
> "*Anarcissie*" <anarcis...@gmail.com> wrote in message
I don't know what political connections and influence
the subprime mortgage lenders have or can bring to
bear. Once you have significant state involvement,
who gets what is going to be determined largely by
politics.
Andy F.
theory.
brique
James A. Donald <jam...@echeque.com> wrote in message
news:n977c3llhee76mjvr...@4ax.com...
> "brique"
> > The point is the original borrower on the mortgage
> > doesn't get a thing , it is the traders along the line
> > who use that debt to leverage more loans which get
> > used to fund activity in other areas, like
> > acquisitions, who will benefit. Rather than possessing
> > a virtually valueless financial instrument bearing a
> > high interest cost, the central banks will fund banks
> > to loan at 4% rate on that item as if it was _not_ a
> > virtually worthless financial instrument.
>
> You have no evidence that that is what they are doing,
> and that is not what they say they are doing.
>
Well, the first headlines about reserve bank action seemed to indicate they
were putting actual money into the system with some lead articles implying
they reserve banks were going to buy up the instruments in question.
But, when reading through the financial sections over the enxt few days, it
became clear this was not the case, the vast sums mentioned were not just
being handed over to the 'markets' in some transfusion process.
The European Central Bank, which acts as the reserve bank for the euro, is
allocating those vast sums as a sfaety fund, it is telling the banks to keep
lending at 4% maximum on those instruments and it will pick up the tab,
using that fund, if things go totally tits-up.
High finance is a complicated lark at the best of times, often it bears no
relationship to anything 'real' at all. But this situation could be compared
to the following : You have lots of credit cards, all maxed out but at a low
interest rate. You can still make the regular payments and cover your daily
spending needs. But then the interest rate climbs. You get the choice,
reduce your payments or reduce your other spending. Rates still climb. Now
it is make the payments or pay the utility bills. No probelm, its just a
temporrary glitch, you can borrow a bit more. Nope, the banks see all that
maxed out credit and say, no, or maybe but at an even higher interest rate.
but not spending what you used to spend, instead covering your repayments,
hits all your local retailers, they start losing sales. they have fire sales
to keep their cash flow up, they start to default on their loans, etc.
Pretty soon you hit a downward spiral as each default knock-ons and set off
others.
In market terms, that is what is happening. the central banks are trying to
stop it by funding the banks to keep giving credit at 4% (or promising to
fund any losses that arise from doing so) to the trouble sector and thus
protecting all the other sectors from the knock-on effects.
> Of course I would not put it past them (recall the
> shenanigans when the World Bank repeatedly rode to the
> rescue of George Soros at taxpayer expense) - but I
> doubt that is what they are doing.
It may not be what they want to do, or wish to do.... but when they say I
will guarantee a set value for your worthless piece of blue paper, it would
not be surprising that lots of worthless pieces of blue paper suddenly
appear. Not only that, others will start shouting as to why their worthless
piece of green paper is being ignored and demand the same deal, no point in
not asking, is there?
James A. Donald
> > > The point is the original borrower on the mortgage
> > > doesn't get a thing , it is the traders along the
> > > line who use that debt to leverage more loans
> > > which get used to fund activity in other areas,
> > > like acquisitions, who will benefit. Rather than
> > > possessing a virtually valueless financial
> > > instrument bearing a high interest cost, the
> > > central banks will fund banks to loan at 4% rate
> > > on that item as if it was _not_ a virtually
> > > worthless financial instrument.
James A. Donald
> > You have no evidence that that is what they are
> > doing, and that is not what they say they are doing.
"brique"
> Well, the first headlines about reserve bank action
> seemed to indicate they were putting actual money into
> the system with some lead articles implying they
> reserve banks were going to buy up the instruments in
> question.
You are notorious for seeing "implications" that no one
else sees.
> The European Central Bank, which acts as the reserve
> bank for the euro, is allocating those vast sums as a
> sfaety fund, it is telling the banks to keep lending
> at 4% maximum on those instruments and it will pick up
> the tab, using that fund, if things go totally
> tits-up.
