The metaphors for how feeble and fleeting the effects of the recent desperate actions by Ben Bernanke are so stark we should have some fun with them. by Jahfre Fire Eater
(libertarian)
Sunday, March 16, 2008
The Federal Reserve is frantically throwing last ditch efforts at the collapsing credit pyramid but, well, one of my favorite newsletters described these actions as band aids on a ruptured jugular vein. Since I like some fantasy writers like Terry Goodkind, my image of Bernanke is that of a pretend wizard frantically casting spells that he read about in a book somewhere. Our president believes in his wizard. He hopes the population of the US will believe in him too and not quit borrowing more to buy less.
Last week for the first time ever, the Fed put some of its own skin in the game by offering $200 Billion of real US Govt. Treasury Bonds in exchange for worthless financial paper the banks want to trade in. The last thing any of them want is for the market to determine the value of their collateral. This new plan allows them to trade that worthless collateral at book value regardless of its current market value. The terms are 28 days but they will be extended indefinitely until the worthless paper is worth something again or the bank goes belly up despite the trade.
The problem is that the Fed only has/had $600 Billion in treasury assets to start with. They put 1/3 of their entire nest egg into this first desperate maneuver. They are scared to death. They should be. It may be years, or never, before any of the worthless paper they took as collateral has value again. In the meantime, the size of the problem is about 10 times as big as the value of the treasuries the Fed still has at its disposal. Obviously this isn't a good plan. You can't cover $4-plus trillion dollars of worthless paper with $600 Billion Treasury Bonds.
So this is only a stop-gap that prevents the Fed from immediately turning to hyperinflation. At the rate they have been increasing the magnitude of these desperate measures we can't be far from the maneuver of last resort, hyperinflation.
In the end, they will attempt to inflate away our debt, foolishly, disastrously. They will attempt to pay off foreign creditors with worthless dollars. Foreigners aren't all that stupid. They aren't going to do that, they will buy US property, buildings, factories, banks, railroads, dams, power grids, etc.
Maybe the new foreign owners will do what our government should have. Eliminate the minimum wage. Limit the trade unions to non-wage issues so the market can determine the wage. Provide private education for the workers they hire rather than relying on the public education system.
Or maybe they will not. In any case it's too late now. Bernanke, Greenspan, the Bushes, the Clintons and even grand old Ronald Reagan himself have sold our country's future for a short-term charade.
Come what may, Mrs. Fire Eater and I will be watching from high atop Fire Eater Mountain as the economic tide begins to recede. I wish the masses luck but I'm afraid even an enormous measure of good luck in the short term is no match for long term planning, frugal living and well-honed survival skills.
Jahfre Fire Eater
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*smirks* I'll trust more to the acres of property I own and my foriegn investments than any questionable "survival skills" that get lauded about.
The reality is that whatever happens, you can bet the rich and wealthy will continue to be rich and wealthy. People like me won't suffer. The average person will. The answer hardly lies in getting rid of unions or in private education, it relies only in not outsourcing all the industry in this country. Our own strong dollar hurt us in previous years, to where no one could buy our products and where it was cheaper to move the stuff overseas, and now we are paying the price not for the idiocy of the Fed but for the critical lack of government control of your precious goddamned "free market" which has outsourced 80% of our industry and half of the entry level , good solid paying jobs that used to prop up the economy.
Switching to gold won't fix that. But the chaos will be amusing to watch, and I've got enough gold that I will laugh all the harder if you start a run on it and I sell at $3200 an ounce. Go right ahead.Â
Posted By: Jahfre Fire Eater
Date: 2008-03-16 21:40:10
Ha, ha, I guess I did come off a bit like Rambo for not explaining myself. I'm usually better at not setting myself up for someone to assume something absurd about me then ridicule me for their own ridiculous assumption. I'm talking about self-sufficiency skills and craftsman skills not catch a rabbit with my hair and gut it with my teeth skills. More like canning vegetables, game hunting, raising chickens, etc. You know, things I can use both in good times and in bad times. I've never lived near a city, or in a place with sidewalks, or even on a paved road except during very brief temporary arrangements. The things I'm talking about are just the way I live.
I doubt I'll start a run on gold. My bet is on silver. I figure by the time mom and pop next door are scared enough to buy metals they will think gold is out of their reach. I think the run will be on silver.
China could start a run on gold, easily. They have enough US dollars to purchase half of all the gold above ground. But I'm curious, why would you be willing to trade your gold for worthless dollars at any price. There's no future in it. Its probably smarter to save them for barter because when your neighbors come to see what you have to share it isn't going to do any good to call your foreign banker and have him get snooty with them.
Posted By: Wendall Dennis
Date: 2008-03-17 09:49:29
Very good article, and very good retort Jehfre. Some people either don't read the article, read only to find fault, or couldn't understand anything not drawn in cartoon characters.  Those of us who have lived within our means, and without a credit card in thirty years, experienced no trouble with interpretation.
Posted By: Ivan from Oregon
Date: 2008-03-17 12:39:43
Logical, as usual, you have things backwards. It wasn't the "free market" that exported our industries - that was done with Govt subsidies. You can't have a truly free market without honest money. We haven't had a free market since 1913.
Good article. The house of cards is starting to tumble. Must be nice for JP Morgan to absord Bear Sterns. I wonder why JP Morgan was picked to buy them at $2 a share....they don't have anything to do with the Fed do they?
Â
Ivan-
Thanks for correcting Logical. Government intervention in any market is a redistribution of wealth and the playing field, it creates the increased cost of doing business which forces jobs off-shore.Â
Government subsidies (a very vague term, susbsidies for who) caused all the outsourcing that occured. It had nothing to do with greedy companies unchecked by anything, it had nothing to do with the government not being allowed to kill off the unions, it had nothing to do with no laws against off-shore banking ... it was "subsidies" that did it.
Well, once again, I must be wrong! It's all so clear now! Why, if we just lobotomized ourselves and chanted freedom slogans, all the industry would come back, and our dollar would magically turn into Super Power Money!
*shakes his head* You believe what you want.
Fire Eater: I assumed you meant some sort of bullshit "urban survival and cunning shopping" skills. Actual survival skills ... eh. I dunno. If things get that bad, I would just leave the country.
And I'd probably sell them for euros. Silver, maybe, I don't follow that market.
Wendall, I got my pilot's licence a while back. I have no intention of trying to do anything but fly out on my own private plane IF things DO to go hell in a handbasket.
*dryly* That being said, any of y'all in the DFW area want a ride out when it all goes down in flames, let me know.
