Perspectives on the global economic meltdown (Jan 26 2010)

ShivaS · Post by **ShivaS** » 05 Nov 2010 20:10

Swamyg ji >>dollars are not Indian currency, INRs are so for ever dollar we have can technically print 40 INR (approx currency exchange rate) Since dollars are flooding gradually the number of INR per dollar will decrease that is INR will appreciate.

Analogue is when INR Dollar conversion was restricted by GOI (that is supply side restriction) The dollar comanded a a premium (Black in 1993 1 USD would fetch 46 INR when GOI pegged the Dollar value at INR 33 that is what PRC is doing today)

Why inflation if dollars are flooding and RBI increases interest rates in view of Dollar dump?
Read the above 1 Dollar will convert into 44 INR
which means more money in circulation, hence the curbs and interest rate hikes)

SwamyG · Post by **SwamyG** » 05 Nov 2010 20:34

^^^
Shivas garu: That is not what I asked (and was asked). Why would the extra money not be helpful. I think Suraj addressed that point of the dollars going into the equity market and not really helping the fixed assets development.

Patni · Post by **Patni** » 05 Nov 2010 20:48

^^ I think the whole idea about restricting the foreign $$ inflow into India is about protecting India by controlling the "Hot money" inflow and not about long term ( > then 1 to 2 months) genuine investment in Indian growth story. I think whats being mooted is to control interest arbitration as borrow billions of $$ at near zero from US / Japan and invest into say Indian funds where rates are least 4% even for short term of say days.

Basically control fly by night Brokered deposit ( often for as short term as a week to 3 days) that's chasing after highest return which is short term speculative bet and has a capacity to cause huge short term bubbles. Even FII investing in Stock can gyrate sensex say by 400 points in a day and capacity to cause it to come crashing down by more then 3% in matter of hours if they all orchestrate flight of hot money in coordinated attempt to cause a collapse to then pick up Indian blue chips far cheaper and in process cause havoc with domestic investor wealth and sentiment. Hack hot money is what is always used to have a run on a currency like in 1997 financial meltdown of asian tiger economies etc.

Suraj · Post by **Suraj** » 05 Nov 2010 20:59

Let me say more about this topic:

Now, money is just a representation of the value of those goods and services. Without that representation, it's just fancy printed paper.

Say there's Rs.1000 circulating in the Indian economy, for the current level of goods and services produced and consumed. Each year there's a trickle of $1 (Rs.50) that Mr.Tom sends to invest in one of these producers. There's a steady equilibrium. Suddenly, Mr.Dick and Mr.Harry send in another dollar, so that there's Rs.100. Now there are two issues:
* Money can enter much faster than sufficient level of goods and services can be enhanced to represent that extra monetary value. The result is inflation in the value of all goods and services. We're talking of just $1 here, but there were days in Sept 2010 when daily inflows were $700 million.
* Dollars are useless in India because our currency is Rupee. The RBI takes the dollar, and then gives out Rs.50 to the bank. Now our forex reserves have increased by $1 and money supply by Rs.50 . Now translate this to the real world situation - what sort of positive to you expect if RBI pumps in Rs.3000 crore into the market in a single day because there were $700m inflows that day ? Are production levels going to efficiently rise, or enough roads magically get build by that much value in a day ? No. It will just pump up stock or real estate prices, and increase general inflation.

What the RBI does instead is take the dollar out, and after releasing the rupee, take that back as well, by selling a sterilization bond. They do this because they want to keep the incoming capital, but cannot just release the Rupee equivalent into the market without distorting exchange rates, interest rates and inflation rates abnormally. But these bonds cost money, because the RBI pays interest on them. That money is your tax money - thousands of crores out of government revenues that the RBI pays out as interest to avoid releasing all that glut of capital into the general banking system. GoI budgets some money to spend on these bonds each year. When that money runs out, RBI can no longer sterilize dollar inflows. The result is a sudden spike in the Rupee value vs dollar, lots of

by exporters, and a worsening of the current account because imports increase even more.

The basic fact is that stable growth needs a stable domestic rate regime - stable (and low) interest rates, stable and low inflation and stable exchange rate. The above massive flood of foreign capital due to US shenanigans affects not just one or two of the rates, but all three. People who say 'but the money can be spend on roads' are not quite thinking this through...

