Rates may have not yet bottomed??

[RostyC]

Article link here (http://www.joc.com/node/413257)

I'll post the article below:


Truckload Rates Not Yet Bottoming
John D. Boyd | Sep 4, 2009 5:32PM GMT
The Journal of Commerce Online - News Story

* Truckload
* | Intermodal Shipping
* | Trucking
* | United States

Spot pricing at times below intermodal, analyst says, from “desperate” rate policies

Freight rates in the truckload market, competing in many cases with rail-truck intermodal traffic, are steadily declining “without solid evidence of bottoming,” said transport stocks analyst John Larkin of Stifel Nicolaus.

Larkin said his group had held meetings in the past week with executives of “various publicly traded and privately held truckload and intermodal providers,” and spot pricing for truckload freight “remains under pressure.”

Some truckload rates have “come in below intermodal rates and below what many carriers believe to be truckload variable costs,” he told clients. “We believe this level of spot pricing is unsustainable for the smaller, less-capitalized carriers that seem to have adopted what we consider desperate pricing policies.”

Larkin said some “non-sustainable trucking operations” that offer the low pricing are staying in business because they are getting help from creditors and equipment lessors, who hope those carriers can stay afloat until their equipment returns to book value.

“Many industry players believe that this stance taken by many financiers only delays inevitable truck company failures, and won't reduce (and might increase) the size of losses ultimately realized by the lenders, lessors and finance arms of major truck manufacturers,” he said. “In the meantime, the lenient policies preserve too much capacity in the trucking marketplace.”

Wow, just wow.

Looks like we have a lot of failures to come yet. There are companies hauling for below their variable costs??? That's not counting there fixed costs. Jeezuz.

It looks like the banks at this point would rather stick there neck out for these companies because they don't want the trucks, trailers, or perhaps any real estate should the company collapse. That really gives a clue how bad it is.

I know things will eventually get better but it makes you wonder how far off it really is. I also wonder what the real unemployment number is, also people that lost their jobs but have taken something cheaper and don't have any "extra" spending money. Things just aren't moving.

[solo379]

Article link here (http://www.joc.com/node/413257)


Wow, just wow.



Is that comes as surprise to you?

[RostyC]

I wouldn't say a surprise, but with some of these guys saying the recession is over and the fact that trucking generally recovers two to three months ahead of other industries I think it's concerning news.

Just where is this recovery? I don't even smell a whiff of one.

[no_worries]

I wouldn't say a surprise, but with some of these guys saying the recession is over and the fact that trucking generally recovers two to three months ahead of other industries I think it's concerning news.

Just where is this recovery? I don't even smell a whiff of one.

Freight volumes actually usually lead the general economy by 6-9 months. Considering we are still seeing declining volumes in both trucking, intermodal, and rail, I would be dubious of any recovery claims.

We'll see a slight uptick in volumes this Fall due to inventory replenishment, but it will barely register as a blip due to continued oversupply. Until consumer demand actually picks up sometime next year, rates will continue to be ugly.

[GMAN]

If it weren't so serious I would have laughed when I heard that the recession was over. I don't think we have seen the bottom for rates. I still see too much capacity and not enough freight. At least we do have freight, just not enough of it. You can stay busy if you want to run for $1/mile. You just won't make any money. We still need to hunker down, keep costs low and negotiate for the best rates we can get. If you think that you will be able to survive on $1/mile freight you will have a rude awakening. The politicians want to put a positive spin and make the citizens think that their stimulus tax has done it's work. They hope to quash any opposition by convincing the citizenry that the recession is over and things are getting back to normal. I don't see things getting much better until at least some time next year. Until we lose more capacity we are not likely to see rates turn around. As we head into our slow season you can expect downward pressure on already low rates.

[no_worries]

It's not the politicians claiming the recession is over...at least not the ones that matter. Wall Street analysts are the ones making the noise and some European politicians, who may actually be right as far as they're concerned. If anything, administration officials have been more conservative than many in their assessments. The fact is, we are in better shape than we were six months ago, or even a year ago. Much of the unknown has been taken out. The stimulus debate is relatively pointless; it's difficult to prove or disprove either side of the argument. The worst of the fall is over, but we're in for a slow slog back up the hill.

[Dejanh]

It's not the politicians claiming the recession is over...at least not the ones that matter. Wall Street analysts are the ones making the noise and some European politicians, who may actually be right as far as they're concerned. If anything, administration officials have been more conservative than many in their assessments. The fact is, we are in better shape than we were six months ago, or even a year ago. Much of the unknown has been taken out. The stimulus debate is relatively pointless; it's difficult to prove or disprove either side of the argument. The worst of the fall is over, but we're in for a slow slog back up the hill.
Nothing is over, party just started....

There's still inflation to come and where is government debt.....

wait and see...

[Mr. Ford95]

Things are better than 6 months or a year ago? The unknown has been taken out? That is a total load of BS right there. Unemployment might be going down but it's because Americans are taking jobs that were previously held by immigrants who have gone back home due to the economy. As Rosty said, those jobs pay much less so people simply don't have the money to spend, only enough to pay the bills.

My company is in construction and we are hoping to make it to Xmas right now. After we get our normal week off for Xmas, we may not have a company to come back to. I've talked with our majority owner face to face. He says he will do everything in his power to not let the company go under or close the doors to save his money. In his words, it would be too difficult to re-open if we did that. The unknown is still there..........as long as my job is still insecure I am not going to run out and spend money like crazy. I'm packing it away as best I can just in case the owner runs out of money before everything picks back up again. What I have heard, late 2010-2011 is when things will begin to take off with the economy. Commercial and industrial growth will stay stagnate until 2012-2013.

[no_worries]

Nothing is over, party just started....

There's still inflation to come and where is government debt.....

wait and see...


And the impact will be...?

[no_worries]

Things are better than 6 months or a year ago? The unknown has been taken out? That is a total load of BS right there. Unemployment might be going down but it's because Americans are taking jobs that were previously held by immigrants who have gone back home due to the economy. As Rosty said, those jobs pay much less so people simply don't have the money to spend, only enough to pay the bills.

My company is in construction and we are hoping to make it to Xmas right now. After we get our normal week off for Xmas, we may not have a company to come back to. I've talked with our majority owner face to face. He says he will do everything in his power to not let the company go under or close the doors to save his money. In his words, it would be too difficult to re-open if we did that. The unknown is still there..........as long as my job is still insecure I am not going to run out and spend money like crazy. I'm packing it away as best I can just in case the owner runs out of money before everything picks back up again. What I have heard, late 2010-2011 is when things will begin to take off with the economy. Commercial and industrial growth will stay stagnate until 2012-2013.


We're talking the general economy, not individual circumstances. Do you remember what the economic outlook was 6 and 11 months ago? Nobody had an inkling of what was going on or what was to come. We know where we stand now. That alone is drastic improvement, it allows companies to plan. Things may look bleak regarding your own situation...that's not what I was referring to. As for your growth projections...sounds like a long slow slog to recovery to me.

[b00m]

The economy will be in a dump for a time to come.The only way to bring real economic growth ,will be by bringing back the manufacturing jobs the USofA has been losing for quite a while.This economy lived unrealistically on cheap credit until now,when the bill has come due.The only job growth i can see is through the energy jobs that have been talked about.Too bad the government has it's nose to deep in this.

As far as trucking is concerned,you guys pointed out what is goinging on. Hopefully,some mega carrier(S) will go under soon and that way freight will be avaiable for the small owner op.That's right let small business flourish and thrive,not the super big corporations that are being controlled by anybody in this world with the right amount of $$$$.

[SickRick]

Fear & Desperation? Think I mentioned those factors in the "just say no to cheap freight" discussion.

Rail has been touting intermodal as a less expensive alternative to long haul truckload rates - and they ARE correct - it IS LESS EXPENSIVE to put the box on a train. If you are not under any predictable time constraints for DELIVERY, as a train pretty much "gets there, when it gets there". Seeing a lot of MAJOR CARRIERS boxes going by at RR X-ings. This is NOT a thing of the past, and we may see MORE OF IT in the future.

More boxes on trains means LESS boxes on trucks (duh), means carriers DESPERATE to stay in the game, that aren't BIG ENOUGH to load plan and leverage intermodal for the less time-constrained loads, will attempt to have rates that COMPETE with those of intermodal (which is foolish, as you CAN'T compete with a rig that can pull HUNDREDS of trailers at the same time).

Where WE used to think of intermodal as containers that come off container ships, go on trains, and WE drag them the last mile - there are probably more TRACTOR TRAILER type TRAILERS on these trains now, than ocean-going intermodal containers. And EVERY ONE OF THEM, means some DRIVER is NOT PULLING IT.

Oh yeah - we ain't seen NOTHING YET.

Rick

[no_worries]

Fear & Desperation? Think I mentioned those factors in the "just say no to cheap freight" discussion.

Rail has been touting intermodal as a less expensive alternative to long haul truckload rates - and they ARE correct - it IS LESS EXPENSIVE to put the box on a train. If you are not under any predictable time constraints for DELIVERY, as a train pretty much "gets there, when it gets there". Seeing a lot of MAJOR CARRIERS boxes going by at RR X-ings. This is NOT a thing of the past, and we may see MORE OF IT in the future.

More boxes on trains means LESS boxes on trucks (duh), means carriers DESPERATE to stay in the game, that aren't BIG ENOUGH to load plan and leverage intermodal for the less time-constrained loads, will attempt to have rates that COMPETE with those of intermodal (which is foolish, as you CAN'T compete with a rig that can pull HUNDREDS of trailers at the same time).

Where WE used to think of intermodal as containers that come off container ships, go on trains, and WE drag them the last mile - there are probably more TRACTOR TRAILER type TRAILERS on these trains now, than ocean-going intermodal containers. And EVERY ONE OF THEM, means some DRIVER is NOT PULLING IT.

Oh yeah - we ain't seen NOTHING YET.

Rick

Intermodal satisfies one segment of the freight market. If time and service constraints are relatively lax, intermodal is a great way to go. A small carrier can't compete against the commoditized segment of the industry. The same goes for those trying to compete against the big carriers. You can't do it for less than they can and still make a comparable living. Why try? The small guy has to leverage those things he CAN do well and find his niche.

As a sidenote, intermodal volumes have fallen faster than truck volumes during this decline. Even when thing turn around, rail will always have constrained capacity. There is only so much rail out there. Yes, they're raising overpasses back east to allow the double-stack trains, but what are they going to do after that? With that capacity restraint comes pricing power. Rail's bread and butter is bulk commodities. Intermodal will get priced out before bulk because trucks provide an alternative. Obviously, none of this is a concern until things turn around down the road, but the fears about intermodal taking over freight are way overblown. The projections show trucks actually increasing their share of tonnage moved over the next 10-15 years. Oh, and a lot of those trailers you see on trains, especially the east to west trains, are empty trailers being repositioned.

[heavyhaulerss]

yes I guess I think I know where we are at. lets see... the government has been telling us to reduce our debt levels, & at the same time put us in so much debt via this stimulus, that by just the tax burden we will have to face for decades to come, we will all be in debt... debt to the government, via taxes, though under different titles. the more responsible we are, the less responsible the government is. I am ready for a revolution.

[no_worries]

yes I guess I think I know where we are at. lets see... the government has been telling us to reduce our debt levels, & at the same time put us in so much debt via this stimulus, that by just the tax burden we will have to face for decades to come, we will all be in debt... debt to the government, via taxes, though under different titles. the more responsible we are, the less responsible the government is. I am ready for a revolution.

Other than a brief respite during the Clinton years, that's been the story since at least the early 80's. No sense getting all fired up about it now.

[GMAN]

Rail has limited capacity. Even if they start double stacking containers on these rail cars, they may need to reinforce rails to support the added weight. That takes time. Other than limited capacity, rail also has a service problem. They cannot give door to door service as can trucks. They also cannot meet the demands of the market as well as trucks. It can take 2 weeks or longer to travel across the country for a rail car when a truck can move the same load in 2-4 days. There are too many products that need to have shorter delivery times than rail can offer.

I don't see rail dramatically affecting trucking in the near term. Whether this country manufacturers or distributes their products they must be moved by truck. Even if it goes by rail, they still cannot get it to the consumer without trucks. It is possible we could have a little uptick leading up to Christmas. I expect consumers to be more conservative in their buying this holiday season. I don't see any more clarity in the economy than we had a year ago. People don't yet know how much their tax burden will go up with this out of control president and congress. They can't print the money fast enough. When people are scared they don't spend money. Spending would help the economy, but until consumer confidence returns they are going to hold their money close. Some people don't know if they will have a job when Christmas gets here. There is still much uncertainty. People have become much more suspicious of the congress and president and for good reason. I don't see any more confidence than a few months ago.

[no_worries]

No more clarity? We're talking macro here, not micro. A year ago (almost anyway) we were looking into an abyss. Nobody knew if the banking system would survive, credit was locked up tighter than a you-know-what, the question regarding manufacturers was not who would go under but who would be left, and home values were declining at never before imagined rates. It's a night and day difference today.

As for taxes; outside of the self-employed, taxes have a negligible impact on planned spending. In any case, taxes aren't going to go up significantly enough to impact consumer spending in the short term.

[heavyhaulerss]

Other than a brief respite during the Clinton years, that's been the story since at least the early 80's. No sense getting all fired up about it now.



but now... I'm ready willing & able. got my bunker built & ready to launch..

[no_worries]

but now... I'm ready willing & able. got my bunker built & ready to launch..

Better safe than sorry, right? LOL

[Dejanh]

And the impact will be...?
This question does not even deserve the answer......If you dont know then you better not be finding out...

[no_worries]

This question does not even deserve the answer......If you dont know then you better not be finding out...

Oh, I know the answer. Better yet, I understand why the answer is what it is. Which is why I don't go running around like Chicken Little warning that the end is nigh simply because my favorite media pundit says coming inflation and mounting debt will bring about our economic demise. That's usually the totality of the argument. Which is why I gave you the benefit of the doubt and asked you to expand on your prediction...guess I should have stuck with my gut.

[GMAN]

It's not the politicians claiming the recession is over...at least not the ones that matter. Wall Street analysts are the ones making the noise and some European politicians, who may actually be right as far as they're concerned.

And these are the people who went bust and had to get the federal government to bail them out?


If anything, administration officials have been more conservative than many in their assessments. The fact is, we are in better shape than we were six months ago, or even a year ago.

I am not better off that I was last year. I don't think the country is better off today than a year ago. However, the speculators are probably better off since they received a bailout.

Much of the unknown has been taken out.

I think there is still much uncertainty in this economy. Just look at freight lanes. Everything is still pretty much in disarray. You can no longer count on previously good freight areas as being so today. Things have improved over 6 months ago, but we still don't know what the 4th quarter will bring. Summer is usually very good for freight. At best, it has been mediocre for most segments of the industry. As we approach the slower time of year there is much uncertainty as to whether freight and rates will hold up through the winter. Retailers must be very nervous due to so many layoffs and people not spending so much money. Unless retailers have a good 4th quarter the trucking industry will suffer.

