Here Is Why The Dollar Is Now Effectively Worthless
A picture is worth a thousand Krugman essays, which is why we present a chart comparing the US Monetary Base (and by subtracting Reserve Balances with Fed Reserve Banks, Currency in Circulation), and the Fed's holdings of MBS and Agency paper (worthless GSE/FHA garbage). In summary: Currency in Circulation: $920 billion; MBS/Agency Holdings: $997 billion. The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing.
(15 votes)
on Mon, 11/23/2009 - 10:39
#139343
Strangely familiar, a familiar strangle:
Addison felt that Germany was 'marching with giant strides towards something very unpleasant' — yet people were still arguing about the responsibility of the industrialists for the nation's woes, or about the form which self-help should take. He had met Germans who appeared genuinely to believe that because conditions had been getting worse for four years they could go on getting worse for ever.
But obviously something goes on only until the moment when it cannot, and that comes suddenly. Nobody thought the war was near an end in March 1918. Nobody in France anticipated the French Revolution because the shop of Reveillon Freres was sacked by the Paris mob.
You should see the long queues of people standing for hours on end in front of the Berlin provision shops. The housewife cannot clean her home or look after her children if she has to stand from 8 a.m. to 1 p.m. for a piece of sausage which in the end she does not get. The patience of the people is marvellous, but a German crowd when angry is ugly.
He had personally been to take a look at the situation first-hand in Bavaria where food was short in the towns but plentiful in the country. However, he was unable to buy an egg from a farm with paper marks, having been told by a peasant 'Wir wollen keine Judenfetzen von Berlin' ('We don't want any Jew-confetti from Berlin' — the popular description for Reichsbanknotes). Bavaria was pining for the good old Thaler, given up in 1870 — the coin from which the dollar itself derived its name.
When Money Dies: The Nightmare of the Weimar Collapse
http://mises.org/web/4016#pg182
on Mon, 11/23/2009 - 11:21
#139407
Glad to hear that the Kuhn Loeb's Jacob Schiff, Max Warburg, and the Rothschild clan were not involved in that monetary debacle of Germany's '20's.
Gladder still that they had no involvement in the banking and credit system in the USA.
Afterall WHO would ever allow architects with proven catastrophic structural failures to continue to build even more fragile systems in other lands? That would be folly without measure...except perhaps in dollars.
on Mon, 11/23/2009 - 15:26
#139724
Of the five Warburg brothers, Paul was the first head of the Federal Reserve, Max ( im Vaterland)was the head of the german intelligence during WW I, and Felix( residing here in the U.S.) was the big supporter of the Zionist movement. I'm not sure about the activities of the other two brothers but one can only imagine. As a side note Paul was also instrumental in founding I.G. Farben.
on Mon, 11/23/2009 - 16:58
#139847
Yes, Paul and Jekyll island.
Also Jacob Schiff-Japanese Fleet-Treaty of Portsmouth-weakening of Russo Nicholas. Israel Blank's grandson and Leon Trotsky then took Karl Marx's philosophy to fruition by blood and tyranny.
And the cold war.
Kinda like splitting a gallon of water and trying to create polarities.
Humankind is the ultimate fungible...or is it?
on Wed, 11/25/2009 - 09:03
#141851
again and again the same ignorances and clichés: the rich jews are the one that rule the wohle monetary system. Such a rubbish!
on Mon, 11/23/2009 - 13:31
#139570
Everytime you guys talk about Weimar and gold, this coin comes to my mind:
http://www.deutsche-sammlermuenzen.de/bmf/informationen/muenzgalerie/100...
It's just too funny that there is an official german gold coin commemorating (the historic city of) Weimar. Well, I guess I have a weird kind of humor ;-)
Btw: please don't search how to buy this baby on the page I linked to. It's not possible. The page is on an official governmental website and they had the coin in stock only back in 2006.
on Mon, 11/23/2009 - 14:32
#139646
It is just a commemorative gold plated tungsten coin as seen on tv...
Like those commemorative Obama plates southerners use for skeet shooting...
That is a classic Galois... just like permutation groups...
on Mon, 11/23/2009 - 16:18
#139793
Hey, where have I seen that ID photo before?
on Tue, 11/24/2009 - 11:57
#140607
Maybe next time I go to the range...
But with a Saiga 12 ga. and a 12 round magazine that could get expensive.
on Mon, 11/23/2009 - 15:58
#139766
That coin refers to the city Weimar, not the Weimar republic.
on Mon, 11/23/2009 - 16:08
#139778
100 E for 263 E.
Fuck mich Laufen. Sie haette gedachte war es auf Dollar notiert.
on Mon, 11/23/2009 - 21:18
#140110
Monosyllabic grunts don't begin to describe the raping, ransacking, pillaging and looting that peaceful people did nothing about until it was too late. As for us who watch it unfold, beware the fanatics... Germans, Japanese, Chinese, Russians, Rwandans, Serbs, Afghans, Iraqis, Palestianians, Somalis, Nigerians, Algerians, to name a few.
on Mon, 11/23/2009 - 14:11
#139617
Very nice comment/post, Mr. WaterWings
on Mon, 11/23/2009 - 21:22
#140112
Monosyllabic grunts don't begin to describe the raping, ransacking, pillaging and looting that peaceful people did nothing about until it was too late. As for us who watch it unfold, beware the fanatics... Germans, Japanese, Chinese, Russians, Rwandans, Serbs, Afghans, Iraqis, Palestianians, Somalis, Nigerians, Algerians, to name a few.
on Tue, 11/24/2009 - 00:36
#140283
Oh, oh! You forgot 'middle North Americans'.
on Tue, 11/24/2009 - 11:52
#140599
I think there is a definate possibility of extremism in the US in the forseeable future. 17.5% U6 and real U6 (Shadowstats.com) at 22.1% and rising (and this is probably an understatement due to the massive concentration of illegal and therefore uncounted workers in the construction industry) means a lot of angry people. And when unemployment benefits/savings/credit cards/HELOC's run out people will do what they need to do to feed their families. They will vote for the man who says he can fix it (though that man will be a liar). I have already noticed a pickup in anti-immigrant sentiment, and I expect that this is just the start of something much worse to come.
Keep your gold close and your guns loaded.
on Tue, 11/24/2009 - 17:43
#141150
What ? No mention of the Israelis ? !!!!!!how utterly shocking. It wouldn't be because you are Jewish. would it ? Oh, no. Yahweh forbid.
on Tue, 11/24/2009 - 17:15
#141100
Thanks for that link. I read entire riveting piece, beginning to end.
That graf closes the book. Yes, indeed.
on Mon, 11/23/2009 - 10:40
#139345
"we are fucked" a tag you that underscores the unique perspective of ZH.
on Mon, 11/23/2009 - 10:43
#139351
+10 LOL.
on Mon, 11/23/2009 - 10:50
#139365
great eye finding another easter egg lizzy!! that was a good one......
on Mon, 11/23/2009 - 11:17
#139400
"We Are Fucked" is too run-of-the-mill.
