On Fri, Sep 19, 2008 at 9:44 AM, Scott asks:
These moves HAVE to be bad for the dollar, no?
Not much effect per se.
Immediate effect is higher interest rates/stronger stocks which very near term helps the USD.
But it seems saudis are hiking price which, if it continues, will again send the dollar down.
Also, the Fed showed some concern about exports softening, which they probably attribute to the recent USD strength.
So seems the Fed and Treasury probably don’t want the dollar to get too strong.
Major equity short covering rally in progress.
When it runs its course, the US economy will still be weak and higher crude prices will be problematic as well.
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Warren,
I know you’ve explained how the fed actions aren’t inflationary the way government spending is.
But I’m unclear on exactly what the Fed and Treasury are doing here. If they are buying mortgage back securities is that a type of government spending or is it more like the reserve adds and drains the fed does? And why is everyone else worried about the “cost to the taxpayer” if this isn’t real spending?
As I understand your suggestion, you’d let the investment banks borrow from the Fed’s discount window. As far as I can tell, this doesn’t allow that, so will this actually work?
Thanks for your insights.
buying mbs is like buying long tsy’s
it’s a ‘reserve add’ that would be likely be offset by selling short term secs, as the tsy just did in a new way when it sold new bills and didn’t spend the proceeds.
if the govt buys secs that default technically they squandered ‘tax payer money’
there could be a big let down early next week.
“if the govt buys secs that default technically they squandered ‘tax payer money’ ”
huh? Warren, why are all the silly taxpayers so concerned about the bowling alley owner making more score for them? I mean if they are unhappy with that bowling alley, they can just fly over to china or somewhere else and bowl over in their bowling alley and play with their “score” can’t they? Why is the current bowling alley owner so worried about that?
My friend from Alaska agrees with your thoughs on gubbment solvency, he wants Alaska to succed from the USA – he doesn’t think his kids should be able to be drafted in the US army to protect you and Sada when the russian pirates show up in their nuke submarines to rape and pillage the virgin islands – you support that right?
These moves are good for the U.S. dollar.
Paulson just said that the U.S. govt will do whatever it takes to make the system able to lend again, including buying bad stuff to take it off the books.
So the anticipated deleveraging won’t be as severe, and borrowers will be creditworthy enough to borrow at reasonable levels.
Luc- it still takes a certain amount of taxes to support the higher amount of spending. too much net spending can be inflationary, which is also a transfer of wealth. but agreed it’s not a solvency issue, if anything its an inflation/distribution issue. and my position on inflation has been articulated elsewhere on this site.
Mic- to the extent what they do is inflationary that reduces the purchasing power/value of the dollar.
to the extent they draw in new foreigners willing to accumulate more $US financial assets it’s a plus.
the relative lack of buying (mainly in housing) due to the credit crunch (whatever that means) has helped keep prices down.
and short term, currencies can do anything!
“Paulson just said that the U.S. govt will do whatever it takes to make the system able to lend again, including buying bad stuff to take it off the books. ”
You know in november of 1932 they stopped short selling on the US Markets kinda like they did today – the next few years after 1932 were really good right? Even the RTC of yore only took stuff that had already defaulted – siedman ran the RTC – he say a modern day RTC can’t really happen yet cause the banks haven’t failed yet – I thought market clearing processes like short selling and bankruptcy was GOOD for the long term health of the system? Mises and Hayek talked a lot about this stuff and not letting natural cycles play themselves out. Warren says quit worrying about the SCORE in the bowling alley, instead go develop a cure for cancer and genetic cell death, that is much more useful to all of us.
“So the anticipated deleveraging won’t be as severe, and borrowers will be creditworthy enough to borrow at reasonable levels.”
My trader friends feel what they have done will result in far more ILLIQUIDITY going forward and they shot themselves in da foot. As to creditworthiness – my illegal alien banker friends in Miami thinks every good drug dealer al pacino type deserves a big loan, don’t you?
“too much net spending can be inflationary, which is also a transfer of wealth.”
I am so confused Warren, how does giving the guy in the bowling lane a few lanes over more SCORE make him wealthier, your analogies are making me confuzed.
” but agreed it’s not a solvency issue, if anything its an inflation/distribution issue. and my position on inflation has been articulated elsewhere on this site.”
Warren you are trying to design a system for the average bear, I am smarter than the average bear according to Mensa and my college professors and past employers, but some of the funny business that goes on in our gubbment, markets, society confuze da hell out of me, some of your memes too, so if I can’t figure it out, how can da average bear figure it out? The bible talked about towers of babel built too high come crashing down, that is a meme I can figure out.
My girlfriends all told me I was a total idiot though when I asked THEM to pay for dinner and the movie instead of ME paying – imagine that!
“and short term, currencies can do anything!”
My asian hedgie friends are hoarding gold because they say all currencies are worthless and the whole global financial system is going kaboom, I tell them they are just silly digging holes in their backyard to hide shiny metal – how silly. I keep telling them to watch the old twilight zone episode “the ripvanwinkle caper” where these robbers stole a bunch of gold from fort knox, put themselves into suspended hibernation and wake up 100 years later where gold is worthless and everyone lives in startgate atlantis cities where there is no more MONEY. Imagine that, a world where bowling SCORE doesn’t matter to the first human being.
Did you see me today on FAST MONEY, I showed how ignorant to company operations I was, but what an intelligent social engineer I had become. That there a bunch of dummies on wall street like me but who weren’t as lucky – rejects emulated in that movie “american psycho” about useless wall street suited up clones. Then I said what I really hated was all this WASTE in the the companies – all these productive assets that could be put to doing work – like my man Mosler here. We got a lot of waste that needs to be put to use. Sitting idle in the garden of eden is not what GOD wanted for his children, and if he did I say GOD is wrong!
Once when I was a young boy I watched this movie called Citizen Cane, and I decided I didn’t want to be like that sucker – wishing I had fun in life and rode on my “rosebud” sled and then being regretful I threw my life away on a bunch of work and productivity – heck warren – it’s EVIL to sit on the beach all day and drink maragaritas and kiss senoritas – what a WASTE – lets get to work you bum! Move off that pirate island with the partay wenches and go to work and start being PRODUCTIVE you slacker!
luc- the wealth transfer mechanism due to too much net govt spending is ‘inflation.’
yes, might be that no one understands it. i’m just clearing my conscience by broadcasting what i know and giving all a choice
that’s enough for me