Talking of forex reserves, most people might remember our forex reserves fell dramatically to $240 billion or so after the global crisis in 2008-09. Well it is back at $298 billion now, and probably has already crossed $300B since the RBI data has a 1 week lag.

shyam · Post by **shyam** » 05 Nov 2010 21:21

My take on this $ inflow to India is that the new dollars that is going to come to India has "zero" cost associated with it. It is not coming from somebody's savings, profit or after cutting costs. It is just printed money with no real cost in creating that.

Imagine how you would spend your hard earned money and how you would spend if someone gives you few crores free. It is always observed that lottery winners end up losing that money after some time. No real logic will be applied when free money is spent.

BTW:
David Rosenberg: Sell The News, QE Will Do More Harm Than Good For The American Consumer

This is a market completely based on hope. Throw fundamental investment principles out the window. It’s now all about how the Fed can manage to inflate asset prices now that fiscal policy has tested its limits with the voting public. But where does this renewed faith in the Fed come from? Is this not the same Fed that took the funds rate from 5.5% to near- zero? The same Fed that tripled the size of its balance sheet in QE1? The same Fed that thought the housing and mortgage crisis would stay “contained” back in 2007? The same Fed that confused a credit contraction with a liquidity squeeze? The same Fed that believed, in the summer of 2007 when the crisis first broke that we would see 2.5- 3.0% real GDP growth in 2008?

The same Fed that was contemplating its exit strategy just a short six-months ago and believed it could start to shrink its balance sheet last spring? The same Fed that investors have so much faith in, and is the same Fed that passively tightened policy with a 25 basis point hike in the discount rate to 0.75% back on February 19th. The same Fed that just trimmed its forecast three times in the past four months, and is this not the same Fed that investors now have “faith” in? The question is, the “faith” to do what?

RamaY · Post by **RamaY** » 05 Nov 2010 21:33

^^ Suraj-ji

Irrespective of how we slice it, printing of additional dollahs cost USA nothing where as other emerging nations have to pay for its costs in order to keep the exchange rate parity to protect their export regimes.

This is indirect penalty system; different from trade-tariffs which might invite WTO legal cases.

Let us assume a hypothetical scenario where Massa buys back say $3T worth of bonds... what will happen to PRC? what will happen to India? Thanks in Advance.

Suraj · Post by **Suraj** » 05 Nov 2010 21:37

To say it costs the US "nothing" is pretty far off the mark. Sure they're deliberately destroying their own currency so as to reduce the value of their debts, but essentially they're tacking on debt to destroy the value of that debt. It's not a stable progression of steps by any stretch.

Gus · Post by **Gus** » 05 Nov 2010 21:50

Suraj wrote:But these bonds cost money, because the RBI pays interest on them. That money is your tax money - thousands of crores out of government revenues that the RBI pays out as interest to avoid releasing all that glut of capital into the general banking system.

Thanks. That helped a lot.

So, the benefits of having these extra dollars coming in should outweigh the cost of paying these interests?

Suraj · Post by **Suraj** » 05 Nov 2010 22:12

Gus wrote:So, the benefits of having these extra dollars coming in should outweigh the cost of paying these interests?

The interest is not the only cost of these inflows. The costs include the lost opportunity costs from lack of export competitiveness arising out of the strengthening of the Rupee, the lack of monetary stability to invest in more production due to inflation of input costs, the costs on personal income due to general price inflation, and loss of GDP due to increased austerity in money policy to fight the inflationary situation. all these together add up to far more (perhaps a couple of orders of magnitude greater effect) than the interest burden on the sterilization bonds.

Further, the inflows should be viewed by their Rupee and NOT their dollar value, because as inflows accelerate, they depreciate in Rupee value even faster due to the weakening of the dollar.

RamaY · Post by **RamaY** » 05 Nov 2010 22:21

Suraj wrote:To say it costs the US "nothing" is pretty far off the mark. Sure they're deliberately destroying their own currency so as to reduce the value of their debts, but essentially they're tacking on debt to destroy the value of that debt. It's not a stable progression of steps by any stretch.