It should read "We Are Soooooo Fucked"
on Mon, 11/23/2009 - 11:36
#139426
"proper fucked" if you will.
on Mon, 11/23/2009 - 12:33
#139502
LOL
How about we compromise with "We are so properly fucked"?
on Mon, 11/23/2009 - 13:36
#139574
Royally Shagged..with a gold finger!
on Mon, 11/23/2009 - 15:25
#139720
We are fucked so properly
Properly we are so fucked
We are fucked properly, so?
We are so froperly pucked!
on Tue, 11/24/2009 - 07:07
#140371
Please! can't I at least get a kiss while I am getting fucked? It takes my mind off the pain.
on Tue, 11/24/2009 - 08:18
#140399
Do I look like Mrs. Obama?
on Mon, 11/23/2009 - 11:49
#139445
Nope:
we are sooooooooooo fucking fucked!!
on Mon, 11/23/2009 - 13:11
#139542
how about just
"fuck."
on Mon, 11/23/2009 - 23:35
#140241
Fuckin Ehh !!!
on Mon, 11/23/2009 - 13:17
#139553
Nope:
We are so beyond fucked - we won't even be able to catch a bus back to fucked!!
on Mon, 11/23/2009 - 13:37
#139576
lol +10
on Mon, 11/23/2009 - 14:26
#139636
yup, that's the one....
on Tue, 11/24/2009 - 00:22
#140272
I'm most comfortable with:
"Ohhhh... we are sooooo totally fucked".
on Mon, 11/23/2009 - 14:40
#139653
I worked one summer with this guy Steve. He started every sentence with "Fuck..." or "Fuckin'..."
He used so many fucks that we started having contests imitating him.
"Fuckin'... Fuck... We are so fucking fucked on this fucking job... Fuck."
"Fuckin'... Where the fuck are you fuckin' guys going for funckiin' lunch?"
I kid you not.
on Mon, 11/23/2009 - 14:56
#139681
This is one of the most useful and flexible words in english language: http://www.youtube.com/watch?v=26UA578yQ5g
on Mon, 11/23/2009 - 15:32
#139735
But it is an extremely lazy form of expressing oneself.
on Mon, 11/23/2009 - 16:12
#139788
Yes it is, but you know - fuck that.
on Mon, 11/23/2009 - 16:19
#139797
In the words of that great American poet Dick Cheney, go fuck yourself Anonymous.
on Tue, 11/24/2009 - 10:09
#140469
Ah yes, to fuck or not to fuck, that is the question. Shall I compare thee...
probably not
on Mon, 11/23/2009 - 20:31
#140074
Osho has delivered the final verdict on the unspeakble word a long time ago, look you here:
http://www.youtube.com/watch?v=6D7rWLzloOI
Give him 1:30 to close in on the subject; then, he dissipates any and all questions with his boundless wisdom once and for all.
Happy Fucking.
on Mon, 11/23/2009 - 22:22
#140175
Osho? You mean the Bagwan?
As in, the Bagwan Shree Rajneesh?
He of the long white beard, and the legions of bright-orange-cloth-wrappered followers all over Berkeley, way back when I was a beer-swilling undergrad?
He of the sprawling Oregon compound in the 80's, with his followers so besotted with his "suchness" that they gave him 95 Rolls Royces? (nice wheels, eh?)
Osho is the new name, the new program, the new ashram back in IndiaLand, and you can visit too, really you can (just be aware there's an hiv-test on entry, ya know, for all that tantric whoopereee..)
on Mon, 11/23/2009 - 15:08
#139687
I don't even know what you are talking about, Nicky,
http://www.youtube.com/watch?v=JD44ouab5pc
on Mon, 11/23/2009 - 15:09
#139688
Deleted - Gasp
on Mon, 11/23/2009 - 15:10
#139689
Deleted - is it Safari?
on Mon, 11/23/2009 - 21:37
#140131
I'm suddenly reminded of Pulp Fiction.
http://www.youtube.com/watch?v=Sxcei2eOCMo
on Mon, 11/23/2009 - 11:28
#139415
Only here where the world actually makes sense.
on Mon, 11/23/2009 - 11:49
#139444
Sad, innit?
on Mon, 11/23/2009 - 13:16
#139547
I like the Mogambo Guru version - says it all and even 8-year-olds can focus on the message instead of the delivery:
"We're so freaking doooOOooomed!"
on Mon, 11/23/2009 - 10:41
#139346
MF warns second bailout would "threaten democracy"
Second bailout coming, the whole lot is still insolvent, just numbers created out of thin air added to their books over the past year.
on Tue, 11/24/2009 - 07:19
#140383
the "health care" debate and bill are a 'dog and pony' show to get the minds off the money issue wall street has drained out of the economy. The HC bill will be defeated, why...because there are more lobistist on Capitol Hill from the financial industry than the healthcare industry trying to defeat it. There is not enough money for health care and a second bail out. Just watch what comes this way in late winter/early spring 2010.
It is all planned out folks, take your seats, the next show begins in a few moments.
on Mon, 11/23/2009 - 10:42
#139350
And XAU/USD just cracked $1170.
Wheeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee!
on Mon, 11/23/2009 - 10:44
#139352
So, how much is Denninger's mattress worth today?
on Mon, 11/23/2009 - 11:29
#139417
My Gawd you are obsessed. I am starting to think he turned you down for a date or something. Geez, chill out.
on Mon, 11/23/2009 - 11:40
#139429
uhhh did you stop and think maybe loneStar wants to rent the matress for something...LOL!!!
on Mon, 11/23/2009 - 11:56
#139455
He's been so off-base and so utterly f--ked now with his hoard of worthless dollars that I almost feel sorry for the guy at this point.
on Mon, 11/23/2009 - 21:00
#140101
almost
on Mon, 11/23/2009 - 10:44
#139353
You guys are so alarmist. If any losses are taken on Fed holdings, they can print money to cover up the holes. Sheez people, its the 21st century, we got this stuff figured out. I just feel sorry for the centuries of monetary history where folks didn't realize it was possible to just drop free money on bankers to fix everything.
sorry, the sarcasm button got stuck on my comp :-P
on Mon, 11/23/2009 - 13:32
#139571
Love it.
on Mon, 11/23/2009 - 15:55
#139761
It's not totally true that our dollars are only backed by worthless mortgage-backed securities.
I'm sure that SOME of those mortgages won't default. At least a couple of them anyway. Odds are.
Plus, the Fed's holdings includes half a trillion Treasuries that were bought by printing money out of thin air.
So nothing to see here.
on Mon, 11/23/2009 - 17:35
#139884
What we need is Phil Gramm in classic prose.
on Mon, 11/23/2009 - 10:45
#139357
"full faith and credit" just ain't what it used to be
on Mon, 11/23/2009 - 15:29
#139728
Yes its now
Credit faith in full
Waldo
on Mon, 11/23/2009 - 10:48
#139363
Federal Reserve or Guild of Thieves?
on Mon, 11/23/2009 - 10:50
#139364
Logically, then, all cash transactions should be notarized and recorded, since they are actually real estate transactions. ?!?!
on Mon, 11/23/2009 - 17:40
#139890
Then they should also require title insurance. Go long FNF.
on Mon, 11/23/2009 - 22:08
#140160
Your house is in the mail.
on Mon, 11/23/2009 - 10:51
#139366
It's a nice graph - and the risk of inflation down the road is quite evident, however - as you show - almost all of the increase in the monetary base is sitting in the banks as reserves, so it is not exactly in circulation chasing up prices.
