PALOOKAVILLE FINANCIAL stardate : capitulation day+103
liam : ..."The UK - like most Western economies - is in a grave situation. Our money markets are frozen, denying vital liquidity to millions of credit-worthy firms. Unless the inter-bank market reboots, then even hastily revised 2009 Western growth forecasts - down from 2-3pc a year ago to a 1-2pc contraction now - could turn out to be too optimistic. We face the very real danger of chronic unemployment across the so-called "advanced economies" and widespread social unrest.
Yet the Keynesian bail-out solution, accepted as "essential" by practically every mainstream commentator, will do nothing to unfreeze our credit markets. It's even more dangerous than the disease it's supposed to cure.
Panicked politicians have now closed their ears to reason and are ripping up the rules. And as the bail-out continues, and the investment banks channel public funds to senior executives, the vested interests that caused this crisis are adding insult to injury.
With failure and incompetence thus rewarded, huge damage is being done to the very fabric of Western market-driven commerce. That could spark a damaging populist backlash, recreating the economic dark ages of heavy regulation and state diktat, crushing the entrepreneurial spirit that has long driven human progress." Sunday Telegraph
irwin : ..."The federal government is determined to shore up almost any firm that claims to be too big or “too interconnected to fail”, and to rebuild the nation’s infrastructure, broadly defined. Skittish consumers are borrowing and spending less, but government spending will more than make up for this. The wall of money stashed in low-paying Treasury IOUs will sooner or later wash back into shares and corporate bonds. The $500 billion that Bernanke will use to buy up mortgage-backed securities cannot but help to loosen that part of the credit market, just as the bailout of General Motors’ credit arm, GMAC, will make it easier for less credit-worthy consumers to buy cars with no down-payment and no interest charges. Moves such as that might be recreating the excess credit culture that brought us to this pass, but better that than a prolonged recession — so believe politicians for whom the 2010 elections are just around the corner, and Bernanke, whose claim to academic fame is his study of the causes of the Great Depression.
It will be surprising indeed if all of these moves don’t put the economy on the path to recovery by the end of the year. And on the path to a round of inflation that Larry Summers, tipped to occupy the Fed chairman’s seat, and other Obama advisers feel they can pinch off by quickly draining excess liquidity from the economy by raising interest rates and — you guessed it — taxes. Holders of dollars hope these economist-paragons are not prisoners of their adoring press; otherwise, the dollar will race the pound to the bottom of the currency heap." Sunday Times
from the big picture : ..."Readers often ask me about Richard Russell’s (Dow Theory Letters) viewpoint on the stock market. Here is his latest take on matters: “It occurs to me that this is a good time to remember my old friend Marty Zweig’s classic warnings: ‘Don’t fight the tape, don’t fight the Fed’. Well, if you are bearish on 2009, you are indeed fighting the Fed and probably the tape. Why do I say that? Because the Bernanke Fed is going all out in its effort to turn the US economy around. Bernanke says the Fed will do whatever it takes to halt the current trend to deflation and to bring back prosperity and mild inflation to the US.
mish : ..."Bernanke Correctly Judged Nothing
Bernanke considers himself an expert on the great depression and on the Japanese deflation as well. Trying to act quickly, Bernanke has come out blazing with 8 new policy tools, including the TALF, TARP, PDCF, ABCPMMMF, CPFF, TAF, and MMIFF to go on top of Open Market Operations, Discount Rate setting, and setting reserve requirements.
The result so far is deflation. The result in Japan was deflation.
There is only one way to defeat deflation and that is to not let the conditions that foster it to build up in the first place. What caused this deflationary bust is the credit boom that preceded it. What caused the great depression was the credit boom that preceded it. Hoover's policies and FDR's policies made the great depression worse.
Bernanke's policies are going to make this depression worse. Yes, I used the word depression. It may not be as big as the great depression, but the word "recession" does not do justice to what we are in and what is coming down the pike." mish
painty : jus a few thoughts from out there...
...oh...yeah! an this from marc faber...nod ta big picture...