What do you think about this current fed annoucement to buy up some 300 billion in treasuries, and 750 billion in buying securities. This is the first time I have really thought high inflation (Not hyper) was possible after this announcement. And i think the markets also thought it was possible with the dramatic gains of the euro on the dollar, and gains of a variety of commodities.
What influence do you think "Trickle down" economics had on the improvements experienced during the Reagan Era? Was it substantial or was it all really the effect of Volcker reinflating the economy after he curtailed excessive inflation and the recession ended. I hear alot about upperbracket tax cuts and also Volcker and would like to understand who really saved the economy.
Did you know that the price of gold/silver is being manipulated.
Look into the silver market about the big 8 who are shorting the market. All fiat currencies always collapse, only because its a system of debt.
Say I give you $100 dollars and you pay me 5% interest for infinity years. In 20 years the money supply will be eatten up. Solution, pump more money into the system as time progress until a point where the whole system will collapse. Its Guranteed. That's how the Fed works, lends 2 gov
I'm not exactly sure what you are saying but can we both agree that it takes more money to purchase something compared to 60 years ago? From what I hear, the value of the US dollar is currently 2cents than what it was when the fed was introduced back in 1913, and assuming so, we are near the very brink of the collapse of the monitary system. Check back in US history to "the continental" or google "not worth a continental". Check back in history about fiat currency. The Fed lends money to the gov
You stated all fiat currencies collapse. Implicit in your point is that all fiat currencies inflate.
This is demonstrably false. Are you claiming somehow that because Japan did experienced deflation in the 1990s that this proves it does not have a fiat currency?
I am still confused. All our dollars, yens, are fiat currency. Simply put, Japan is still going though finacial hardship and is only post-poning things. Just wait until the US is done. Basically, if you cannot understand the basic point of %5 interest on $100 for over 20 years, then check into how the fed lends money to the US gov. Read the consitution that states that privatization of the issuance of the money supply is worse off than standing armies. The consitution is a very short book, L@@K
Interest rates on T-Bills and T-bonds would begin to rise, as more people sell them.
I recommend reading the Financial Times of London.
Note that interest rates on Treasuries rose about 1/3 of a percent in the last few weeks, as the Fed clearly looks like they are beginning to be much more concerned about inflation. Recall that 2 FOMC governors voted against the last interest rate cut.
Keep your eye on interest rates. If they go up, then bull market in Treasuries may be ending.
The bigger the risk of complete liquidation of the world's financial system (with subsequent asset deflation) that you foresee, the greater the classes of bonds that will default.
If you foresee an extreme deflation, you need to find extremely safe bonds. In a flight to safety, such bonds will (and are) appreciating greatly in value, as well as the income stream.
During the Great Deflation of 1929-1932, buying US governments on margin was an extraordinarily profitable trade.
I grant you that there are tremendous deflationary forces--within the US economy.
The big problem I see is the weak USD. This might not be such a problem if Americans didn't import so much. The US is dependent on other countries to support the value of the USD.
China could send us to the Second Great Depression. They've discussed it. It's called "the nuclear option" (i.e. a nuclear bomb on the US economy). Wouldn't this scenario be hyperinflationary for the US?
Exactly. This action would cause a spike in US bond yields, crushing the US housing market.
It would also send the dollar to lows never seen. Goodbye US economy. Housing prices hit the floor, but imported goods would soar in USD. The US imports a lot of oil. And that affects the price of everything transported across the nation. Basic things like food would rise in USD.
Can't really blame China. The US gave them the nuclear option by borrowing too much money. Financially reckless.
OK. We agree that the Chinese nuclear option would spike bond yields.
But keep in mind that when interest rates RISE however, especially with the Fed leading the market higher to protect its portfolio of Treasuries, more international capital then flows INTO the dollar to take advantage of the new higher interest rates and more attractive yields.
Treasury auctions would have to raise their interest rates high enough to attract buyers.
Yes, the only question is how high will the interest rate need to be to attract a buyer. Other countries with low risk of default are becoming attractive on interest rates.
The US bonds will likely lose status internationally as time goes on. A few years from now, a higher risk of default will start getting factored in. The US could be paying a lot of interest very soon. Too bad the government wasn't smart enough to borrow with a 30 year term (They're just like the Americans with ARMs).