Velocity is way down, as is M3.
on Mon, 11/23/2009 - 11:48
#139443
True. Besides the Fed has a plan (according to Steve Liesman) to deal with this excess in the monetary base. It'll be cool - no need to worry.
on Mon, 11/23/2009 - 12:36
#139506
"increase in monetary base is sitting in the banks as reservers"
How can we validate that that paper is in their reserves? How do we know if these guys are not using the money to pump assets or whatever they please?
on Mon, 11/23/2009 - 11:01
#139375
Technically and in a nitpicky way that is not the backing for the US dollar, despite its position on the Fed's balance sheet.
The dollar is backed by the 'full faith and credit' of the US Treasury, with its ability to tax the American people.
But the point is moot, and a selective default is becoming almost inevitable.
on Mon, 11/23/2009 - 11:15
#139398
Well said.
And the ability to tax, even if desired, will likely come up short after the "job loss" recovery we seem to have in our future.
on Mon, 11/23/2009 - 11:05
#139381
That's funny I thought it was back by the tax take as well, which means it's not worthless, unless Americans are going pay zero taxes in the future. How many takers do I have for that bet? lol!
Dollar devalued sure, worthless nah, not unless we are all going back to barter.
on Mon, 11/23/2009 - 13:43
#139585
I bet you have more takers now for that bet than you would have in the recent past.
on Tue, 11/24/2009 - 11:16
#140556
If you have spent any time in the more economically depressed areas of the US, you would know that barter has been taking place for several years now.
As it gets worse, this will increase. People ultimately always do what's in their own best self interest.
on Mon, 11/23/2009 - 11:04
#139382
The US money supply, of which the currency in circulation is a small subset, is backed by 'the full faith and credit' of the US Treasury, and its ability to tax the American people.
If the Fed revalued the gold on the Treasuries books, for example, to only about $6800 per ounce instead of the 45$ it uses today, and significantly hiked taxes across the board, it would be 'problem solved.'
LOL
on Mon, 11/23/2009 - 11:22
#139408
Looks like the market could be revaluing gold for us. (Assuming it is gold in them thar vaults.)
on Mon, 11/23/2009 - 17:33
#139879
Hey Jesse! Great to see you here! I always wanted to comment on your blog but never could, so now I finally have the chance.
Why would hiking the nominal value of the tungsten in Ft. Knox change anything? Magically adding more collateral might lower the interest rate demanded, but I don't see how it would make the $12T and growing principle owed more manageable, even if taxes were raised to a level that would drive all wealth off-shore or underground.
on Mon, 11/23/2009 - 22:04
#140156
Even at today's gold price, all the gold held by the U.S. would only come to something like $300 billion.
on Mon, 11/23/2009 - 11:05
#139383
S&P still rates US debt at AAA!!!!!!!!!!!!!!
on Mon, 11/23/2009 - 11:47
#139442
Who gives a fuck what the S&P says.
on Mon, 11/23/2009 - 13:19
#139555
Exactly. Even 'well-educated' Americans continue to believe these racketeers over goddamn common sense.
on Mon, 11/23/2009 - 13:34
#139572
+10 S&P and Moodys - all the ratings agencies - are as much to blame for this mess as anyone. Can't trust ANYONE! Bunch of Fing CROOKS!
on Mon, 11/23/2009 - 11:07
#139388
Simple, yet wrong in my view. Dollar value is backed by the fact of being the global reserve currency and the most liquid capital market in the world.
When the proverbial S**T hits the fan in terms of economic turbulence in the next years you will see as Roubini says, the dollar surge and the carry trade unwind massively.
It seems to me ZH is on both sides here - on one they agree with roubini, on the other they are $ bears?
on Mon, 11/23/2009 - 11:42
#139434
We saw this scenario play out over the course of the past year:
1. A panic in the banking sector.
2. Leverage unwinds dramatically.
3. Dollar shoots up to cover positions.
4. Fed/Treasury collude in bailouts/monetary easing.
5. Dollar falls.
http://www.fxstreet.com/rates-charts/usdollar-index/
We could see this same scenario play out as the current USD carry trade unwinds and QE2 goes into effect.
Item 3 is temporary (Roubini position).
Long term, the US debt and item 4 leads to item 5. There is no alternative. The US needs a cheap dollar to finance its debt (USD bears/realists).
on Mon, 11/23/2009 - 18:06
#139920
The US needs a cheap dollar to finance its debt (USD bears/realists).
The U.S. also needs a cheap dollar to boost exports.
The U.K. needs a cheap pound to finance its debt.
Japan needs a cheap yen to finance its debt (particularly as its aging population is shifting from net savers to net spenders) and to boost its exports.
Europe needs a cheap Euro to finance its debt (Ireland, Spain) and to stimulate its exports (Germany).
China needs a cheap Yuan to stimulate its exports.
What country or countries stand ready to replace the U.S. as the world's net importer, allowing most of the rest of the world to be net exporters?
on Tue, 11/24/2009 - 09:34
#140442
I will!
You can all trust me with your oil and goodies. My Mom thinks I'm a great guy - er President.
My brother-in-law came up with a great design for our currency.
Nothing to worry about.
You can use it to buy our debt.
Nice yield too.
on Mon, 11/23/2009 - 11:50
#139447
Not when a majority of people lose confidence and refuse to accept it. "Liquidity" is all in the mind.
on Mon, 11/23/2009 - 13:39
#139580
lol..."Liquidity is all in your pants...
on Mon, 11/23/2009 - 16:54
#139836
+10
Liquidity all over your face.
on Tue, 11/24/2009 - 10:47
#140515
Who cares about majority of people? Chinese, Japanese, Indian and other governments have no choice, but to continue to support that reserve currency.
on Tue, 11/24/2009 - 11:32
#140575
No, they can decide to take the hit and get out of their USD holdings.
Eventually this will happen, but probably too late for them.
on Mon, 11/23/2009 - 12:03
#139469
It seems to me ZH is on both sides here - on one they agree with roubini, on the other they are $ bears?
In a nutshell, what happens when the waterfall tries to fit into a garden hose (i.e the trade unwinds and people try to exit risk dollar risk assets, thereby demanding way more dollars than there are)?
Ben will print like you have never seen before.
