Why the Fed can’t put out the fire

[cr]

Our economy is well overdue for a massive Spring cleaning, but with the FED bailing out failed banks and guaranteeing tree pulp labeled MBS they’re just sweeping the $#!^ under the rug.

You can only do that for so long before the stench is overwhelming and you’re forced to clean it up, and by then it’s much worse.

It’s only a matter of time.

[sdduuuude]

JWM. I have been following your deflation comments and those of Mish and my favorite piggington poster of all time – 4plexowner.

I can’t say it is quite sinking in. Sometimes I’m slow like that because I need to understand, in detail what you are saying before I have the “aha”. It hasn’t kicked in yet.

So, if you don’t mind, could you put some detail to this deflation thing, the theory behind it. The cause and effect.

I mean, I see the Feds cutting. I see the dollar dropping. It all says “devaluing dollar” = inflation, right?

Are you saying an upcoming deflationary period will be preceeded by an inflationary period, or will we drop right into it? Will the dollar devalue AND prices come down? Are you talking Gold? Oil? Stocks? Housing? Vegetables? Milk? Assets? Commodities? all deflating?

4plexowner mentioned some theory, but I can’t find the thread to read up on it.

Thanks in advance for the education.

[sdduuuude]

JWM. I have been following your deflation comments and those of Mish and my favorite piggington poster of all time – 4plexowner.

I can’t say it is quite sinking in. Sometimes I’m slow like that because I need to understand, in detail what you are saying before I have the “aha”. It hasn’t kicked in yet.

So, if you don’t mind, could you put some detail to this deflation thing, the theory behind it. The cause and effect.

I mean, I see the Feds cutting. I see the dollar dropping. It all says “devaluing dollar” = inflation, right?

Are you saying an upcoming deflationary period will be preceeded by an inflationary period, or will we drop right into it? Will the dollar devalue AND prices come down? Are you talking Gold? Oil? Stocks? Housing? Vegetables? Milk? Assets? Commodities? all deflating?

4plexowner mentioned some theory, but I can’t find the thread to read up on it.

Thanks in advance for the education.

[sdduuuude]

JWM. I have been following your deflation comments and those of Mish and my favorite piggington poster of all time – 4plexowner.

I can’t say it is quite sinking in. Sometimes I’m slow like that because I need to understand, in detail what you are saying before I have the “aha”. It hasn’t kicked in yet.

So, if you don’t mind, could you put some detail to this deflation thing, the theory behind it. The cause and effect.

I mean, I see the Feds cutting. I see the dollar dropping. It all says “devaluing dollar” = inflation, right?

Are you saying an upcoming deflationary period will be preceeded by an inflationary period, or will we drop right into it? Will the dollar devalue AND prices come down? Are you talking Gold? Oil? Stocks? Housing? Vegetables? Milk? Assets? Commodities? all deflating?

4plexowner mentioned some theory, but I can’t find the thread to read up on it.

Thanks in advance for the education.

[sdduuuude]

JWM. I have been following your deflation comments and those of Mish and my favorite piggington poster of all time – 4plexowner.

I can’t say it is quite sinking in. Sometimes I’m slow like that because I need to understand, in detail what you are saying before I have the “aha”. It hasn’t kicked in yet.

So, if you don’t mind, could you put some detail to this deflation thing, the theory behind it. The cause and effect.

I mean, I see the Feds cutting. I see the dollar dropping. It all says “devaluing dollar” = inflation, right?

Are you saying an upcoming deflationary period will be preceeded by an inflationary period, or will we drop right into it? Will the dollar devalue AND prices come down? Are you talking Gold? Oil? Stocks? Housing? Vegetables? Milk? Assets? Commodities? all deflating?

4plexowner mentioned some theory, but I can’t find the thread to read up on it.

Thanks in advance for the education.

[sdduuuude]

JWM. I have been following your deflation comments and those of Mish and my favorite piggington poster of all time – 4plexowner.