"the treasury market is still running strong, and the moment it isn't, the Fed is going to tighten up interest rates."
How can the Federal Reserve tighten interest rates if we find ourselves in a deflationary environment? I agree with you in the fact that the Fed will become eventually become overwhelmed and unable to target interest rates. However, I think that they would the Fed will create new measures to inject new money. Do you think the Fed will allow drastic decrease in the MS?
Maverick, keep in mind that the Fed is dwarfed by the markets and recall earlier videos describing how Thatcher and the Bank of England were routed on Black Wednesday in their efforts to defend the pound.
The Bank of England (their central bank) ended up raising the base rate from 10% to 15% in just one day, 9/10/92.
Similarly, the Fed would be forced to raise interest rates dramatically if Treasuries (not just the dollar) went south in a big way.
In the event that the bull market in treasuries ends and treasury rates begin to adjust upward as I expect, the Fed would be overwhelmed and the national debt would not be serviceable. In this event, would the government and the Fed finance itself through monetary inflation? How will the problem of the national debt be addressed. I think the Federal may choose hyperinflation over hyperdeflation because at least hyperinflation solves the problem of the national debt.
You are correct to be concerned about the national debt. Makes the Fed's job that much harder. Only so much the Fed can do. Congress and the President have to do the rest, i.e. fiscal (not monetary) policy.
I think one issue here is that people do not understand how a Treasury auction works. I'll cover that in my next video. If the US Government can't sell its NEW bonds at a certain price, they have to RAISE the interest rate to attract more buyers. Otherwise the Treasury auction fails.
My view is that "due diligence" presupposes discretion.
Dramatically escalating systemic risk through overleveraging shouldn't be left to the discretion of rogue firms.
No person has suffered dramatically because stocks can only be traded on 50% margin after Glass Steagall passed.
There was a paper published by the Atlanta Fed showing a causal link between leverage and volatility. I need to retrieve that paper, it was pretty closely reasoned.
thatcher and reagan deregulated the finance industry in that order, from that time it has gernerally worked with a few hiccups along the way but, values had increased totally out of cinque with reality based on sentiment/low interest rates/lack of due dilligence and and a belief in perpetual growth. everything is maxed out and this "will make 1929 seem like a walk in the park" london telegraph december 2007. dave
I would have to clearly include excessive leverage in the analysis as well. 30 to 1 for Bear Stearns is not the exception; it's much closer to the rule.
friedman was right, but only in that moment he wrote his papers. he was putting forward the priciples of a free (er) market as opposed to keynsian intervention. his problem was that he was incapable of seeing capital/market forces as being in a state of flux, constantly changing and developing as everthing in nature, mind and society. you seem to have grasped this matt, but i think you may be struggling with contradiction which is normal. i cant agree with hyper either, but both inflation and de
Don't you just love youtube and their comment restrictions requiring you to "comment intelligently on Federal Reserve policy in 500 characters (100 words more or less)"
er yea, youtube probably knows the fed has'nt got a policy and therefore we should be able to comment in less than 100 words. the fed is responding on the hoof but they have'nt grasped yet that they are not significant enough to control the situation ! (much less than 100 words)
Thanks for another great post... One question regarding your closing comment "The Fed is not going to destroy our economy". Doesn't the surge of money to bailout these financial institutions and our ever growing national debt contribute to the weakening of the dollar?
I would not describe, for example, the treatment of Bear Stearns as a "bailout".
For stockholders whose shares were worth 191 dollars a share last February and 10 dollars a share now. They would not describe that nearly 90% loss as a "bailout".
True, the dollar is declining. It also declined after the Plaza Accords.
But that does not mean that Treasuries will collapse. The Fed will be forced to raise interest rates before that happens per my earlier videos.
What do you think about this current fed annoucement to buy up some 300 billion in treasuries, and 750 billion in buying securities. This is the first time I have really thought high inflation (Not hyper) was possible after this announcement. And i think the markets also thought it was possible with the dramatic gains of the euro on the dollar, and gains of a variety of commodities.
mikeyooh7 3 years ago
Please see very recent discussion, including my post in one hour, on my Mr. Fed youtube home channel page...