Of course. This is Massa's Bhasmasura option! I hope to see that India will play the Mohini where as PRC gave that boon to Massa

Gus-garu,

There are many added-benefits from properly-managed export regime. It brings

- Standardized products to Indian market
- Innovation (can be used to export Indic worldview) (For example: see how many Indian god pratimas are coming from PRC)
- Technology Eco-systems that can support Indian market (240V variants of Massa products)
...

ramana · Post by **ramana** » 05 Nov 2010 22:55

So Suraj what if there is a surcharge on the $1 coming in to pay for the bonds and any other extras to keep the system from inflating in the local economy? What I mean is if $1 coming in has a reduction of say 10% to cover the bond costs etc. Will that violate any international agreements.

Suraj · Post by **Suraj** » 05 Nov 2010 22:58

ramana: see
http://en.wikipedia.org/wiki/Tobin_tax
http://en.wikipedia.org/wiki/Financial_transaction_tax

International agreements ? We're supposed to care about 'international agreements' in the middle of a currency war ?

ramana · Post by **ramana** » 05 Nov 2010 23:01

No. No. We want to protect ourselves legally!

Suraj · Post by **Suraj** » 05 Nov 2010 23:08

Well, as we saw in late 2008, when the fecal matter hits the revolving air circulator once again, no one is going to give much regard for legalities and gentlemen's agreements...

Some combination of capital inflow controls and/or incoming capital taxes will probably come into play in the future, rules of any kind be damned. What punitive measures are they going to do anyway - impose IMF/WB sanctions ? That'll work extremely well when they're also aiming to increase exports to us

As another morsel for thought, understand what happens when inflation rises in China and they raise rates to counter it. It's a handful just to manage and sterilize $300billion on our part. When rates rise, they have to pay more to sterilize what, $2400 billion in reserves, that earn little out of the US treasuries they've invested in, thanks to historically low rates in the US. They probably have a dedicated aspirin production facility to feed their central bank officials.

paramu · Post by **paramu** » 05 Nov 2010 23:12

I think Ramana wants to know whether there is a way to protect ourselves while keeping moral highground.

SwamyG · Post by **SwamyG** » 06 Nov 2010 05:05

Suraj wrote:To say it costs the US "nothing" is pretty far off the mark. Sure they're deliberately destroying their own currency so as to reduce the value of their debts, but essentially they're tacking on debt to destroy the value of that debt. It's not a stable progression of steps by any stretch.

Suraj I have more questions on your earlier post. Let me read it few more times. But for now I will ask a question regarding the above. How does that happen? That is how will USA reduce the value of their debts? And what does that mean anyway? I read that if the dollar values keeps falling down, America can have a trade surplus in a matter of time. How so?

Hari Seldon · Post by **Hari Seldon** » 06 Nov 2010 05:19

Wow. Fascinating discussion. Great gyan, folks.

Moi's been hollering about the need for desi capital controls, brazil style perhaps, for over a year now. Finally Sri YV Reddy and now Kaushik Basu have both said on the record that the capital controls option should not be ruled out. Gives an indication about babu think inside north block, IMHO.

GOI should have banned participatory notes use if they were serious about curbing hot money flows. And the Mauritius route is another sad aberration - regardless of round tripping or whatever. FII inflows routed via Mauritius pay zero taxes in India - whiloe skimming off profits from the desi marts.

Anyway, rubber will meet road sooner rather than later, seems like. Maybe as soon as sri Obama leaves Yindia, who knows?

Suraj · Post by **Suraj** » 06 Nov 2010 06:10

SwamyG wrote:Suraj I have more questions on your earlier post. Let me read it few more times. But for now I will ask a question regarding the above. How does that happen? That is how will USA reduce the value of their debts? And what does that mean anyway? I read that if the dollar values keeps falling down, America can have a trade surplus in a matter of time. How so?

Because debt repayments are done over a course of years, and repayment terms are set at the time of debt sale, without any inflation adjustment provision. It's no different from a fixed mortgage - you pay $ or Rs.X per month. Over the course of time that X is a much smaller absolute sum because of inflation and income growth. When the US deliberately destroys the value of dollar, it also cuts down the value of dollar denominated debt it owes the world. The point I made to RamaY about unsustainability was that they were destroying the value of debt debt (via destruction of the value of the dollar) by issuing more debt...