The stimulus debate is relatively pointless; it's difficult to prove or disprove either side of the argument. The worst of the fall is over, but we're in for a slow slog back up the hill.

I am not so certain that the worst is over. If rates drop or freight diminishes then the worst could be yet to come. We won't know that until we get further into the winter. I hope you are correct.

[no_worries]

Don't get me wrong, I'm not saying things are good. I'm also speaking of the economic outlook in general, not just our particular industry. When I say we've seen the worst, I'm saying we won't see 6% contractions like we saw in the the 4th and 1st quarters. A zero growth quarter won't do much to change the current bad situation, but it's still better than a contraction. We've seen the worst, now we're destined to bounce along the bottom for awhile. It's a better situation but far from good.

As for freight and rates...maybe next year. I think the next two quarters could be ugly.

BTW, I'll sell you a reefer at the end of the year, lol.

[Dejanh]

Oh, I know the answer. Better yet, I understand why the answer is what it is. Which is why I don't go running around like Chicken Little warning that the end is nigh simply because my favorite media pundit says coming inflation and mounting debt will bring about our economic demise. That's usually the totality of the argument. Which is why I gave you the benefit of the doubt and asked you to expand on your prediction...guess I should have stuck with my gut.
Yeah, nice try trying to flip the script and make me sound delusional....what else you got, but for the sh!!ts and giggles just tell me what media outlet you are speaking about, everything i see tells me recession is over even though i think it has just started....

I do not need any media outlets telling me whatever you think they may tell me, i am looking at the facts behind the curtain my, ,,no worries'' friend, and the facts tell me that we are way too deep over our head with debt and printed money to just brush it off like you plan to do....good luck.
If you think its OK to run these deficits and debts and have a economy which purely relies on consuption where Americans spend money they dont have,and not production and savings, then its fine i guess...Name suits you well id say....http://en.wikipedia.org/wiki/US_debt#Risks_to_the_U.S._dollar

If it weren't for Chinese lending us this money, id ask you then how them rates R.


Now am going to put my tinfoil hat on... ... ...


...done !

[GMAN]

Don't get me wrong, I'm not saying things are good. I'm also speaking of the economic outlook in general, not just our particular industry. When I say we've seen the worst, I'm saying we won't see 6% contractions like we saw in the the 4th and 1st quarters. A zero growth quarter won't do much to change the current bad situation, but it's still better than a contraction. We've seen the worst, now we're destined to bounce along the bottom for awhile. It's a better situation but far from good.

As for freight and rates...maybe next year. I think the next two quarters could be ugly.

BTW, I'll sell you a reefer at the end of the year, lol.


You can tell how the economy is doing by looking at what is going on in the trucking industry. When there is plenty of freight then the economy is usually doing pretty well. There is freight, but there doesn't seem to be enough to go around and rates are still too low. Most business people with whom I talk are still concerned about the economy and most are not doing that well. I did make a delivery yesterday and the owner said they were doing well. I think we will know more how the economy is doing once we get into the holiday season.

[no_worries]

Yeah, nice try trying to flip the script and make me sound delusional....what else you got, but for the sh!!ts and giggles just tell me what media outlet you are speaking about, everything i see tells me recession is over even though i think it has just started....

I do not need any media outlets telling me whatever you think they may tell me, i am looking at the facts behind the curtain my, ,,no worries'' friend, and the facts tell me that we are way too deep over our head with debt and printed money to just brush it off like you plan to do....good luck.
If you think its OK to run these deficits and debts and have a economy which purely relies on consuption where Americans spend money they dont have,and not production and savings, then its fine i guess...Name suits you well id say....United States public debt - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/US_debt#Risks_to_the_U.S._dollar)

If it weren't for Chinese lending us this money, id ask you then how them rates R.


Now am going to put my tinfoil hat on... ... ...


...done !

This is my point...in all the words you've typed since my original question, you still haven't answered it. You initially said that inflation is coming and government debt is increasing. All you've done is reiterate those points. My question was, ok, what will the impact be? We've always had inflation. In fact, you have to have a certain level for a healthy economy. Just how much inflation are you talking about. Inflation is almost always accompanied by corresponding growth. Are you saying we're going to have stagflation or simply inflation that far outpaces the rate of growth or some different animal altogether. Inflation comes about from a weak dollar. Why will the dollar weaken substantially further and how far? Strength of currency is a relative condition. You can only measure the dollar's strength or weakness relative to other currencies. What other currency will fill the dollar's role as a reserve currency? Are we going to weaken against one in particular like the euro or the yuan, or will the dollar crash against all currencies? Why will those other currencies strengthen? Are they going to recover economically before we do and be substantially stronger?

And what of government debt? We've run massive deficits for decades other than a brief period during the 90's. The national debt has been staggering for years. What has suddenly changed? Where is the magic line that pushed us past the point of no return? Every other country with a significant economy has been spending massive amounts of stimulus as well. We are far from the only indebted economy. Indebtedness only becomes a problem when you can no longer service the debt. Have you seen the recent Treasury auction results? China continues to buy our debt because those purchases directly finance their exports to us. Their domestic markets are a fraction of their exports. In other words, without our market, their economy would be a fraction of its current size. And its current size can only barely keep up with the country's needs. They need us at least as much as we need them and probably more.

You make a simple statement like inflation is coming and our debt is too high. I ask you to expand and explain and you say the question isn't worth answering? I made the pundit comment because I've come across several people that have made similar comments. "High inflation and debt are bringing us down." When question them on why and how, they have no answer. They just say I need to listen to more Rush and Glenn Beck.

You may very well be right...but who would ever know?

[no_worries]

You can tell how the economy is doing by looking at what is going on in the trucking industry. When there is plenty of freight then the economy is usually doing pretty well. There is freight, but there doesn't seem to be enough to go around and rates are still too low. Most business people with whom I talk are still concerned about the economy and most are not doing that well. I did make a delivery yesterday and the owner said they were doing well. I think we will know more how the economy is doing once we get into the holiday season.

There's some debate this time around that trucking won't actually lead the economy out, due to the unusual inventory cycle we're seeing. I'm not sure I'm buying into it, but if they're right, we won't see the recovery first. Like I said, by no means are we in good shape. But we are in better shape than we were. I'm seeing increased volumes all around. Rates aren't coming up, but rates usually trail volumes by a good amount. I happen to think we're just in a short inventory correction and we'll fall back down going into the holidays...we'll see. The business outlook in general is more optimistic now than it was 6 months ago. Many economists are calling for near 3% growth in the 3rd quarter. I have a hard time believing it will be that high, but the stimulus did have a substantial effect in housing and autos. I doubt it will hold up though.

[GMAN]

There's some debate this time around that trucking won't actually lead the economy out, due to the unusual inventory cycle we're seeing. I'm not sure I'm buying into it, but if they're right, we won't see the recovery first. Like I said, by no means are we in good shape. But we are in better shape than we were. I'm seeing increased volumes all around. Rates aren't coming up, but rates usually trail volumes by a good amount. I happen to think we're just in a short inventory correction and we'll fall back down going into the holidays...we'll see. The business outlook in general is more optimistic now than it was 6 months ago. Many economists are calling for near 3% growth in the 3rd quarter. I have a hard time believing it will be that high, but the stimulus did have a substantial effect in housing and autos. I doubt it will hold up though.


All any of these economists are doing is guesswork. We can do the same thing. I am basing my guesstimates on my personal experience over the years. The main problem with myself and any of the pundits is that none of us have lived long enough to remember the crash of 1929 and it's aftermath. I still think that if we watch what happens in the trucking industry that we will have an indicator as to what is really going on in our economy. There are more loads than in the fourth quarter of last year and especially the first quarter of this year. Rates are down from a year ago, so that tells me that we are still in a position of over capacity. I would certainly not want to go into debt to purchase more equipment unless I could afford to pay cash and sit on the equipment for a while. I would not want to have to make payments during the next couple of quarters.

I have seen some rates come up the last couple of months in a couple of areas. One are where we sometimes haul the rates have dropped dramatically. A new logistics company went in and undercut CHR's rates and now they are too cheap for me to haul. They did tell me that they would pay if they could not move the load and it was late in the day. In fact, I was told that they would take money out of their pocket to move a difficult load.

I would be surprised if we had any real growth in the 3rd quarter of this year. And as far as the stimulus tax, I don't believe the auto rebates were part of that. I think that they added that to the expenditures. In fact, I am not sure that the housing discount was part of it, either. I think both of those programs came out after the stimulus tax.

I don't know of anyone in this business that is in great shape. I know plenty who are getting along as best as they can. I hope we all have a good 3rd and 4th quarter.

[Dejanh]

This is my point...in all the words you've typed since my original question, you still haven't answered it.
I thought it was self explanatory but i guess i was wrong.
Maybe I shouldn't only lead the horse to the water, maybe i should show him how to drink as well.
Ill do my best.....

You initially said that inflation is coming and government debt is increasing. All you've done is reiterate those points. My question was, ok, what will the impact be?
Impact will be interest rates in near or above 20's, dollar replacement as the world currency reserve system (which underlines high interest rates as we would have to raise them to keep attracting foreign capital) and world de-coupling from American consumer which is broke. Economy which relies on borrowed money where its people spend $ that they do not have, is not real. We have hit NEGATIVE savings rate many times.

We've always had inflation.
Yeah,in 07 was 2% when it was nice and calm. Is that what you think we've always had.

Only real inflation this country ever had was was in the 70's after the Brenton Woods agreement was scraped and dollar moved on to its FIAT status as a paper money. Paul Volker raised interest rates to over 20% to fight it off BUT here is a kicker....United States was a debtor nation and worlds leading manufacturing power which we are not today. Todays % rates are near 0 and what would happen if inflation starts to grow with no economic growth, are they gonna keep them at 0 to keep letting banks borrow cheap, or are they gonna destroy banks by raising them to fight inflation? Who will win?


In fact, you have to have a certain level for a healthy economy.
Our economy is far from being healthy to withstand any level of inflation, and as our economy is 70% driven by a broke consumer, it aint getting healthy.

Only + thing that inflation does to the economy is reduces the level of debt by devaluing ones currency. BUT, if our 11 trillion dollar debt to foreign banks gets reduced in this manner than the world will loose confidence in our bonds and will start selling all at once just to get out of the asset that is depreciating in value, and it will not be back. In 70's inflation was over 13% which means whatever you have in the bank fell 13% in value. THat was a walk in the park.


Just how much inflation are you talking about. Inflation is almost always accompanied by corresponding growth.
So bigger the inflation, bigger the growth will be following it........
Great then, why not print up 10 more trillions and a have a hyperinflation hoping the growth will be at that rate as well...
Are you saying we're going to have stagflation or simply inflation that far outpaces the rate of growth or some different animal altogether.
Am talking depressionary hyperinflation with no economic growth. Federal Reserve as well as this entire country is in an uncharted waters as this has never been expirienced before and has it happened that the Feds balance sheet expanded in this manner. Right now Fed in the biggest bank in this country. They are not suppose to be involved in the market like Citi is or Goldman Sachs.


Inflation comes about from a weak dollar.
No it does not. Inflation means expanding money supply......
Inflation comes from Federal Reserve printing money, so called money supply rate or M-3 used to be published untill 2006 when they stopped.
File:Components of the United States money supply2.svg - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_supply2 .svg) , look at the graph..
Weak dollar comes from new dollars that are competing with each other for the same product, thats why prices have to be raised to buy that product, leading to inflation. Everything comes from Federal Reserve. If the dollar was tied to gold we wouldnt have to worry about it as we would not be able to print it up.


Why will the dollar weaken substantially further and how far?
US Dollar Index (http://www.fxstreet.com/rates-charts/usdollar-index/) Thats the current trend of the worlds reserve currency as posted on Wall-street...
Why will it weaken? Are you kidding me?
It will weaken because of these trillions that have been printed out man?

Strength of currency is a relative condition. You can only measure the dollar's strength or weakness relative to other currencies. Dollar index measures its strength against a basket of other currencies, not only one.

What other currency will fill the dollar's role as a reserve currency?
It does not have to be one, it can be many.....
Special Drawing Rights - Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/Special_Drawing_Rights)
This is what our biggest creditor wants BBC NEWS | Business | China argues to replace US dollar (http://news.bbc.co.uk/2/hi/business/8120835.stm?lsf) specifically.
Or Gold for that matter......


Are we going to weaken against one in particular like the euro or the yuan, or will the dollar crash against all currencies?
It will not crash, it will weaken substantially, enough to actualy reflect the real economic growth of the US, not our overbloated GDP which consists of Americans getting into more and more debt for our country to prosper. When the dollar becomes weak, investment will dry up and we will not be able to rely on foreign capital propping it up anymore. Reason why we are still able to keep % rates at zero is because of the foreign capital that flew here during the economic crisis where everyone was looking for a safe status, returns or not( reason why treasury CD's are paying 1%..) Slowly that foreign capital is flowing away from the US and thats why dollar is flowing downstream with it.....
When we moved from gold standard only thing that kept the dollar strong was the economy which was flourishing back then. There is nothing holding it strong now as we have nothing to back it up with, unless a new invention comes along and replaces fossil fuels for example....

Why will those other currencies strengthen? Are they going to recover economically before we do and be substantially stronger? New Zeland or Canadian dollars have something to back them up, Canada had vast oil resources as well as New Zeland. Other countries do not have fiscal problems we now face. Chinese citizens save most of their money thats why Chinese economy still grows annualy at about 8%. They grew even when we were contracting. When secretary of state was in China she encouraged the Chinese government to keep buying U.S. Treasury bonds. This is the mechanism through which the Chinese government keeps down the value of the currency or "manipulates" its currency, in the words of some commentators. Buying U.S. government bonds keeps up the value of the dollar and depresses the value of China's currency.
Thats the same thing that Japan has done for the past 50 years and now they have a new government in place.
http://upload.wikimedia.org/wikipedia/commons/d/de/Foreign_Holders_of_United_States_Treasury_Securiti es-percent_share.gif Japan holds over 20% of our treasures buying them to prop up the dollar from going down....

And what of government debt? We've run massive deficits for decades other than a brief period during the 90's. The national debt has been staggering for years. What has suddenly changed?
We have never had these debts with these economic problems before. Debt accumulated after WWII had a reason to be there, we were in a world war. Right now we are accumulating debt just to stay afloat, thats why i told you where would your rates be if Chinese didnt lend us money.
What has changed you ask?
A'lot actually, our manufacturing base is all but gone, We were #1 steel producer in the world once when we had debt which was ALOT smaller then what it is now. We were industrialized power house and we had ways of paying off that debt thru production and exports, not printed money and inflation...

Where is the magic line that pushed us past the point of no return? When Greenspan artificially lowered interest rates to keep the economy going creating a housing bubble. When credit was used to fuel up our artificial growth, when Americans stopped saving and producing, when our debt to earning ration reached these levels.....when we started measuring ourself worth by how many thing we owned and bought even though we didnt have any money, and still dont.
You ask when, it started 20 years ago. It moves slowly just like dollar will, nothing happens overninght but days of American dominance in the world are numbered, its time to pass the torch on to those who know how to apriciate it.