ZH quoting Hayek:
..The characteristic peculiarity of these forms of credit is that they spring up without being subject to any central control, but once they have come into existence their convertibility into other forms of money must be possible if a collapse of credit is to be avoided."
http://zerohedge.blogspot.com/2009/05/chasing-shadow-of-money.html
Karl Helfferich, head of the German central bank during and after WWI:
To follow the good counsel of stopping the printing of notes would mean refusing to economic life the circulating medium necessary for transactions, payments of salaries and wages, etc. It would mean that in a very short time the entire public, and above all the Reich, could no longer pay merchants, employees, or workers. In a few weeks, besides the printing of notes, factories, mines, railways, and post offices, national and local government, in short, all national and economic life would be stopped.
http://mises.org/story/2347#_ftnref7
on Mon, 11/23/2009 - 12:13
#139486
Another dollar fag. Go suck a big wad of Benjamins rolled up to the size of the big cocks you so crave, then jam it into your mouth. Grab the back of your head and repeatedly cram it down over that big roll of Benjamin cock and force it down your throat. Let that big dollar cock tickle your tonsils. YOU KNOW YOU LOVE IT YOU FLAMING DOLLAR FAG.
I am Chumbawamba.
on Mon, 11/23/2009 - 14:17
#139625
i am three.
i am chumbawamba jr..
on Mon, 11/23/2009 - 14:45
#139661
-10 You're embarrassing yourself and subtracting from this website instead of adding.
on Mon, 11/23/2009 - 20:22
#140070
+10
on Tue, 11/24/2009 - 11:35
#140581
+10
Chumbawumba = William Murderface
on Mon, 11/23/2009 - 17:49
#139902
don't hold back, tell him what you really think
on Mon, 11/23/2009 - 12:25
#139495
Dollar carry trade is minute compared to our current account deficit and the massive dollar reserves rotting on books of foreign central banks.
Your argument is weak, like you in gym class.
on Mon, 11/23/2009 - 11:08
#139391
if it were not for the most betrayal act in mankind history of the remorseful woodrow wilson, we never have to debate about this most evil, robbery institution, aka the fed or federal reserve.
on Mon, 11/23/2009 - 11:19
#139402
Well, the Fed is carrying all that penny-paper trash at face value, not FMV.
They have to do a lot more buying to get up to assets fully backing the money. [begin infinite loop]
on Mon, 11/23/2009 - 11:30
#139419
The "Ruble" was another currency that was backed by housing subsidies during the Soviet era. People had plenty of it,but they couldn't buy nothing with it........
on Mon, 11/23/2009 - 11:42
#139433
"...but they couldn't buy nothing with it..."
does that mean the could buy someting with it? I can't not buy nothing without it...
on Mon, 11/23/2009 - 11:44
#139436
I think he means that nothing was too expensive when priced in rubles.
Or, perhaps, that it was a mandatory redemption currency. "In Soviet Russia, ruble buys you!" or something like that.
on Mon, 11/23/2009 - 15:29
#139729
I'm not not licking toads.
on Mon, 11/23/2009 - 16:28
#139801
Toad liquor?
Or are you, hypothetically, licking Tim? Or Ben?
Sorry about that, those were bad.
Do Zombies Joke with each other? Once you're dead, what else can you do?
This is total sidebar, but in a very real way, once you've lost everything, there is nothing else to lose. The US could behave, I suppose, or we could get quite jiggy wid dis.
Can you feel the freedom pulsing through your broke assed veins?
http://www.youtube.com/watch?v=bPXVGQnJm0w
Smells like victory.
on Mon, 11/23/2009 - 11:56
#139454
Cool, soon every Mexican will be able to hire small armies of Americans to clean his house and cut his lawns for just a few pesos.
on Mon, 11/23/2009 - 11:58
#139462
Cool, soon every Mexican will be able to afford hiring small armies of Americans to clean his house and cut his lawn for just a few pesos.
on Mon, 11/23/2009 - 12:02
#139470
http://www.kooltrillion.com/
on Mon, 11/23/2009 - 12:52
#139518
Ha! Eris is pleased by this bank note.
on Mon, 11/23/2009 - 12:09
#139480
Don't worry, be happy. That is if you have gold.....
on Mon, 11/23/2009 - 12:17
#139491
I personally loved the clip in 2012 when the guy was trying to sell a seat on the arc to a saudi prince and the prince was like "1 Billion dollars is a lot of money for my family", and the guy was like "It's not dollars, it's euros" and the prince's face changed drastically. Classic.
on Mon, 11/23/2009 - 12:28
#139497
Soon comes the tricky part.
Who'll want our rentenmarks?
on Mon, 11/23/2009 - 12:38
#139507
That's easy, we force our own citizens to accept them via wage and price controls.
See you in the black market, where they still have goods.
on Mon, 11/23/2009 - 12:39
#139508
"The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing."
Terrific!
The dollar is backed by houses. It used to only be backed by the full faith and credit of politicians.
We are making progress towards honest money.
on Mon, 11/23/2009 - 12:42
#139512
The New World Order labor law:
Show up for work, expand the contraction and abort the Constitution.
on Mon, 11/23/2009 - 12:57
#139523
This congress is like a teenager with a no limit credit card.
At some point you have to take it away.
on Mon, 11/23/2009 - 13:44
#139589
Right! Let's start now and git 'er done.
on Mon, 11/23/2009 - 14:03
#139606
Ben hasn't needed the congress, he has managed quite well by himself.
on Mon, 11/23/2009 - 14:18
#139627
To borrow from PJ O'Rourke - giving money and power to politicians is like giving whiskey and car keys to teenage boys.
I would only offer that while this particular congress may be singluarly egregious, such has been the case with said institution going back several generations. At least.
on Mon, 11/23/2009 - 15:46
#139750
Oddly, I don't see Congress as the problem, except to the extent that they have been pwned.
The oligarches on Wall Street did most of the damage, and then made sure their paid-for representatives in Congress bailed them out. And then the voters at the ballot box approved the entire scheme by voting their wallets instead of their principles.
It's a democracy, so it's ultimately our fault. If it's not our fault then democracy is surely dead and someone needs to hang for that loss. There are really no other ways to slice it.
cougar
on Mon, 11/23/2009 - 16:56
#139842
While the oligarchy is definitely benefitting from this scheme, it is given official authority by the Congress. Congress wants the money fix that the Fed provides - the financial lobby has a lot to do with it for sure, but the other half or more of it is, free money for spending programs. Therefore, until profligate government spending becomes politically unpopular, Congress is motivated to continue the charade.
Our fault as a people is in trusting our government when they say they know what's best for us.
on Mon, 11/23/2009 - 17:57
#139913
both of them are given authority, from the shadow rulers, a power usurped criminally from the people
on Mon, 11/23/2009 - 18:39
#139972
Which may be an intractible problem...but anyway, my point was that Congress is indeed part of the problem at hand.
on Mon, 11/23/2009 - 22:35
#140182
lead us back, Bubb..
http://en.wikipedia.org/wiki/File:Eug%C3%A8ne_Delacroix_-_La_libert%C3%A...
on Mon, 11/23/2009 - 22:16
#140165
yup
on Wed, 11/25/2009 - 07:14
#141738
It is almost impossible to assign fault here, but the most fault, the highest responsibility for this debacle, goes to the people who are playing along not out of ingnorance but out of intent. That would definitely be the money oligarchs, since they know what they're doing, but I would also guess some congressmen too, like mr frank who understand the big picture all too well.