No it is not telling the banks to buy up dud mortgages -
or if it is, it is keeping such shenanigans a secret.
The dud mortgages were bought up by non bank entities -
often non bank entities owned by banks. These banks may
well have loaned money from their right hand to their
left hand at favorable rates, and indeed I much suspect
they did - but if they did, the central banks are not
openly colluding in such shenanigans.
Andy F.
"brique" <briqu...@freeuk.c0m> wrote in message
losses' made by the banks.However, I haven't seen any press reports saying
vanything like that.
I don't think I can take your word for it.Why don't you tell us how you know
this information? Where did you read it?
brique
Actually, there is an investigation going on right now regarding the links
between the ratings agencies (the like of Standard and Poor who evaluate
potential risk and whose recommendations are akey factor in setting interest
rates on loans) and various funds promoting the instruments which have so
messed up. Did you know that the ratings agencies rated these intrstruments
on a par with US Bonds?.
Central bank collusion, I doubt it and don't suggest they have or are, but
central banks back-stopping the banks and hedge funds and bailing out those
who fully deserve to take the consequence of their own actions, yes. Of
course, they are doing it only to support and preserve their economy, but
that is the poison pill of capitalism, do it their way and mop up after
their fuck-ups or they bring the whole shithouse down upon us all.
brique
Financial pages of the UK Press, TV reports from BBC, ITN and SKY, radio
reports from ITN and SKY, both general and specifically financial.
I'm interested to know how it is being reported in the USA in both general
terms and more specifically in the financial media..
Michael A. Clem
>
> the word "appoints" says it all. didn't hindenberg appoint hitler?
> what leverage does the president, or congress have on the private
> sector fed once he has been appointed? nothing real that i know of.
>
And The Fed has a government-granted monopoly, too. Nobody else is
allowed to do what they do.
Vid...@tcq.net
wrote:
its in the constitution, get over it.
Michael A. Clem
>
> yea lets ignore the part of the constitution that does not comply
> with our ideology, and enforce only the parts our ideology agrees
> with, correct?
>
Next you'll be saying that the Constitution is a divinely-inspired
document, handed down by God?
>
>>> the real problem is that our government outsourced its duty to the
>>>private sector. if you want to stop this, take away the printing
>>>press's from the silver spoon crowd.
>>
>>The government "out-sourced" the money supply back in 1913, long before
>>Ronnie Raygun's time.
>
>
> correct. that does not mean we should let it go on.
Of course not. We've seen how good government is at managing money. We
should get the government out of the money supply entirely, and once
again allow for free and competing currencies.
>
> But it's still a government-backed monopoly, and
>
>>hardly a free market system of currency.
>>
>
>
> baloney. another poster as i have said that the private sector has
> been issuing its own money for years, and boy look how they handled
> it.
>
Add mustard and cheese to that baloney. Who is allowed to compete with
the issued currency? Who is free to not accept that currency as "legal
tender"?
> The S&L mess is a good example of
>
>> a half-assed attempt.
>
> yea, they allowed them to do as they please. self regulation never
> works.
>
Yes, the GOVERNMENT allowed them to do as they please. More government
and/or government regulation is hardly the answer. And I wouldn't dream
of suggesting "self-regulation", but market-based regulation is hardly
that.
Andy F.
"brique" <briqu...@freeuk.c0m> wrote in message
I've read some of those myself and all I can see is that the ECB has loaned
money to banks at 4% interest.A loan which has to be repaid with interest
isn't the same as making good anyone's losses.
Andy F.
>>
>>
>>
> Nearly all land price is created by mortgage lenders. Ponder this: how
> high could land prices go in a barter economy? How high could land sales
> prices go in an economy where money stands in for man-made goods and
> nothing but already produced goods? Would there be any difference in land
> price in these two economies? How high could land prices go in an economy
> where money can be created at will by mortgage lends who are restrained by
> nothing but the rare possibility that land prices will generally decrease?
