Heard On The Street
What’s the difference between a pigeon and a Wall Street banker?
The pigeon can still make a deposit on a Porsche!
Meanwhile, in what looks like a stunning display of stupidity, the Federal Reserve recently hired someone to “assess the safety and soundness of domestic banking institutions.” The new employee is none other than Former Bear Stearns chief risk officer (from 2006 to 2008) Michael Alix. Unbelievable! The Fed hired the guy who let Bear go bust.
Regular readers know that I’ve been saying the US government is broke for a while now. As if our national debt and unfunded future debt obligations weren’t enough, Henry Paulson proposed spending $700 billion to buy mortgages and other toxic “assets” from banks. Well, not only does the Treasury now want to spend bailout cash on all kinds of financial companies (from banks to bond insurers to specialty-finance firms like GE Capital) it’s becoming more and more obvious that the government didn’t actually have $700 billion lying around. The Treasury has borrowed $600 billion since mid-September, and it wants to borrow a record total of $550 billion during the fourth quarter of 2008 to help stabilize the financial sector.
In July, the Treasury estimated third-quarter borrowing would be $171 billion. It actually borrowed $530 billion, $300 billion of which was for its Supplementary Financing Program, launched in September, to keep Wall Street from melting down.
While people may argue that this was the best thing to do (of course you should bail out your buddies on Wall Street!), the fact is that this level of government borrowing and spending will have an inflationary affect. It’s still not too late to buy some gold coins and hedge against it.
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November 5th, 2008 at 1:12 pm
gold coins as of late have not been a hedge against inflation or a flight to safety.
the markets are not rational so any decisions (even into gold) should be thoroughly researched.
November 5th, 2008 at 6:15 pm
It all does seem puzzling, a nation in debt going much further into
debt to bail out companies in debt.
November 6th, 2008 at 5:49 pm
I do not support spending beyond means or borrowing to spend. However, it might be necessary to do just that to maintain the solvency of the global financial system, the plumbing system greasing the economic engine. An inflationary response to the government action is possible but not necessary. It will depend on tax revenues and future economic growth. Remember the deficits left by Reagan, Bush I. Inflation seemed inevitable then too.
By the way, I enjoy your blog. Good luck with your goals.
November 8th, 2008 at 11:10 pm
It is not puzzling at all. Other nations are buying up USA debts to support US effort on bailing out those companies. Unless there’s a margin call from Japan, China, etc, US will continue to borrow and borrow and borrow and……you guessed it, borrow.
At 1% interest rate, USD should have gone down relative to other currencies. However, it did not. There’s a global effort to keep the USD (as well as flight to safety) value high relative to everything, including oil and gold. All efforts by individual and institutional investors to prop up precious metals for the sake of inflation are in fact being destroyed by the very essence of worldwide govt from proping up USD, Treasurys, etc. Try fighting the govt of the world is like trying to fight a World War where you’re the only axis against the UN.
Why are they doing this, you might ask? Well, it’s a hypothesis but since the entire world is operating on a global economy scale, any hiccup in the largest consuming country, i.e. USofA, will destroy the parasites that are feeding on its hunger (i.e. China, Russia, India, etc) by providing cheap labor, cheap trinkets, cheap oil, cheap everything. Think of those parasites as restaurants and USA is the only customer out there. If USA stops eating, do you think those restaurants will survive?
Oh well, so much for this global economy and free trade crap. I think protectionism is going to get a roaring restart.