Every other country with a significant economy has been spending massive amounts of stimulus as well. [We are far from the only indebted economy.
Only one country that has followed us is UK, everyone else has been saying that its a wrong idea. But you are right, we are not the only country in debt, others dont even compare. You cannot compare Zymbabve with US, or Bosnia. If you want to compare, compare us with Japanese, Chineze, Germans and other ,,developed'' nation. Nowhere in the little ,,book of economics'' does it say that the problem of debt can be resolved by accumulating even more debt. It is a LUNACY....

Indebtedness only becomes a problem when you can no longer service the debt. Have you seen the recent Treasury auction results? China continues to buy our debt because those purchases directly finance their exports to us.
China is in the process of stimulating its own economic growth thru consumption. They happen to have 2 billion people who save everything they earn, compared to Americans who spend money they dont even have, and there are only about 200 million of our consumers. You happen to think positively on even holding auctions? We should not even have them, they are a bad thing, not good. China continues to make us their slaves when it comes time to pay the pipper and you think its good if we sell bonds fast?
What will happen when Chinese citizens start enjoying fruits of their labor, when they buy that new car, new television set, they wont have to prop up those who have lived off of their savings for decades, that be us if you didnt get it. They wont have to export, they will consume their own products and be independent of anyone while still keeping tabs on its money invested in the US. Americans cannot overconsume everything forever. We spend 25% of the worlds oil which means that the rest of the world gets by on only 75% of it..same hold true for everything else expecialy if money that their exports is spend on, comes from Federal Reserve printing press and credit cards, capital which holds no value compared to the capital of those nations who produce and save...

Their domestic markets are a fraction of their exports. In other words, without our market, their economy would be a fraction of its current size. And its current size can only barely keep up with the country's needs. They need us at least as much as we need them and probably more. So they are proping up our bad behavior and it is OK with you. Maybe California should run up debt even more. It seems that everything is fine with current system in your mind. Refer to my previous response to this argument of yours which is full of holes like a swiss cheese.

You make a simple statement like inflation is coming and our debt is too high. I ask you to expand and explain and you say the question isn't worth answering? I made the pundit comment because I've come across several people that have made similar comments. "High inflation and debt are bringing us down." When question them on why and how, they have no answer. They just say I need to listen to more Rush and Glenn Beck.
I am Libertarian, i dont listen to American news media as they do not speak the truth. I turn to other news sources like that of my own which is completely based on logical thinking and reasonable understanding of the things that are happening around me. Only thing you need to do is look at the facts and if you like, follow your own instinct. I bought Gold bullion when it was 675 per ounce, it has hit over 1000 now but not overnight just like our own demise will not happen in the next year or two, but it will happen sooner than later and what that later is i dont know. You seem to still believe these same economists like our own Federal Reserve chairman when it comes to the predictions of our future economic ,,growth''. Well, here is little som-some for you to see.....http://www.youtube.com/watch?v=9QpD64GUoXw

You may very well be right...but who would ever know?
You dont understand, i HOPE I AM NOT RIGHT( not when it comes to my gold investment,please..). I hope that somehow we will overcome it but the things that our elected officials are doing just kills even that little bit of hope that I may have. Tougher times are ahead of that am sure, so i would hope that you, and bunch of your other no worrie type of friends go out and start spending the money that you dont have, just so that i can make some more of that paper and pay my house off. Am almost there, just need 1 more year for it and a truck. After that its all yours.

Good luck

[Rev.Vassago]

We have never had these debts with these economic problems before. Debt accumulated after WWII had a reason to be there, we were in a world war. Right now we are accumulating debt just to stay afloat, thats why i told you where would your rates be if Chinese didnt lend us money.
What has changed you ask?
A'lot actually, our manufacturing base is all but gone, We were #1 steel producer in the world once when we had debt which was ALOT smaller then what it is now. We were industrialized power house and we had ways of paying off that debt thru production and exports, not printed money and inflation...

It is like an unemployed person who pays his bills by borrowing money. It only creates more debt, when there is no legitimate way of paying down the debt.

Eventually there will come a time when that debt will come due, and we will have no way of paying it other than with a dollar we are forced to make worthless by printing more than our economy can handle. Then hyperinflation sets in. Yay.

[Dejanh]

It is like an unemployed person who pays his bills by borrowing money. It only creates more debt, when there is no legitimate way of paying down the debt.

Eventually there will come a time when that debt will come due, and we will have no way of paying it other than with a dollar we are forced to make worthless by printing more than our economy can handle. Then hyperinflation sets in. Yay.
It wont happen in a year or two, but it will happen. Never has a money supply of one country jumped to our current levels in the history of the world without hyperinflation. look at Yugoslavia with Milosevic or Zimbabwe with Mugabe... People think that just because we are a super power it cant happen to us. Exactly for these similar reasons did the Roman Empire fell, USSR and Ottomans as well. They all thought they were indestructible and they were all brought down NOT militarily, but economically. When Rome fell people actually greeted Octavian s because they were miserable. They ruled 500 years. We rule only 60..

[Rev.Vassago]

Million dollar question is, do we end up bringing down the economies of everyone who is heavily invested in us at the same time?

[Dejanh]

Million dollar question is, do we end up bringing down the economies of everyone who is heavily invested in us at the same time?
That is why dollar has been getting propped up for decades. It should have fallen right after its departure from the gold standard but thanx to Japan it didnt. World is heavily invested in the US, but capital has started to flow away and thats the reason why dollar has been getting weaker and weaker. If their investments are gonna go down thru the forms of inflation or weak dollar, it doesn't really matter. They will go down one way or another.

Vassago, we spent way more than a trillion dollars bringing USSR down, with that in mind, how is this for a scenario:
China holds over 800 billion dollars of our treasuries, they will buy more for sure but after their own economy is on a safe footing and self reliant thru its own consumption and exports to the rest of the world, they dump our bonds on the market. They dont care if they loose that trillion as it would bring them to a #spot overnight and their own currency would explode in value. They are communists, rule of law doesnt apply there and if their people have to suffer because of it, they will.
In the matter of hours dollar would crash and so would the US economy with everything we have ever accomplished and not a single bullet would be fired. People like No_Worries think that if people turn out to buy our debt, its a good thing because it shows the appetite for America. But they fail to see the other side of it just like thay failed to see our current economic troubles.


It is only when the tide goes down, one can see who was actually swimming naked.
Everyone looks good in a boom, its when the bust comes you see the true colors of all of these banks, managers and the country in general.

I dont think their economies will be brought down. People got the taste of being heavily invested in the US during this session of the economic downturn. They can only get smart from now on and look for that exit sign which shines all over Asia...

[Rev.Vassago]

Vassago, we spent way more than a trillion dollars bringing USSR down, with that in mind, how is this for a scenario:
China holds over 800 billion dollars of our treasuries, they will buy more for sure but after their own economy is on a safe footing and self reliant thru its own consumption and exports to the rest of the world, they dump our bonds on the market. They dont care if they loose that trillion as it would bring them to a #spot overnight and their own currency would explode in value. They are communists, rule of law doesnt apply there and if their people have to suffer because of it, they will.
In the matter of hours dollar would crash and so would the US economy with everything we have ever accomplished and not a single bullet would be fired. People like No_Worries think that if people turn out to buy our debt, its a good thing because it shows the appetite for America. But they fail to see the other side of it just like thay failed to see our current economic troubles.


The major flaw I see in that is that we are their biggest customer. We are the biggest importer in the world (3 times as much as #2, which is Germany), and if our economy collapses, so does our importing. We are, however, the #3 exporting country (very close behind China), so frankly I can't see how it would be in their interest to purposely try to destroy us. They'd ultimately be destroying themselves as well. I don't believe China could take that kind of a hit.

[Dejanh]

The major flaw I see in that is that we are their biggest customer. We are the biggest importer in the world (3 times as much as #2, which is Germany), and if our economy collapses, so does our importing. We are, however, the #3 exporting country (very close behind China)
Rev. what people miss out on that first point of yours is that we have been buying their products with the money that we do not have...credit is not real capital expecialy if it comes from the fed which creates it out of thin air, not savings and surpluses.
Imagine how ,,big'' our economy really is if we hold #3 spot as the worlds exporter, yet run 2 trillion dollar deficit. Thats the window into the US and just how over bloated everything here is. We just spend and consume.....and if we export this much, why is our deficit 2 trillion dollard. It should be zero.

, so frankly I can't see how it would be in their interest to purposely try to destroy us. They'd ultimately be destroying themselves as well. I don't believe China could take that kind of a hit.
No, i understand that point of view but just the notion that they have us in their arms even though we have bigger military and better tech than them, sends chills down my spine regardless on how you look at it.

China will eventually overtake us as the worlds biggest economy and i hate to see us being in dept up to our ears to them at that time. If they, and they will, stimulate their own consumption, they will not need us to buy their products. They will be self reliant as their own living standard would rise and ours would fail as it should. Fact that they are buying our debt is not a good thing, with it they are buying piece of this country and our elected officials dont seem to think so....

Discussions of this type are healthy and good.

[heavyhaulerss]

Remember what is said here. China will self implode in the future. China cannot sustain it's current system. I predict this will happen in 10-20 years.

[no_worries]

Oy! Where to begin...

We were a debtor nation in the 70's and we are still a debtor nation today. It's true that our national debt was at its lowest point since 1940 during the Carter administration (roughly 30% of GDP) but we still had substantial debt at that point. In fact, despite the rhetoric, our current debt level, at approximately 75-80% of GDP, is still well below the historical highs of 120%. Consequently, that period preceded one of the most prosperous times in our history. Bretton Woods collapsed in 1971. It's true we had high inflation in '74-'75 and '79-'81. Volker did raise rates to 20%, but they were at 11.2% when he started. That was also during the economic equivalent of Armageddon; stagflation. His primary mandate as Fed chief was to control inflation which he did, bringing it from 13.5 to 3.2 in two years. Of course it sent us into a deep recession, but we recovered and have not sniffed inflation higher than low 6's since.

What happens when you increase the supply of something? That's right, you decrease the value. So, inflation IS caused by a declining dollar. A decline in value can be due to either an increase in supply (your M3) OR a decrease in demand. Your definition relating to M3 is most often attributed to hyperinflation. Other than this extreme case, inflation is more reliably a product of supply and demand of goods. A simple cross analysis of your own chart will show that M3 is not a reliable indicator of inflation. It does coincide at particular points but fails to track the full inflation path. As a final point, there was inflation long before there was a Federal Reserve or currency.

OK, I just can't go back and address everything, so I'll stick with your predictions going forward. Your assertion is that we're headed for economic ruin, i.e. "depressionary hyperinflation" because of a rapidly expanding M3, unprecedented debt, and minimal manufacturing base...correct?

First, let's dispense with the talk of M3. The data is not released anymore so unless you're willing to go mine the various data points to come up with the number, there is no reliable number. Wikipedia is notoriously unreliable and when the chart you get from there is already an estimate, I hesitate to put much stock in it. But, we don't need M3 to predict inflation. Inflation WILL result from a weakening of the dollar due to declining global demand for dollars. Demand for dollars is due primarily to one thing; perceived safety. The reason that the dollar is the de facto reserve currency is because it is seen as safest currency. Will this change? Perhaps. If the World begins to doubt our ability to finance our debt, the chance of default rises and investors will look elsewhere. If you compare debt to income ratios around the developed world, the U.S. is near the top. And China? While the official figure is 17.7%, as with most Chinese government statistics, it is incomplete. Analysts estimate that China's true debt to GDP ratio is closing in on 60%. The Euro? Given their own debt issues and the increasing strain being put on eastern European members due to the highly valued currency, I don't look for the Euro to survive in perpetuity. As for your assertion that most countries aren't employing significant stimulus plans, let's look at the numbers:

China 6.9% of GDP
U.S. 5.5%
Japan 2.3%
France 1.3%
Germany 1.6%
New Zealand 3.7%
Spain 8.1%
Saudi Arabia 3.3%

The U.S. was not alone in launching massive stimulus plans. It's true that ours dwarfed most others in dollar figures, as it should given the relative size of the economies. The bottom line is that our debt level is not at the near bankruptcy level that the doom-and-gloomers and gold bugs would have you believe. The fact that we continue to have high demand for our paper is a testament to this fact. It is still more desirable to own dollars than any other currency for the purpose of reserves. As for China's noise about SDR's, that's old news. They made those statements leading up to some high-level meetings to try and bolster their position during negotiations. There hasn't been a peep about it in months. However, even if the dollar was supplanted at the World's reserve, it doesn't necessarily create a problem. Excess liquidity can be sopped up relatively easily. Like any other borrower, the World will continue to buy dollars so long as they thing they will be paid back. Which takes us into the true heart of the issue, the U.S. economy.

You're absolutely right, we have lost the bulk of our manufacturing base, the long-term absence of which would cause significant problems. However, there are two possible remedies on the horizon. One is the repatriation of industry. There were two primary factors in the massive expatriation of U.S. manufacturing. One was cheap labor, we can't do much about that. The other was cheap transportation. The days of cheap energy are over and with it, cheap transportation. When companies have to pay significantly more to bring their goods back to U.S. markets, many of the cost advantages of being overseas evaporate. We've already begun to see it in the last few years. Look how many foreign automakers now have plants here. The same with the steel industry. I believe we are seeing the beginning of a trend to bring capacity back into close proximity to the end user. Anecdotal evidence for this fact is popping up all over and this in the midst of recession.

It's true that Americans have overconsumed and that debt as grown too high. However, for your predictions to become reality, those patterns would have to continue. We have already seen drastic changes in consumer behavior and regulation is going to put the damper on the unfettered lending we experienced. At the end of the day, this will be one more in the unending string of economic cycles. Rapid growth is ALWAYS followed by a sharp pullback. Consumers, businesses, and governments adjust how things are done and we move forward again.

I'm glad you've made a paper profit on your gold purchase...how will you know when to get out? Me, I got out of the market in February of '07, got back in long enough to pick up 20% in March, and then remained only 30% invested through the Summer. I'm pulling out this week. I'm pretty happy with my returns and they're due to following the principles of the economists you hold in such disdain. As for your editorial comments about my spending and financial habits, you might want to make sure you know what you're talking about before ascribing particular characteristics.

[Dejanh]

I wish you luck in your future adventures, may you prosper like never before and all of your predictions come true...

[Longsnowsm]

We might get a couple of years where the economy stabilizes due to the bailout money, but like Rev stated it is like an unemployed guy living on credit cards. The bills will come due. Most of the tarp money doesn't get spent until 2010 and 2011. At the same time the next two largest waves of mortgage resets also happen at that same time frame. 2009 was actually a lull in the mortgage resets so any semblance of stability in the real estate markets will soon fade next year.

