Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Money Printing to Solve Banking Crisis Leading to Stagflation

Interest-Rates / Stagflation Mar 15, 2008 - 02:41 AM GMT

By: Andy_Sutton

Interest-Rates

Best Financial Markets Analysis ArticleIt doesn't matter what newspaper you picked up. I doesn't matter what TV show you watched. Records fell like no time in recent history with perhaps the exception of Carl Lewis running loose at the Olympics in his heyday.

I wonder how much his Gold medals are worth now?


$1.55 on the Euro, 100 on the Yen, $1000 Gold, $110 oil. The three pillars of what we have been writing about for almost 2 years in this column are falling into place exactly as we said they would. Gold and oil up, the Dollar down. This was no stroke of genius mind you, but rather a dead-wringer given the circumstances surrounding the financial system. Things are starting to get interesting, but AGAIN, rather than stand up and admit how bad this problem is, the powers that be continue to offer fairytale assertions of how things are fine and that the bottom is in. Crying bottom has already cost a number of forecasters their reputations and in some cases, their jobs.

Yesterday, Standard & Poor's took their turn on the stump saying that the writedowns from subprime mortgages are basically over. A few weeks ago, CNBC trotted out T. Boone Pickens in an attempt to talk down the price of oil. The effort fell flat on its face and Mr. Pickens ended up looking rather badly. He also lost quite a bit of money if he was actually short oil, which I seriously doubt. This has been the way of things. Every time I watch one of these interviews, I feel the need to dig through cereal boxes looking for the special glasses they used to include to help you see the magic patterns on the back of the box. So the latest is that the subprime writedowns are over; blue skies are here again.

What? We are only about halfway through the mortgage reset process, and even though there has been a lot of talk about freezing rates, nothing is in stone yet. Unlike the easy ‘economic stimulus' package, it is a harder sell when asking bankers to part with profits. Given the cloak and dagger nature with which this problem first emerged and has stealthily worked its way through the financial system, gobbling balance sheets along the way, I am surprised anyone would risk their reputation at this point. Maybe I shouldn't be.

The stock market rallied heavily after the comments, and after all, that is what is needed right now. Minus intervention, the markets are looking downright ugly and Wall Street needs your money. Pure and simple. It just isn't fun shuffling around billions of dollars between big banks. Without your 401's, they are done. I think that deep down there is an understanding of the difference between real capital (foregoing of consumption in favor of investment) and the stuff rolling off the printing presses. The Fed can print dollars, but it cannot print capital. Capital formation encourages real growth, whereas the additional fiat created while in crisis mode only destroys the value of the existing capital. Retirement plans are essentially the last bastion of genuine savings in our economy.

Speaking of 401's, the problem is that people are cashing in 401's in record numbers right now so they can avoid foreclosure. Just when the markets need buyers, the little guy is selling. This will be a short term Band-Aid at best. The penalties and taxes alone on an early withdrawals will take over 1/3 of the money. Most people with any kind of retirement plan from the bull market of the 1990's got cleaned out in the tech wreck. Only in 2006 did they finally ‘break even' again (see article here). They had a short window of about a year to get out of the market before the barber showed up and gave the major indices a 15% haircut. So in reality, how much money do these people have left? Not much. Robbing Peter to pay WaMu will last a little while, but the long-term effect of having no retirement funds coupled with failing Social Security will be much worse than a foreclosure.

Against this backdrop, the Bernanke Fed continues to make history before our very eyes. Day after day, move after move they place another nail in the coffin and further cement their role as the facilitator of the next US Depression. So perfectly wrong has Fed policy been over the past 18 months that it will likely become the test case for what not to do in the future. This should not be a surprise to anyone. This is all they know how to do. The irony here is that Ben Bernanke has always thought that the reason we had the Great Depression was because the Fed didn't print enough money. So now he will take us back there again, this time by printing too much. The Planners are limited by their understanding of economics, and more importantly, their lack of desire to do anything politically unpopular. The fact that we are in an election year will only exacerbate the situation. There has been much talk, but precious little meaningful action and even that has been dead wrong.

At this point their best bet would be to stop their acronym-denoted inflation creating devices (TAF, TSLF) and let the bad apples rot to nothing, particularly Bear Stearns which is now officially on life support. This would cause economic pain. But once the system cleanses, normal economic growth could resume. By not allowing the system to cleanse, they are guaranteeing that the pain will be worse and last much longer than necessary. It appears that they are willing to accept that in exchange for a few more months of status quo. They have a serious problem in that inflation is running out of control, and at the same time, the economy is sinking. Stagflation is upon us. The more money the Fed prints to solve the liquidity and banking problems, the higher prices will climb at the consumer level. This is great if you're an investor in anything tangible, but a downright disaster if you're a consumer.

This week has been unlike any other week in recent memory. Things are moving quickly, and it is important to stay tuned and keep your eye on the ball. The protective measures discussed in My Two Cents over the past two years are still in play, granted at much higher costs now, but as the saying goes, the best time to plant an oak tree was fifty years ago; the second best time is right now. Make sure yours is planted while there is still some growing time left.

By Andy Sutton
http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit www.suttonfinance.net

Andy Sutton Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in