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Thread: Dire Warning re the coming week's FED meeting ...

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    Banned Melonie's Avatar
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    Default Dire Warning re the coming week's FED meeting ...

    Commentary from the Privateer's 'subscription' letter ... just posted as a freebie

    (snip)"A Potential Disaster - March 18, 2008
    If you are any type of a (US) "Fed watcher", the above date will be familiar to you. It is the date of the next meeting of the Federal Open Market Committee - more widely known as the FOMC. To use the jargon so beloved of economists, on the one hand, the Fed is looking across a widening swathe of fiscal and financial chaos and devastation as it surveys the economy it claims to be trying to help. On the other hand, it is looking at what are already runaway price increases throughout the "real" economy, the one which Mr Bernanke was so insistent would NOT be affected by the financial market "hiccups" which began last northern summer. And in the middle of all this, the Fed cannot ignore its "Federal Reserve Note" (aka the US Dollar), a currency which is in all but free fall, having now slumped almost 40 percent against a basket of the currencies of its major trading partners since the beginning of 2002.

    Out there in the paper economy which the Fed under Alan Greenspan administered with such panache for so many years, the fear is growing daily. As yields on Treasury paper continue to fall, the rates charged for borrowing by anyone except the US federal government continue to rise. Even fixed US mortgage rates are UP since the Fed starting cutting its rates so agressively in January. The reason for this was given by Mr Paul Miller, an analyst at Friedman, Billings, Ramsey on March 7. It is very simple. The mortgage market is short of CAPITAL to the tune of (at least) $US 1 TRILLION.

    The principal financiers of mortgages in the US (and everywhere else) make use of HUGE amounts of leverage when they obtain the funding needed. Mr Miller points out that in the US, $US 11 TRILLION of mortgage debt is "supported" by a little under $US 600 Billion of equity. That is a ratio of about 19 to 1. As the concept of risk has re-entered the markets for debt paper, the amount of leverage available has declined sharply. In some markets, it has disappeared entirely. Hence margin calls and hence calls on the tiny capital base which is supporting this mountain of debt.

    The Fed knows how bad this situation is getting. And it is by no means confined to mortgage paper. Consumer debt of all descriptions, auto loans, credit card and personal debt is all getting much more expensive at ever increasing speeds. The banks and financial institutions which originated the paper and the derivatives on the paper have absurdly inadequate amounts of capital "backing" this paper blizzard.

    Hence, the Fed has just announced that they are once again increasing the amounts they offer at their bi-monthly "auctions" to the banking system. This procedure only began in January, after the Fed decided that they had to find a way to allow distressed banks to borrow money directly from them using a means other than the discount window. The problem with the discount window was that the banks couldn't obtain funds there anonymously. Hence the auctions, at which the banks can "bid" for funds anonymously.

    There are two auctions a month. When first instituted in January, the amount on offer at each auction was $US 20 Billion. In February, it was upped to $US 30 Billion. Now, in March, it is being increased once again to $US 50 Billion. Hence, in two months, the amount on offer at each "auction" has increased by 150 percent. Nor is this all. The Fed has stated that they will keep increasing the amounts on offer "if needed". And as proof that it WILL be needed, the Fed also announced that they will be making an additional $US 100 Billion available "to a broad range of financial players" through a series of transactions separate to the auctions. These transactions are to begin on March 14.

    In sum, never in its history has the Fed piled so many new schemes for getting newly created money out into the system at the speed it is doing so at present. Never in its history has the Fed resorted to such outright inflation. This is a "virtual" fleet exercise in Mr Bernanke's famous "helicopter money". The only difference is it is not - yet - raining $100 bills.

    Finally, the last feeble pretense that the US economy was not already IN recession was exploded on March 7 when the US Labor Department reported that the economy lost 63,000 jobs in February. This is the second straight month of overall job LOSSES in the US, the figure for January was a loss of 22,000 jobs. Fear enveloped Wall Street on this news, as it drives another nail into the coffin of what was the biggest contributor to US economic "growth" during the various bubbles - consumer spending.

    So, Wall Street and the US paper markets in general have only one slim thread of hope remaining. That is that the Fed will go on cutting their official rates and that one of these cuts will do what they have always done before, it will re-ignite borrowing and spending. The universal expectation is that the Fed will cut another 0.50 percent (many want 0.75 percent) at their meeting on March 18. If that one doesn't work, then the FOMC will have to cut again on April 30. If that one doesn't work, they'll have to cut yet again on June 25. And so on.