As for the other idea about 'moral high ground', well, I'm speechless

I guess I am not feeling either moral or high right now.

Pranav · Post by **Pranav** » 06 Nov 2010 06:58

As foreign money comes into India, if the RBI does not intervene on the forex market, then the value of the rupee will rise. Thus exports become more expensive abroad, and imports become cheaper in India. Pain will first be felt by exporters, and then by domestic industry.

If the RBI buys dollars on the forex market, to stop the rise of the rupee, that will result in more rupees circulating within India, and consequently higher inflation. The pain will be felt by 80% of the population that lives on $2 per day. However, stock market and property investors will be safe.

So the only option is to stop the influx of money by:
- tax on inflows
- investment limits in various sectors.

If the decision is made to let the rupee rise to some extent, then it is impossible to shield the exporters. But at least the domestic industry should be protected by higher import duties.

abhishek_sharma · Post by **abhishek_sharma** » 06 Nov 2010 07:00

Economists Joseph Stiglitz and Richard Berner

http://www.charlierose.com/view/interview/11276

ShivaS · Post by **ShivaS** » 06 Nov 2010 09:23

Dollar is just an I Owe You with Benjamin and Washi nton smiling on you.
If the GOTUS defaults it is effectively issue of Tissue to wipe (out) top to bottom. That is nut shell waht is currency, so is INR for that matter.

Irrespective of which route the Money comes, be it into stocks, direct repatriation of money from NRI, or buying property by NRI in India in it will end up in the system and in circulation. It doesnt matter it will get into circulation. Hence has impact on macro economics and ultimately into Micro economics as well.

shyam · Post by **shyam** » 06 Nov 2010 10:32

Old video, but Hugh Hendry shares some gyan that is relevant even today.

[youtube]owH4vyyCeSA&NR[/youtube]

Neshant · Post by **Neshant** » 06 Nov 2010 15:23

something bad is coming down the pike from the IMF angle. Its coming exactly at the time of the G-20 meeting. As was predicted earlier, the US providing China with the means of offloading dollars for SDRs is what I expect is going to happen just as soon as more suckers are drawn into holding a stake at the IMF. India better watch its back and so too savers of fiat dollars in the US and around the world.

The federal reserve fools are hell bent on destroying the productive & financially responsible in America and passing on losses of the useless banking 'industry' to those suckers.

----------------

IMF agrees deal to give emerging powers more say

http://ca.news.finance.yahoo.com/s/0611 ... s-say.html

Singha · Post by **Singha** » 06 Nov 2010 16:11

is the IMF a solvent institution as in getting repaid for its loans or merely a way to prop up basket cases like Pak in exchange for political influence? worst outcome would be BRI money used to prop up Pak while C-US retains the benefits and influence

ibnlive.

Washington: The International Monetary Fund has approved proposals that will lead to a major overhaul of the Fund's quotas and governance, and would put India among top 10 members.

The 10 largest members of the Fund will now consist of the US, Japan, the BRICs (Brazil, China, India, Russia), and the four largest European countries (France, Germany, Italy, the United Kingdom).

The Executive Board of IMF also endorsed a timeline that calls for the quota increase and realignments to take effect by the annual meetings of October 2012, and Executive Board reforms to be implemented no later than the subsequent Executive Board election, which is scheduled in late 2012.

Christopher Sidor · Post by **Christopher Sidor** » 06 Nov 2010 18:51

The IMF board will compromise countries based on their economic weight they carry. Most of the share that is being given up is by Europeans in favor of Asian/BRIC countries. If you read between the lines, what this implies that European share of world economy pie has shrunk w.r.t. BRIC/Asian Countries. Also the most worrisome aspect, from european eyes would be, that their great uncle has been pressing on them to give up their share. When in fact, Europeans are more closely aligned with the Americans and also support, if not overtly then covertly, Americans on most of the issues which matter. This is compounded by the fact that the Europeans have not represented a united front in IMF.

