Thursday, October 11, 2007

The Fed Unreserved

Federal Reserve Bank of Boston President Eric Rosengren on Wednesday said financial markets have improved over the past month although securitized products may continue to see some difficulty until investor confidence is restored.

In his first public speech since taking office in July, Rosengren said investors were not reassessing risk in a wholesale way, noting that emerging market debt and stock markets had been little affected despite the fallout in short-term debt markets.

"This is consistent with liquidity problems rather than a change in the willingness to hold risky assets in general."
"A change in the willingness to hold risky assets"? God forbid! The problem -- as the stock market indices hit new highs -- has been liquidity. As in not enough of it.

They're telling you what they're going to do to the buying power of those pieces of green paper in your wallet. Follow their efforts here, here, and here. And plan accordingly.


Blogger Jimmy the Saint said...

I wonder why no Democrat points this out? The only person I know talking about any of this is Ron Paul(No, I am not a supporter). It's truly disgusting. History is going to treat Helicopter Ben worse than Mr. Ayn Rand(and Alan won't get treated too kindly himself).

10/11/2007 10:09 AM  
Anonymous John B. said...

Mr. Realist, can you be a little more transparent please? For us lay people? Thanks.

10/11/2007 10:37 AM  
Anonymous RW said...

John B: CR is pointing to the US Dollar's loss of purchasing power. This is a secular (long term) trend and there is no one better than Lord Keynes to tell you why that can be so dangerous not simply because it is in effect a 'cruel tax' (on everything) but ultimately because it can threaten the very system that created the wealth in the first place viz:

"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery."

From "The Economic Consequences of the Peace." Published: 1919

10/11/2007 12:12 PM  
Anonymous Kilfarsnar said...

Basically, the value of the dollar is falling and will be allowed to do so for the foreseeable future. The price of oil is increasing, as is gold, which I believe indicates a general pessimism about the future of the economy. But I for one have no idea how to plan accordingly. And Mr. Realist is unlikely to tell me, for understandable reasons. Besides, I shouldn't be taking financial advice from strangers on the internet. Don't people buy gold when they are hunkering down for an economic storm? I have also heard that oil's price increase cannot be explained by an increase in demand, and that the Saudis have increased their output recently. So what drives it?

What does all this mean? Should we buy things now, since inflation benefits debtors and penalizes savers? Should I not have just paid off my Visa card? I'm not sure, but whatever is being engineered is not for the benefit of people like me.

10/11/2007 12:23 PM  
Blogger Gringo_Malo said...


I'm not an economist, but I believe that inflation benefits only those debtors who have fixed rate loans, and whose income rises at a rate greater than or equal to the inflation rate. This often applies to people who operate their own successful businesses, but usually not to anyone who works for wages.

It's usually a good idea to pay off your Visa card because the issuing bank can raise the interest rate at any time. That'll hurt if you have a large balance. There's one exception to this rule. If you're basically unethical and you plan to file bankruptcy, you can max out unsecured debt (like credit cards)and use the money to pay off the kinds of assets you can keep in a bankruptcy, such as a home, a car, and a few other things. Of course, under the new federal bankruptcy law, bankruptcy isn't nearly as much fun as it once was.

My planning has consisted of buying a parcel of rural land and paying it off with a 401(k) withdrawal. Some people might see this as a major tax bite and a loss of future income, but I saw it as an opportunity to acquire an asset that will hold value before the Hildebeest gets a chance to confiscate the money.

10/11/2007 5:19 PM  
Anonymous Anonymous said...

I think this overlay works just as well:

Something happened in early 2003, March maybe, that caused a divergence between the US dollar and the DJ Index, but what could that be?


10/11/2007 5:54 PM  
Anonymous Anonymous said...

I'm no economist either (and damn proud of it), but isn't it the case that, like so many other facets of life, everything depends on the rate at which devaluation occurs? I can't tell if Bernanke's behaving poorly or not, but it's not at clear to me that an inflation rate of, say, five or even ten percent means grass is going to grow in the streets, or that we'll become Weimar II. (It's the moribund state of our national-level institutions that'll usher in the latter, should it happen.)