There is no way to know when this ponzi scheme, house of cards will collapse. It all depends somewhat on what no_worries alluded to with everyone in a race to the bottom. They are all devaluing their currency and monetizing their debts because there isn't enough capital to "sop up" all of this debt. The Federal Reserve has now been caught monetizing our debt even after stating they wouldn't do so. The 5 year treasury auction was a failure this week which is surprising since we are pretty sure the Fed has their buyers out there pushing up demand to try and convince everyone that China, Japan, India and others are not going to pull out of our debt markets. It is this 'artificial demand' that is keeping rates down by the Fed's own purchases behind the scenes. Everyone who is following this story knows it so how long do they think they can keep this up before they push everyone out of the markets due to this slimy tactic?

If you want to follow M3 shadowstats has a pretty good take on the M3 money supply... His numbers seem to be pretty close to what is happening, and the money supply has gone to the moon.

It is true that China isn't going to drop all their dollars and run. They will try to make this a gradual shift to preserve as much of their capital as possible. But the signs are becoming much clearer that the plans to run trillion dollar deficits going forward will not be financed on the backs of foreign investors for much longer. So where does that money come from? And what is the ultimate outcome? I see some interesting hypothesis here, and some of the same banter in the media. But does anyone truly know how this will unfold? We aren't the same country we were in the 1920's and don't have the resources we did then.

I have been modeling my data after the great depression era and so far it appears to be tracking, but I do have some concerns going forward. Our country isn't as well off today, and doesn't have the means to pick itself up by it's bootstraps because the resources don't exist today to do it. Debt as a percentage of GDP has only been higher during WWII. We aren't fighting a world war today. Secondly you just have to look at the chart of the exploding debt to see that this thing has gone straight off the charts in the few years. The government is addicted to cheap money, and if rates do go up because there aren't enough morons on the planet to buy that debt the government will not be able to afford to pay it's bills. It is pretty simple really in that regard. We were largely an agrarian society back then and people still knew life skills, how to survive, and how to feed themselves. I don't think we can say that about the general population today. So the potential for much larger scale starvation, sickness, and death is many times magnified today.

I am not completely sure that the near term will be inflationary as the bubble prices for everything based on those debts which cannot be paid are collapsing. The derivatives markets are still completely in chaos with somewhere between 500-800 trillion out there depending on who's numbers your using. Roughly 30% of that market is non-performing(ie trash). So you run the numbers and figure out how many hundreds of trillions of dollars in non-performing assets are collapsing. Then ask yourself what happens next? Does the government keep printing money to try to write off the estimated 200 trillion dollars in bad bets taken by the banks? Who exactly is gong to foot this bill? Our government and others around the world seem to think they can print their way out of this. Through monetization maybe they could pay off the debts by just printing the money, but not in the form of more government debt because most of the governments who have been suckered into this game of chicken are already buried in debt. So the near term is likely to be deflationary until they can throw enough funny money at the system to give it a temporary sugar high. But that money won't last long, and the effects are very temporary. And what about those investors who were buying our debt or the debts of these countries? What do you expect them to do? Just hold onto assets that are growing more worthless each day that the central banksters keep printing money in an effort to save their precious ponzi scheme?

So for those that think that the debt issue is a non-player I think you need to reach for your ears, pull until you hear a loud pop, because many of us have been talking about this for decades, regardless of who is in the White House, or which party thinks they are in charge. If you think about it we really have only been using this fiat money system since 1971, and in less than 40 years and we have bankrupted the nation. Too many people without some standard or measure to keep them in check will run completely out of control and that is exactly what has happened to this country and many others around the world. I am all for a gold standard, oil standard, some sort of limited commodity standard that our currency needs to be pegged against to control the supply of money and to reign in spending. Why there hasn't been a balanced budget amendment and a requirement to pay down the national debt can only be explained by bought and paid for politicians in the pockets of the banks and Wall Street.

So if you trust these economists talking all this smack then good for you. These are the same clowns that were telling us that the economy is fine, and didn't see this coming. Now they are suppose to be the experts you trust? Sadly I only wish we had the ability to pull back from the brink here, to pay down our debts, and restore some sanity regardless of how hard it would be in the near term. I just don't think either of the two political parties have the brains, guts, or tenacity to get it done which is why we keep getting the same nonsense no matter which one is is power. It will require a full fledged, OMG crisis before they will do anything. The only time they talk like they are sane is when they are not in power. As soon as they are elected they start off on mandates and "mission from god" that I don't recall getting much headlines when they were campaigning nor do they line up with the ideas espoused with things like "paygo", and smaller government, and reducing wasteful spending. It is all just a bunch of BS.

The next time your out cheerleading the party in charge for the latest emergency mandate which will cost an insane amount of money how about asking just how it gets paid for, and insist no more debt. Can we afford the latest proposals put out by the current administration? I say no way. But I am also one of those few that has been screaming about the Iraq war and the massive costs there. We cannot afford this nonsense. So put down your partisan mindset and stop defending stupidity. These morons in DC will bankrupt the nation and will be standing there next to these same Wall Street types, banksters, and economists and saying "We just couldn't see it coming". BS, absolute BS.

Stop looking for an angle, a scheme, an easy way out of this and grow up. Make the hard choices, slog through it all, learn the lessons before millions if not billions of people get killed by this corruption laden fraud being played out on a global scale.

It doesn't take a rocket scientist to see the banksters, international corporations, and governments all shuffling the deck chairs on the titanic all the while behind the scenes setting up an even larger global currency market, and even larger ponzi scheme. They will drive everyone to the brink and then offer the new solution as the savior, the answer. They will even try to make it sound sane with some sort of commodity backing, and "assurances". People need to wake up and smell what is being shoveled at us. This is nothing more than a massive power grab on a global scale. Send these guys packing, let them go broke, run off the vampires that are feasting on our stupidity. It is hard to imagine people with this kind of ambition, greed, and power, but it is what is happening.

For those defending the current actions of our Fed and government, were you defending them before the last election? Probably not, wake up, and put down the partisan BS. Our country is on the line here. You can be sheep or Patriots. It is time to demand fiscal sanity, and a serious right sizing of our government. If we don't do it soon, and demand that we pay down our debts, and balance our budgets(oh, and not steal it from Social Security and say the budget is balanced) there won't be a country left.

The so called boom years that have happened the last 10 years has been nothing more than a mirage of debt fueled by cheap easy money sloshing around in the system. Our way of life has probably been altered permanently. Until we get rid of our bubble mind set and start looking at what we have to work with now we are going to continue to make the same dumb mistakes that got us into this mess in the first place. Time to dump bubble brain thinking for sound judgement and thinking no matter how hard it is to swallow.

Transportation was a good leading indicator going into this mess. If we don't see signs of recovery in transportation then where exactly is the economy "recovering"? Until you see signs of life in transporation there is no meaningful recovery coming. Transportation has been the canary in the coal mine and so far it has been accurate. To add more fuel to the fire the consumer is 70% of the economy, please explain how you can have a "jobless" recovery? Stopping the decline, or not getting any worse is not a "recovery". The government thinks they can make up for the lack of spending by the consumer? That should be a neat trick considering the duration it will take for the consumer to dig out of the pile of debts if they even have jobs to pay those bills. Everyone cannot just declare bankruptcy and call it a day... Or can they?

Longsnowsm

[GMAN]

We had greater fiscal restraints when we were on the "gold standard." In other words, we had hard assets to back up our currency. We have a history of getting into a major war when the economy goes this far south. WWII helped move us out of the last depression. Most of the elements are already in place. When we get into a global conflict it moves many from the private sector and unemployment rolls to the war machine. One major difference between WWII and now is that we produced most of our own food and products. Today, much of our military equipment is manufactured abroad. That could put us in a vulnerable position.

[Longsnowsm]

The other thing that is different between WWII and now is that they had room on the credit cards to fund that war machine. Today we have blown it on garbage and don't have room on the credit cards to fund something like this on a global scale. We don't have anything to show for the money we spent, no manufacturing, no capital, no real source of wealth to draw on. This is going to be ugly with a capital UGLY.

I agree, I think they will try to push us into WWIII as soon as they see the funny money not working. That is why I alluded to the millions if not billions that will die due to this giant fraud unless we put the brakes on it now and let the criminals go broke... You know they have this setup as the fall back if the "public works" programs don't produce the miracle recovery they anticipate. Just like FDR this too will fall on it's face and they will be forced to extreme measures. The problems are too massive to be overcome with the kind of money they are trying to throw at it. At the current rate of spending for stimulus we will be at the same level of GDP to debt ratio we had during WWII very quickly, so where they will get the money to fight this global war is going to be interesting.

I am all for a gold standard. Money supply directly linked to the gold we have on hand. No gold leasing, no more funny money contract games with gold that has been used to manipulate the gold markets. What gold you have on hand is what you can put in circulation. Until we get back to sound money and sane fiscal policy we are all just standing around listening to the band play on the deck of the Titanic. I think if we can get the Federal Reserve audited and when the truth gets out of the fraud on a global scale we might just get the political will to run this band of banker thieves out of town... I dare to hope and dream!


Longsnowsm

[GMAN]

Prior to WWII we were in an isolationist mode. FDR wanted to get us into the war, but the people felt that it wasn't our business...at least until the Japanese attacked Pearl Harbor. FDR did get us involved indirectly prior to our formal declaration of war with Germany when he came up with a "lend lease" program. Basically, he loaned or leased Great Britain tanks and other hardware they needed to fight the war. It was a way to help without having our troops directly involved. We didn't have much money or debt prior to the war beginning. In fact, I believe we actually had a balanced budget prior to the war. The war was pretty much financed with "War Bonds." Many of those who purchased them were individuals. We were still trying to come out of the Depression. I believe the unemployment rate was somewhere around 20-25% just before the war. This is from memory, but I think those numbers are close. When we first got into the war, we had thousands of men who enlisted to fight. That left mostly women and older men to build the war machines. We had massive rationing of simple things like sugar, shoes and gas. We sacrificed because of a single purpose....to defeat Japan, Germany and Italy.

[Dejanh]

I think that it it too late for us to move to the gold standard as the golds supply could not meet our demand.Chinese recently announced that they control over 33.89 million ounces of gold for monetary purposes. That’s an increase of 75% in Chinese gold holdings over the past six years. whenever IMF sells gold China buys it. we are behind the curve in many ways i think.


After the alcohol wears off, we will have a hell of hangover..


http://www.cnbc.com/id/33004753 am amazed to see our media actualy report on this..WOW..

"The U.S. has to quit spending, cut back, start saving, and scale backward," Robertson said. "Until that happens, I don't think we're anywhere near out of the woods.”..........

[GMAN]

That is an interesting link, Dejanh. I don't understand why these people we have elected to represent us have put this country in such jeopardy. This is not something that happened over night, but you cannot continue to pass the buck when it comes to solving this problem. We need to cut government spending and start cutting payroll at all levels of government. We only need about 1/3 of the government we actually have in place. Rather than confronting the problem and trying to solve it, these people spend more money than ever. We also need to cut taxes and encourage more businesses to start up and expand. Greater fiscal responsibility and lower taxes would go a long way to encourage businesses to locate here.

[Longsnowsm]

I am not sure I buy the idea that there isn't enough gold to go around, it just means that the price of gold goes up dramatically and is no longer manipulated by the Federal Reserve. They have now been caught manipulating the price of gold with swaps:

Federal Reserve Admits Hiding Gold Swap Arrangements, GATA Says - Yahoo! Finance (http://finance.yahoo.com/news/Federal-Reserve-Admits-Hiding-bw-2550373789.html?x=0&.v=1)

They have been accused of this for decades now, but apparently now they have admitted it. A couple of weeks ago we caught them secretly buying treasuries with money they created out of thin air. Again something they said they wouldn't do. They have been asked where 2.2 trillion dollars went in bailout money and have told congress they don't have to tell us where the money went. So the plot thickens.

Strangely the weaker dollar could help propel us back to a more competitive place in the global market place. If the dollar is weaker it becomes cheaper to do business here and cheaper to manufacture here. The downside is that we become a much poorer nation than we are today for that to happen, and it means that these other countries who are playing chicken by racing to the bottom would have to wise up to the insanity and stop allowing these bankers to bankrupt their countries. So I guess we will see how this plays out.

I think it will help to reduce taxes, but it will take a lot more than that. I also think we need to wise up to the role that the international criminals have in the way this is playing out. Between the Wall Street crowd and the bankers they own this country(and planet). Unless someone puts these guys on a short leash we are not going to get out of this mess.

Our politicians are not going to pretend to act on our behalf until they think they have a reason to listen to us. Our population has become addicted to government handouts and the overbearing role it has taken in our society. Sorta like a crack head who constantly needs a fix. The government has created generations of "dependents". Unless we can wake people up and realize the dangers of the "matrix" they are in they will continue in denial.

Longsnowsm

[GMAN]

I seem to recall JFK wanting to get rid of the Federal Reserve when he was president. We were a stronger country and our money was more stable when we used gold as the standard. We could not just print money when we need it. I think every country needs to have a means to back up their currency. I think the only ones who benefit from not having gold reserves are the Federal Reserve banks. Most people don't realize that the Federal Reserve is not owned by the government. It is owned by a group of banks, mostly European. I think it makes it easy for them to manipulate the world economy. I suppose you could build a good conspiracy theory around those thoughts.

[no_worries]

I won't get into the rest (except for the part about last weeks 5-year being a failure; a 2.4 bid-to-cover is hardly a bust in the world of Treasury auctions) but about this gold standard...why does pegging your currency to something that has dubious intrinsic value, is easily manipulated, and is subject to volatile supply and demand pressures seem like a good idea?

[Rev.Vassago]

Most people don't realize that the Federal Reserve is not owned by the government. It is owned by a group of banks, mostly European.

Completely untrue.

Who owns the Federal Reserve?
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

FRB: FAQs: Federal Reserve System (http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5)

I suppose you could build a good conspiracy theory around those thoughts.

Indeed. False information makes the best conspiracy theories.

[Rev.Vassago]

why does pegging your currency to something that has dubious intrinsic value, is easily manipulated, and is subject to volatile supply and demand pressures seem like a good idea?

Because people see the value of gold constantly rising, and they buy into the hype that it will continue to do so indefinitely.

At current prices, there isn't enough gold to support a gold standard, which means that to go back to such a standard, the price of gold would have to increase exponentially. It would eliminate effective monetary policy to deal with fluctuations in the economy during a recession. Many blame the gold standard for prolonging the Great Depression.

[leaseman]

As a truck financing company we haven't seen any change in the incomes of our clients. They all have same thing to say about income as they did several months ago. We are seeing a slight increase in submissions however.

[GMAN]

Completely untrue.

Who owns the Federal Reserve?
The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.
As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

FRB: FAQs: Federal Reserve System (http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5)



Indeed. False information makes the best conspiracy theories.





