Helicopter Drops and Lollipops…why the Fed saving your SD house is a Myth

[JWM in SD]

With all of the discussions going on about bailouts and the Fed meeting on 18th looming (will there be a rate cut or not), I thought now might be a teachable moment for some of the less familiar here.

Some of the more poignant excerpts from Mish Shedlock and Minyanville today:

“Bernanke cannot “drop dollars from helicoptors” to the “nth” degree because that would plummet the Fed’s balance sheet into ruins. He is already stretching the rules to the breaking point (allowing less than pristine collateral to lend more credit to banks, allowing increased lending with that collateral from banks to their non-banking entities like brokerage, etc., etc.).
There is a limit and that limit is fast approaching.”

“Once credit contracts and asset prices drop it becomes impossible to service debt. The greatest financial experiment in history has really been nothing but one giant ponzi scheme of willingness to extend credit all based on models that asset prices only go up and/or the Fed can solve every crisis by throwing more money at it.”

“The limitation in housing was the inability of borrowers to service mortgage loans once home prices stopped rising. For a while credit expansion related to housing continued as consumers treated their house as an ATM. That ATM has now gone in reverse. It is no longer dispensing cash. The housing ATM has now turned into a vacuum that is sucking up dollars faster than people can come up with them.”

And finally the best for last:
“Credit booms do not end in inflation as most people believe. Credit booms are inflation that end in deflation. This credit boom is not any different.”

Got Cash or Gold?????

[Coronita]

I hope I can pick up a couple of extra properties in the CV and Del Sur area if 2-3 years.

[JWM in SD]

Most probably that will be too soon…but suit yourself.

[drunkle]

i think mish is assuming that the govnt gives a rats ass about the people who will be most affected by dollar devaluation.

[JWM in SD]

“i think mish is assuming that the govnt gives a rats ass about the people who will be most affected by dollar devaluation.”

No, what he is saying is that the Fed won’t hyperinflate because that would be endgame for them as they would have a lot of worthless crap on their Balance Sheet.
That’s why I keep saying that the Fed doesn’t give a sh*t about your overpriced SD home or condo.

[Ex-SD]

JWM wrote: “That’s why I keep saying that the Fed doesn’t give a sh*t about your overpriced SD home or condo.”

And you would be CORRECT! Good thread.

[NeetaT]

I am holding all cash and in my assessment a lot of it. So how will I benefit? I want to see higher interest rates, but I don’t think that will happen. I also want to see massive deflation, but I don’t think that will happen either.

[JWM in SD]

“I am holding all cash and in my assessment a lot of it. So how will I benefit? I want to see higher interest rates, but I don’t think that will happen. I also want to see massive deflation, but I don’t think that will happen either.”

I want to answer the benefit question as well. However, I have to ask why you don’t see deflation and rising interest rates as a possibility? All the signs point to this right now.

[NeetaT]

“I have to ask why you don’t see deflation and rising interest rates as a possibility? All the signs point to this right now.”
Because, the Fed has a tendency to encourage borrowing to keep the fake economy going. High interest rates discourage spending, thus putting pressure on the Fed to pump more money into the economy and lower interest rates. Besides, I think they know I am holding cash, so they are inclined to make my cash worth less.

[JWM in SD]

“Because, the Fed has a tendency to encourage borrowing to keep the fake economy going.”

Then you didn’t pay attention to the original post. The Fed has a limit before its power is useless. The Fed is getting close to this point. If your $’s are worthless, then they don’t have power anymore. So unless you are one of the subscribers to the Amero theory, then they won’t hyperinflate. It’s a risk I admit, but short of becoming a complete conspiracy theory nutjob, what else is there????

[NeetaT]

“Then you didn’t pay attention to the original post. The Fed has a limit before its power is useless.”

I went back and did some scrutinizing and now I understand. Thanks for prompting me to re read the original post.

[drunkle]

“No, what he is saying is that the Fed won’t hyperinflate because that would be endgame for them as they would have a lot of worthless crap on their Balance Sheet.”

i dont see that. hyperinflation is the definition of “saving your own skin”, especially when you’re the one holding the cards. the fed is holding alot of worthless paper as is, with hyperinflation, they can unload that crap. hell, even if they held on to it, they’re really not going to feel the pain like the rest of us.

the fed, the central banks are at the top of the food chain. if their balance sheet goes to ruin, so does ours. except, at the end of the day, they’re still holding all the cards.

[JWM in SD]

Sorry Drunkle but that dog doesn’t hunt. If you want to argue that the Fed will hyperinflate then you have to be willing to go all the way and say their aim is to destroy the USD. That is a different matter.

[SHILOH]

Can someone explain how holding cash…dollars…will be a good thing while the dollar is falling. The dollar last week went below 80 cents. I also heard the Chinese are dumping the dollars they hold. So – how will that affect house pricing in the future?

[PadreBrian]

I see your point. from bloomberg today:
“With the Fed cutting rates and the ECB on hold, U.S. assets will become less attractive,” said Greg Salvaggio, vice president of capital markets at currency-trading company Tempus Consulting in Washington. “That’s weighing on the dollar.”

The dollar fell to $1.3798 per euro at 1:03 p.m. in New York, after earlier touching $1.3816, the lowest since Aug. 9, from $1.3768 on Sept. 7. That compares with the record low of $1.3852 reached July 24. The U.S. currency bought 113.37 yen, from 113.38. The euro traded at 156.46 yen, from 156.10.

Salvaggio forecasts the dollar may fall to $1.42 per euro by year-end.

The U.S. dollar index comparing the currency with its six primary peers, including the pound and yen, fell to as low as 79.788, the weakest in 15 years, from 79.959 on Sept. 7.

“The dollar has gone from being a safe-haven currency to a U.S.-centric currency,” said Mitul Kotecha, head of currency strategy at Calyon London.

http://www.bloomberg.com/apps/news?pid=20601101&sid=awLm4M6SAxV0&refer=japan

Great job, bush&gang. :/ Bring in those copters.lol

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