19 replies to this topic

[SemiBizz]

Hundreds of $Billions in losses already taken. Banks and Funds facing a brutal mark to market exercise by the end of the quarter for the toxic mortgage backed securities. Wall Street with the help of the credit rating agencies have effectively launched the fund equivalent of a "computer virus" as these "asset backed" securities quietly slipped into portfolios Worldwide... $1/2 Trillion in mortgage resets are coming in the first 9 months of 2008. Wall Street Banks are on the hook for Hundreds of $Billions for LBO Bridge loan deals. Commercial paper fell by $80B last week alone. Simply put: If there is no credit expansion there is no growth. We live in an over-leveraged society. If we can't borrow to service debt and fund expansion, there is no choice but to raise funds by selling assets...(deflation) The psychology of buying and selling, borrowing and lending has changed overnight. Last week the Federal Reserve "opened the discount window" by lowering rates 1/2 pts. Considering the possible $Trillions that are now in question, what would you think... that they would be literally swamped with borrowers... far from the truth - the Feds almost begged the banks to participate. Surely the Feds would have facilitated funds in the 100 $Billion up area in short order... the numbers were more like $10 B. There is something very systemically WRONG here. And what can the Fed do? If they do cut the Fed Funds rate, there goes the US $(inflation). Something is going to give here. Anyone have any educated guesses on how we get out of this quagmire?

Edited by SemiBizz, 28 August 2007 - 06:03 PM.

[ogm]

If they will cut rates the dollar may not fall, by the way. If there will be demand for dollar denominated assets. Even if dollar falls its actually good for corporate profits. Besides we're in raging deflation right now. And there is an enormous threat of more deflation. They don't have a choice. Its an easy decision. They will cut...and cut.. and cut..... And that will give them the opportunity to refinance US debt at lower rates too... Duh. They must preserve the stability of the financial system. And the only way to do it is to cut. Allow the bad debts refinance at lower rates... Thats the only way out.

Edited by ogm, 28 August 2007 - 06:07 PM.

[SemiBizz]

This "repricing of risk" that Paulsen keeps referring to... it's not just repricing of risk... it is risk-aversion. We don't have a grip on what our economy will look like in the future, because we don't have a way out of this quagmire. If cutting rates were going to work, that should have been reflected at the discount window last week. Instead credit is contracting, not just here but all around the globe. It's not as easy as just cutting rates. You have to find parties on both ends of the transaction with enough certainty about the future to take risks, regardless of the rates, and that is where our problem lies...

[johngeorge]

SemiBizz Risk aversion, risk repricing, etc etc etc. Gotta love that Paulson. However, we will come out of this by inflating our way out. I think ogm has it correct. What is the final end? Like greenie has been saying for some time now.......depression. That will clear out the field and make it as level as it has ever gotten and we start the long cycle over. When do we start our recession leading to that depression? I dont know, but, I like to use the Mayan calendar date of 2012. So between now and then have some assets in gold. One never knows....... Best to you

[emdee]

Besides we're in raging deflation right now. And there is an enormous threat of more deflation.

Ogm,

Will you please elaborate on why you believe we are in a deflationary environment? I have a hard time understanding this when I look at how much the cost of living has increased over the last several years. It looks to me as if everything has increased substantially. No expense has been left untouched.

TIA,

Mike

[CNSZ]

Even if dollar falls its actually good for corporate profits.

Then what about the 2B a day inflow we need. Do you think other countries will keep finacing us no matter what happen? FED is not going to cut the rate, even if they do, a quart or half point is all they can until dollar start rasing.

[greenie]

SemiBizz
Risk aversion, risk repricing, etc etc etc. Gotta love that Paulson. However, we will come out of this by inflating our way out. I think ogm has it correct. What is the final end? Like greenie has been saying for some time now.......depression. That will clear out the field and make it as level as it has ever gotten and we start the long cycle over. When do we start our recession leading to that depression? I dont know, but, I like to use the Mayan calendar date of 2012.
So between now and then have some assets in gold. One never knows.......
Best to you

Recession already started in most sectors except tech and commodities. Tech will be hit after consumer spending stops.

"However, we will come out of this by inflating our way out."

No chance........

Think in this way - people who run this country can either allow depression and people to suffer, or hyperinflate to bail out the homeborrowers.

Hyperinflation == destruction of the currency == (i) fall of Federal reserve and (ii) loss of world power for those who run this country. I am not talking about politicians here, but those corporate 'leaders' and wall street crooks who pay their subsistence to make laws in their favor, such as the bankruptcy law. Those criminals would rather make us ordinary people suffer than lose their own power. Federal reserve can be stupid, but they know how to avoid the course of action that would make their fall inevitable.

[ogm]

Even if dollar falls its actually good for corporate profits.

Then what about the 2B a day inflow we need. Do you think other countries will keep finacing us no matter what happen? FED is not going to cut the rate, even if they do, a quart or half point is all they can until dollar start rasing.

Why do we need 2 B a day ? To finance the trade deficit ? If exports rise, we'll need less. And if exports really rise, we won't need at all.

[CNSZ]

Even if dollar falls its actually good for corporate profits.

Then what about the 2B a day inflow we need. Do you think other countries will keep finacing us no matter what happen? FED is not going to cut the rate, even if they do, a quart or half point is all they can until dollar start rasing.

Why do we need 2 B a day ? To finance the trade deficit ? If exports rise, we'll need less. And if exports really rise, we won't need at all.

Yes, if we can export more, then we do not need inflow. but what can we export? weapon system, air plan, service, what else? then think about import, we do not need a list, go to any store (almost) and pick up anything around you, 95% chance it is not made is US.

Let me say it, WE NEED STRONG DOLLAR, strong dollar will give us low inflation (cheaper import) and make US dollar the world currence. at same time, strong dollar would not affect our export, since we are soo advanced in weapon system and service, we can sell them regarldess dollar value.

[qqqqtrdr]

Let me put it this way. The weak dollar is keeping us employeed in the global market. Will we get a deflation with the weak dollar. No way. Right now foreigners actually come to the US to buy items. Stuff is a lot cheaper in the US for them than overseas. This adds to inflation, not deflation. The world financial system is based upon fiat currency. Are we on the brink of financial Armageddon, not a the moment. Barry