Haven't the last couple of decades been a period of unusually low inflation? It's certainly been nice while it's lasted, but I wonder if it's given us very skewed expectations.

Besides, maybe this is tangential, but it seems to me that the real, fundamental source of genuine wealth is technological innovation, which the obsession with money and finance obscures*. I'd rather see our Beltway geniuses worrying about, say, a continental high-speed rail system, or a national free wi-fi metwork, or a fuel-cell electric generator in every neighborhood. All utopian stuff, maybe, but if we're gonna piss away a trillion or two in far-away Mesopotamia......
-- sglover

* Not to say that CR suffers from that kind of tunnel vision. I like this site for its breadth as well as its depth. I just wish CR would post more. What gives, has the guy got a life or something?!?!

10/11/2007 6:38 PM  
Blogger Grace Nearing said...

I'd rather see our Beltway geniuses worrying about, say, a continental high-speed rail system, or a national free wi-fi metwork, or a fuel-cell electric generator in every neighborhood.

sglover: Have you been reading the foreign press again? Iceland has been happily installing fuel-cell "filling" stations for a couple of years now. Japan, Germany, France, and other countries have comprehensive and integrated high-speed rail networks. And Finland (I think, I could be wrong but I'm too lazy to google) has just about everybody wi-fi'ed.

Just exactly what has the US been doing the past decade except bombing brown people and watching really crap television?

10/11/2007 10:16 PM  
Blogger Chris F. said...

Perhaps I am naive, but with the falling dollar, it does seem that Americans no longer own or control the Fed. It almost seems like foreigners, who care nothing for my dollar (i.e.-the only form of cash that I earn for my hard labors, given it is illegal for me to possess bullion), are running the economy, and thus my government. If the dollar goes, where is my incentive to produce?

10/12/2007 12:16 AM  
Anonymous Anonymous said...

If the dollar goes, where is my incentive to produce?

Um, food and shelter?
-- sglover

10/12/2007 12:40 AM  
Anonymous Mr. Hedley Bowes said...

"Something happened in early 2003, March maybe, that caused a divergence between the US dollar and the DJ Index, but what could that be?"

That chart scares the hell out of me.

In my view, economic growth is best measured by productivity. As long as the rate of productivity beats the rate of inflation, all is well. When inflation overtakes productivity, distortions and weirdness take over: stagflation would be the kindest outcome.

sglover, I have long maintained that the best use of capital in the U.S. would be to invest in the kind of long term, perennially yielding projects you describe. But our economy seems held hostage to the petrodollar complex and their military/industrial pals so we'll have to watch our wealth shipped offshore until...

Remember 1973? The year of the 'wake up call'?

10/12/2007 3:33 AM  
Blogger Gringo_Malo said...

chris f,

You may legally possess and trade bullion. This has been true since 1971, when the U.S. went off the gold standard. The bad news is that since 1971 we've had a fiat currency, and your dollars are just Monopoly money.

10/12/2007 8:21 AM  
Anonymous Anonymous said...

the day the supreme court gave the election to george bush, i bought my first gold coins. Over the last six years, I've bought gold and silver coins (Canadian Maple Leafs) and gold & silver bars. I use, who sell at a slight premium over the spot gold/silver prices which you can find on the site.

You can also move your cash overseas into CDs of countries with more responsible monetary officials. .......they sell the CDs, and even let you hold cash in other currrencies thru their World Markets division.

Then, there are gold ETFs (GLD & CEF -- the Canadian ETF) and silver ETFs (SLV). There are the public metals companies (GG, AUY, NG, NEM, SSRI, SLW, and SA). All of them have been going gangbusters....and are an easy way to get in.

And finally, there are a number of mutual funds that invest solely in "hard currencies" MERKX, and you can get this thru your regular brokerage account.

....I didn't know a thing about metals or currencies before GWB took office. Now? I don't have a dime invested in Georgie Boy's Amurrika..........when it all comes down, you can be damn sure he isn't going to worry about the peasants having to live on the pennies their Treasury CDs will be worth.