The voters, however, are only responsible for their state of ignorance, so while they share the fault, they are not the problem per se. When everyone shares the fualt, no one really is at fault; just like a friend to all is a friend to none. Time is best spent looking ways to implement the solution, which is to end the fed. The same people who are at fault due to ignorance can share the glory when they educate themselves.
on Mon, 11/23/2009 - 13:01
#139525
There's a lot of good opinions and wisdom in this comment thread. Even if the dollar is backed by more than the Fed's balance sheets holdings, it is stagggering indeed to consider that the bottom line is negative! Or maybe not, considering what the public debt situation is...
Thanks for the interesting chart and info, it's something regular folks could wrap their heads around easily, and might encorage a little more fiscal austerity on the part of legislators if a fact like this were more widely known.
All the best
on Mon, 11/23/2009 - 19:35
#140028
Rocketman, the average person in the shopping malls of America can hardly find North on a map, let alone their own ass with both hands. The typically educated person could barely read the text, let alone interpret the data, in the graph shown. Don't kid yourself about "financial literacy" in these United States.
From The Privateer, Mid-November, 2009 (No. 642), page 5:
The Real Tragedy:
The fact of the matter is that in any functional economy in which markets (as well as money) are unhampered, risk taking is not necessary to live a full and prosperous life. In a functional economy, it is not necessary to be "financially literate" in the sense that the "Advisory Council On Financial Literacy" is pushing it. In a free market with sound money, one does not have to make a choice between ever more exotic forms of gambling and facing the prospect of increasing penury.
All that is necessary is to produce more than you consume and to have a reliable means of saving. In the nature of things, the future is uncertain. But at the very least, an individual living in what is labeled a free society should not be restricted to death and taxes as the only things he or she can "rely" on.
It is easy to scoff at those who believed what they were told when they took out mortgages they could not afford. It is easy to scoff at those who did not understand the obligations they were undertaking when they signed up for an interest only loan or signed up for a retirement or insurance fund which was bought on margin or "invested" in exotic financial "instruments".
Most of the people who did these things are trusting people. They do not understand that the money they use has been utterly debauched. They do not understand that the bank does not lend them money which has been deposited by someone else but creates their "loan" out of thin air. Many if not most of them still think that the US Dollar is "backed" by Gold. According to Ron Paul, there are even many members of Congress who believe this. It is not "financial ignorance" which is toxic. What is toxic is the drive by those who crave power to foster ignorance of fundamental economic and especially monetary principles.
Never has the drive to perpetuate financial ILLITERACY been as desperate and as flagrant as it is today. The reason for this should be clear enough. As the situation worsens, more and more people will start looking for and demanding answers that make some kind of sense. Our financial rulers have none to offer them. Their only hope is that their version of "financial literacy" can be perpetuated. It can't.
on Mon, 11/23/2009 - 21:49
#140143
Thanks for the good post.
Thinking I could use a little more "financial literacy," I was happy to learn that when the President’s Advisory Council on Financial Literacy issued its Tips to Managing Your Money in Challenging Times on December 4, 2008 that the members of the Council included Mary Schapiro in her role as CEO of the Financial Industry Regulatory Times Authority (FINRA), the securities industry self-regulatory organization for broker-dealers and exchanges in the United States in Washington, DC. Here are the tips featured on the Council's web site, with links, that no doubt have brought the average Joe up to trading pro snuff--i..e., the hard working electrical engineers, landscape architects, taxi drivers, registered nurses and others who don’t have much time to spend watching the markets:
Voila! Financial literacy! Your average mall citizen is now ready to take on Goldman Sachs!
The Privateer is right: it’s a “real tragedy.”
on Wed, 11/25/2009 - 07:28
#141744
I teach English in Korea now. One of the topics we covered in one of the classes was the isue of investing. Not surprisingly, these twelve year old kids knew more about finance than most people I met in college (one of the graduate classes I was a part of didnt know what shorting was). Although their solution was incorrect when I told the students who held dollars about inflation: they said Korea should print faster instead of not having printing at all. When I told them about fraud, they were right on the money though: contracts! enforce contracts they said! Its a simple message but the funny thing is most Americans don't understand the implication there. These kids when told about all the problems with investing and finance got it right away.
Now if only I can ease their minds about swine flu and global warming...
on Mon, 11/23/2009 - 13:06
#139534
Rrrright...
You (random citizen) owe Uncle Sam taxes. He / She / It says you're liable. Urgh. Oh well.. Good for you Uncle Sam also offers YOU the wonderful option of paying your taxes in dollars. Since Uncle Sam has a monopoly on issuing these dollars, you are spared the trouble of going all the way to dollar-outlet in Beijing (imagine you'd have to travel to Hollerin' Hugo, to beg him (yuck!) to lend you please please please mucho mucho pesos! no way!). Anyway: hooray! Praise!
That's what gives the dollar value.
What your children & grandchildren owe the same Uncle Sam (how does he do that?) in taxes, no doubt to be paid in the same dollars, is entirely irrelevant.
Have a nice day.
on Mon, 11/23/2009 - 13:30
#139568
You should at least post a chart of the money multiplier (it is below one now) with this info. America has lost $15 trillion in wealth in the last 3 years. Considering these two important facts, the dollar is still worth something. The Fed is very guilty of quantitative easing, by much more than they claim. But taking $15 trillion out of the economy and replacing it with $2-3 trillion, should not make a currency worthless. And that doesn't even consider the upside down multiplier. I think America has missed an opportunity to completely payoff its debt without inflation.
on Mon, 11/23/2009 - 15:17
#139706
That's a very extreme, but also very interesting observation.
on Mon, 11/23/2009 - 15:49
#139755
How are CDS (credit-default-swaps)any different than printing money? A 100 Trillion Dollar Market for Credit default swaps, currently exists, alleged insurance contracts, marketed under the deceitful and hyped up term, known as hedge, or hedge funds. So how are these contracts between merchant banks, now backed by the US Gov, any different than the notes printed down at the Treasury? What effect downs adding a 100 Trillon dollars to the money supply have on the value of the dollar? More importantly, what legal right to these merchant banks have in inflated or destroying our currency?
on Tue, 11/24/2009 - 06:29
#140359
How are CDS (credit-default-swaps)any different than printing money?
IMO there is very little difference. CDS, and my personal fav IRS, enable fantastic leverage to exist where it otherwise couldn't, and in so doing effectively allow the creation of credit nee money. Of course they lie about ratings, and of course the counterparties could never ever honor their commitments, but it's all OK because the IMF states clearly that, globally, derivatives net to zero. Sweet, huh? Remember that now-quaint term, the "risk-free rate of return"? Lol.
on Mon, 11/23/2009 - 16:02
#139773
Is it safe to generalize that the $15T were largely lost from Main Street, and the $3T mostly went to Wall Street? Then what you describe was more accurately a massive and rapid transfer of wealth out of the middle-class.
It would be nice if the debt went along with the wealth. I'm not sure it has; Wall Street is selling it's bad deals to the Fed at par, backstopped by the Treasury and their bottomless capacity to tax Main Street on all eventual losses, even into oblivion if need be. That or sovereign default against our foreign lenders. Not sure which might be worse actually.