Federal Reserve Act

Section 5. Stock Issues; Increase and Decrease of Capital

1. Amount of Shares; Increase and Decrease of Capital; Surrender and Cancellation of Stock

The capital stock of each Federal reserve bank shall be divided into shares of $100 each. The outstanding capital stock shall be increased from time to time as member banks increase their capital stock and surplus or as additional banks become members, and may be decreased as member banks reduce their capital stock or surplus or cease to be members. Shares of the capital stock of Federal reserve banks owned by member banks shall not be transferred or hypothecated. When a member bank increases its capital stock or surplus, it shall thereupon subscribe for an additional amount of capital stock of the Federal reserve bank of its district equal to 6 per centum of the said increase, one-half of said subscription to be paid in the manner hereinbefore provided for original subscription, and one-half subject to call of the Board of Governors of the Federal Reserve System. A bank applying for stock in a Federal reserve bank at any time after the organization thereof must subscribe for an amount of the capital stock of the Federal reserve bank equal to 6 per centum of the paid-up capital stock and surplus of said applicant bank, paying therefor its par value plus one-half of 1 per centum a month from the period of the last dividend. When a member bank reduces its capital stock or surplus it shall surrender a proportionate amount of its holdings in the capital stock of said Federal Reserve bank. Any member bank which holds capital stock of a Federal Reserve bank in excess of the amount required on the basis of 6 per centum of its paid-up capital stock and surplus shall surrender such excess stock. When a member bank voluntarily liquidates it shall surrender all of its holdings of the capital stock of said Federal Reserve bank and be released from its stock subscription not previously called. In any such case the shares surrendered shall be canceled and the member bank shall receive in payment therefor, under regulations to be prescribed by the Board of Governors of the Federal Reserve System, a sum equal to its cash-paid subscriptions on the shares surrendered and one-half of 1 per centum a month from the period of the last dividend, not to exceed the book value thereof, less any liability of such member bank to the Federal Reserve bank. [12 USC 287. As amended by act of Aug. 23, 1935 (49 Stat. 713).]





It sounds to me as though the Federal Reserve is owned by private banks. :cool:

[GMAN]

I am not sure I buy the idea that there isn't enough gold to go around, it just means that the price of gold goes up dramatically and is no longer manipulated by the Federal Reserve. They have now been caught manipulating the price of gold with swaps:

Federal Reserve Admits Hiding Gold Swap Arrangements, GATA Says - Yahoo! Finance (http://finance.yahoo.com/news/Federal-Reserve-Admits-Hiding-bw-2550373789.html?x=0&.v=1)

They have been accused of this for decades now, but apparently now they have admitted it. A couple of weeks ago we caught them secretly buying treasuries with money they created out of thin air. Again something they said they wouldn't do. They have been asked where 2.2 trillion dollars went in bailout money and have told congress they don't have to tell us where the money went. So the plot thickens.

These people have become so arrogant that they think that they are above the law. It seems strange to me that this so called bank failure coincided with the dramatic 50% (approx) drop in oil futures prices. Gee, I wonder if there could be a connection?!


Strangely the weaker dollar could help propel us back to a more competitive place in the global market place.

I think this was the reason Nixon took us off the gold standard. The dollar was very strong at that time. He felt that it would be in our best interest to devalue our currency in order to be more competitive on the global marketplace. In fact, I believe Nixon voluntarily devalued our currency to make it weaker and more competitive.

I think it will help to reduce taxes, but it will take a lot more than that. I also think we need to wise up to the role that the international criminals have in the way this is playing out. Between the Wall Street crowd and the bankers they own this country(and planet). Unless someone puts these guys on a short leash we are not going to get out of this mess.

I am not sure they can put them on a short leash at this time.


Our politicians are not going to pretend to act on our behalf until they think they have a reason to listen to us. Our population has become addicted to government handouts and the overbearing role it has taken in our society. Sorta like a crack head who constantly needs a fix. The government has created generations of "dependents". Unless we can wake people up and realize the dangers of the "matrix" they are in they will continue in denial.

Longsnowsm

These handouts are there for big businesses as well as individuals. Both have become addicted. A small business can't always find assistance unless they are a member of a minority group. I remember several years ago I attended an SBA seminar. There were many programs for women and minorities, but practically nothing for white men. It seemed strange that they would discriminate so blatantly.

[Rev.Vassago]

It sounds to me as though the Federal Reserve is owned by private banks. :cool:

I know my post had lots of big words in it, but if you look at the last few sentences, it covers this. I'll put it in bigger letters so maybe you'll see it:

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

[GMAN]

The Federal Reserve is owned by banks. It is in your post. It is also in what I posted. I suppose you missed that. The fact that they pay a guaranteed percentage has nothing to do with ownership. It is set up similar to those owning preferred stock in a corporation. It is a pretty good scam they have set up for themselves. They are guaranteed a 6% profit or dividend no matter what. I suppose you can pick and choose what you want to believe. What you originally posted showed that they were owned by private banks. You need to read your own post before trying to dispute what I or anyone else says. If you need help in reading it again, I will be glad to pull that part out for you. :roll:

[Rev.Vassago]

I suppose you can pick and choose what you want to believe.

You seem to be doing a good job of it, so yes. You can. But I can see how a sentence like "The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution" can be misconstrued into believing that they are owned by someone.

You see what you want to see. I've said it before, and I'll continue to do so. Conspiracy theories shall abound.

[GMAN]

I don't recall mentioning conspiracy theories. I think that you are confused. It says that the Federal Reserve Banks are owned by member banks. It also states that they are guaranteed a 6% return by law. According to the article, banks must purchase stock in order to be a member of the Federal Reserve. Since they operate as non profit they probably don't pay income taxes. It plainly states that they have a guaranteed dividend of 6%. There are many major corporations who would love to have a guaranteed 6% dividend, especially when it is tax free.

[Rev.Vassago]

I don't recall mentioning conspiracy theories.

I suppose you could build a good conspiracy theory around those thoughts.

http://www.classadrivers.com/forum/owner-operators-forums/38660-rates-may-have-not-yet-bottomed-5.html#post463867

[Longsnowsm]

Actually Rev you would be wrong. I believe there is info out there that talks about the worlds largest banks are the actual share holders of the Federal Reserve shares. They are not available to the public and they are in fact a private bank. No conspiracy, go get your information from someone besides the Fed. The Fed is no more Federal than Fedex. Time to do some digging... It is well documented. I would suggest you go watch "The Money Masters" on YouTube, you might just be surprised at how this game is played.

On the gold standard I think if we have to explain gold standard vs fiat paper that is printed on demand and destroys value and wealth then it is a waste of time talking about it. It is clear you believe and trust the crooks to lead us out of this. So let's check back in here in about 5 years and lets see who is right and who's trust is misplaced.

You guys we have the fox watching the chicken coop, and giving us the reports everything is fine... Go figure.

Longsnowsm

[Longsnowsm]

I am glad someone touched the topic of the great depression... Blaming the gold standard for shakey lending practices and out of control credit/lending during those days is some sort of joke right? Credit lines, margin accounts, and out of control lending created the bubble that caused the crash and depression. The bankers try to state that the gold standard prolonged this? Well how about creating money out of thin air and then somehow expecting that money to materialize when there wasn't enough real money in circulation to even begin to cover the credit and debt markets cash that had been created.

This is not an issue with the gold standard, but in fact and issue with the people who are suppose to regulate the banks and ensure that they have both the reserves in "real money" and to ensure that the money supply is adequate to respond to the needs of the economy. IE it was the job of the FED. This was a banker created fiasco, and yet we still have learned nothing and still listen to the guys who got us into the mess in the first place.

You do recall that the Federal Reserve was in fact setup to deal with money supply and monetary policy due to runs on the banks and basically insolvent banking institutions and out of control fractional reserve standards created a situation of instability. So they put Fed in charge(handed the keys to the hen house to the fox) to make sure this would never happen again... And along comes 1929 and we were off to the races all over again.

So to somehow say that the gold standard was to blame when it was loose banking standards and poor monetary policy that clearly was to blame is a nice ploy... Bankers blaming everyone and everything else for problems they themselves created. Starting to sound familiar... Where have I heard this story before.... hmmm

So how many banks are out there right now are leveraged 20-1, 30-1, 40-1? And they claim that 10 or 12-1 is a good reserve ratio. This is a joke right? Is is April already?

Longsnowsm

[no_worries]

Most of that "info" emanates from Eustace Mullins' 1952 book outlining the "conspiracy" of the Fed. Nevermind the fact that his sources can't be verified or that his claims of ownership are contradicted by public records. Oh, there's also the little problem that he happened to be anti-Semitic and that his theory boiled down to the claim that it was all a plot by evil Jews in Britain. Other than that, I'm sure it was sound.

Here's yet another source for how the Fed is structured:

Ownership of the Federal Reserve System (http://www.usagold.com/federalreserve.html)

It's even taken from a goldbug site, so maybe that leads a little extra credence. Then again, it's properly referenced so it doesn't qualify as a good source for conspiracy theorists.

Don't explain the gold standard relative to fiat currency. Simply make a case for the gold standard...period. Since it's such an obvious solution, it shouldn't be too difficult.

If the gold standard is the answer in five years, it should have been the answer 5 years ago, and 10 years before that, and 30 before that. Rev was right, the length and depth of the Great Depression was a direct correlation to how long a country stayed on the gold standard.

[GMAN]

I found a couple of things when I looked at the Federal Reserve Act outlined on their website. The earnings is what was previously posted.



Section 7. Division of Earnings

Dividends and Surplus Fund of Reserve Banks


(a)

After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock.


I found the tax exemption particularly interesting. I thought that was the case, but it is in black and white on their website.


Exemption from Taxation

(c) Federal reserve banks, including the capital stock and surplus therein, and the income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate.

[Longsnowsm]

Strangely many of the advantages of the gold standard or even a bimetalism standard are also some of the so called weaknesses, but here is my favorites.

1. Stable money supply
2. Long term lower inflation rates, and promotes price stability over the long term.
3. Limits the ability of the Fed or the Treasury to play games with the money supply.
4. If adopted in a framework similar to Bretton Woods it would provide fixed exchange rates and a framework for trade that is equal and not suspect like the current games being played in the currency markets. In a gold or bimetalism standard we know what the value of the underlying metal is, but today do you really know what a dollar is worth?
6. Provides a standard for exchange that is easily defined and less vulnerable to whims of other nations
7. Real interest rates would be force to reflect the reality of the monetary situation and would in fact be raised to support the peg of the dollar to the valuation of the gold price in order to maintain the standard. No more playing the fraudulent manipulation of the interest rates through Fed buying and other players in order to support run away spending and debt or to bailout failed monetary policies of our trading partners.
8. The monetary system is self regulating.

There are some really interesting articles talking about just how the Fed and the Treasury before it made major mistakes with the banking and monetary policy. The big mistakes that lead to the excesses which caused the Great Depression were much the same mistakes we see today. The real bills doctrine and poor adherence to the Gold Standard Act of 1900 setup the banking system for disaster. This allowed the Fed and commercial banks to use loans as collateral or as basis for money creation. The weapons of financial mass destruction of the day were the unregulated margin accounts very much like the derivatives issues we have today. Yet more creative ways to game the system, disregarding the risks, and creating financial institutions that should have been forced to fail. In the Great Depression they let many of those banks go under, and that is exactly what they should have done today. The Federal Reserve Act states that nothing in the act was to usurp or undermine the Gold Standard Act. However this is exactly what they did and the use of credit and debt became the basis for over leveraged and under capitalized banks.

I find this article rather enlightening on the subject: http://www.aier.org/ejw/archive/doc_view/3659-ejw-200508?tmpl=component&format=raw

The reference to 5 years is not stating that we will need the gold standard or some real terms monetary standard in 5 years. The reference to 5 years is my estimation of how long before the giant Madoff like ponzi scheme the Fed is running is revealed to all. You see there is no way they can monetize this massive derivatives nightmare that is unraveling. This is the making of the the commercial and investment banks and other creative financial institutions without regard to the risks to the system. The watchdog is suppose to be the Fed. The Fed created the mess during the great depression and they created this nightmare we have today.

Oh, and to the question of the Federal Reserve being Federal. Here just a few excerpts from some court cases that clearly lay out the Fed is owned by "regional commercial banks". This is just one of many places the information can be found if one chooses to do some digging... No conspiracy involved, just good old fashioned horse sense that the US government should be controlling the monetary policy and regulation of the banks and not some "for profit" consortium of banks that attach debt to ever dollar put in circulation. The Fed does the bidding for it's share holders who are "for profit institutions".
The Federal Reserve is a Private Financial Institution (http://www.globalresearch.ca/index.php?context=va&aid=8518)

An excerpt:
"Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board. The Federal Reserve Board regulates the Reserve Banks, but direct supervision and control of each Bank is exercised by its board of directors. 12 U.S.C. Sect. 301. The directors enact by-laws regulating the manner of conducting general Bank business, 12 U.S.C. Sect. 341, and appoint officers to implement and supervise daily Bank activities. These activites include collecting and clearing checks, making advances to private and commercial entities, holding reserves for member banks, discounting the notes of member banks, and buying and selling securities on the open market. See 12 U.S.C. Sub-Sect. 341-361."


Longsnowsm

[GMAN]

I think our prices were much more stable in the U.S. when we were on the gold standard. It seems to me that our standard of living was higher. Oil prices were stable. We also exported more of our manufactured products. We made most of what we used back then. Wages were lower than today, but our money went further.

[no_worries]

Strangely many of the advantages of the gold standard or even a bimetalism standard are also some of the so called weaknesses, but here is my favorites.

1. Stable money supply
2. Long term lower inflation rates, and promotes price stability over the long term.
3. Limits the ability of the Fed or the Treasury to play games with the money supply.
4. If adopted in a framework similar to Bretton Woods it would provide fixed exchange rates and a framework for trade that is equal and not suspect like the current games being played in the currency markets. In a gold or bimetalism standard we know what the value of the underlying metal is, but today do you really know what a dollar is worth?
6. Provides a standard for exchange that is easily defined and less vulnerable to whims of other nations
7. Real interest rates would be force to reflect the reality of the monetary situation and would in fact be raised to support the peg of the dollar to the valuation of the gold price in order to maintain the standard. No more playing the fraudulent manipulation of the interest rates through Fed buying and other players in order to support run away spending and debt or to bailout failed monetary policies of our trading partners.
8. The monetary system is self regulating.

Longsnowsm

Even if, for the sake of argument, we grant that these items are true, they are not unique to a gold standard. They are true of ANY commodity backed currency. All of these advantages are really byproducts of two of the items; a pegged value and fixed exchange rates. All well and good, except for the fact that the success of the system is reliant on all parties adhering to the standard. How are you going to accomplish this? We have seen time and time again, the main obstacle to any fixed exchange is keeping everybody in line. History has shown that countries decouple when economic turmoil hits and because of the deflationary nature of the gold standard in such an environment, those that remain pegged longest suffer the most creating a substantial disincentive.

Whether or not the gold standard would actually work as claimed is something of a moot point without first establishing how full participation would be ensured. History has shown that countries only remain parties to the system until economic realities dictate otherwise.

As for the Fed, nobody has argued that it isn't a privately held entity. Both Rev and I posted information detailing the same ownership structure of the member banks. However, the Fed is not controlled by the member banks. While the boards of the 12 regional banks are formed as you mentioned, the Board of Governors which overseas the entire system, including the 12 Regionals, is by Presidential appointment. The FOMC, which is responsible for policy, is made up of the 7 members of the BOG (appointed) and 5 of the 12 regional presidents. Being a member bank in the system is not akin to being a normal corporate shareholder. Members only direct voting is in electing 6 of the 9 board members of their Regional. Every member has one vote, regardless of size.