I can’t say it is quite sinking in. Sometimes I’m slow like that because I need to understand, in detail what you are saying before I have the “aha”. It hasn’t kicked in yet.

So, if you don’t mind, could you put some detail to this deflation thing, the theory behind it. The cause and effect.

I mean, I see the Feds cutting. I see the dollar dropping. It all says “devaluing dollar” = inflation, right?

Are you saying an upcoming deflationary period will be preceeded by an inflationary period, or will we drop right into it? Will the dollar devalue AND prices come down? Are you talking Gold? Oil? Stocks? Housing? Vegetables? Milk? Assets? Commodities? all deflating?

4plexowner mentioned some theory, but I can’t find the thread to read up on it.

Thanks in advance for the education.

[barnaby33]

sdduuuude I can add some color to the commentary. Most people who are deflationists look at deflation as a monetary event. If you will accept that in our system, money and credit are fungible, two that the last seven years have seen a huge run-up in the creation of that credit and finally that much of that credit is or will be destroyed you probably are a deflationist.

Most people though by no means all who are inflationists believe we can print our way out of the current problem, we can’t for several reasons. If deflation is a monetary event, so is inflation (forget rising prices thats just a symptom of inflation at times.) The inflation has already occurred via all of the lending that has been done against the collateral available (mostly houses.) Now that the collateral is over-encumbered, much of that debt is being destroyed as the borrowers default.

The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system. The TAF and the newer spiffier bank bailout are just mechanisms to get money into circulation to stimulate spending. Furthermore the Fed cannot make banks lend. Since most of the collateral that banks would normally lend against is over-encumbered, or not worth what is already lent against it, they are scared to lend except at ever higher rates. That is why even though the Fed keeps lowering (an inflationary tactic if the money has nowhere productive to go) mortgages and consumer credit are getting more expensive. The Fed could just print. It can in fact do that (I was wrong in thinking that it couldn’t), but that would quickly cause an exodus from the dollar, something we have already seen but which would accelerate.

Furthermore how all of the collateral became over-encumbered is through the magic of fraud. Wall street convinced itself and others that you really could slice and dice risk and make it go away. The fact that it has turned out to be a disaster is why the nobody trusts the ratings assigned to all sorts of debt and so people with money refuse to buy the debt.

So the inflation of the last few years is leading to deflation, and the whole kit and kaboodle was based on the fraudulent idea that you really can squeeze 3 nickels from a dime. All of this was all too willingly aided by the hard slacking American consumer who was too dumb to, “do the math.”

Josh

[barnaby33]

sdduuuude I can add some color to the commentary. Most people who are deflationists look at deflation as a monetary event. If you will accept that in our system, money and credit are fungible, two that the last seven years have seen a huge run-up in the creation of that credit and finally that much of that credit is or will be destroyed you probably are a deflationist.

Most people though by no means all who are inflationists believe we can print our way out of the current problem, we can’t for several reasons. If deflation is a monetary event, so is inflation (forget rising prices thats just a symptom of inflation at times.) The inflation has already occurred via all of the lending that has been done against the collateral available (mostly houses.) Now that the collateral is over-encumbered, much of that debt is being destroyed as the borrowers default.

The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system. The TAF and the newer spiffier bank bailout are just mechanisms to get money into circulation to stimulate spending. Furthermore the Fed cannot make banks lend. Since most of the collateral that banks would normally lend against is over-encumbered, or not worth what is already lent against it, they are scared to lend except at ever higher rates. That is why even though the Fed keeps lowering (an inflationary tactic if the money has nowhere productive to go) mortgages and consumer credit are getting more expensive. The Fed could just print. It can in fact do that (I was wrong in thinking that it couldn’t), but that would quickly cause an exodus from the dollar, something we have already seen but which would accelerate.