So I'm not certain how this could end except with the ultimate massacre of the middle-class via bankruptcy and debt destruction.
cougar
on Tue, 11/24/2009 - 00:41
#140285
I think its safe to assume the $3 trillion part, but the finanical system did take a bit of a hit on the $15 trillion part as well.
I think the point that intrigues me is that the $15 trillion in losses (of which is good portion may well be wealth tranferance), is very deflationary. The $3 trillion in money printing shouldn't even be much of an offset.
The big problem with the above is that the $3 trillion has been used in a terribly inefficient manner, almost unbelievably so.
on Mon, 11/23/2009 - 23:57
#140259
You just gave me a GREAT idea!!!!!!!!! Everyone use your credit cards and use them to help pay off the US National Debt. Then you default on your credit cards. Viola, no more national debt and the banksters are left holding the bag.
Brilliant idea and it sticks it to the banksters while the National Debt is paid off.
"Your idea is crazy, but is it crazy enough' -- Famous saying.
on Mon, 11/23/2009 - 13:42
#139584
They' ll gain the world but lose their souls(2x)
Don't beleieve politicians and thieves
They want our people on their bended knees
Pirates and robbers, liars and thieves
You come like the wolf
But dressed like the sheep
If you go to Lagos
What you find?
Vampires
If you go to Kinshasa
What you find?
Vampires
If you go to Darfur
What you find?
Vampires
If you go to Malabo
What you find?
Vampires
Lies and theft, Guns and debt, Life and death, IMF
When the bank man comes to your door
Better know you' always be poor
Bank loans and policies
They can't make our people free
You live on the blood of my people
Everyone knows you've come to steal
You come like the thieves in the night
The whole world is ready to fight
If you go to Lagos
What you find?
Vampires
If you go to Kinshasa
What you find?
Vampires
If you go to Darfur
What you find?
Vampires
If you go to Malabo
What you find?
Vampires
Lies and theft, Guns and debt, Life and death, IMF
-Thievery Corporation
on Mon, 11/23/2009 - 13:43
#139586
WE are all indentured servants of this and past governments. And, like then we pay for being thus. This is what happens when so many assumed incorrectly I add, that we needed change. A mole hill has now become a Mt Everest of a problem. What is totally devastating is that we do not even have a clear clue what to do. Total analysis paralysis.
We are all frogs in the beeker.
on Mon, 11/23/2009 - 16:10
#139781
The goose was cooked a long time before the recent elections.
It may have been cooked in 1913.
Not all timelines are as short as an election cycle, and not all systems of power are subject to the short term whims of the people. Like rust on a bridge, they work under the paint for many lives of men and then one day everything falls down, and when it does it has nothing to do with who was at that very moment applying fresh paint.
cougar
on Mon, 11/23/2009 - 14:26
#139637
Tyler, your post probably marks the low in the dollar. Problems elsewhere around the globe will be bringing it back -- China, for example. Their economy is built on more lies than ours is, easily.
on Mon, 11/23/2009 - 15:48
#139753
"China, for example. Their economy is built on more lies than ours is, easily."
Right, because actually building a manufacturing base and have real industrial output is so pre 1990s and worthless. At least you and the VCs I've talked to in the past 5 years all agree on that!
on Mon, 11/23/2009 - 16:15
#139791
This is a valid criticism. But it speaks mostly to our balance of trade and survivabiliy in the US. China faces different set of problems as a centrally-managed economy that would be utterly alien to the average merchant on Main Street USA. Do not underestimate the importance of 1 billion disenchanted serfs when they see the door to the long-promised middle-class being shut against them. 2000 years of wanting might be hard to bottle up, then.
cougar
on Mon, 11/23/2009 - 17:54
#139906
The Chinese could start eating people again like they did during the last communist revolution.
on Mon, 11/23/2009 - 18:42
#139977
mmmmmm, Spicy Hu-man chicken.
on Tue, 11/24/2009 - 17:37
#141138
if so, hopefully they'll start with the racist pigs
on Mon, 11/23/2009 - 14:29
#139641
Its okay because the housing market is back! Yeah! Woo hoo!
(lets do the vulture volume dance and ignore that price creep in the corner)
Woo hoo c'mon America! Buy those discount foreclosures! Here's some tax back, don't worry about that old unpaid loan or the guy sleeping in his car, just stick the tab on the Fed.
is this a party or what, where are Timmy, Alan and Bennie, lets get into this punchbowl!
on Mon, 11/23/2009 - 14:32
#139645
I'd rather not comment on this matter.
(Although, by means of simple arithmetic, I don't see how this economy won't be in a state of total collapse sometime between March of 2010 to August of 2010!)
on Mon, 11/23/2009 - 16:18
#139795
Nuther data point; that's my date range exactly.
We'll each of us have it figured out by March, or we aren't going to figure it out. After that we get to see what a ride down looks like.
on Mon, 11/23/2009 - 15:01
#139660
One can't help wonder if naming the current bubble after the Elf "TurboBubble 2010", is advisable at this juncture. Is Bernake not blowing harder and faster (by a large factor) than Geithner ?
on Mon, 11/23/2009 - 14:49
#139674
God bless Zero Hedge blog! One of the few lone voices of sanity in the economic wilderness!
Turned off CNBC 8 months ago. Glad I did!
on Mon, 11/23/2009 - 14:55
#139679
Interesting thoughts:
"This is the secret of deflation, and the answer to the much-debated question whether you can have hyperinflation and deflation all at the same time.
The answer is that you can, because hyperinflation refers to electronic money that people reject, and deflation refers to FR notes that people hoard."
http://www.professorfekete.com/articles/AEFFalsifyingBankBalanceSheets.pdf
on Mon, 11/23/2009 - 15:02
#139684
a good companion article
Money creation and the Fed
http://www.econbrowser.com/archives/2009/03/money_creation_1.html
on Mon, 11/23/2009 - 15:15
#139702
Thanks, Anon. I've been looking for an explanation like that since I first started seeing those charts.
on Mon, 11/23/2009 - 15:06
#139691
In my opinion the root of the problem was when the US government decided to insure most of the mortgages out there using GSEs and other programs. This took moral hazard out of the market and bankers basically played a game of how much can I get paid on the governments dime.
on Mon, 11/23/2009 - 15:06
#139692
So the govt. owns all the real estate, a tangible income producing asset, where's the problem ? Rather than renting a home from a bank, "homeowners" are renting it from the govt. and paying interest, property taxes and maintenance. That's all your chart is actually reflecting, the transfer of real estate wealth from the private sector to the federal govt.
on Mon, 11/23/2009 - 17:40
#139891
There it is. And while the Fed has been at it they were able to swap quick air treasuries for agencies. heh
on Tue, 11/24/2009 - 03:02
#140332
As I've said many times, it's a takeover plain and simple. Most people forget that the banks create loans out of thin air, BUT THEY CAN'T CREATE HOUSES AND LAND OUT OF THIN AIR! Would you trade thin air for homes & land??? They most likely planned this whole scam as they have in the past - give loans to anyone and everyone, have the fed or government backstop all the loans and wait for the inevitable foreclosures where they can pick up real properties (hard assets) for a huge discount. So they created loans with nothing, are not risking going out of business because they are backstopped (so they could care less if the loans default because there is no risk of their own bankruptcy), and will end up owning much of the land and property of the country. As they inflate, they will have HUGE balance sheet gains in the future (if we ever recover while McDonalds employees make $50 an hour).