United the Europeans might have a fighting chance, but divided/jealous as they are of their individual countries they will continue to give up more and more power. In the future the worlds economic power might well be controlled by the Americans and Asian/BRICs. In fact we might we well be drawing a wrong conclusion w.r.t the financial meltdown of 2008. The conclusion might be that the Europeans/Japanese are in a economic decline and not the yanks. Also with Europeans in a decline, that is half of the west in a decline, will the Americans be able to carry their weight around the planet?

Singha · Post by **Singha** » 06 Nov 2010 21:44

afaik the WB is american dominated and in exchange they have let the euros control the IMF by informal agreement. but I guess with EU struggling, the time had come to find stronger players and keep it solvent.

I wonder what is the controlling structure of the WB and if any 'reforms' are in the pipeline there - it is a american pet afaik.

being a single entity as large as EU economy, with a single govt and policy gives the US a decisive advantage over the divergent pov seen in the EU. likewise china and india too will reap advantages of these divisions later...

Neshant · Post by **Neshant** » 07 Nov 2010 08:52

wonder what he knows that we don't.
-----------

Microsoft CEO sells 1.3 billion dollars in shares in company
Sat Nov 6, 6:05 PM

Email StoryIM StoryPrintable View.NEW YORK (AFP) - Microsoft chief executive Steve Ballmer has sold 49.3 million shares in the company worth some 1.33 billion dollars, according to a filing with the US Securities and Exchange Commission (SEC).

http://ca.news.finance.yahoo.com/s/0611 ... mpany.html

Neshant · Post by **Neshant** » 07 Nov 2010 08:54

he's right.

he's trying to spark hyper inflation.

---------
Bernanke says Fed not trying to spark inflation

"We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome," Bernanke said.

http://ca.news.finance.yahoo.com/s/0611 ... ation.html

shyam · Post by **shyam** » 07 Nov 2010 11:32

Interesting videos about 1929 crash...

There are many in the related videos...

shyam · Post by **shyam** » 07 Nov 2010 12:17

With The US Irrelevant, As All Eyes Shift Elsewhere, What Are The Geopolitical Implications For Europe And Asia In A Post-QE2 World?

It also means that with the US economy irrelevant as an indicator of pretty much anything, decision-makers will be forced to look elsewhere for catalysts. BNP Paribas has done of the better summaries of precisely this sad state: "The Fed has acknowledged that there is substantial slack in the US economy indicating that it will take potentially years to bring the unemployment rate down to levels associated with full employment. Hence, a strong number will still leave the Fed committed to the USD600bln asset purchase it announced Wednesday. A weak labour market report will make the market assume that the Fed might have to do even more asset purchases. Hence it will not be US data disturbing the risk on trade, the trouble will likely come from Asia or Europe." What we believe this means, is that very soon the dynamics of globalized economics, and of stock markets, will be defined by the polar opposites of an emerging market bubble (Asia), and a developed economy, floundering deeper into fiscal austerity and borderline insolvency (Europe). Thus soon the ideological tug of war will be one of whether the Asian bubble implodes first, or whether it will be preceded by the failure of peripheral European countries.

Neshant · Post by **Neshant** » 07 Nov 2010 14:05

Jim Rickards - Federal Reserve May Go Bankrupt

---------
No Exit

http://kingworldnews.com/kingworldnews/ ... krupt.html

Jim Rickards continues to illustrate that he is one of the truly brilliant and original thinkers in today’s financial world. Jim’s latest piece exclusively for the King World News blog is a must read. Here Jim discusses the Fed going bankrupt, “Right now the Fed’s balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money-printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital. Put differently, it only takes a 2% drop in the average value of assets on the Fed’s balance sheet for the Fed to go bankrupt. And this is in an environment where various markets frequently go up and down 3% in a single day.”

November 5 (King World News) - Disasters sometimes sneak up in small steps, each of which appears unthreatening at the time but which cumulatively spell collapse. The Fed is leading the United States to ruin in ways that are claimed to be well intentioned and benign viewed in isolation but which take us finally into a locked room reminiscent of the Sartre play “No Exit.”