Good Luck to all....I've read there's less than 500 million in the SIPC accounts at this point.

10/12/2007 8:56 PM  
Blogger Chris F. said...

Sglover: incentive to survive is not the same as incentive to produce. I am currently in the situation wherein my labor is highly undervalued, and I am barely making ends meet...I can't even afford to pay the educational loans I was granted as an "investment in my future". I was promised high wages when I was young, and high buying power. This promise is effectively wilting to virtually nothing, when all I can afford is rent and food. I and the rest of the American people expected our government to better safeguard its currency, and I personally feel cheated.

Gringo_malo: as described above, I make very little money, and so saving to invest (in anything: stock market, gold, commodities, whatever), while obviously a necessity, has been a literal impossibility. I cannot very well demand my employer pay me in gold. Even so, it would be in my hands one moment, and gone the next. If it is not readily apparent, I am naturally falling into the "liberal" category, which I would not have done (I started out a very staunch economic conservative based mostly on the rationality of the stance) had there not been this increasing and immoral class divide in the US, allowing some to save and invest, while others (and the undereducated, unskilled underclass are not the only ones suffering this burden, case-in-point me) barely survive day-to-day.

It may seem I am simply complaining. Often economic conservatives think this about the argument I am presenting. There is a greater issue involved. We created a society, signed a social contract as it were, so that the strong (wealthy, in my analogy) and the weak (poor) could all survive. The fact is that more commonly, the weak are not surviving because of the greedy, hording tendencies of the strong. Nobody is asking, nor ever would ask that the wealthy entirely abandon their wealth. But sacrificing some of it (and we're not talking taxes here. I believe that corporate structures need to be involved here) to increase the income of the middle and lower classes is not out of hand. And we then need to demand that our elected representatives safeguard our currency better, be it gold or paper "monopoly" money. I don't care what backs my money, only that it not fail me as it is currently doing.

10/13/2007 1:16 PM  
Anonymous goldhorder said... are simply silver. it's cheap. And is a better buy than gold at this point in time...go to a local coin dealer who has been in business many years (so you know they are not a crook). Thrift and a future time orientation is key.

10/13/2007 2:52 PM  
Anonymous Anonymous said...

i don't think you're complaining at all. you're simply stating the reality. this society is fracturing due to the policies of the past six years. We now have peasants and royalty.....the the distance between them is turning into an abyss.

the sad thing is, i do believe that this was a goal of the current administration. Equality has always been problematic for Republicans. In America, tho, its always been hard to keep the middle and lower classes in line and in their place when prosperity was a reward merited by hard work.

Debt -- overwhelming, staggering debt -- is the key they discovered. Put the lower classes in a situation where they can't complain without losing their houses or livliehood, and you convert the masses to simple worker bees to be exploited. That's what we have now.........serfs and royalty.....and no way for the serfs to climb higher, and threaten to dislodge the future generation of royalty from their positions of privilege.

America is over. Face it.

10/13/2007 7:20 PM  
Anonymous goldhorder said... guys are whining. Put away the TV. Put away the credit cards. Get back to basics. And buy silver. The system is rigged. Not a doubt about it. The System is rigged for the Gores, Bushes, Feinsteins, Pelosis, Clintons, etc. of the world. It is their world. We are just living in it. The differences between them is nothing more than the good cop bad cop routing. The carring mother...stern father...garbage. It is that way by design. To keep the masses confused and from paying attention to the bread and circuses of the news cycles. Bush Sr. and Bill Clinton are big chums now....just wait a couple of years...Clinton, Bush Sr, and Bush Jr. will be making the rounds together. They will all be big chums. Nothing weird about it. That is just the reality. The disagreements between them are for our benefit...not theirs. That is the way the world works now. There will be no change until we hang a bunch of them from lamposts like the Italians did Mussolini. That will be the first time you ever see positive change from our politicians. All you can do in the mean time is protect yourself. People aren't going to change until they are forced to change.

10/14/2007 9:29 PM  

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