Monday, July 24, 2006
'The Consequences Of Fed Recklessness'
Bill Fleckenstein has this editorial today. "Despite the July heat, there was lots of tough-Fed shivering last Wednesday, at least initially. Fed Boss Ben Bernanke told Congress: The Fed must be mindful of past rate increases. 'Moderation' in economic growth now seems to be under way. The Fed must be 'flexible' and 'ready to adjust.'"
"I continue to believe that worrying about the Fed being tough is exactly the wrong thing to worry about. This, after all, is the Fed that precipitated a stock bubble, and then a housing bubble to address what ensued. The Fed only knows how to do one thing, which is to print money and bail out whatever problem it previously created."
"TIf one wants to worry, one should worry about the consequences of Fed recklessness: The fact that our economy is entering a post-housing-bubble recession, given (a) how levered up the consumer is, and (b) the fact that our financial system is held together with baling wire, in the form of derivatives, credit-default swaps and other sorts of financial 'dark matter.' It is this beneath-the-surface reality that comprises the real threat."
"Some folks are beginning to rethink the notion of loans against homes as impregnable assets. In my opinion, any company that has profited by aiding and abetting the housing ATM is in trouble if it has a leveraged balance sheet with its assets being loans to houses. And I'm sure that lots of unusual business practices have gone on that we have no knowledge of. Just as we didn't find out about Enron, WorldCom, options-backdating, etc. until the tide went out, we have yet to discover what borderline, if not outright criminal, behavior occurred in the housing mania."
"When the stock market begins to connect the dots and that recession looms, all hell is going to break loose. Exactly when that occurs, I do not know, but it's coming."
"I continue to believe that worrying about the Fed being tough is exactly the wrong thing to worry about. This, after all, is the Fed that precipitated a stock bubble, and then a housing bubble to address what ensued. The Fed only knows how to do one thing, which is to print money and bail out whatever problem it previously created."
"TIf one wants to worry, one should worry about the consequences of Fed recklessness: The fact that our economy is entering a post-housing-bubble recession, given (a) how levered up the consumer is, and (b) the fact that our financial system is held together with baling wire, in the form of derivatives, credit-default swaps and other sorts of financial 'dark matter.' It is this beneath-the-surface reality that comprises the real threat."
"Some folks are beginning to rethink the notion of loans against homes as impregnable assets. In my opinion, any company that has profited by aiding and abetting the housing ATM is in trouble if it has a leveraged balance sheet with its assets being loans to houses. And I'm sure that lots of unusual business practices have gone on that we have no knowledge of. Just as we didn't find out about Enron, WorldCom, options-backdating, etc. until the tide went out, we have yet to discover what borderline, if not outright criminal, behavior occurred in the housing mania."
"When the stock market begins to connect the dots and that recession looms, all hell is going to break loose. Exactly when that occurs, I do not know, but it's coming."
# posted by Ben Jones @ 11:23 AM 
Comments:
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From what I'm seeing in Arizona, a recession of some sort looks to be unavoidable. But people aren't playing it any safer. I know of some small businesses owners that are HELOCing to plug the negative cashflow leak.
Fleck is right; we could be staring at a financial crisis, as hard as that would be on all citizens.
Fleck is right; we could be staring at a financial crisis, as hard as that would be on all citizens.
Ben,
As much as you know, have observed, and have certainly read, I find it amazing that you even consider that a recession could somehow be avoided. As you know, I see nothing short of a depression as inevitable.
One of these days I'll get my notes organized for John in VA, and maybe that'll convince you, too.
As much as you know, have observed, and have certainly read, I find it amazing that you even consider that a recession could somehow be avoided. As you know, I see nothing short of a depression as inevitable.
One of these days I'll get my notes organized for John in VA, and maybe that'll convince you, too.
TJ,
I am a born optimist and a professional skeptic. Consider that I thought we would see a recession after the stock bubble and September 11th.
I lived through a mini-depression in Texas after the oil bust. I don't wish that on anyone, especially my fellow bloggers.
Deflationary recessions are a natural, economic function that purges an economy of malinvestments. I don't fear nor desire them. I say, good luck to all!
I am a born optimist and a professional skeptic. Consider that I thought we would see a recession after the stock bubble and September 11th.
I lived through a mini-depression in Texas after the oil bust. I don't wish that on anyone, especially my fellow bloggers.
Deflationary recessions are a natural, economic function that purges an economy of malinvestments. I don't fear nor desire them. I say, good luck to all!
"Consider that I thought we would see a recession after the stock bubble and September 11th. "
As well we should have. More fiscal stimulus and an increasing money supply don't change the "boat's" destination -- just the route and the time of arrival.
Nothing has changed since 9/11 except the size of the impending correction, the increased strength of our foreign competition, the debt level of Americans and the higher levels of global instability.
People have declared the dollar dead before, and while optimists declare those doomsayers "wrong", I prefer to think of them as "early".
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As well we should have. More fiscal stimulus and an increasing money supply don't change the "boat's" destination -- just the route and the time of arrival.
Nothing has changed since 9/11 except the size of the impending correction, the increased strength of our foreign competition, the debt level of Americans and the higher levels of global instability.
People have declared the dollar dead before, and while optimists declare those doomsayers "wrong", I prefer to think of them as "early".
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