Only the fed and their banks are not the government.
The houses themselves are not worthless, but the mortgage securities are definitely over valued and deflating quickly. I predict grandparents, parents, and children will move back in together and there will be many empty properties.
on Mon, 11/23/2009 - 15:22
#139714
"You got yer dead skunk in the middle of the road
Dead skunk in the middle of the road
You got yer dead skunk in the middle of the road
Stinkin' to high heaven"
--Loudon Wainwright III
on Mon, 11/23/2009 - 15:28
#139725
A site we may soon see, albeit in English?
http://warwitness.e2bn.org/library/1233569835/weimar_billions_note_medium.jpg
on Mon, 11/23/2009 - 15:51
#139757
if you are leveraged 1:1 with worthless, you just became 50% poorer.
on Mon, 11/23/2009 - 16:05
#139776
Actually I think the point was to show one view of our dollar debasement. But, just in case we want to look at the literal meaning I would submit the following:
Now I do not consider myself an expert at Modern Central Bank accounting, but here is what I know:
Modern (Fiat) Central Bank international accounting practices has its own vocabulary and approach. The purposes of accounting and the meaning of terms used for a central bank must be carefully defined in order to understand if common accounting concepts even apply.
For example:
1) The FED balance sheet does not need to hold any assets against the paper currency it issues. The currency is not backed by assets of any kind, except the notion that the US itself, through its ability to sustain a viable economy, can cover this promise through future income. Usually, this is implied to mean income through taxation. Generally, this is also described as "confidence" that historically the currency shows a track record of acceptance.
Notice from the graph that the increase in paper currency is relatively flat. If you want to dig deeper into this subject, convertibility is what is commonly discussed to compare FED balance sheet assets to currency in circulation. But, it usually is just an academic point to consider the vulnerability of the currency. The USD, as the world reserve currency, is not subject to the same currency threats as Sterling or the Yen for example.
Now the FED must hold enough assets to generate income to fund its yearly operations. What income is generated beyond this is sent back to the treasury. So really FED excess interest income never "leaves" the government.
I for one, have several question when the FED holds a maturing treasury. Because this is where the electronic money created optionally could be destroyed. The Treasury exchanged for "electronic cash", which is then subtracted from the electronic pool. However, I see an opportunity for massive abuse on the process of tightening.
----------
2) A Fiat based Central bank balance sheet is not subject to the same interpretation / rules as a private corp. From a balance sheet standpoint the paper notes are a liability. But, technically, a liability is only a liability when the entity in question can be held accountable for it, in terms that reflect exchange of real value.
I can go to the FED with my FED Dollar and they will gladly give me 4 FED quarters. Its just a medium of exchange, just pick which ever medium you want. The exchange could be in potatoes rather than the FED dollar. Actually, I like potatoes, but they do not fit well in to a wallet. Unless they are au gratin. Yum.
----------
3) The real problem with the assets now on the FEDs books is how to tighten. Treasuries are one thing, doing reverse repos on Agency and MBS paper is different. Remember the FED wants to be able to control the money supply in relation to credit. The real risk is the FED has no experience on how to effectively control the money supply (velocity and credit) in converting anything other than Treasuries and currency interventions/swaps.
The FED is asset stupid, and they know it. So what did the FED do on their own initiative, move into one of the most risky of investment vehicles, derivatives, based on hard to price real estate, after a real estate price bubble. Dammit who is responsible for this Ben!!!
If you really want to give Ben a hard time on Nov 3rd, just pound away at how moving into these different asset classes is beyond the FEDs mandate and control, and is blatantly irresponsible. The point is, without unhindered easy conversion of FED assets, you have exceeded your ability to carry out your mandate. It could be argued very effectively that Ben has violated his authority granted by the Federal Reserve act, and as a result, should not be confirmed.
Mark Beck
on Mon, 11/23/2009 - 16:12
#139787
Sorry, Ben's hearing is slated for December 3rd.
on Mon, 11/23/2009 - 18:24
#139951
He's effectively built a moat around the fed and its to big to abolish and audit. "untouchable"
on Tue, 11/24/2009 - 00:50
#140292
"Chairman Bernanke, how much on average did you pay versus par for MBS paper during your purchse program this year?"
"How much, sir, would you estimate the market value of those derivative to be today?"
"What do you mean... you can't answer question? Why not? Does this make you unfit to be Federal Reserve Chairman?"
... or something to that effect.
on Tue, 11/24/2009 - 01:39
#140317
Why do people keep assuming that the Fed will eventually sell their MBSs and not just keep them on the Fed's books forever?
Who will stop them from doing this?
on Mon, 11/23/2009 - 16:32
#139806
meanwhile, over on TF, dumbasses like Pika-Steff and Douchinger are still insisting that dollars will be so scarce as to be unable to support commerce.
ROTFL, scarcity in something that can be credited electronically. Like what, they won't be able to press the mouse button? FR warehouses contain metric assloads (an industry term) of paper notes. They actually come off of a printer and cost pennies to make.
Tomorrow, they could electronically create enough dollars to pay off every debt AND the entire notional value of every derivative outstanding.
on Mon, 11/23/2009 - 17:44
#139895
Most of his readers are probably broke by now. Time to get another heloc. LMAO!!
on Mon, 11/23/2009 - 18:56
#139993
Actually I read both this and KD's board and do extermely well. Anybody who follow's some guy's advice off the internet without sufficient research of there own is an idiot.
I worry more for the people who come here and disparage other people from other boards. Its probably the most spectacularly huge act of cowardice to talk about Pika on another board. I don't agree with that school of thought either, but really, why bother with this silliness of going to another board to talk smack on someone.
The act speaks for itself.
on Mon, 11/23/2009 - 16:52
#139834
I go around to restaurants and retail establishments, looking to trade that worthless paper for goods and services I want -- and those dumbbells go for it! hehe
Just my way of getting over on the man!
on Mon, 11/23/2009 - 17:04
#139850
Confidence schemes are highly interesting phenomena
on Mon, 11/23/2009 - 17:35
#139883
A picture is worth a thousand Krugman essays,...
pure genius! lol
Keynesian's indeed!
on Tue, 11/24/2009 - 06:33
#140361
Yes, this deserves to become a tagline.
on Mon, 11/23/2009 - 18:34
#139966
So when the mortgage backed security ballon collapses
Taking many banks with it
We will be left with currency in circulation
or green back dollars
Which are rare but you can buy thing with them
on Mon, 11/23/2009 - 18:37
#139970
If the fed begins printing geenback dollarsby the traler truck full they too will become worthless
But that is not happening now
And will not happen --- especially if we cancel the Fed
Like Andrew Jackson, Abe Lincoln, and Garfield
(2 out of 3 were assasinated)
on Mon, 11/23/2009 - 18:40
#139975
Seems to me that the term "fucked" is a quite accurate desciption.
Add the "superdollar", and you got a D.P.