Crashof2008 3 years ago
What influence do you think "Trickle down" economics had on the improvements experienced during the Reagan Era? Was it substantial or was it all really the effect of Volcker reinflating the economy after he curtailed excessive inflation and the recession ended. I hear alot about upperbracket tax cuts and also Volcker and would like to understand who really saved the economy.
KhanSlayer 3 years ago
Rarely have I seen anyone as smart as Crashof2008. Very impressive.
EnergySupply2008 3 years ago
Did you know that the price of gold/silver is being manipulated.
Look into the silver market about the big 8 who are shorting the market. All fiat currencies always collapse, only because its a system of debt.
Say I give you $100 dollars and you pay me 5% interest for infinity years. In 20 years the money supply will be eatten up. Solution, pump more money into the system as time progress until a point where the whole system will collapse. Its Guranteed. That's how the Fed works, lends 2 gov
Twinaces22 3 years ago
Is your position that because Japan used "fiat" money that the deflation it experienced in the 1990s did not exist?
Crashof2008 3 years ago
I'm not exactly sure what you are saying but can we both agree that it takes more money to purchase something compared to 60 years ago? From what I hear, the value of the US dollar is currently 2cents than what it was when the fed was introduced back in 1913, and assuming so, we are near the very brink of the collapse of the monitary system. Check back in US history to "the continental" or google "not worth a continental". Check back in history about fiat currency. The Fed lends money to the gov
Twinaces22 3 years ago
You stated all fiat currencies collapse. Implicit in your point is that all fiat currencies inflate.
This is demonstrably false. Are you claiming somehow that because Japan did experienced deflation in the 1990s that this proves it does not have a fiat currency?
Crashof2008 3 years ago
I am still confused. All our dollars, yens, are fiat currency. Simply put, Japan is still going though finacial hardship and is only post-poning things. Just wait until the US is done. Basically, if you cannot understand the basic point of %5 interest on $100 for over 20 years, then check into how the fed lends money to the US gov. Read the consitution that states that privatization of the issuance of the money supply is worse off than standing armies. The consitution is a very short book, L@@K
Twinaces22 3 years ago
I understand you are confused. That is why I am trying to keep you focused on your most fundamental of errors, albeit typical of US residents.
I refer you to Financial Times of London to bursh up on the basics, especially the daily writings of Krishna Guha.
Please answer yes or no. Did Japan experience a nasty bout of deflation in the 1990s?
Please answer that one question, yes or no.
Mr. Fed
Crashof2008 3 years ago
What do we check to see if the bull run in treasuries is ending?
SGDeGalvez 3 years ago
Interest rates on T-Bills and T-bonds would begin to rise, as more people sell them.
I recommend reading the Financial Times of London.
Note that interest rates on Treasuries rose about 1/3 of a percent in the last few weeks, as the Fed clearly looks like they are beginning to be much more concerned about inflation. Recall that 2 FOMC governors voted against the last interest rate cut.
Keep your eye on interest rates. If they go up, then bull market in Treasuries may be ending.
Crashof2008 3 years ago
WOW! Thanks... right on the heels of saying the FED is a player and can't control the market.
LONG Gold - $2000 oz. or BUST
svanacreon 3 years ago
He's talking about hyperdeflation, which would make the price of gold plummet.
blackiswhite1111 3 years ago
Exactly. Gold CANNOT simultaneously be a hedge against BOTH inflation and deflation.
The best hedge against hyperdeflation is the highest quality bonds you can find, according to Henry Kaufman, former head of Salomon.
And gold is crashing and Treasuries continue to soar...
Crashof2008 3 years ago
Any bond recommendations, or good off site resources on the topic?
blackiswhite1111 3 years ago
The bigger the risk of complete liquidation of the world's financial system (with subsequent asset deflation) that you foresee, the greater the classes of bonds that will default.
If you foresee an extreme deflation, you need to find extremely safe bonds. In a flight to safety, such bonds will (and are) appreciating greatly in value, as well as the income stream.
During the Great Deflation of 1929-1932, buying US governments on margin was an extraordinarily profitable trade.
Mr. Fed
Crashof2008 3 years ago
You mean the Great Depression of 1929?
rarelibra 3 years ago
This is a key point, covered extensively in my earlier videos.
Bear Stearns was geared up at 30 to 1 for example, as was Carlyle Capital.
The problem is compounded because the bond and derivatives markets are far larger than the stock market.
