Tuesday, September 16, 2008

House of Cards is Falling

The Fed has loaned money where no banker would venture. They have bought the rights to something that has already been paid for once.

Is it 70 billion dollars per week now. It looks like we are the lender of last resort for the whole damn world. Big money is moving out of town and out of country.

Two percent interest and 10 percent inflation. Sounds like the big boys are so paralyzed that they are about to wet their pants. There certainly isn’t a shortage of available cash, if there was, interest rates would have to move up.

Sackerson and I have been trading off on this; Low interest rates vs. High interest rates.

Doesn’t seem like much of a problem with low interest rates. My contention is that no one at the passbook level knows the score. They are all broke and don’t know it--nothing has been marked to market yet. If it had been, it would be pure carnage.

You can argue that everyone is “insured” at the banks. But they are only printing money to replace spent money—that’s called inflation. One money market fund yesterday froze withdrawals because the fund value dropped below the par of one dollar. Is your fund insured by AIG?----- HMMM?????

Nobody is lining up at the banks, everyone is insured. 10-30 percent future inflation and you get 2% interest to boot (what a deal). Gold and silver sure look nice and shiny now. Your money is safe; the government is printing about 70 billion a week now.

The world has lost a lot of money on bad investments. This idea that only the financial institutions lost money not the depositors is ridiculous. Somebody paid hard cash for all of this bad paper that is floating around. The money is gone but the Fed wants to keep our institutions functioning. Institutions don’t lose money only the depositors lose money. There is no math involved in that statement.

What happens next? There are several thousand banks world wide that are in bad shape. It’s very peculiar that there haven’t been any big bank failures in Europe. Maybe they just got bailed out with the AIG loan.

Ask yourself one question. You move 70 billion dollars from nowhere to somewhere to fix a financial problem and no one even had to vote on it? Congress is out of the loop. Hell, the Fed could fix the California budget with just 8 billion. They would be supplying payroll money; not buying what has already been sold and deemed worthless.

Denninger’s post today suggests that maybe the hedge funds are running interference on all of this and making a bundle on the sideline. No argument with it, but it kind of demonstrates that several different players may be doing different things at the same time. Nobody said you couldn't make money on the Feds stupidity.

The idea that things get better from here is a real pipe dream. Look for the government to change the rules on investing. The market is collapsing. There was never any argument over the whole mess being a financial house of cards. The funny thing, is that there still isn't, and that isn't very funny.

Copyright 2008 All rights reserved


Anonymous said...

It's a money market fund that dropped below $1 yesterday. Not a mutual fund. There's a difference between the two.

Jim in San Marcos said...

Hi Anon 7:55

Thanks for pointing it out, I'll correct it right now

I'm Not POTUS said...

yes mutual funds won't circle the drain until later. The real shame is that no one is talking about the collapse of the Russian market. That has more bearing now on future events than anything else. All the other "news" is stuff all of us have know about for a long time already.

I would like to know what happens when Putin gets tired of playing around in the global banking/US Dollar hegemony. They are pulling the same tricks as the Fed and getting kicked in the teeth for the effort. That don't sit well.

No one should be calling this a Black Swan event because it is plain to see that Russia has nothing to gain from propping up the system as is.

And Putin is the type of guy who will take his marbles and go make his own way.

Putin in one gambit can destabilize the whole system. What does he care if Russians suffer. Russians have suffered for generations. A rough spot of a decade is a cake walk for a Russian. He can blame the west for everything.

Russians can endure whats coming and the same goes for the Chinese and most of Asia. The spoiled rotten Americans, Europeans, Japanese and Arab Kingdoms are in for a hurting. Big Time.

What is the downside for him. Instant Superpower status again. Having an arsenal of energy assets more powerful in influence than his nukes, which he has enough of also. And in a global economy in turmoil, stability reigns supreme. Where will low risk be after the collapse of the dollar???? Who knows, but I'm sure some money will consider Russia after the treatment they are getting from so called democracies.