Hari Seldon · Post by **Hari Seldon** » 07 Nov 2010 15:47

Obama’s Problem Simply Defined: It Was the Banks

Very good and simple commentary by JK Galbraith.

The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. Larry Summers. Timothy Geithner. Ben Bernanke. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.

Up to a point, one can defend the decisions taken in September-October 2008 under the stress of a rapidly collapsing financial system. The Bush administration was, by that time, nearly defunct. Panic was in the air, as was political blackmail — with the threat that the October through January months might be irreparably brutal. Stopgaps were needed, they were concocted, and they held the line.

But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.

Team Obama did none of these things. Instead they announced “stress tests,” plainly designed so as to obscure the banks’ true condition. They pressured the Federal Accounting Standards Board to permit the banks to ignore the market value of their toxic assets. Management stayed in place. They prosecuted no one. The Fed cut the cost of funds to zero. The President justified all this by repeating, many times, that the goal of policy was “to get credit flowing again.”

The banks threw a party. Reported profits soared, as did bonuses. With free funds, the banks could make money with no risk, by lending back to the Treasury. They could boom the stock market. They could make a mint on proprietary trading. Their losses on mortgages were concealed — until the fact came out that they’d so neglected basic mortgage paperwork, as to be unable to foreclose in many cases, without the help of forged documents and perjured affidavits.

Oh, beautifully written. Read it all only. For the record, I find myself nodding agreement at every para only.

Hari Seldon · Post by **Hari Seldon** » 07 Nov 2010 15:54

chalo, aaj ka D&G quota... TAE tweets only.
http://twitter.com/#!/AutomaticEarth

In the UK, Government sponsored RBS makes a loss, but its bankers' bonuses rise http://bit.ly/dkWykr Failure, fraud and stupidity = Big pay!

Yay. Pakistaniyat has infected UQ's banks. The same shamelessness, corruption, brazenness, begging+following instinct, incest sticks lit up all over..... Jai ho, jai ho. Like I always say, UQ deserves all its pakis, x10.

Not that the khanate's banks are any less....

The FED is rubbing it in, they're having a 100 year celebration on Jekyll Island, where the FED was conceived in secret http://bit.ly/cDAFTq

The bankers have done far more damage to America than any terrorist ever could. Millions unemployed, trillions in fraud & contempt for all.

When unemployment extensions end, a movement rises: the 99ers http://bit.ly/cFn30p Some 2 to 4 Mn Americans have exhausted benefits

Fannie, Freddie Overhaul Could Cost $685 Billion (according to useless S&P) http://on.wsj.com/cfoFU0 Or a Trillion or who knows how much?

Goldman’s Pay Pool Shrinks Fastest as Traders’ Fortunes Dwindle http://bit.ly/aXXJgr (Don't worry, they won't be going hungry for Christmas)

A Circle of Gifts, http://bit.ly/dpb1kM Charles Eisenstein on the monetization of life and destruction of community

42,389,619 Americans, or 14% of the country, rely on food stamps. That's up 58.5% from August 2007 http://onhttp://on.wsj.com/bnMOLG

FED is going to reinvest principal payments from MBS into treasuries, that's $250 to $300 Billion by Q2 2011. On top of $600 Bn announced

Meanwhile, the only silver lining I can see...

Ron Paul To Chair Monetary Policy Subcommittee (The FED's greatest nemesis!) http://slate.me/cWruiP (Via @ZeroHedge) This should be good!

The Unglisaxon model in all its glittering glory. I guess.

Neshant · Post by **Neshant** » 07 Nov 2010 16:00

Hari Seldon wrote:Very good and simple commentary by JK Galbraith.

The guy claims US will have no problem borrowing money to finance its deficit. Not sure what to think of him. Federal Reserve is now buying huge gobs of govt bonds. I wonder if this is an attempt at hiding the fact that no foreign country is interested in buying it.

shyam · Post by **shyam** » 08 Nov 2010 00:15

Neshant wrote:“Right now the Fed’s balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money-printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital. Put differently, it only takes a 2% drop in the average value of assets on the Fed’s balance sheet for the Fed to go bankrupt. And this is in an environment where various markets frequently go up and down 3% in a single day.”

