Although, for some of you, the crisis never happened right? Everything has been hunky dory, no reason to panic. Well, I’d like to talk to the other people, the one’s who at least listened to reason and fact.
So we had/have a credit crisis. So the fear of the crisis was that due to the intermingling of the banks and brokerages assets with each other, if bank (A) fails and thus pulls capital from bank (B), bank (B) will have to either find more capital or it too will fail. If bank (B) fails, it will pull capital from bank (C) and so on. Each time this capital is pulled, since it is leveraged, it will lead to deflation as loans across the board will be instantly called in.
OK I’m with ya so far.
So the Fed says ‘this is eerily like the 1929, when investors were heavily margined and a succession of margin calls caused the great crash. We must make sure that these banks/brokerages don’t fail by constantly adding liquidity to the market. Hell let’s open up a TERM AUCTION FACILITY and just auction off money to banks! Worst case scenario, we create excess liquidity and inflation.
OK I’m with you still, but now what. I mean, the market seems to (at least for the moment) be pricing in the end of credit collapse hell, but what about that inflation? Rates are low, everybody and their butthole brother can borrow money and buy cheap homes, we’re getting government checks in the mail in a month (paid for by borrowing), have we sacrificed the future for the now?!?
March 19th, 2008 at 9:35 am
Yes everything is just perfect; it’s a huge buying opportunity. Me and my butthole brother will be borrowing money and moving back to mother Russia.
.
I’m sure U.S. economy will pay the price for this free money soon enough.
March 19th, 2008 at 9:37 am
What annoys me about these tax rebates is that there essentially a loan like you said which we will be paying back with interest. I see a high percentage of people using the money to help pay debt which I don’t believe with help “stimulate” the economy. Sure there will be people who run to the store and buy themselves a gift but do you guys really think this tax rebate is going to help much?
Also, a quick question. Say a person goes out and buys a product that was made in china and is pretty much owned by a foreign company. Would that still be helping the US Economy or would that be boosting the economy of other countries? I’m not sure about how this would work so if somebody could inform me that would be great.
I essentially see this tax rebate becoming more US debt.. which we already have enough of..
March 19th, 2008 at 9:50 am
Am I wrong, isn’t this crisis all in peoples heads?
I admit, I was one of those people early in this year that said, everything is hunky dory. I did start to get worried recently at the value of the dollar rapidly declining.
The idea behind the government checks is to put more faith into people’s heads/hands, and get people to start spending money and keep moving. I am no expert but I know if everyone starts to panic and holds, something is going to hit the fan.
When we receive the Government rebate checks, is spending the money the same as putting it in the bank? Putting the money in the bank would allow these banks having trouble to loan more. What is the best use of the money from the government? Does it really matter as long as I don’t stick it under my mattress?
March 19th, 2008 at 10:12 am
Are you wrong? yes.
The ‘crisis’ is a real decline in the price of homes, that has yet to reach bottom. This decline affects everyone using margin as they are all getting margin calls. For the homeowner, it means no equity and thus no wealth, and thus no spending and thus no economic activity. Short term solution is to spend your rebate check, wise solution is to save it because it is borrowed money and thus costs you more than you get. Paying down credit card debt (or any debt for that matter) is the equivalent of saving.
Buying an import does nothing for our economy. So tell Serge to stop shopping BMW’s and take a look at a Chevy!
You want a real solution, get rid of the Fed. Fact is, money and markets create emotion and no human can operate 100% efficiently in the face of emotion. Milton Friedman, a staunch supporter of getting rid of the Fed, suggested replacing it with a computer.
How do we get rid of the Fed? Simple, stop watching FOX News, CNN or ABC for presidential candidate information and start actually researching. Ron Paul wants to abolish the Fed. He also wants to go back to a gold backed monetary system. What does this mean? It means less inflation, it means money has real value, it means the government CAN NOT wage stupid wars through borrowing. In fact the government borrowing would be significantly reduced. Kind of a save all scenario eh?
Imagine if we had two currencies right now. One that was backed by gold bullion and one that was backed by the power of the US government, which do you think would buy you more bread?
HOMEWORK: Please, before you respond about the Fed, find out who Milton Friedman is. Before you respond about Ron Paul, look at his stance on issues and tell me the one you disagree with, don’t tell me (like everyone else in the world says) ‘Ron Paul is crazy because the television told me he was’.
March 19th, 2008 at 10:28 am
I agree with everything else you said, but who determines the price of a house? It’s how much people are willing to pay for it nothing else. If I price my house at $1,000,000 does it mean that’s how much the price of my home is? No. So who’s going to change the price of people’s homes? Other people.
I am not arguing the fact there is a crisis, I’m saying that it’s in people’s minds and it’s causing a real effect.
March 19th, 2008 at 10:36 am
YOU DIDN’T DO THE HOMEWORK!! When I assign HOMEWORK I expect it to be done!
As for houses, you can price your home at 1 mill, I can afford 500,000 right now, and want to pay 250,000. Our adjustments toward equilibrium are real, and as the economy grows/shrinks, so does our equilibrium level.
March 19th, 2008 at 10:42 am
I didn’t need to do the homework because I didn’t respond about the Fed, and I didn’t respond about Ron Paul
March 19th, 2008 at 12:10 pm
HOMEWORK HELPER:
Ok class, I want you to visit the links below, then report back…
http://www.lewrockwell.com/paul/paul445.html
http://en.wikipedia.org/wiki/Milton_Friedman
http://www.lewrockwell.com/north/north534.html
March 19th, 2008 at 1:36 pm
I think Mark missed it when I that I’m moving to mother Russia thus i can support the German economy all I want!
If you really think about it the price of my new car hasn’t changed but it cost more for the Germans to make it thus i’m hurting them and being a good American.
Home prices needed to come down and will be coming down. They are reverting to normal price. We both know that housing corrections are long and protracted so screaming crisis is a bit out of line.
It’s very interesting to see what the fed is doing, we may not like it but it is helping the economy. If you think about it, his options are really limited.
And just so you know Ron Paul sucks!
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