This excessive leveraging makes the very foundations of our credit system similar to those who "invest" in the futures markets on 5% margin.
They can quickly lose far more than they put in. I argue that this is no way to run a banking system.
Crashof2008 3 years ago
Loving these videos. Lots of good info condensed into under a half hr.
codediporpal 3 years ago
Thanks! Slowly but surely we are getting the word out.
Stay tuned. A day at the life of the Fed Open Market desk looks on tap for this weekend.
Crashof2008 3 years ago
lol Are you refering to Jim Sinclair?
He says gold going to $1600 minimum and the dollar going to .52
What's you thoughts on gold.
vilemonkey 3 years ago
Bear Stearns you say was leveraged 30 to 1, how leveraged are Merill, Lehman and Citi? Where can I access this info? thanks,
odoylez 3 years ago
I grant you that there are tremendous deflationary forces--within the US economy.
The big problem I see is the weak USD. This might not be such a problem if Americans didn't import so much. The US is dependent on other countries to support the value of the USD.
China could send us to the Second Great Depression. They've discussed it. It's called "the nuclear option" (i.e. a nuclear bomb on the US economy). Wouldn't this scenario be hyperinflationary for the US?
rseveran 3 years ago
After the Summer Olympics, the Chinese plan to pursue their agenda re: Taiwan. They are deadly serious.
Also include in bearish dollar scenario the enormous pressures on OPEC nations to denominate in a basket of currencies because of imported inflation.
Re: Weak dollar. Study the "Plaza Accords" in mid-1980s. No hyperinflation. That went OK. Hopefully this will also. No guarantee.
But keep your eye on big picture. Dollar is very important, but Treasuries are more important.
Crashof2008 3 years ago
Consider extremely SLOWLY the "nuclear option" you outline.
If Chinese sell hundreds of billions in Treasuries, their price goes down. Supply and demand. Bond yields move OPPOSITE of bond price.
When price of bonds crash we need to pay HIGHER interest rates to attract buyers of new bonds we auction.
Ponder that key point. Big sale of Treasuries means HIGHER interest rates.
Consider:
What effect would these dramatically HIGHER interest rates have on US housing market?
Crashof2008 3 years ago
Exactly. This action would cause a spike in US bond yields, crushing the US housing market.
It would also send the dollar to lows never seen. Goodbye US economy. Housing prices hit the floor, but imported goods would soar in USD. The US imports a lot of oil. And that affects the price of everything transported across the nation. Basic things like food would rise in USD.
Can't really blame China. The US gave them the nuclear option by borrowing too much money. Financially reckless.
rseveran 3 years ago
OK. We agree that the Chinese nuclear option would spike bond yields.
But keep in mind that when interest rates RISE however, especially with the Fed leading the market higher to protect its portfolio of Treasuries, more international capital then flows INTO the dollar to take advantage of the new higher interest rates and more attractive yields.
Treasury auctions would have to raise their interest rates high enough to attract buyers.
Again, imagine yourself auctioning Treasuries.
Crashof2008 3 years ago
Yes, the only question is how high will the interest rate need to be to attract a buyer. Other countries with low risk of default are becoming attractive on interest rates.
The US bonds will likely lose status internationally as time goes on. A few years from now, a higher risk of default will start getting factored in. The US could be paying a lot of interest very soon. Too bad the government wasn't smart enough to borrow with a 30 year term (They're just like the Americans with ARMs).
rseveran 3 years ago
The interest rate will need to be very high. That is hyperdeflationary.
Recall that on Black Wednesday the Bank of England had to raise interest rates by 50%, from a base rate of 10% to 15%.
You are spot on about elimination of 30-year T-bonds. Like you, many at the Fed objected to the elimination of these several years back.
We've painted ourself into a very difficult corner w/these fiscal deficits. Monetary policy can only do so much.
Spot on about rise in REAL rates also!
Crashof2008 3 years ago
"the treasury market is still running strong, and the moment it isn't, the Fed is going to tighten up interest rates."
How can the Federal Reserve tighten interest rates if we find ourselves in a deflationary environment? I agree with you in the fact that the Fed will become eventually become overwhelmed and unable to target interest rates. However, I think that they would the Fed will create new measures to inject new money. Do you think the Fed will allow drastic decrease in the MS?