    Apart from the potentially fatal absurdity of the Fed funds rate already being a negative REAL interest rate at present levels, there are two big problems with futher rate cuts. The first one is the refusal of most of the rest of the world's central banks to join the Fed on this road. This week, the Australian central bank RAISED their rates - for the second time in a month. And the Central Banks of Britain and the European Union stood pat.

    The second problem is the Federal Reserve Note (aka US Dollar). On a trade weighted basis as measured by the USDX, the US Dollar dropped to post 1973 lows nearly five months ago and has been setting new lows since late last year. This huge $US fall (and even bigger $US Gold rise) has coincided almost exactly with the beginning of the Fed's series of cuts to its Fed Funds rate on September 18, 2007. At present, the USDX stands at 73.04. It has never before been this low. It has no support whatsoever. A rate cut on March 18 could easily lead to a $US bloodbath. But what else can the Fed do, besides giving up and getting out of the way?"(snip)

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    God/dess Deogol's Avatar
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    Default Re: Dire Warning re the coming week's FED meeting ...

    I am more and more over time thinking this is a problem the fed cannot fix.

    I believe this whole thing is not a thing in and of it's self, but a consequence to the fundamental changes in the infrastructure of the country due to globalism.

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    Default Re: Dire Warning re the coming week's FED meeting ...

    I look at CNBC internet news almost daily and try to understand/keep up with business news. I'm a nurse and a dancer, so thank God I have somewhat "security" as a nurse, but this financial crisis is scaring me like crazy. I can't believe what's going on. To hear that Bear Stearns--BEAR STEARNS-was bought by its rival for a couple bucks a share, then to see oil prices at $111, credit all but dried up, gold above $1000,...it seems like (as I've heard used) a "perfect storm".

    There are so many people hurting financially right now. I feel so sad about this. And, I haven't danced for a couple of weeks, but I'm imagining business can't be booming. I worry about the dancers who rely solely on their dancing incomes to live. I know a lot do very well, as seen on this site, but there's this tone overall of talk about bad nights, etc.

    When/how will this get better!? I don't think the Fed (as of Sunday night (yes, a Sunday!!) the Fed lowered with an emergency rate cut) can cure this. Good to see some action, at least. Can't hurt...?

    Melonie, I admire your writing/intelligence/research. Thanks for sharing on here.

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    Default Re: Dire Warning re the coming week's FED meeting ...

    It's basically Financial Armageddon. Unless you were alive during the Depression, NO ONE really comprehends what's about to hit.....
    Rebecca Avalon







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    Default Re: Dire Warning re the coming week's FED meeting ...

    ^^^ very true, but most Americans will only view this as 'shit happens', not as 'shit happens for a REASON'.

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    Default Re: Dire Warning re the coming week's FED meeting ...

    Except Armagaddon happened in 87 and 98.

    US companies are making profits and boatloads of money. They are just reluctant to put that money in banks.

    Unlike the depression era, It is not an issue of productivity or wealth creation.

    This is exactly the kind of problem Fed can fix

    If US had a productivity hit, loss of Physical assets, or sudden loss of talent, Fed can't fix that. But Fed can fix liquidity issues. Can it fix it in one shot? Due to the complex nature, NO. But can it fix by trial and error? Yes and Ben is doing an OK job with it

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    Default Re: Dire Warning re the coming week's FED meeting ...

    Quote Originally Posted by Deogol View Post
    I am more and more over time thinking this is a problem the fed cannot fix.

    I believe this whole thing is not a thing in and of it's self, but a consequence to the fundamental changes in the infrastructure of the country due to globalism.
    Yeah! Fuckin globalism, let's just severe all ties with the rest of the world and live in isolationist paradise. That's an effective strategy in this day and age. We'll send all the Mexicans back to Mexico, deport all the Indians so the computer nerds can have their tech support jobs back. Then who will do the hard labor? Oh yeah, the blacks. Sounds great Deogol, I nominate you for el presidente!

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Default Re: Dire Warning re the coming week's FED meeting ...

    Unlike the depression era, It is not an issue of productivity or wealth creation
    true, if you consider the creation of debt to be the equivalent of the creation of wealth !