Furthermore how all of the collateral became over-encumbered is through the magic of fraud. Wall street convinced itself and others that you really could slice and dice risk and make it go away. The fact that it has turned out to be a disaster is why the nobody trusts the ratings assigned to all sorts of debt and so people with money refuse to buy the debt.

So the inflation of the last few years is leading to deflation, and the whole kit and kaboodle was based on the fraudulent idea that you really can squeeze 3 nickels from a dime. All of this was all too willingly aided by the hard slacking American consumer who was too dumb to, “do the math.”

Josh

[barnaby33]

sdduuuude I can add some color to the commentary. Most people who are deflationists look at deflation as a monetary event. If you will accept that in our system, money and credit are fungible, two that the last seven years have seen a huge run-up in the creation of that credit and finally that much of that credit is or will be destroyed you probably are a deflationist.

Most people though by no means all who are inflationists believe we can print our way out of the current problem, we can’t for several reasons. If deflation is a monetary event, so is inflation (forget rising prices thats just a symptom of inflation at times.) The inflation has already occurred via all of the lending that has been done against the collateral available (mostly houses.) Now that the collateral is over-encumbered, much of that debt is being destroyed as the borrowers default.

The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system. The TAF and the newer spiffier bank bailout are just mechanisms to get money into circulation to stimulate spending. Furthermore the Fed cannot make banks lend. Since most of the collateral that banks would normally lend against is over-encumbered, or not worth what is already lent against it, they are scared to lend except at ever higher rates. That is why even though the Fed keeps lowering (an inflationary tactic if the money has nowhere productive to go) mortgages and consumer credit are getting more expensive. The Fed could just print. It can in fact do that (I was wrong in thinking that it couldn’t), but that would quickly cause an exodus from the dollar, something we have already seen but which would accelerate.

Furthermore how all of the collateral became over-encumbered is through the magic of fraud. Wall street convinced itself and others that you really could slice and dice risk and make it go away. The fact that it has turned out to be a disaster is why the nobody trusts the ratings assigned to all sorts of debt and so people with money refuse to buy the debt.

So the inflation of the last few years is leading to deflation, and the whole kit and kaboodle was based on the fraudulent idea that you really can squeeze 3 nickels from a dime. All of this was all too willingly aided by the hard slacking American consumer who was too dumb to, “do the math.”

Josh

[barnaby33]

sdduuuude I can add some color to the commentary. Most people who are deflationists look at deflation as a monetary event. If you will accept that in our system, money and credit are fungible, two that the last seven years have seen a huge run-up in the creation of that credit and finally that much of that credit is or will be destroyed you probably are a deflationist.

Most people though by no means all who are inflationists believe we can print our way out of the current problem, we can’t for several reasons. If deflation is a monetary event, so is inflation (forget rising prices thats just a symptom of inflation at times.) The inflation has already occurred via all of the lending that has been done against the collateral available (mostly houses.) Now that the collateral is over-encumbered, much of that debt is being destroyed as the borrowers default.

The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system. The TAF and the newer spiffier bank bailout are just mechanisms to get money into circulation to stimulate spending. Furthermore the Fed cannot make banks lend. Since most of the collateral that banks would normally lend against is over-encumbered, or not worth what is already lent against it, they are scared to lend except at ever higher rates. That is why even though the Fed keeps lowering (an inflationary tactic if the money has nowhere productive to go) mortgages and consumer credit are getting more expensive. The Fed could just print. It can in fact do that (I was wrong in thinking that it couldn’t), but that would quickly cause an exodus from the dollar, something we have already seen but which would accelerate.

Furthermore how all of the collateral became over-encumbered is through the magic of fraud. Wall street convinced itself and others that you really could slice and dice risk and make it go away. The fact that it has turned out to be a disaster is why the nobody trusts the ratings assigned to all sorts of debt and so people with money refuse to buy the debt.

So the inflation of the last few years is leading to deflation, and the whole kit and kaboodle was based on the fraudulent idea that you really can squeeze 3 nickels from a dime. All of this was all too willingly aided by the hard slacking American consumer who was too dumb to, “do the math.”