In short, it IS the government that's controlling monetary policy, for better or worse.

[Longsnowsm]

No_Worries,

I think if you look back at my earlier post I actually mentioned oil, and other commodities as a possibility for a monetary system like this. Anyone looking at the long term stability of that type of system knows that those that dump the standard in face of their own economic issues is doing so out of expediency and only make the situation worse for a longer period of time. The correction appear to happen quickly in a commodity based standard. So while there is short term volatility the corrections are quick if people will play by the rules. Breton Woods appeared to work OK, but like you mentioned there are those that chose to play by their own rules. So there are issues to be sure. The IMF and others have been talking about a basket of fiat currencies as the new standard, but is just as dangerous. I however think a basket of commodities might be preferable to mitigate some of the potential shock value of being able to manipulate a single commodity like gold or silver. I am not aware of something like this being tried before, but I think it could work.

The very fact that for profit commercial banks own the Fed is the point. We only pretend we are "in charge of them". So anyone who thinks that this is irrelevant clearly doesn't understand that the tail does not wag the dog. :-) In the history of the Fed there has never been a thorough audit. Why is that if they are under the control or supervision of Congress? If they are a public entity how is it they can tell Congress that they don't have to tell us where over 2 trillion of our bailout funds went? If they are a public entity how is it they can suddenly just decide not to publish M3 data? And nobody asks why or how they can get away with this. This is a band of thieves and international crooks who are in charge. The recent repeal of Glass Steagal now allows hybridization of insurance, investment, commercial and other financial institutions where it is a free for all. All of this comes to us by the prodding of the Federal Reserve in 1999. Why would they do that? In 2004 they pushed for the Financial Services modernization which opened up pandoras box for these highly questionable financial instruments and deals.

Someone really try to explain these things if they are truly acting in our best interests and not those of the very banks that own the Fed... Where there is smoke there is fire.

Congress needs to resume control of the monetary system and learn some lessons from the past. It makes no sense that we pay bankers for every dollar that is put into circulation. It is our money and should not be held captive to the whims of the banks nor should we have to pay just to issue our own currency. Looking back at history I love some of the quotes from Andrew Jackson who said when asked what his greatest accomplishment was and he said "I killed the bank!". We had a pretty good run without this band of crooks and I think we can do so again.

Longsnowsm

[no_worries]

Bretton Woods was signed in 1944 and problems began arising in the 1950's. The duration of the compact was spent trying to adjust to new problems as they arose in order to maintain the system. I'm not sure I would hold it up as a successful program. Bretton Woods, the gold standard, and other similar ideas are essentially a strategy to move toward a single global currency. The problem is, that notion is hugely unpopular politically. As a result, the systems ultimately fall well short of the desired effect. Until the political will is there adopt the perspective of a world economy, none of these systems will work. National interest will trump every time.

As for the Fed, I don't know how to be any clearer about the structure. Ownership is separate from control, as in a handful of other hybrid institutions. The ownership stock does not confer the same rights as normal corporate stock does. All of the top decision makers are appointed and confirmed by the government, not by the member banks.

The Fed has never been audited because it was designed to be independent. The Fed's mandate only includes price stability and unemployment, or the lack thereof. If people feel that the Fed has grown too powerful, it is because of actions of the Executive and Legislative branches. Congress now wants to say that the Fed is out of control and TARP is a fiasco. It happened on their watch...shame on them for not paying enough attention to what they were voting on. Congress screwed things up, didn't notice the problems coming, rushed to "fix" things, and NOW they want to lay the blame somewhere else? Please! Congress should be the last ones clamoring to audit anybody these days.

As for M3, it's a relatively inconsequential piece of data in terms of establishing the money supply. Repealing portions of Glass-Steagall had nothing to do with the Fed. No matter how much "prodding" is done, they don't vote. Again, Congress is the goat. Even that was not necessarily a bad thing. Allowing the various business to be owned by a single conglomerate was not the problem; the lack of oversight was the problem.

You can watch any congressional hearing or testimony regarding the economy and the first thing that jumps out is just how few members have any clue about economics. They're the last ones I want steering the ship.

[Longsnowsm]

I cannot say that Bretton Woods was a success, but I do believe it is an interesting framework to help with establishing monetary exchange rates. Since I am a commodities standard kind of guy I don't believe that using a standard like gold or some other tangible asset makes for a global currency. It establishes a known entity for a method of exchange for national currency which establishes a value for that currency. Under today's fiat currency system you don't know what it is or what it's worth based on the political expediency of the moment. Under a standards based system persons and governments can demand the underlying commodity in exchange for the currency. So I think Bretton Woods could be revived and enhanced as a good place to start.

I want to hear your theory on the repeal of core components of Glass Steagal. Frankly it is the removal of the barriers of bank ownership that has setup this financial disaster today. I don't agree with our current president on much but I agree with him on this:

'President Barack Obama believes that the Act directly helped cause the 2007 subprime mortgage financial crisis.[22] Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis. They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".[23]"

It has turned into a financial orgy with serious questions reaching all aspects of our financial markets to include our rating agencies and the "advise" we are getting in the financial marketplace. Kind of hard to trust the guys rating when they are owned or influenced by the companies they are rating.

Your perspective on the Fed and that they are controlled by the FRB which are controlled by Congress is naive at best. On one had you say they are independent and cannot be influenced, and on the other hand you say they are under our control. You cannot have it both ways. It is laughable to think that the for profit banks that make up the Fed do not control our Congress, Wall Street, and every aspect of the economy and legislation. They are the most powerful lobby in DC. Everyone knows this, and few dare to stand up to them.

So while Alan Greenspan and many Fed banks were out cheerleading the repeal of Glass Steagal you think it had nothing to do with the Fed? The banks and financial institutions were out there pushing hard for this and you think they had nothing to do with the Gramm-Leach-Bliley Act? You have to be kidding right? Do we need to pull up some video of uncle Alan out pimping for this? The most powerful lobby in the world, and the reason many of these political clowns are in office is due to these "contributors", but you say the Fed doesn't vote???? Surely you jest.

And you would be wrong, the Fed does submit to some limited audits. But it is severely limited. The Federal Reserve Act did not authorize a "Black Box" bank without proper audits, controls, and the public release of information. I think you need to take a look at the Federal Reserve Act and show us where they are above the law and above review.

As recently proven by the Bloomberg court case that required the Fed to release the information under the FOIA they are in fact required to answer questions and provide information. Sadly another judge has put that release of information on hold. But we will soon enough find out who the Fed is giving our money to and what they have been doing with it.

Court Orders Fed to Disclose Emergency Bank Loans (Update2) - Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601087&sid=a7CC61ZsieV4)

These guys are pretty slimy and the pretense that the financial system will be at risk if the information is released is a complete sham. What is it that they are really afraid of? Who have they been giving US taxpayer dollars to? If they claim to serve the public then it is time to make them also accountable to that same public. It is not only time to audit the Fed, but it is time to ask why they exist.

M3 is just a symptom of this central bank problem, just like not providing the information requested from them. On one hand we say that the money supply is growing, and on the other hand we say that "well nobody knows since they don't provide the data". I say "pooh" or get off the pot. They should be required to provide the data and let the chips fall where they may if they are here to serve the public, but if as I contend they are here to feather their own nests then of course any closer observation should be shunned. You say it is a lack of oversight that this money supply issue happened. Exactly how does that work? The Fed is independent you say so they cannot be told what to do. And you say the Congress does not actually listen to the Fed as you just stated that they may have prodded Congress on Glass Steagal, but they aren't the legislative body... <cough> <cough> <cop-out> So it seems that the story is a mixed one. Either congress has the oversight and can tell the Fed what to do and how to control the banks etc or it cannot. Which is it? You know as well as everyone else that the Fed controls the banks(or at least on the surface it appears that way). The Fed controls the money supply, the interest rates, and the credit markets. And now they want to control the consumer credit markets! If Congress had any pull with the Fed then Bernanke wouldn't be telling them that they don't have the authority to force them to tell us what they did with the bailout funds and if they want that authority they need to repeal the Federal Reserve Act. So I think you attribute authority where it isn't, and attribute accountability(where it should be), but isn't.

So while I find it slightly strange that I would be defending Glass Steagal and the power it gives the Fed, I am a realist in that I can see in a funny money(fiat money) fractional reserve banking system they have to have safeguards, reserves, and insurance to cover these wild swings in the economy due to the extreme forces that leverage has on the funny money system. The problem is that the regulator and the independent central bank didn't do it's job to ensure that there were the reserves, and the money in the economy to deal with this massive creation of money by the banks. So again who's job was that? Remind us? Explain how this could have happened when it has been warned about and spoken of in dire terms as far back as the early to mid 90's about the derivatives and hedge fund markets? Again who benefited? Who is getting the bailouts because they now claim they "just couldn't see it coming", and are "too big to fail"?

The Fed nor the Treasury has a leg to stand on. Sadly I wish we could say that this was a US only issue, but the fact is the central banks all over the planet have been doing the same thing. Funny how that works... Global bankers that own the central banks globally working in concert and using the same methods? I think the story the Fed has been feeding us is thin and so are the excuses. Congress has it's own "splainin" to do, but at least we can in fact hold them accountable. It is time to audit the Fed.

Audit the Fed (http://www.auditthefed.com/)

It is time for accountable government and a financial system that is sound. Right now all I hear from Fed supporters are more excuses, and convenient brushing aside what is actually going on... and if all else fails attack anyone that dares to ask common sense questions about the very nature and role of the banks in the financial collapse. Instead they look for scapegoats and try to keep us arguing over partisan politics. This isn't partisan, this is about the future of our nation and its very existence. We won't have a future if we continue to allow these criminal institutions to control our money.

Think that is just rhetoric? Well there are many others who feared these financial institutions and their desire to keep us in a permanent state of emergency and wars. To force us to borrow our own money and attach interest to every dollar. And yet there are still people who try to defend them...

The Outstanding Public Debt as of 07 Oct 2009 at 07:39:37 PM GMT is:
$ 1 1 , 9 2 7 , 3 8 6 , 6 3 2 , 8 4 3 . 4 6

Some food for thought:
"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." — Henry Ford

"[Every circulating FRN] represents a one dollar debt to the Federal Reserve system." — Money
Facts, House Banking and Currency Committee

"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits." — SIR JOSIAH STAMP, (President of the Bank of England in the 1920's, the second richest man in Britain)

“If the American people ever allow the banks to control the issuance of their currency (instead of Congress), first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs.”
-Thomas Jefferson, letter to then Secretary of the Treasury, Albert Gallatin, 1802

"If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations.
"The bold efforts that the present bank has made to control the government and the distress it has wantonly caused, are but premonitions of the fate which awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it...If the people only understood the rank injustice of our money and banking system there would be a revolution before morning." - Andrew Jackson

"The financial system has been turned over to the Federal Reserve Board. That Board as ministers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money" -- Charles A. Lindbergh Sr., 1923

"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it". — Congressman Louis T. McFadden in 1932 (Rep. Pa)

"We are completely dependent on the commercial banks. Someone has to borrow every dollar
we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." — Robert H. Hamphill, Atlanta Federal Reserve Bank

"The Federal Reserve banks are one of the most corrupt institutions the world has ever seen.
There is not a man within the sound of my voice who does not know that this nation is run by the
International bankers — Congressman Louis T. McFadden (Rep. Pa)

"Some people think the Federal Reserve Banks are the United States government's institutions.
They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers" — Congressional Record 12595-12603 — Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

"Whoever controls the volume of money in any country is absolute master of all industry and
commerce." — James A. Garfield, President of the United States

"A great industrial nation is controlled by it's system of credit. Our system of credit is concentrated in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world--no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men." — President Woodrow Wilson

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and it's issuance." — James Madison

These were some wise men, and who lived it, fought it, and understand how this scam works. It is almost criminal that the Fed and bankders have so hoodwinked you and so many others into believing their absolute BS. This is how they have managed to steal the wealth of our nation and why they have managed to stay in power so long. They have you all believing the lies and none of us have been around long enough to recall what it was like before EVIL overthrew our government.

Longsnowsm

[no_worries]

You're reading my post and then making some pretty broad leaps and assumptions about what I'm saying. Much of your arguing is against points I never made. I'll try and address some of your points tomorrow.

Alright, tomorrow is here.

What makes a commodity-based currency attractive, like you say, is the fact that it has a set value and exchange rate. If every currency in the world is pegged to the same commodity and exchange rates are fixed, how is that any different than simply having one currency for everybody? There's really very little difference between the two. But putting that aside, what is the rationale for setting the value of your currency based on something that is completely disconnected from economic activity? What you economy is doing would be meaningless. All that would matter is how much gold, or whatever underlying commodity you're using, you can accumulate. Gold isn't bad for us, since we're one of the top producers, but what if we settled on something else? What if currencies were pegged to something that the U.S. didn't produce in meaningful quantities; what would the consequences be? And all of this is still a moot discussion. In the end, such a system can only work if everyone adheres to it. That has never proven to be the case and, despite your assertions to the contrary, the data shows that countries that withdrew from the gold standard earliest in past downturns, recovered first.

I fail to see where the Gramm-Leach-Bliley Act necessarily led to the current crisis. How exactly did the fact that one company could now be an investment bank, commercial bank, and/or insurance company, cause the problem? It didn't. In fact, those companies that ARE most diversified have survived the crisis far better than their competitors. If they were the root of the problem, one would not expect such an outcome. The one criticism that can be leveled at the act relating to the crisis is the exemption of financial derivatives from SEC regulation. As I said before, Congress was derelict in their duty pertaining to regulation of the workings. The Act itself and the changes it imparted on ownership of financial institutions were not a problem. In addition, if you would read further down in the Wikipedia article you got your info from, you would see that banks were already able to hold and trade the instruments that caused the most harm, prior to the Act. Not insignificant is the fact that Europe had always operated under such deregulated conditions, yet they did not spawn the crisis. The current crisis in the banks was due to poor oversight and limited reserve requirements with respect to the amount of risk being undertaken. The simple fact was that the financial industry was evolving faster than its regulators, so they didn't see the problems coming.

I do agree with your point about the ratings agencies. They were a huge part of the problem. They should have been subject to much more oversight. Then again, nobody conferred on them any kind of authority. It's akin to a neighbor that constantly gives you advice that happens to turn out good for you for a long time. Then one day he gives you bad advice. Who's to blame? Nobody told you to listen. Nobody vouched for his knowledge. He just had a great track record. In the end, you're the one who made the decision to listen.