    I would also add that the Fed's incredible loans of freshly printed money to securities firms as well as banks via the discount window, plus yet another 3/4 point rate cut, caused the markets to experience a 3% numeric gain today. However, the next week or two will tell whether or not there was any real 'purchasing power' gain involved with the numeric gain, versus the US dollar giving up another 3% in exchange rate value, the price of oil and gold gaining another 3% etc.

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    Default Re: Dire Warning re the coming week's FED meeting ...

    Quote Originally Posted by Katrine View Post
    Yeah! Fuckin globalism, let's just severe all ties with the rest of the world and live in isolationist paradise. That's an effective strategy in this day and age. We'll send all the Mexicans back to Mexico, deport all the Indians so the computer nerds can have their tech support jobs back. Then who will do the hard labor? Oh yeah, the blacks. Sounds great Deogol, I nominate you for el presidente!
    All I gotta say is we were doing pretty fucking good before NAFTA. But, I guess we need a few more lessons in this country before we all figure it out.

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    God/dess Deogol's Avatar
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    Default Re: Dire Warning re the coming week's FED meeting ...

    Quote Originally Posted by xanfiles1 View Post
    Except Armagaddon happened in 87 and 98.

    US companies are making profits and boatloads of money. They are just reluctant to put that money in banks.

    Unlike the depression era, It is not an issue of productivity or wealth creation.

    This is exactly the kind of problem Fed can fix

    If US had a productivity hit, loss of Physical assets, or sudden loss of talent, Fed can't fix that. But Fed can fix liquidity issues. Can it fix it in one shot? Due to the complex nature, NO. But can it fix by trial and error? Yes and Ben is doing an OK job with it
    I can make plenty of comparisons to what is happening now to what has happened pre-great depression.

    All I am going to say is that there is a lot of debt carried by a lot of people who aren't US companies. There are "real" people in the economic system as well as the "fake" ones; and the real ones are not doing so well.

    You have a very myopic view of an economic system.

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    Default Re: Dire Warning re the coming week's FED meeting ...

    Quote Originally Posted by Deogol View Post
    I can make plenty of comparisons to what is happening now to what has happened pre-great depression.

    All I am going to say is that there is a lot of debt carried by a lot of people who aren't US companies. There are "real" people in the economic system as well as the "fake" ones; and the real ones are not doing so well.

    You have a very myopic view of an economic system.

    If you can drop off your clothes and make over a $100,000 / Year, then that economy has created obscene wealth and is very sound.

    With that $100,000 / Year if you can buy unlimited communications to speak anywhere in the world, unlimited knowledge from the free internet, travel pretty much anywhere in the world with cheap airlines, Create any imaginable thing on your PCs/Watch 500+ channels including HDTV from all over the world/Entertain at any place with your iPhones/iTunes/Wii/PS3/XBox and eat multi cuisines from all over the world, you live in a fantastic economic environment


    Yeah lets compare this to depression

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    Default Re: Dire Warning re the coming week's FED meeting ...

    But for now, we need to bail the water out the boat and see if we can plug the leaks. Allowing the boat to sink is not an option. And get this. You are in the boat, whether you realize it or not. You and your friends and neighbors and families. Whether you are in Europe or in Asia, you would have been hurt by a failure to act by the Fed.
    ...
    The Fed risking a few billion here and there to keep the boat afloat is the best trade possible today. Their action saved trillions in losses for investors all over the world.
    http://www.investorsinsight.com/otb_...?EditionID=667

    Temporary lending at the risk of a few billion dollars of defaulting vs the US economy collapsing does seem like a good deal. It may collapse anyway...

    According to the Treasury Department, the forty-two presidents who held office between 1789 and 2000 borrowed a combined total of $1.01 trillion from foreign governments and financial institutions. But between 2001 and 2005 alone, the Bush White House borrowed $1.05 trillion, more than all of the previous presidencies combined.
    http://www.rollingstone.com/news/cov...history/page/2

    As global investors shun US stock and bond markets because of the falling dollar, interest rates on long-term US bond will have to go up. The US government doesn't have any collateral to offer foreign lenders. It can only pay whatever the market demands in order to lend money to a government that has a $9 trillion debt.
    http://goldnews.bullionvault.com/fed...gold_031720082

    "Our dollar is worth maybe zero over here," said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. "It's hard to find a place to exchange. We have to go downtown, to the central station or post office."
    http://www.reuters.com/article/ousiv...58265520080317
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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