Down goes the Dow

Maserati,

I look at it this way, if you can't see the mal-investment you are blind to a certain reality. Most people would find it uncomfortable to consider that the Federal Reserve could really be very wrong. So they ignore the obvious because it is the path of least resistance. I more certain of the negative result of Federal Reserve policy as I am that of almost anything. There is no common sense to it.

Igy

Bank re-capitalization and buybacks utilizing QE??? :shruggingshoulders:

^^^^^^^^^^^^^^^^^

agip wrote:

fair question

can you point to an example of a monstrous amount of mal-investment?

duh,

Investment firms use the easy cheap money for high frequency trading. Look at the increase in trading volume. Investors borrow on margin to trade the market. Corporations rather than investing for growth simply borrow money to buy back stock. Look no further than IBM and APPL bond offerings yesterday.

But the mal-investment can be almost anywhere, because when the Federal Reserve buys Treasury Bonds and they become the asset on the balance sheet of the Fed. Then, look at your dollar bill, it says "Federal Reserve Note," that is the liability. As those dollars circulate thru the economy, they become the transmission mechanism for all types of speculation.

The often looked for economic growth is more fantasy and fleeting than something that is lasting and growing. That is why in the end the melting market will continue, it's value is largely phony.

Igy

Ghost of Igloi wrote:

Maserati,

I look at it this way, if you can't see the mal-investment you are blind to a certain reality. Most people would find it uncomfortable to consider that the Federal Reserve could really be very wrong. So they ignore the obvious because it is the path of least resistance. I more certain of the negative result of Federal Reserve policy as I am that of almost anything. There is no common sense to it.

Igy

"malinvestment" usually refers to companies overbuilding factories, governments overbuilding infrastructure, etc.

I think youse guys are talking about something else: central banks manipulating markets.

I don't think this has been an apples to apples discussion - I believe we're talking about two different things. .

because clearly to me businesses in the US have not been overextending themselves, and clearly the US governemnt has not been overbuilding infrastructure.

But has the us central bank been overactive? yes, I don't quite understand why its balance sheet has to be so enormous and why they have not yet started reducing its size.

agip,

"clearly to me businesses in the US have not been overextending themselves, and clearly the US government has not been overbuilding infrastructure"

My answer:

1. Businesses have been buying stock back rather than reinvesting into their businesses.

2. The Federal Government has taken on the liabilities from all sorts of defaulted borrowers be it government, corporations, or individuals rather than investing in infrastructure.

To understand what is at stake one should look at it as a balance sheet, rather than just a nebulous concept. To view it otherwise gives one the impression that the risk is less.

I don't think so and the stock market is coming around to my way of thinking.

Igy

Ghost of Igloi wrote:

agip,

"clearly to me businesses in the US have not been overextending themselves, and clearly the US government has not been overbuilding infrastructure"

My answer:

1. Businesses have been buying stock back rather than reinvesting into their businesses.

2. The Federal Government has taken on the liabilities from all sorts of defaulted borrowers be it government, corporations, or individuals rather than investing in infrastructure.

To understand what is at stake one should look at it as a balance sheet, rather than just a nebulous concept. To view it otherwise gives one the impression that the risk is less.

I don't think so and the stock market is coming around to my way of thinking.

Igy

how has the fed taken on liabilities of defaulted borrowers? You mean the bailouts? That's over and done and paid back, no?

And the federal reserve balance sheet has been this large a couple other times in the past 100 years...it worked out ok then. And for what it's worth, other central banks have even larger balance sheets (relative to GDP)

not sure that is a positve tho - maybe we'll all sink together

agip,

Question: how has the fed taken on liabilities of defaulted borrowers?

Answer: US Government through Treasury and Federal Reserve bought billions of underwater mortgage bonds. The Federal government owns Fannie Mae and Freddie Mac.

Question: You mean the bailouts? That's over and done and paid back, no?

Answer: The US Government took over AIG, and GM. That same government forced the reorganization of GM Capital as ALLY Bank. I would consider any of that paid back or in fact over, at least not for any of their investors, past or present.

Remark: And the federal reserve balance sheet has been this large a couple other times in the past 100 years

Response: Perhaps relative to GDP, but not in peace time. In total size, and I am not including entitlements, the amount is enormous. If one includes entitlements and an aging population it is hard to imagine a benign outcome.

Remark: other central banks have even larger balance sheets (relative to GDP) not sure that is a positve tho - maybe we'll all sink together

Response: I guess one can be happy when you have a national negative net-worth of $50,000 for every man, woman and child, rather than $75,000 negative national net-worth for every man, woman, and child. It doesn't inspire my confidence in our national ability to pay.

Igy

well, it was technically at peace time - 1940 and 1946, but that's a thin point since there was a depression and postwar period there.

as for MBS - I'm guessing here, but I don't think those are defaulted. I believe they are paying just fine. Am I right? I'm not sure. I read somewhere that MBS have actually done just fine since the crash.

I think you miswrote the part about GM, I'm not sure what you are saying.

Igy, i think you finally jumped the shark on this page. You're starting to sound like another tinfoil hat wearer, along with Maserati and Klondike5. Take a deep breath and step back.

agip,

Our country's preparation for WW II began in advance of Pearl Harbor, and when the soldiers came home without jobs, well that explains it to me.

In regards to MBS, the change in FASB accounting allowed banks discretion in valuing securities. That was March 2009, some view that as the reason for the market bottoming. If you look in your local classified section you will still see foreclosures posted. If those MBS had to be marked to true value it would be far less than 100. That is why the banks were forced to recapitalize. If you marked the MBS to actual value the capital to debt ratio would be quite a bit different. That said, sure it is better today, no doubt.

GM was nationalized and the bad loans of GE Capital were spun off as ALLY Financial Inc. Perhaps one can spin that the US Government came clean on their "investment," but issues remain. The Federal Reserve bought US Treasuries to suppress interest rates and support the automobile and housing industry. The "investment" in GM and ALLY Financial was in the process transferred from Treasury to the Federal Reserve.

Igy

POTO,

I can't remember your "jump the shark analogy", but something about under cutting my argument, I believe, and Fonzie. I don't think so. In fact I believe I have supported everything my view in detail. And in fact the arguments against what I have said have not been supported either intellectually or factually.

Igy

Igy, you're a smart guy. But you're not very objective. You know there are two sides to every story. You've picked one side and cherry pick stories to support your position. We all know that. But to say that contrary arguments lack intellectual and factual support is disingenuous. C'mon, man.

POTO,

I am stubborn, I admit, but I am generally objective. I find the view that markets have not been distorted by Federal Reserve policy to be extraordinarily not objective.

Out for a walk with the wife.

Have a good evening.

Igy

I have to duck out of any in-depth discussion of the federal reserve - I don't understand how it works at other than a superficial level.

agip,

Good enough on the topic. At least you can be confident that I am consistent in my beliefs.

Igy

K5, I love how you call out only Jews then claim to be hurt when someone righteously calls you a bigot.

January Leading Economic Indicators down 0.2%

Industrial production in the United States had its largest gain in 14 months in January as manufacturing and utilities output increased, the latest sign that the economy regained some ground early in the year