This will not happen. Reason? Nobody audits the Fed. Accounting rules have been modified so that it doesn't have to report decline in asset value.

Here is the proper link to Neshant's video above.

[

ShivaS · Post by **ShivaS** » 08 Nov 2010 02:17

At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital.

This one of the many reasons Inflation is good for the US economy, and GOTUS is working overtime towards inflation.
In an inflationary economy the asset values will not fall (unless the asets themselves are worth less dollars).
Only in depression and deflation asset values will fall.

SO increasing the inflation is in a way indirectly trying to put IP further down the road.

{IP is not intellectual property but Insolvency Petition aka, Bankruptsy. As of now we are witnessing BANK (COR)RUPTSY }

svinayak · Post by **svinayak** » 08 Nov 2010 04:25

shyam wrote:Interesting videos about 1929 crash...

There are many in the related videos...

The govt had confiscated all the deposit boxes of all the bank customers in the 1930s after the crash to rebuild the banks.

svinayak · Post by **svinayak** » 08 Nov 2010 04:39

Fed's Bernanke `Doesn't Understand' Economics, Jim Rogers Says
By Simon Clark and Stephen Morris - Nov 5, 2010 3:33 AM PT

http://search.bloomberg.com/search?q=Ji ... r=-lang_ja

Nov. 5 (Bloomberg) -- Kevin Flanagan, chief fixed-income strategist at Morgan Stanley Smith Barney, talks about Federal Reserve monetary policy and the impact quantitative easing measures may have Treasuries. Flanagan speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Federal Reserve Chairman Ben S. Bernanke’s decision to pump a further $600 billion into the economy shows his grasp of economics is weak, said investor Jim Rogers, chairman of Rogers Holdings.

“Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance,” Rogers, 68, said in a lecture at Oxford University’s Balliol College yesterday. “All he understands is printing money.”

“His whole intellectual career has been based on the study of printing money,” said Rogers, who predicted the start of the global commodities rally in 1999. “Give the guy a printing press, he’s going to run it as fast as he can.”

The Fed said on Nov. 3 it will buy an additional $600 billion of Treasuries through June, in a bid to reduce unemployment and avert deflation. While Bernanke’s near-zero rates and $1.7 trillion in asset purchases helped end the recession, the Fed said progress has been “disappointingly slow” in bringing down joblessness that is close to a 26-year high.

svinayak · Post by **svinayak** » 08 Nov 2010 04:51

Mobius Says World Bull Market Faces No Risks `Any Time Soon'
By Bloomberg News - Nov 5, 2010 12:32 AM PT

http://www.bloomberg.com/news/2010-11-0 ... gher-.html

Nov. 5 (Bloomberg) -- Bloomberg's Deirdre Bolton reports on major newsmakers in today's Movers & Shakers. (Source: Bloomberg)

The U.S. Federal Reserve’s bond purchase plan will further drive the rally for global stocks and push commodity prices “higher and higher,” said Templeton Asset Management Ltd.’s Mark Mobius.

“We could have an optimistic scenario for quite some time,” Mobius, who oversees about $34 billion, said in a telephone interview from Beijing yesterday. “Commodities are the big area for us. We are great believers in higher commodity prices and therefore are investing in commodity companies.”

The MSCI World Index yesterday surged to a two-year high, gold jumped to a record and crude oil advanced to a seven-month high after the Fed announced Nov. 3 plans for $600 billion in bond purchases through next June. Asian stocks rose today, pushing a benchmark gauge to its best weekly advance this year, on speculation the Fed will succeed in stoking growth in the world’s biggest economy.

The liquidity flooding the global economy from the Fed’s quantitative easing will extend record gains for commodities and dollar depreciation cannot be avoided, said Mobius, 74, who is also the chairman of Templeton’s emerging markets group.

The U.S. economy is growing and that will have a positive effect on Europe and spread to other countries, Mobius said. The “bright spot” is the emerging markets where demand continues to grow, he said. Rising incomes in developing nations are especially good for consumer stocks, he said.

shynee · Post by **shynee** » 08 Nov 2010 09:07

Jobs, Trade, and Mercantilism - Part I - Facing Reality : Ralph Gomory

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