Comments on: The Fed’s credit problem A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: BryanWillman Fri, 06 Jul 2012 17:10:46 +0000 And what reason do we have to think that any politically, legally, and administratively practical fiscal measure will be LESS broken as a channel for stimulus????

You want stimulus? Print up $x per living person in the US and send it to them, as paper currency, exempt from all income taxes.

Whether people retire debt, increase most forms of savings, or consume with it, it will help work off the hang over.

ANY mechanism that depends on “channels” will be of very limited effect in the current environment. Because the channels will defend themselves one way or another.

You have to go direct.

By: spine001 Sun, 24 Jun 2012 16:30:12 +0000 Felix, you are missing the point. The main reason the FOMC is concerned about more QE is “FINANCIAL STABILITY” and for the first time I heard Bernanke say it outright. Finally it has gotten to him.
The economy can be modeled as an infinite number of recursive loops, some with + feedback, some with negative, they all interact. Keeping a system like this stable is no easy feat. Increasing liquidity, increases the gain of most of the feedback loops. When that happens only a miracle can preempt whole systems from going haywire or taking an oscillatory behavior. That behavior can trigger “resonances” in the physical sense (obviously the financial equivalent, but the behavioral equations are the same).
Once that type of behavior takes hold on the system, there is NO withdrawal of policy that will stop it. The loops become self sustained.
I have modeled this long ago and sent Bernanke an open letter before QE1 to try to entice somebody close to him to run the number and see the behavior in their models.
After the last press conference I am sleeping more quietly, since at from his words, at least somebody of his trust is aware of the risk.

Until next time,

By: 2contango Wed, 20 Jun 2012 20:18:56 +0000 Considering that there is growing risk that housing prices will continue to decline, loaning to even the best borrowers is risky. We should be happy that banks are even willing to loan any money against assets of declining value.

By: ptiffany Wed, 20 Jun 2012 20:16:30 +0000 It’s nice to have some straight-talk once in a while. Where has it been the past five years when all we got was B—S— Artist (BSA)-speak hyping the “positive” effects of “Quantitative Easing” (creating gobs of Cyber Dollars) on stock market prices and the returns of the One Percenters?

“So-called recovery…” Maybe Catfish will be willing to accept Paul Krugman’s (Nobel Laureate in Economics) assessment that we’re in the Third Depression. Maybe a few people will read his book, “How to Get Out of This Depression”. Maybe pigs will learn to fly. I still dream that truth will out.

By: DaveSr Wed, 20 Jun 2012 19:50:32 +0000 The trick, that the government seems to be missing, is that you need to live within your means and not over extend. That’s what gets people in trouble. The iPhone app, Purchases Tracker, has helped my family take control of our spending and cash flow. It helped us to cut out those purchases that we did not realize we were making and we have moved that money over to our retirement accounts. We are now back on track for our retirement, thanks to the iPhone app, Purchases Tracker by Suburbia Apps.

By: MrRFox Wed, 20 Jun 2012 19:43:45 +0000 @UE –

You got it – Wall Street’s got it wired. Why not – they own DC, don’t they?

IMO you’re a million miles off the mark if you think that promoting general business was/is the motive for ultra-low rates, rather than pouring net income onto bank balance sheets. The real economy doesn’t need or want rates this low – financial services and government need them like you need oxygen.

By: UselessEater Wed, 20 Jun 2012 19:34:31 +0000 Why lend when they can make money the easy way

Dirk van Dijk, writing for the investor website, explains what a good deal this is for the banks:
“Keeping short-term rates low . . . is particularly helpful to the big banks like Bank of America (BAC) and JPMorgan (JPM). Their raw material is short-term money, which is effectively free right now. They can borrow at 0.25% or less, and then turn around and invest those funds in, say, a 5-year T-note at 2.50%, locking in an almost risk-free profit of 2.25%. On big enough sums of money, this can be very profitable, and will help to recapitalize the banking system (provided they don’t drain capital by paying it out in dividends or frittering it away in outrageous bonuses to their top executives).”

This can be very profitable indeed for the big Wall Street banks, but the purpose of the near-zero interest rates was supposed to be to get the banks to lend again. Instead, they are investing this virtually interest-free money in risk-free government bonds, on which we the taxpayers are paying 2.5% interest;

via near.php

By: TFF Wed, 20 Jun 2012 19:11:34 +0000 @MrRFox, I agree with you that SOME banks can’t cover the hit from principal reductions. We disagree on whether ANY of the big banks are able to do so. But that is a relatively minor point…

As for the housing market, principal reductions would reduce foreclosures but it could also spur sales that are presently an economic impossibility. Prices are still well above their historic norm (according to Case-Shiller), which makes talk of a “floor” at the present levels kind of silly. Even if they could be supported at the present levels, they probably shouldn’t be.

Bringing back a meme from the files, our best bet at this point might be “Faith and Hope”. We’ll ultimately be disappointed, of course, but such an attitude can slow the process and soften the blow. A “long grind down” can be better than a sharp collapse.

Then again, MrRFox’ suggestion of proletariat revolution sounds more tempting daily.

By: MrRFox Wed, 20 Jun 2012 18:59:36 +0000 @RobertS – Out-of-the-box thinking, guy. Maybe it works conceptually. The Fed would capture a giant share of the mortgage business; which means a giant share would be lost to the existing mortgage industry. Easy to foresee a lot of resistance from that side and from small-government-types – probably including me. Government sponsoring below-market rates on housing – do we want to go back there, big?

@Breez – I get principal reds reducing the supply of foreclosures on the market, and thus decreasing the downward pressure on prices to some extent. I don’t get how that “puts a floor under the housing market”. Enlighten us all, please – where exactly is the floor?

The vexing problem with principal reds is the hit banks have to take to balance sheets – they can’t cover it, though TFF believe otherwise. IMO – they can’t. Fix that then reds become easy.

By: breezinthru Wed, 20 Jun 2012 18:09:13 +0000 @MrRFox

Principal reductions actually do help people who own property but have no mortgages. It puts a floor under the housing market. You can’t begin to regain lost equity until real estate prices stop falling.