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2008-10-14 Home Front Economy
U.S. Notes Fall as Government Prepares Plan to Invest in Banks
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Posted by Steve White 2008-10-14 00:00|| E-Mail|| Front Page|| [391 views ]  Top

#1 Torn between fear of economic collapse and fear of runaway inflation.
Posted by Glenmore 2008-10-14 07:39||   2008-10-14 07:39|| Front Page Top

#2 You'll get both.
Posted by Bright Pebbles 2008-10-14 09:40||   2008-10-14 09:40|| Front Page Top

#3 Looks to me like nothing more than improving expectations for equity investments.
Posted by Mike N. 2008-10-14 10:10||   2008-10-14 10:10|| Front Page Top

#4 If we have economic collapse, we won't have runaway inflation. Can't have runaway inflation when just about every economy in the world is propping up its banks. Including the economies of the oil rich states. What we are seeing is the deflation of a massive and global credit bubble and the destruction of individual and corporate balance sheets, both abetted by unsound lending practices of the past.
Posted by Zhang Fei 2008-10-14 10:15||]">[]  2008-10-14 10:15|| Front Page Top

#5 Thanks, Zhang. I was wondering how Zimbabwe was able to avoid runaway inflation all these years, now I know why.
Posted by Tranquil Mechanical Yeti 2008-10-14 10:32||   2008-10-14 10:32|| Front Page Top

#6 Thanks, Zhang. I was wondering how Zimbabwe was able to avoid runaway inflation all these years, now I know why.

Zimbabwe didn't borrow money. It just printed it. That's why it had hyper-inflation. Zimbabwe also had a non-functioning economy because of Mugabe's policy of confiscating farmland from white owners who knew how to make it productive, and handing it to cronies who did not. This policy of confiscation (essentially a 100% tax) also induced capital flight.

We're not going to get either inflation or hyper-inflation. Uncle Sam doesn't print money; he borrows it. And cuts the budget. And raises taxes.

Posted by Zhang Fei 2008-10-14 11:04||]">[]  2008-10-14 11:04|| Front Page Top

#7 An important side not to ZFs comment. Debt doesn't cause inflation, spending does.

Also western economies are all so tied together that one country would really have to do something tricky to collapse the way Zimbob did. I can't imagine how they could pull it off.

Also, with the Euro and Brit bailout looking to be bigger than Uncle Sams, the dollar will continue to strengthen against those currencies and help keep inflation in check.
Posted by Mike N. 2008-10-14 11:21||   2008-10-14 11:21|| Front Page Top

#8 I was wondering how Zimbabwe was able to avoid runaway inflation all these years Why has the price of gasoline been falling? Why isn't gold selling at $10,000 an ounce? Why are interest rates in single digits? How can central banks cut rates? Look at the entire picture.
Posted by Anguper Hupomosing9418 2008-10-14 11:22||   2008-10-14 11:22|| Front Page Top

#9 Also western economies are all so tied together that one country would really have to do something tricky to collapse the way Zimbob did.

It's not just the Western economies. All of the world's economies have been feeding money to their banks. We just don't pay as much attention to the other economies because they're not as important in the overall scheme of things.
Posted by Zhang Fei 2008-10-14 11:31||]">[]  2008-10-14 11:31|| Front Page Top

#10 GOld isn't selling at 10k an ounce becuase that 20 times what it's worth.

Gold, as touted as an inflation hedge or a safety investment in bad times is highly overrated. It does not move countrary to inflation or GDP, it is nothing more than a global commodity. The price of gold is not a meaningful economic indicator.
Posted by Mike N. 2008-10-14 11:33||   2008-10-14 11:33|| Front Page Top

#11 ZF, I wouldn't argue with you on that one bit. I guess more accurate would be to say that the western economies are the ones big ebough to make a major difference. A country like Goergia could stop producing completely and it wouldn't ruin the system.
Posted by Mike N. 2008-10-14 11:40||   2008-10-14 11:40|| Front Page Top

#12 The price of gold is not a meaningful economic indicator. Once more, look at the entire picture.
Posted by Anguper Hupomosing9418 2008-10-14 12:01||   2008-10-14 12:01|| Front Page Top

#13 The big picture tells me that the panic is starting to weaken. They flight to safety and away form profit is beginning to reverse course and banks are beginning to do more lending (at least to each other).