For the most part, your argument about control of the Fed is no argument at all. You offer up little in the way of facts and resort to claims of naivete, "everyone knows...", and other refrains of conspiracy theorists. I don't know if you are intentionally misstating my points or simply don't understand what I'm saying. If by "FRB" you are referring to the Board of Governors and the FOMC, than yes, that is who makes the decisions at the Fed. If you meant "Federal Regional Banks" than that is not what I was saying. When I said that it is "the government controlling monetary policy" I didn't mean that Congress actually makes the decisions. The decision makers (referenced above) are appointed and confirmed by the President and Congress. Therefore, the government makes those decisions BY PROXY. I thought that principle was self-evident given the common knowledge of how the Fed is structured. My mistake. But my main point was that the member banks have no direct input on decisions. Now, it appears your argument is mostly that the big bad bank lobby owns everyone in Washington and therefore can control the Fed's decisions thereby ruling the World. There's really no way to argue against such claims because they don't include much in the way of facts. It's why conspiracy theories tend to live a long time.

I never said the Fed is above the law. We see Bernanke answering question from Congress at every Fed testimony, which is required by law. The Fed is audited annually. However, it is shielded from audits into its policies regarding the twin mandates managing inflation and unemployment, as well as dealing with foreign banks. The shield is, ostensibly, for the purpose of maintaining sovereignty in its policies with respect to politics.

The Bloomberg case had nothing to do with auditing the Fed. The Fed argued that it did not have to disclose the bailout amounts under the Freedom of Information Act because doing so would materially harm the banks in question. The judge ruled that they simply didn't provide facts to prove the assertion. Which is reasonable, given that such a situation hasn't really arisen in the past. However, the stock market certainly reacted negatively when it was disclosed that certain banks had received bailout funds while other didn't. There's also the instance of the run on IndyMac purportedly caused by Senator Schumer's public questioning of the bank's health. It's not unreasonable to think that people will react negatively when it's disclosed which banks the Fed believed were in need of emergency funds. However, even if it's likely, they can't prove it will happen and that's why Bloomberg won their case.

There is no mystery whether the money supply is growing or not. There is plenty of information released that gives insight into that including M-1 and M-2. M-3 is not really relevant in determining that fact, which is why it was discontinued.

I didn't say anything about lack of oversight contributing to the increase in money supply. I said lack of oversight resulted in Congress now feeling like they don't know where the bailout funds went, which is why they want to audit the Fed. They passed a bill giving the Fed a lot of latitude to do what it thought necessary...knowing the relative autonomy the Fed operates under. If they wanted more accountability, they could have provided for it in the bill, since it was authorizing funds and action not normally under the scope of the Fed. However, hindsight is 20/20 and now they want to make up for their rush to act.

I also didn't say that Congress doesn't listen to the Fed. I said, no matter how much prodding the Fed may have given, the ultimate decision was still up to Congress. The due diligence was their responsibility and listening to the Fed is but one part.

Like I said before, you spend a lot of time responding to things you THINK I mean, even though they're not what I said. My points are relatively brief, maybe read them a little more closely before responding and you wouldn't have to type so much.

The Fed does not control interest rates, it simply has influence over them. It certainly has more control over the money supply, though money supply can be increased or decreased outside of the fed. The Fed has oversight over credit markets, but it hardly controls them in terms of exercising direct control. Nobody tells banks who to lend to or how much interest they have to pay...despite some claims to the contrary.

You'll have to excuse me, since they changed the format, I don't know how to quote parts of a post. But here's one of your paragraphs:

"So while I find it slightly strange that I would be defending Glass Steagal and the power it gives the Fed, I am a realist in that I can see in a funny money(fiat money) fractional reserve banking system they have to have safeguards, reserves, and insurance to cover these wild swings in the economy due to the extreme forces that leverage has on the funny money system. The problem is that the regulator and the independent central bank didn't do it's job to ensure that there were the reserves, and the money in the economy to deal with this massive creation of money by the banks. So again who's job was that? Remind us? Explain how this could have happened when it has been warned about and spoken of in dire terms as far back as the early to mid 90's about the derivatives and hedge fund markets? Again who benefited? Who is getting the bailouts because they now claim they "just couldn't see it coming", and are "too big to fail"?"

And YES! That is exactly what happened. I never once said that the Fed (along with the SEC) didn't drop the ball. In fact, I lay much of the blame for the current crisis at the feet of Greenspan. As for how it happened, that's easy. Diverging economic theories. Mechanisms that worked in the past didn't work this time. It may be because global economic dynamics have changed so much that certain rules no longer apply. Or, it could be that those theories never really worked in the past but other conditions covered up that fact. The age old problem of confusing correlation and causality.

As for your global conspiracy by central bankers, YOU are confusing correlation with causality. Yes, most central banks acted similarly and the result to their economies was likewise similar. In asserting conspiracy you are ignoring the fact that economic schools of thought tend to move in waves. When a particular school of thought shows itself to be effective it tends to be adopted and taught the world over. The role of an activist central bank started with Volcker in response to the crises of the late 70's and early 80's. Greenspan took it to a whole new level while concurrently the trend of increased deregulation gained favor. During this period, the U.S experienced unprecedented economic growth. It is only natural that other countries would try to emulate the system the took to be responsible. An interesting sidenote, during the period when much of the world was experiencing significant growth, Japan was mired in its "lost decade." One stark difference between the Bank of Japan and the Fed; the BOJ is instructed to work closely with the government when setting economic policy. Unlike our more independent Fed.

[Paul McGraw]

Interesting discussion. As a former commercial banker with a degree in economics I am impressed with the level of knowledge shown in these posts.

I kept expecting someone to quote Williams Jennings Bryan from his "Cross of Gold" speech, or perhaps I missed it.

"Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."

[nctrucker1]

Article link here (http://www.joc.com/node/413257)

I'll post the article below:



Wow, just wow.

Looks like we have a lot of failures to come yet. There are companies hauling for below their variable costs??? That's not counting there fixed costs. Jeezuz.

It looks like the banks at this point would rather stick there neck out for these companies because they don't want the trucks, trailers, or perhaps any real estate should the company collapse. That really gives a clue how bad it is.

I know things will eventually get better but it makes you wonder how far off it really is. I also wonder what the real unemployment number is, also people that lost their jobs but have taken something cheaper and don't have any "extra" spending money. Things just aren't moving.
It makes me laugh, but it really is not funny, that a JB Hunt recruiter called me last week and asked if I would be interested in a lease/purchase deal. I thought, a thousand comedians out of work, and this JB recruiter is trying to be funny. With so many O/O's in trouble making no real money, How could I even begin to think that I could do better? That JB recruiter, at least he still has a job, he must still be able finding suckers to fall for his pitch.

[heavyhaulerss]

These handouts are there for big businesses as well as individuals. Both have become addicted. A small business can't always find assistance unless they are a member of a minority group. I remember several years ago I attended an SBA seminar. There were many programs for women and minorities, but practically nothing for white men. It seemed strange that they would discriminate so blatantly.

when I was living in Chicago I wanted to get a loan to buy a business. the loan advisor who was hispanic, told me I needed 20 % dn. though he said if I was a minority I would only be required to put 5% dn. he did not agree with this law, but it was the law. I never blamed him or anyone. I just looked at how I could over come this obstacle. I had more resentment 20 years later looking back, but at the time I just did not think about it. the feeling of being a victim, or the system being against me never entered my mind, though I dont know why. it was just my state of mind at that time. though that attitude served me well over the years. it taught me to live like my grandparents did.

[no_worries]

Interesting discussion. As a former commercial banker with a degree in economics I am impressed with the level of knowledge shown in these posts.

I kept expecting someone to quote Williams Jennings Bryan from his "Cross of Gold" speech, or perhaps I missed it.

"Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold."


Trucking, refuge of the underemployed, LOL.

[GMAN]

when I was living in Chicago I wanted to get a loan to buy a business. the loan advisor who was hispanic, told me I needed 20 % dn. though he said if I was a minority I would only be required to put 5% dn. he did not agree with this law, but it was the law. I never blamed him or anyone. I just looked at how I could over come this obstacle. I had more resentment 20 years later looking back, but at the time I just did not think about it. the feeling of being a victim, or the system being against me never entered my mind, though I dont know why. it was just my state of mind at that time. though that attitude served me well over the years. it taught me to live like my grandparents did.


I thought that it was really strange at the time I experienced it. I didn't consider myself a victim, either. I just went on and built a business without the help of the government. In fact, I have built several businesses over the years and never gotten assistance from any government entity. If we are going to have true equality in this country, then we need to have the same rules and guidelines for everyone. You cannot have preferential treatment for ANY group nor should you discriminate against any group. When you give preferential treatment to one group you are discriminating against another. I don't think most white people consider themselves to be victims even they have been discriminated against in the last several decades. It seems to be more the minorities who consider themselves to be victims. It is ironic since there are so many programs that give priority to those who are in a minority status. I think our country would be much better off if none received help from the government. We should make our own futures.

[jeff1981]

I think our country would be much better off if none received help from the government. We should make our own futures.[/QUOTE]

Very well said. I lived in maine for several years and i was amazed at how many people chose to "live off the government" rather than make their own way. I was one of the few dairy farmers who did not take the dairy subsidy, rather i sold some of my milk locally and shipped the excess to the cooperative. I actually made more money that way than i would have with the subsidy money. I think people will often do better if they use some common sense and ingenuity rather than always looking for a bailout.

[GMAN]

Living off the government has made our country weaker. It was rare for people to take money from the government until the 1960's and Lindon Johnson's "New Deal." The only other time was during the depression of 1929. Even then, people worked for the check they received from the government. Working for what we have builds self confidence and character.

[Longsnowsm]

No_Worries,

Andrew Jackson abolished the central bank during his time. There is quite a story behind it and would make a good movie. All of the same problems were in play then that are in play now. However Andrew Jackson made a mistake when he allowed the national banks to continue to use fractional reserve banking. This is what caused the boom and bust cycles, and the runs on the banks that everyone was so afraid of, not the gold standard itself, but the uncontrolled creation of money in the form of debt. As long as the banks were allowed to create money by issuing debt there was no way there would ever be enough deposits of real money(ie gold) in the banks to cover the outstanding paper money that had been created. You have a formula for disaster with a system like this. These boom and bust cycles continued and instead of neutering the banks and demanding full reserve and tightly controlling the money in circulation they continued to allow this behavior. This behavior had to be reigned in or the system spins out of control with more risky behavior, unregulated lending, and all the evils that we all can see plainly even today without the money reserves to meet the needs of the people.

Now the bankers decided that the anchor around their neck was the gold standard, because it didn't allow them to expand the money supply at will and sadly the fractional reserve "Real Bills Doctrine" was wholly incompatible with the gold standard. Somehow Congress wasn't wise enough to see how the game was being played and along comes the Great Depression. It was irrational exuberance, debt, and out of control growth of the pretend money supply that set this bust into motion. The Fed argued that it was the gold standard that made things worse and prolonged the agony. Funny how they deflected and never talked about the uncontrolled growth and the money problems they created, but blamed the gold standard. The gold standard and full reserve banking would have prohibited the conditions of the great depression, and we wouldn't have seen the wild swings in the economy due to erratic money flows and artificial conditions created by the banks themselves. The gold standard and full reserve banking would take away the wildly profitable massive leverage schemes. So when it became too obvious that the funny money scheme was out of control and there was no way there was enough gold in the coffers to cover all the paper money they repealed the gold standard, and wisely told everyone that the gold standard made the depression worse. It is like blaming the fireman for the fire. Really convenient if your the arsonist!

So I think we have really covered the past. And if any of the BS bedtime stories you were told by the bankers were true then the many boom and bust business cycles we have had since the Great Depression would have hardly been a footnote. As with all arsonist stories they weren't true. The momentum just continued to build as more and more debt and unregulated ways of creating even more money out of thin air have been devised. Before long you have such a massive amount of debt we are calling money(financial obligations, not money) in the system that there is no way that much money could ever be printed and have anyone still believe anything the arsonists told you. The off balance sheet transactions, derivatives, swaps, and the many other "interesting" ways of creating money have turned into a train wreck and there isn't enough money in the world to pay off the bad bets. Here we are staring down the barrel of a 500-700 trillion dollar pile of non-performing creativity that is going down like a house of cards. Who do you think the arsonists will blame this time? There is no good old reliable gold standard to kick around. Oh, I get it, it is the evil Americans and their greed buying houses they couldn't afford.... yeah, thats the ticket we will blame the Americans. And WOW, why didn't they think of this sooner! We can now tell everyone the real issue is that we don't have a global currency with the proper controls and that if we will only put the arsonists in control of the new sound(maybe even promising to have a gold/silver/precious metals backing) currency that we will avoid this from ever happening again. You see we just need to centralize the management of this mess, that will fix it! You see the arsonists told us the same thing when the Federal Reserve was created about the end of the boom/bust cycles, and the bank runs. Well it just isn't so.

You see our congress, treasury, and the Fed don't know the meaning of discipline, balanced budgets, and responsibility. For some of them it is about making a buck, and as long as they have the incentive to make a buck they will continue to loan us money until there is no more money to be made. Then start all over again creating money out of thin air and the game begins again once we are bankrupt. It sounds all nice and pleasant doesn't it? But the rest of the story is that most of us who have worked all our lives and tried to save a little and maybe plan on retiring one day are getting the shaft. You see with the Keynes brand of economics if you can keep growing the money supply gradually most people won't notice the theft. But that is the trick now isn't it? Making sure that you can keep the ascent of the funny money system under control. But when the arsonists lose control due to their own greed we see the trick for what it is. Will we see it this time for what it is? Will we have the good sense to recognize we have been listening to the arsonists? Was it really the evil Americans alone that did this? Or was it the guys that were willing to take the outrageous risks and lend to anyone with a heart beat and can fog a mirror? Will we recognize they are the threat to the financial system, not the guy that dared to dream that he/she might to be able to afford a home too?

I can only hope that one day the evil Americans will wake up and realize that the $14 trillion dollar mortgage market alone didn't sink the hundreds of trillions of dollars in creative debt that is out there. That one day they will realize they were being played and that the house held all the cards. Will the American people wake up and realize the guy standing there telling the local news station that he just happened to come along and notice the building was on fire, dialed 911, ran in and saved a dog, an old lady, and a lawn mower is in fact the arsonist who set the fire... Will it happen? I can only hope.


So the question is what are we going to do about this? Continue to allow the arsonists to blame everyone for the problems of an unstable fractional reserve "Real Bills Doctrine" system? Or are we going to wise up and realize that you cannot allow the banks to us debt and creative finance, and ever increasing leverage to expand the money supply without restraint? Where is the Fed in all of this? Isn't it their job to know what the member banks are doing? Monitor, regulate, and control the money supply? So what are they going to do now? Allow the hundreds of trillions of dollars to default? To let their too big to fail members take it on the chin? To watch this collapsing house of cards tumble to the ground? Fat chance, they will try to print it. There is no way that they can print this kind of money without monetizing most of it, and without destroy most of us financially in the process.

I am not going to get into the specifics of the deregulation portion of Glass Steagal at this point, but I would encourage you to do some digging on the precusor events with Citibank and then ask yourself why they are in the mess they are in. There is a lot of evidence at this point that collusion, manipulation, questionable activities have resulted as a consequence of the repeal of Glass Steagal and have added greatly to this massive problem. Congress passing things like the Community Reinvestment Act just gave the bankers even more creative ways to lend money, and GLB was just the keys to pandoras box. CRA was just gas for an already raging bonfire.