> In such an economy is it not inevitable that land prices will increase
> until people can no longer afford to pay them and then they will abruptly
> decrease?
>
> Mark M.
In a barter economy presumably some locations would be better than others so
land would stil have rental value. Land purchases might be less common, but
I don't think they would be selling it cheaply.
In the 19th century, when most currencies were on the gold standard, the
economy went through booms and busts which were probably more severe than
the ones we get now, so I don't think you can blame it all on fiat
currencies.
The present crisis was partly caused by people making bad decisions i.e.
borrowers taking loans they couldn't hope to pay back, lenders selling bad
mortgages, and people in the money markets pretending mortgage debt was
worth more than it really was.If people had acted more rationally, the
housing boom would have slowed down earlier and the boom would have been
less severe.
Of course, if taxes on land were higher, there would be less capitalized
land rent to speculate on, and house prices would be more closely related to
building costs, which would make them more stable.
Michael A. Clem
>>And The Fed has a government-granted monopoly, too. Nobody else is
>>allowed to do what they do.
>
>
> its in the constitution, get over it.
>
Exactly! The Constitution is not a free market document, but a
government document. Thus, the Fed is a private organization that has
privileges provided by the government, privileges that the free market
would never give a bank, at least not exclusively.
So you can say "private-sector" this and "private sector" that, but the
source of those privileges is still the government, not the private
sector itself.
As you say, "it's in the Constitution," so get over it, and go to the
source of the problem.
Michael A. Clem
>
> I don't disagree with your points. The infusion of money may work or
> it may not. This was done many times before. What was done was better
> then just letting the banking system collapse.
>
Perhaps, but it'll remain a recurring problem until the source of that
problem is tackled, instead of merely the symptoms.
> I believe the system will hemorrhage in spite of this because the
> statistics are fake. There are no savings and Americans are mostly all
> in debt. I might add that I hope I'm wrong. If I'm not, the mess won't
> make anyone happy.
>
What's the point of saving if government-controlled interest rates are
so low, and government-controlled inflation eats up any interest one
might earn? U.S. inflation may be low, but it still discourages savings
and encourages spending before one's currency is devalued.
Michael A. Clem
>
> bingo! yes, they were using debt as money, something that is
> impossible to do, and the chickens are coming home to roost.
> they repackaged i.o.u.'s with little or no collateral, and called
> that liquidity.
>
Right.
> ponzi scheme.
Yes.
>
>>But the central banks are not buying up bad mortgages in
>>the way that they used to buy up bad money from the
>>likes of George Soros.
>
>
> free trade has finally started to bite them in the butt. what was the
> old saying, give a capitalist enough rope, and they will hang
> themselves every time.
You mean free trade is trying to correct the government intervention.
The market is biting the central (government-monopoly) banks in the
butt. Their interventions have caused distortions that they cannot
control--unintended consequences.
> which many who were warning of the domino effect, who were demonized,
> or called paranoid, were correct.
> in a inter-conneceted free market, there are no backstops. so the
> contagion spreads fast because the players deep down know this.
> after all, they are simply wolves.
>
B.S. In an "inter-connected free market", there are plenty of ways of
avoiding economic trouble. It's when the government intervenes that the
free market safety nets are removed and replaced by inferior government
safety nets.
Michael A. Clem
> you need to look at the era of 1933-till about 1970 or so. once you
> allow the financial types to be the tail that wags the dog, then the
> tail wags the dog. it started in the early 1970's.
> the tail is wagging the federal reserve right now. no countries
> remain successful that do not shackle the rich.
> we had many clever kludges in those years that were enforced. we also
> had a peg to gold, it was very clever. it did not allow the holders of
> gold to be the tail, because they could not pay their bills in gold.
> it allowed the dog to control the power of gold.
> i am not saying that we can accumalte internal debt forever, and in
> such quantities that we endure hyper inflation.
> but we can weed out much of the external debt, such as free trade,
> and imperialism, both of which are one and the same.