I suspect Morgan not getting killed in the market has to some degree assuaged fears of another major bank failure.
Posted by Mike N. 2008-10-14 12:39||   2008-10-14 12:39|| Front Page Top

#14 ZF--

O. Rilly?

And just how does the market absorb the new trillion dollars--and more on the way--that is being injected into the market? And hasn't Treasury just assured us of infinite shorts against Financials? And since the trillion injected in the short-term is going to have effects, what are the effects on capital markets going to be? No sense of crowding-out? And nine banks that cannot fail?

You may be right. Nothing about nationalising our banks is inherently wrong. Nothing about nationalising our banks changes the market's fundamental view of financials. It could be I'm just a nit-picker.
Posted by OregonGuy">OregonGuy  2008-10-14 13:11||]">[]  2008-10-14 13:11|| Front Page Top

#15 > Uncle Sam doesn't print money; he borrows it.

Normally Yes, buy you're only one failed treasury auction away from printing. Also the Inter central bank currency swaps could be argued as being printing...
Posted by Bright Pebbles 2008-10-14 13:27||   2008-10-14 13:27|| Front Page Top

#16 what are the effects on capital markets going to be? No sense of crowding-out?

Crowding out might be a problem. But that's not the same as printing money. Crowding out simply means that private sector rates shoot up sky high due to competition from too much government debt.
Posted by Zhang Fei 2008-10-14 13:28||]">[]  2008-10-14 13:28|| Front Page Top

#17 With the dollar on the rise, an auction failure is highly unlikely here.
Posted by Mike N. 2008-10-14 13:37||   2008-10-14 13:37|| Front Page Top

#18  The big picture tells me the Panic will stumble along for years, requiring a rebuild of financial institutions & the system of checks & balances that regulate them. Housing will either be supported by taxpayer dollars (i.e., a Zombie housing market) or will fall to prices that the population can afford on its own (i.e., about 3X median annual income = median house price in an area). Some institutions, practices, beliefs and attitudes are completely outmoded & will be replaced eventually, although not without a lot of kicking & screaming on the part of the financial Pig Men. I suspect the Panic will be prolonged by the fact that former employees of the Pig Men are currently being hired by the gov't to manage the transition. The stock market will fluctuate.
Posted by Anguper Hupomosing9418 2008-10-14 15:36||   2008-10-14 15:36|| Front Page Top

#19 Okay...let's say there's some pressure on interest rates.

We're still dealing with gross domestic product. Could a disconnect between commercial rates and interbank rates signal another business cycle? Or, instead, is there going to be a big boost in productivity that will actually shift the GDP growth curve?

What would the mechanics of that be?
Posted by OregonGuy">OregonGuy  2008-10-14 16:28||]">[]  2008-10-14 16:28|| Front Page Top

#20 I doubt it's going to cause much of a productivity improvement, so.... Maybe a new business cycle, but I'm not willing to bet the rate disconnect means a new business cycle. At least not yet.
Posted by Mike N. 2008-10-14 17:17||   2008-10-14 17:17|| Front Page Top

#21 "Uncle Sam doesn't print money; he borrows it. And cuts the budget. And raises taxes."

Agree with #1 & #3, ZF.


Oh, wait - did you mean the military budget? That I'll agree on.
Posted by Barbara Skolaut">Barbara Skolaut  2008-10-14 18:58||]">[]  2008-10-14 18:58|| Front Page Top

Posted by JosephMendiola 2008-10-14 22:25||   2008-10-14 22:25|| Front Page Top

#23 From the WSJ: "Government investments in financial institutions could crimp executive pay on Wall Street, at least for a while, and hinder firms' ability to attract and retain top talent."
I have been closely following the current disaster, brought to us courtesy of highly-paid "top talent." I'd settle for someone with common sense, for a change.
Posted by Anguper Hupomosing9418 2008-10-14 22:45||   2008-10-14 22:45|| Front Page Top

23:54 JosephMendiola
23:31 CrazyFool
23:28 3dc
23:09 .5MT
23:00 .5MT
22:56 JosephMendiola
22:53 .5MT
22:45 Anguper Hupomosing9418
22:45 JosephMendiola
22:42 .5MT
22:32 JosephMendiola
22:25 JosephMendiola
21:46 Eric Jablow
21:18 chris
21:15 chris
21:12 chris
21:11 chris
21:02 Frank G
20:38 JosephMendiola
20:23 JosephMendiola
20:12 Steve White
20:09 swksvolFF
20:08 49 Pan
20:06 JosephMendiola

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