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Posts Tagged ‘hyper-inflation’

Putting the Genie Back Inside the Bottle

Posted by Larry Doyle on April 5th, 2009 11:43 AM |

The genie, in the form of the Federal Reserve, has granted the markets a lot more than three wishes over the course of these challenging economic times. What are some of the wishes granted so far? Let’s review:

1. cutting the Federal Funds rate to a range of 0-.25%.

2. backstopping a wide array of short term funding operations, including the Commercial Paper market, Money Market funds, and Swaps market.

3. opening the Federal Reserve discount window for investment banks prior to their conversion to commercial banks.

4. utilizing a massive Quantitative Easing program to purchase government, mortgage-backed, and government agency securities in an attempt to bring interest rates down and jumpstart borrowing by consumers and corporations.

5. working in concert with the Treasury and FDIC to implement the TARP (Troubled Asset Recovery Program), TALF (Term Asset-Backed Lending Facility) and PPIP (Public-Private Investment Program).

In the process of implementing all of these activities, this genie, the Federal Reserve, in the person of chairman Ben Bernanke, has gone places no genie has ever gone before.

The question before the court is whether the free market can ever get the genie back in the bottle. Additionally, aside from getting the genie back in the bottle, these wishes granted by the genie aren’t exactly free. How so? (more…)

Too Much Debt: Restructure, Default, or Devalue?

Posted by Larry Doyle on March 30th, 2009 11:10 AM |

Virtually every sector in the economy is faced with the same predicament: excessive debt. Whether residential housing, commercial real estate, consumer finance, automotive, municipal finance, or Uncle Sam, the current debt service along with future debt service is overwhelming.

In my opinion, the amount of influence with your lender (creditor) is directly related to the amount of debt and the terms of that debt. Regrettably for many taxpayers, the amount of debt from residential mortgage payments along with credit card bills and other household debts are not sufficient to create much influence. For larger corporations or municipalities, the influence is greater as these entities threaten to default. Thus, we see ongoing games of “chicken” being played between debtors and creditors while debt service typically gets restructured. 

What about the largest debtor of all, that being Uncle Sam?  He can’t play the “default” card and expect the market to treat him with any degree of credibility. Thus, Uncle Sam does not have the option of restructuring or default. The only real option left to Uncle Sam is devaluation. How does that get played out? In the very manner that the Fed and Treasury are doing right now. Pump money into the system like there is no tomorrow. (more…)

Clowns to the Left of Me…

Posted by Larry Doyle on March 24th, 2009 12:52 PM |

I wrote earlier today about the ongoing pressure being applied on our senior financial representatives in Washington by their counterparts in China. In Congressional testimony this morning, both Secretary Geithner and Fed chair Bernanke have discounted China’s call for a new international reserve currency. 

The Obama administration is not only being pressured by China prior to the upcoming G-20. Our European allies also have a decidedly different tact on the appropriate financial maneuvers for global governments at this time. While the United States is currently promoting the need for massive fiscal stimulus on a global basis, the WSJ reports from Europe, ECB Chief Says Stimulus Not Needed

(more…)






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