> if you look at the new deal years. we invested heavily in our people,
> we dumped free trade, we taxed the shit out of parasites, we fought
> wwII, we rebuilt europe, and we paid our bills, and had a stable
> currency.
> you cannot do all of the above when your life blood and equity is
> draining into the cess pool known as free market economics.
>
I am still puzzled as to how you can call the economy from 1933-present
a "free market economy"? The Federal Reserve was created *by
government* in 1913, and granted certain privileges to that
organization, privileges they abused and which had a large part in
leading to the boom of the 1920s and the subsequent bust of the 1930s, a
boom and bust cycle unparalleled by the business cycles that occurred
before the creation of the Fed. It has been government administrations
that tried to control gold and then took the American dollar off the
gold standard. Inflation *is* the increase in the money supply, and
only the Fed can control that. The 1980s S&L crisis was caused by
government allowing the Savings and Loans more freedom, but not also
giving them more responsibility for that freedom, thus protecting them
from the consequences of bad decisions.
The New Deal years would never have occurred if the government hadn't
contributed so much to the problems in the first place.
Mark M.
>>>
>>>
>>Nearly all land price is created by mortgage lenders. Ponder this: how
>>high could land prices go in a barter economy? How high could land sales
>>prices go in an economy where money stands in for man-made goods and
>>nothing but already produced goods? Would there be any difference in land
>>price in these two economies? How high could land prices go in an economy
>>where money can be created at will by mortgage lends who are restrained by
>>nothing but the rare possibility that land prices will generally decrease?
>>In such an economy is it not inevitable that land prices will increase
>>until people can no longer afford to pay them and then they will abruptly
>>decrease?
>>
>>Mark M.
>
>
> In a barter economy presumably some locations would be better than others so
> land would stil have rental value.
Right.
Land purchases might be less common, but
> I don't think they would be selling it cheaply.
There would be two ways to pay for land purchases:
1. With accumulated man-made wealth
2. On credit. This means pledging future rents to the land seller. How many years
of future rents is one question. Another question is why would somebody sell land
on credit when he could simply get the rents as a landlord?
>
> In the 19th century, when most currencies were on the gold standard, the
> economy went through booms and busts which were probably more severe than
> the ones we get now, so I don't think you can blame it all on fiat
> currencies.
Inflation of land price via mortgage credit is not the necessary result of fiat
currency.
>
> The present crisis was partly caused by people making bad decisions i.e.
> borrowers taking loans they couldn't hope to pay back, lenders selling bad
> mortgages, and people in the money markets pretending mortgage debt was
> worth more than it really was.
The present crisis is part of a long cycle that has been repeated many times. In
system like ours, where credit to buy land can be created at will by lenders, land
price inflation is inevitable. Just as inevitable is the abrupt real estate price
drop at the end of the cycle.
If people had acted more rationally, the
> housing boom would have slowed down earlier and the boom would have been
> less severe.
As land increases in value, the rate of appreciation is capitalized into still
higher land prices. This increase means an even higher rate of price appreciation
which in turn means a greater investment return per time unit. It is like a dog
chasing its own tail. Mortgage lenders can write loans knowing that nearly all
land sales will be rolled back into land purchases. The result is price inflation
without risk until the price of land exceeds what people can possibly pay. As soon
as land prices cease to increase they must retreat. There can be no leveling off
of land price because a major component of land price is speculative premium based
on expected price inflation. We are now in the price retreat stage.
>
> Of course, if taxes on land were higher, there would be less capitalized
> land rent to speculate on, and house prices would be more closely related to
> building costs, which would make them more stable.
Right. High location taxes would make land price appreciation impossible. In
fact, where land taxes approach full rental value, land has no selling price.
Mark M.
Mark M.
Where private special interests bribe, blackmail, and lie their way to establishing
state sanctioned privileges, the blame typically rests not with too much government
but with too little active government. Fiat currency is a perfect example. Our
problems with currency are the result of private banks creating money and private
entities loaning to the state. Reform of our monetary system requires a 100% state
monopoly on issuance of currency, without any connection whatsoever to private
banking.
Mark M.