Josh

[barnaby33]

sdduuuude I can add some color to the commentary. Most people who are deflationists look at deflation as a monetary event. If you will accept that in our system, money and credit are fungible, two that the last seven years have seen a huge run-up in the creation of that credit and finally that much of that credit is or will be destroyed you probably are a deflationist.

Most people though by no means all who are inflationists believe we can print our way out of the current problem, we can’t for several reasons. If deflation is a monetary event, so is inflation (forget rising prices thats just a symptom of inflation at times.) The inflation has already occurred via all of the lending that has been done against the collateral available (mostly houses.) Now that the collateral is over-encumbered, much of that debt is being destroyed as the borrowers default.

The problem we have is that debt is being destroyed through default faster than the Fed can get money injected into the system. The TAF and the newer spiffier bank bailout are just mechanisms to get money into circulation to stimulate spending. Furthermore the Fed cannot make banks lend. Since most of the collateral that banks would normally lend against is over-encumbered, or not worth what is already lent against it, they are scared to lend except at ever higher rates. That is why even though the Fed keeps lowering (an inflationary tactic if the money has nowhere productive to go) mortgages and consumer credit are getting more expensive. The Fed could just print. It can in fact do that (I was wrong in thinking that it couldn’t), but that would quickly cause an exodus from the dollar, something we have already seen but which would accelerate.

Furthermore how all of the collateral became over-encumbered is through the magic of fraud. Wall street convinced itself and others that you really could slice and dice risk and make it go away. The fact that it has turned out to be a disaster is why the nobody trusts the ratings assigned to all sorts of debt and so people with money refuse to buy the debt.

So the inflation of the last few years is leading to deflation, and the whole kit and kaboodle was based on the fraudulent idea that you really can squeeze 3 nickels from a dime. All of this was all too willingly aided by the hard slacking American consumer who was too dumb to, “do the math.”

Josh

[sdduuuude]

OK, barnaby. A good start. As I said, it is slow to sink in.

You said “lowering (is) an inflationary tactic if the money has nowhere priductive to go”

Don’t you mean, lowering is an inflationary tactic if the money has SOMEWHERE to go?

So, the idea is that the money supply is shrinking, not growing because the money that was created by new debt (as opposed to actual printing) has gone bye-bye ?

And the fed is lowering but not necessarily lending because the banks don’t want to borrow from the fed to lend out.

[sdduuuude]

OK, barnaby. A good start. As I said, it is slow to sink in.

You said “lowering (is) an inflationary tactic if the money has nowhere priductive to go”

Don’t you mean, lowering is an inflationary tactic if the money has SOMEWHERE to go?

So, the idea is that the money supply is shrinking, not growing because the money that was created by new debt (as opposed to actual printing) has gone bye-bye ?

And the fed is lowering but not necessarily lending because the banks don’t want to borrow from the fed to lend out.

[sdduuuude]

OK, barnaby. A good start. As I said, it is slow to sink in.

You said “lowering (is) an inflationary tactic if the money has nowhere priductive to go”

Don’t you mean, lowering is an inflationary tactic if the money has SOMEWHERE to go?

So, the idea is that the money supply is shrinking, not growing because the money that was created by new debt (as opposed to actual printing) has gone bye-bye ?

And the fed is lowering but not necessarily lending because the banks don’t want to borrow from the fed to lend out.

[sdduuuude]

OK, barnaby. A good start. As I said, it is slow to sink in.

You said “lowering (is) an inflationary tactic if the money has nowhere priductive to go”

Don’t you mean, lowering is an inflationary tactic if the money has SOMEWHERE to go?

So, the idea is that the money supply is shrinking, not growing because the money that was created by new debt (as opposed to actual printing) has gone bye-bye ?

And the fed is lowering but not necessarily lending because the banks don’t want to borrow from the fed to lend out.

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