MaverickCentricity 3 years ago
Maverick, keep in mind that the Fed is dwarfed by the markets and recall earlier videos describing how Thatcher and the Bank of England were routed on Black Wednesday in their efforts to defend the pound.
The Bank of England (their central bank) ended up raising the base rate from 10% to 15% in just one day, 9/10/92.
Similarly, the Fed would be forced to raise interest rates dramatically if Treasuries (not just the dollar) went south in a big way.
Not pretty. Very hyperdeflationary.
Crashof2008 3 years ago
In the event that the bull market in treasuries ends and treasury rates begin to adjust upward as I expect, the Fed would be overwhelmed and the national debt would not be serviceable. In this event, would the government and the Fed finance itself through monetary inflation? How will the problem of the national debt be addressed. I think the Federal may choose hyperinflation over hyperdeflation because at least hyperinflation solves the problem of the national debt.
MaverickCentricity 3 years ago
You are correct to be concerned about the national debt. Makes the Fed's job that much harder. Only so much the Fed can do. Congress and the President have to do the rest, i.e. fiscal (not monetary) policy.
I think one issue here is that people do not understand how a Treasury auction works. I'll cover that in my next video. If the US Government can't sell its NEW bonds at a certain price, they have to RAISE the interest rate to attract more buyers. Otherwise the Treasury auction fails.
Crashof2008 3 years ago
for excessive leverage read lack of due dilligence
daveextra 3 years ago
My view is that "due diligence" presupposes discretion.
Dramatically escalating systemic risk through overleveraging shouldn't be left to the discretion of rogue firms.
No person has suffered dramatically because stocks can only be traded on 50% margin after Glass Steagall passed.
There was a paper published by the Atlanta Fed showing a causal link between leverage and volatility. I need to retrieve that paper, it was pretty closely reasoned.
Crashof2008 3 years ago
thatcher and reagan deregulated the finance industry in that order, from that time it has gernerally worked with a few hiccups along the way but, values had increased totally out of cinque with reality based on sentiment/low interest rates/lack of due dilligence and and a belief in perpetual growth. everything is maxed out and this "will make 1929 seem like a walk in the park" london telegraph december 2007. dave
daveextra 3 years ago
I would have to clearly include excessive leverage in the analysis as well. 30 to 1 for Bear Stearns is not the exception; it's much closer to the rule.
Crashof2008 3 years ago
friedman was right, but only in that moment he wrote his papers. he was putting forward the priciples of a free (er) market as opposed to keynsian intervention. his problem was that he was incapable of seeing capital/market forces as being in a state of flux, constantly changing and developing as everthing in nature, mind and society. you seem to have grasped this matt, but i think you may be struggling with contradiction which is normal. i cant agree with hyper either, but both inflation and de
daveextra 3 years ago
Thanks Dave-
Don't you just love youtube and their comment restrictions requiring you to "comment intelligently on Federal Reserve policy in 500 characters (100 words more or less)"
Crashof2008 3 years ago
er yea, youtube probably knows the fed has'nt got a policy and therefore we should be able to comment in less than 100 words. the fed is responding on the hoof but they have'nt grasped yet that they are not significant enough to control the situation ! (much less than 100 words)
daveextra 3 years ago
They've been seat of the pants since 1982, but my wife also rides bareback and it's all worked out OK.
Sometimes you can do great things without rigid, inflexible policy rules. I think that was implicit in your recent comment about Uncle Miltie.
Crashof2008 3 years ago
are'nt you lucky ? my wife say's she is'nt goig to let me up in the saddle again !
daveextra 3 years ago
Thanks for another great post... One question regarding your closing comment "The Fed is not going to destroy our economy". Doesn't the surge of money to bailout these financial institutions and our ever growing national debt contribute to the weakening of the dollar?
yellowtreat 3 years ago
Thanks Yellow Treat-
I would not describe, for example, the treatment of Bear Stearns as a "bailout".
For stockholders whose shares were worth 191 dollars a share last February and 10 dollars a share now. They would not describe that nearly 90% loss as a "bailout".
True, the dollar is declining. It also declined after the Plaza Accords.
But that does not mean that Treasuries will collapse. The Fed will be forced to raise interest rates before that happens per my earlier videos.
Crashof2008 3 years ago