The Chicago Fed President assures us inflation won't get to 3%. Really? Is that 3% per month? The last time I checked we had already seen inflation of little items like food and fuel higher than 3% annually. "Core" inflation minus the "volatile" food and fuel that everybody has to have everyday has been controlled because housing prices have deflated. Core inflation is defined the same way an apple core is defined -- it is what's left after all the stuff you want has been removed.
Evans says there is "slack" in the economy caused by the high unemployment rate which pushes down demand, which would be true in a free market economy. Unfortunately we don't have a free market economy. If we did, you would see people make intelligent, informed choices leading to voluntary austerity with subsequent increases in productivity and savings and decreases in spending.
Excess debt accrued during the prior housing bubble would be wiped out in defaults, foreclosures, and bankruptcies. And the bankers would take the hit. The Fed and their partners in the crime, the federal government, will not let that happen. So we will have another round of "pump priming" -- you know, the action that deepened and prolonged the Great Depression of the 20th Century. The federal government will try to maintain its size and power by deficit spending, including maintaining and expanding a social safety net that demotivates people to productive economic activity.
Meanwhile the banks and the Fed will do all they can to induce people to further indebtedness and to encouraging the indebted to continue to pour increasingly worthless fiat money into the coffers of the financial institutions in order to maintain an illusion of growth and wealth.
Evans states that another round of bond-buying to continue funding the federal government's growing deficit will happen if necessary.
They are going to continue on the road to destruction. They cannot help themselves. The further down the road they go, the uglier ultimate crash is going to be.
This has been puzzling me. I can see why the government dosen't let the banks take the hits they need to allow the system to correct itself. Too many politicans are owned by the bankers.
ReplyDeleteWhat would a proper banking correction look like? How would the average Joe be affected?
Also, I'm more than ever convinced of a hard fall because, except for war, societies just don't change fast enough. This mess took what, 80 years to develop? I'm thinking drastic changes could theoretically save our Republic but "we" won't vote in that kind of change because not a sufficient number of Americans recognize the problem as drastic enough to voluntarily reduce what has been promised to them.
Sorry if I'm repeating myself.
I think you are right. We could vote for it. People call Ron Paul crazy, but he understands the problem and is willing to tell the truth about it. I used to say I only disagreed with Paul and the Libertarians on foreign policy, but I'm coming around. People who tell the truth about the mess we're in sound crazy. That's the nature of it.
ReplyDeleteIt would involve a major decentralization. Things would be dislocated for years, but it would eventually come back.
Honestly, I don't know if you can have a proper bank correction at this point. The more I dig around, the scarier it looks.
I know what Paulson said with regard to TARP and the failure of Lehman. He was terrified of the consequences.
If you are planning on going to sleep in the next hour or so, do not read this Ticker -- Denninger's post isn't as frightening as reading through the comments. At least it wasn't for me because I did not begin to grasp the vision until about page 3 or 4 when Karl threatened to ban anyone who called money "worthless" or talked about "printing".
Right now, the rumor is that there is a slow run on the banks in Europe -- a "bank walk", so to speak.
If banks begin to collapse here, the bankruptcy law seems to allow "clawback". Even if you emptied your depositor account, theoretically a creditor could claim your entire deposit.
It's all this derivatives stuff that has pushed risk into the stratosphere. They are throwing around numbers like $76 Trillion -- TR, not b. I didn't know there was that much money in the world -- and there probably isn't.
A correction would involve a collapse of equities -- Dow maybe 5000, 3000, who knows. Banks would go under. The FDIC would not be able to cover all losses and would likely have to pay pennies on the dollar. The federal government would have to gutted. Medicare and Medicaid would be drastically cut if not eliminated. Real unemployment would hit levels never seen before -- including the last Great Depression.
Back in 1935, the U.S. had a much higher percentage of the population involved in agriculture, which kept hobbling along between 1929 and 1941.
Thanks for the reply Mushroom. So, if Average Joe can remain employed despite the cascade of unemployment a bank collapse may cause, he runs the risk of losing is savings because the FDIC can't cover the failures.
ReplyDeleteWell, a collapse of the entitlement system and and an adjustment of the banking system back to reality will be good in the long run but we know what Keynes said about the long run.
Whee!