And maybe a "Blow Job", too - that'll make it a fucking orgy....
on Mon, 11/23/2009 - 18:42
#139978
We have a credit bubble
and a debt bubble
but not a green back dollar bubble
Hoarde greenbacks not gold
on Mon, 11/23/2009 - 18:46
#139983
Yeah, I've come to the conclusion that efficient market theory isn't just some academic farce when it describes the debt and equities markets on bourses, but very much is a farce when describing the daily transactions of the other 98% of the population not working in the finance industry.
If Obama tells you a dollar is worth a damn dollar, and you will only be able to get paid in dollars, pay taxes in dollars, pay rent/mortgages in dollars, and buy groceries in establishments that pay taxes in dollars, then a dollar will have value.
ADP, Paychex, and the millions of employers out there are not going to start paying their remaining employees and vendors in gold, silver, barter, California IOUs, or company scrip.
Governments, from Home Owners Associations to Federal IRS, are not going to accept payment in anything but US Dollars.
WalMart is only going to accept US Dollars and food stamps denominated in US Dollars.
Foreign vendors and suppliers are going to have to accept US Dollars, or find alternative markets and alternative currency to settle transactions.
I don't see goldbugs making valid arguments on how PM will be introduced in supply chain LoC.
on Mon, 11/23/2009 - 19:00
#139998
somehow I doubt there will be anything orderly about a dollar collapse.
on Tue, 11/24/2009 - 06:34
#140363
There are enough historical examples that I am sure your statement will be proven correct.
on Mon, 11/23/2009 - 19:10
#140009
...until nobody has any faith that "dollars" are worth anything and refuse to accept a Hummer full of them for a loaf of bread.
on Mon, 11/23/2009 - 19:20
#140015
They probably thought much the same thing in c. 1922 Germany, too. Just saying.
on Mon, 11/23/2009 - 19:24
#140016
As always - make sure to check your premises.
Here, you assume that the present regime would survive a montary collapse. That is absolutely not a sure thing. If the dollar suffers an outright collapse, this will likely translate into greater political uncertainty, to include a change of government. See Weimar Germany or even Iceland earlier this year for evidence of such. It's possible that it could get messy.
on Mon, 11/23/2009 - 19:41
#140038
Sure, Haljmar Schacht wrote a book in the 1950's or 1960's that exposed his real opinions for the Rentenmark in the late 1920's.
I've never read it though.
Others have written on the failure of the Rentenmark and the rise of the Nazis.
However the Germans were much closer personally, to the means of production, than the completely disassociated mass of conspicuous consumers in the United States. Not only do Americans not know how to protest, they wouldn't know how to learn of what they should be protesting about if the dollar started a serious nosedive.
The Tea Parties, the Glenn Reynolds Pork Watch, and such, even when rooting for them, it's not like the career bureaucrats and lobbyist brigades in DC will change if the elected politicians are booted.
on Mon, 11/23/2009 - 18:58
#139996
interesting post via Ritholtz apropos to the dollar discussion
The World According to Americans
on Mon, 11/23/2009 - 19:06
#140005
With regard to this statement:
the Fed's holdings of MBS and Agency paper (worthless GSE/FHA garbage)
In the testimony he gave before Congress, Edward Pinto (chief risk officer for Fannie in the late 80's, bearish point of view) projected that FHA's cumulative default rate could ultimately rise to 20% and the severity rate (% loss of mortgage balance on defaults) could be 50%, for a total loss of about 10% of FHA's $725 billion loan book.
Fannie Mae and Freddie Mac portfolios have higher quality loans than FHA; higher credit scores, lower loan to value, etc. 5.78% of Fannie Mae loans were 60 days or more delinquent as of 9/30. If Fannie and Freddie's cumulative default rate goes to 15% and severity is 40%, that's a 6% loss.
I wouldn't call securities that are probably worth $.90 or more on the dollar worthless, though the amount of the loss even at that level is enormous.
on Mon, 11/23/2009 - 19:51
#140022
In support of your point things are definitely looking UP at Fannie (I recall that at the beginning of the "parabola" they got their first $34b) and of course the rest is history including some very very recent history.
on Mon, 11/23/2009 - 20:16
#140062
Under any business acumen this looks like a winner,, of course after looking at the data in your links,... You gotta be shitting me....This is the anti solvent.. Fannie needs to be shut downnnnnnn
Theres a reason they call it Fannie!!!
on Mon, 11/23/2009 - 21:24
#140116
Anyone who believes those assets are worth 90 cents on the dollar is smoking something other than sharts.
on Mon, 11/23/2009 - 23:35
#140243
Nice sound bite. I presume if you actually knew anything about mortgage backed securities you'd offer a substantive response on what you think they're worth and why.
on Tue, 11/24/2009 - 09:38
#140446
Historically, the average (non-bubble) home price varies between 2x and 3x of average family income. Please reference the current Case-Shiller index - that's all you need to know.
on Tue, 11/24/2009 - 10:41
#140506
As soon as the FED stops buying we will find out exactly what the market will pay.
The MBS buy is basically the same mental illness we have seen before with Treasury TARP asset buy program proposal that was eventually rejected.
It is almost unbelievable, to think that once you prop up a market as the strongest buyer, that some how when you exit, demand, at the artificial high price you created, will remain. Even though there are no buyers at that price. If there were, you would not needed to intervene in the first place.
Well next year the first (anytime) home buyer program, as well as the MBS buy program, will end. What if the base asset class is still in the process of debt deleveraging, and price is still too high for average wages, with no easy access to credit? Prices will start to fall again.
Mark Beck
on Mon, 11/23/2009 - 20:04
#140052
someone please explain to me why americans not already defaulting on their mortgages should not do so immediately, since folks who defaulted are still either living in the same homes.
on Mon, 11/23/2009 - 22:36
#140183
People are raised to "do the right thing". Traditionally the right thing to do is pay your mortgage on time each month. In this chaotic deflationary scenario however, "the right thing" has changed. It will take time for folks to learn and adapt to the new reality.
What these folks need to do is keep their cash for essentials: food, energy (heat). Pouring cash into a leveraged depreciating asset during a deflationary collapse is a fundamental mistake no one can afford to make going forward.
on Mon, 11/23/2009 - 20:56
#140098
Just what I've been saying all along. The Fed is creating an asset backed Dollar.
See Rentenmark Weimar Hyperinflation
Inflation will be sparked when interest is charged on reserves held at the fed, unleashing all the locked up cash, and increasing the money multiplier.
See Wörgl, Austria negative interest rates.
on Tue, 11/24/2009 - 06:42
#140366
Inflation will be sparked when interest is charged on reserves held at the fed, unleashing all the locked up cash, and increasing the money multiplier.
I must say, I am amazed that so few see this simple solution to the deflationists and their "money multiplier" problem. I've called it "poisoning the well", and foresee loan officers standing on street corners with loan apps. Imagine a bank having $100 Billion in excess reserves, which was once an interest earning asset, suddenly moving to the other side of the balance sheet, coupled with the Fed's assurances that they'll cover any loan losses, as they've already clearly demonstrated willingness to do.
Deflationists are such morons.
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