I will agree with you that the chief arsonist Uncle Alan couldn't wait to find new more "modern" ways to let the bankers go crazy. I largely hold him responsible for the biggest run up of this bubble. I don't like Volcker, but he had guts to do what was needed to push us back from the edge. It will take more tough love like that to get this under control. Sadly it won't happen. Helicopter Ben believes the problem of the Great Depression was that they didn't print money like it was going out of style. So the Fed fantasy is wipe out enough of that creative debt/financing to save the system. Never mind it was this creative finance that put most of the banks in this mess in the first place, but the answer according to whirlybird Ben is the printing press. They will have done nothing to fix the problems that caused this mess, but you can be assured they won't be taking the blame. It is just too darn profitable.

If at this point you cannot see the connection to bank, profits, and their out of control power over DC and Wall Street I really don't think I can help you. If you cannot connect the dots between the behavior of the Fed and the banks I surely won't be able to illustrate it in a forum like this just how dangerous this game is with the Fed. They are the problem, not the solution.


Longsnowsm

[GMAN]

The old Building and Loan or Savings and Loan companies used to loan money on their deposits. They were usually locally owned and operated. Unfortunately, most of them either went out of business or were gobbled up by the major banks. Rates were lower than the big banks and they only loaned on their deposits. That is the way it should be with lenders. The bank where I have done most of my corporate business in recent years assured me that they only loaned money on their deposits around the time of the bust. A short time after telling me this I found out that it wasn't true and that they received 7 billion dollars of bailout money. Banks did much better when they were small and knew those with whom they did business. It was also better for the consumer. I think that it is much better for most consumers to do business with smaller, locally owned banks or credit unions.

[no_worries]

If at this point you cannot see the connection to bank, profits, and their out of control power over DC and Wall Street I really don't think I can help you. If you cannot connect the dots between the behavior of the Fed and the banks I surely won't be able to illustrate it in a forum like this just how dangerous this game is with the Fed. They are the problem, not the solution.
Longsnowsm

Ohhhh, you've been instructing me? You'll forgive my confusion.

All you've done this whole time is throw together a hodgepodge of commentary dredged from whatever blogs you happen to be perusing that day. What you end up with is a disjointed mix of poorly conceived arguments that barely relate to one another, let alone support one another. What you've offered is your opinion interlaced with various internet commentaries to tell a rather long and repetitive story. Where are your facts and figures, your sources of such, and your citations? Where is the economic analysis supporting your assertions? $500-$700 Trillion? Where does that number come from? If you have any grasp of the subject your purporting to "help" me with, you would realize just how ludicrous that number is. You want to blame fractional-reserve banking? If you're going to have full-reserve banking, why have banks at all? There's a reason that full-reserve is purely theoretical and has never actually been put into practice...anywhere.

The dots to connect between the Fed and banks is a simple straight line. However, if you start listening to conspiracy theorists and those with an agenda, the picture starts to become convoluted until you're chasing your tail trying to explain things that aren't nearly as complicated as you'd like to make them.

I'm not trying to convince you of anything. I've met several people that preach the same things you do and I know better than to try and change their views. I simply amuse myself by countering the claims made. Now, if you really want to try your hand at a logical argument, by all means do so. But if you're not going to buttress it with facts, figures, and analysis, let's just put this thread out of its misery, LOL.

[Longsnowsm]

No_Worries,

Hmmm, Where to begin... Generally in a conversation there is a two way street as far as communication. Frankly I have enjoyed this exchange and I am sorry you somehow feel that I am somehow talking down to you or "instructing". I was hoping to illustrate in whatever manner is possible in a forum like this that there are a lot of people who have a very different view than that espoused by the banks, and the Fed, and our corrupt government who seem bent to finish the job of collapsing our economy so that they can just "reset it" to whatever image they hope to remake us. You see spin is bad, freedom, free markets, and the framework the US Constitution provides is good.

Now I don't know if you just cannot think of a way to defend the criminal fractional reserve banking system, or just don't understand what banks were suppose to do in the first place. Maybe we are all just victims of the times we have lived in and not really ever had the opportunity to see and imagine a world that isn't controlled by for profit banking interests that love to create emergencies or fund both sides of wars just for the sake of profits and to increase control... or to salvage their sinking monetary system. Frankly if you can defend 30 and 40 to 1 lending practices by the banks knock yourself out. If you can defend the Fed loaning our money to foreign central banks to stabilize their funny money systems go for it.

The list goes on and on of the things that are wrong with the existing financial system. A system that knows that the banks are unstable and need a central bank to be the lender of last resort. A system that even with that backdrop decided they needed to add insurance in the form of FDIC to insure accounts. There is layer after layer of a complex web of safety nets all because this thing is a stable as a one legged pony. This is the system that we have today that requires more and more programs, acts, and "systems" just to make sure that when the wheels fall off that it doesn't take the whole thing down.

There are always guys looking for the angle, for the scam, for the way to beat the system... You know I bet there is money to made in there somewhere! LOL

So you honestly don't know what the job of a bank is? If they don't use leverage and ponzi schemes you don't know what a bank is suppose to do??? Really? Look at the terms warehousing and lending. You can still do that in a full reserve bank. Really it can be done... Earning money offering services and safety, what a concept.

But enough of that, you know how much I just love a conspiracy. It is a conspiracy how banks make money. It is a conspiracy how the Fed is suppose to be the lender of last resort to make sure if the banks find themselves in a hole that they have someone to bail them out. It is a conspiracy how this whole game is played and just how many fail safes this thing has built in and still adding on just to make sure it doesn't meltdown. I guess we could outline the various safety nets and programs to stabilize your one legged pony, but we can save that for another time. We have some ever better conspiracy stuff to talk about.

If I had a financial institution and had a brochure and I had to explain the myriad of systems, how my lending policies worked, what I actually have in actual cash, and the many creative uses of contracts, leverage, methods for managing my books just to ensure that I have the funds to keep running and keep lending there is no way people would invest with me or save their money with me. Those are the facts. This isn't a conspiracy, this is just the truth. If people understood how the banking system works they wouldn't trust a penny with them. The same is true with the Fed. They are the backdrop to this theater. So try as you might more an more people are waking up to the fraud and the risky behavior of these banks and their practices. So maybe instead of spending so much time on the Fed's web site you should actually ask more about what is on your banks balance sheet.

Since I just troll blogs and spew garbage I really thought I should share this with you. Your right! I found this really great little web site that posts some of the best conspiracy oriented stuff you can possibly imagine. I thought I would just share a little bit from their Q4 report 2008. It was the last one I read and haven't had the chance to get the latest numbers... Since you obviously think I am full of it then lets just crawl into some numbers for us all to chew on:

OCC: OCC's Quarterly Report on Bank Derivatives Activities (http://www.occ.treas.gov/deriv/deriv.htm)

In the OCC’s Quarterly Report on Bank Trading and Derivatives Activities Fourth Quarter 2008 from the the Comptroller of the Currency Administrator of National Banks. Let's just look at what they had to say about some of these "treasured" financial institutions.

Let's take the 5 top banks:
Total Credit Exposure to Risk Based Capital (%)
JPMORGAN CHASE 382%
BANK OF AMERICA 179%
CITIBANK 278%
GOLDMAN 1,056%
HSBC 550%
Avg % (Top 5 Banks)
489 %

Total derivatives exposure in the top 5 banks in Q4 2008: $191.498 trillion dollars

It breaks out as follows(numbers are in billions):
Futures & Fwrds 19,877
Swaps 127,101
Options 28,991
Credit Derivatives 15,529
TOTAL 191,498

Notional numbers listing assets and derivatives exposure for the top 5 banks... they listed 25, but the top 5 will do(numbers reflected in millions):

Rank Bank Total Assets Total Derivatives
1 JPMORGAN CHASE BANK NA, $1,746,242, $87,362,672
2 BANK OF AMERICA NA, $1,471,631, $38,304,564
3 CITIBANK NATIONAL ASSN, $1,231,154, $31,887,869
4 GOLDMAN SACHS BANK USA, $162,474, $30,229,614
5 HSBC BANK USA NATIONAL ASSN, $181,620, $3,713,075


Oh, there is a lot of good info out there, charge off's, break down into the various creative instruments. It really gives a guy a warm and fuzzy feeling knowing that our banks are SOOO WELL FUNDED. So there is a lot more data where that came from, but if that isn't an eye opener for anyone who is still reading this thread please feel free to enlighten me how this is suppose to work again... I am all ears.

Oh, maybe we should go through the Fed's numbers... Oh that's right they only give us what they decide to give us. It is for our own good after all. If you knew what was going on the entire financial system would collapse!!!! You gotta be kidding me! If people just read the data out of the Treasury and they understood how bad this was the entire financial system would collapse... There would be runs on the banks like you wouldn't believe if people understood these numbers.

So while I enjoy our little exchange don't even pretend to lecture me about conspiracy theories.... Why has this information not made the headlines? Why hasn't the financial status of our banks really been reported? Could it be a conspiracy??? Remember those bank STRESS TESTS!!!!! ROFL

Oh, and even though I despise the man due to the fact he is nothing more than a Wall Street cheer leader, Larry Kudlow was on the talking heads on CNBC one afternoon admitting that ONLY 30% of these derivatives are under water(non-performing)... He said something to the effect it is just insane to offer the banks nothing(pennies on the dollar) in the market place in mark to market for these contracts and that the street has it all wrong... Well depending on who's math you use 30% of numbers this big is a heck of a lot more than Uncle Sugar has printed so far.... If you dig around in the Treasury report they say the number of contracts with a positive value is roughly 6 out of 10. Looks like 40% losers according to the Treasury.

You think the Fed is just going to let these banks eat this???? No way baby... We gotta get a warp drive installed on those printing presses! Worse yet if the banks are forced to liquidate assets to cover the loses they take even more loses. It is literally a house of cards.

Oh and you want to know the range of $500-700 trillion... well just like statisticians it seems that the numbers seem to vary depending on the source of the news. So rather than give you a specific number from yet another moron in the press or from a source that you will just decide to rip to shreds since there seems to be a great deal of variation in the figures that get reported it just seemed easier to report the range of figures reported rather than a defined source. I am sure you can understand where I am coming from there... Unless of course you want me to throw some specific numbers out there for more discussion.

Frankly I trust any of the numbers out there including these I just posted from the Treasury suspect... Let's just say when the news is this bad I am suddenly from MO and you need to show me...

Ok, let's consider my figures buttressed and let's see where this baby goes. I want to hear your theory on the glamorous fractional reserve system and how the Fed in it's role as the lender of last resort could possibly ever manage to bail out the banks with this kind of balance sheet. I know you understand the role of the central bank, and you obviously believe they are doing a good job or you wouldn't be such an avid defender of this behavior. So tell me how the watchdog Fed somehow missed this disaster coming and explain to me just how that is suppose to work. I really genuinely want to know. I have tried, honestly tried to figure out just how we got into this mess and how this is going to play out without a flat out total global collapse and or paper money so deep that we will all be billionaires.

The headlines coming in even now is that the banks haven't learned anything from this experience and are still pouring more and more risky leverage into the system.

So let there be dialog... I don't know a lot, but I am always willing to learn more. Which makes me wonder why there are a few guys here on this forum that obviously come from the world of finance and why you chose to come drive a truck?

Anybody want to still bank with any of these top 5 banks? Good luck.

Longsnowsm

[no_worries]

Alright, I'll humor you for awhile longer.

It's interesting that you've chosen to use the figures from Q4 '08 when the next two quarters are available. Perhaps it's because that was the peak of the crisis and the numbers are significantly better now.

You perfectly illustrate one of the problems with the media and its reporting of this issue. $191+ trillion in derivatives exposure. That just sounds horrendous given the fact that everybody knows derivatives are such a disaster. As it turns out, derivatives are not necessarily the evil machination they're made out to be. Are there some bad examples, of course. Mostly in asset backed classes and only a subsection of those. However, 85% of all derivatives contracts are interest rate products which are relatively simple and straightforward. That doesn't mean they are without risk, but the risk is easily understood. They are a simple hedging tool. If you'll notice, all of those REALLY BIG numbers are notional values. If you understand what that means as it relates to derivative contracts, then you tend not to be alarmed when hundreds of trillions of dollars are cited as exposure. It's simply not an accurate characterization of the situation.

Net Current Credit Exposure is the most important number to draw on from this report. It is the number that the OCC weights the heaviest in assessing risk. In your Q4 report that number is $800 billion, certainly nothing to sneeze at. However, it can mostly be attributed to the precipitous drop in interest rates and wide credit spreads during the quarter. As it so happens, the NCCE at the end of Q2 '09, just two quarters later, is $555 billion. That's a 31% decline in risk in just 6 months time. Is it still too much risk exposure? Probably so. But whatever severity one describes to the conditions at the end of 2008, it has to be agreed that the situation is much less dire today. These numbers would seem to indicate that we are moving away from the brink, not toward it.

The big scary numbers are meaningless without the proper context and an understanding of notional value. Derivatives themselves are not inherently "bad" or even overly risky. There certainly are some products that fit this description but they make up a tiny portion of the overall market. The derivatives market is larger today than it was at the end of 2008 yet significant profits were made. That market will continue to grow even as banks continue to cut back their risk exposure. What DOES need to happen is tighter regulation of the derivatives market. There is no central clearing house, most are traded otc. This is where the Feds dropped the ball, exempting these instruments from oversight. I don't look for that situation to continue for long.

Kudlow was not talking about 30% of all derivatives. He was referring to a specific subset, either CDS or MBS, which together make up a small portion of the market.

I bank with one of the big 5 banks and am not worried in the least. Your odds of bank failure are much greater with a community or regional bank given their significantly larger exposure to residential and especially commercial real estate. That's not to say there aren't plenty of safe banks out there, you just have to do your homework. In any case, even in the event of failure you're protected. Unless you buy the stories that the FDIC is nearly out of money and won't be able to insure you. There's always your mattress, I suppose.

I never defended leverage ratios being as high as they were. Once again, you misread, misinterpret, or misrepresent. Banks were way too leveraged leading up to the credit freeze last year. They have admitted it and their leverage ratios have shrunk dramatically. You can find those numbers in any of the SEC filings. Why did that situation occur? Lack of oversight on the part of the Fed. Which they too have acknowledged. And you're right, there hasn't been much in the way of legislation to address the issue. Will there be? Watch what happens after health care finally goes away.

Why should I have to defend the fractional reserve system? It's all there has ever been. There has never been an example of a functioning full-reserve system. If there's no realistic alternative, there's no reason to defend the status quo. I know exactly what your notion of banking in a full-reserve system is. Banks as nothing more than a depository making money on for-fee services. Good luck with that. Why pay someone to watch your money? Especially if you get your other pipe-dream of the gold standard. Shoot, in that scenario I'd just keep everything in gold coins and bury them in my backyard. Why pay a bank for that service? The fact is, banks have ALWAYS made money by lending out their deposits. In order to make a profit without that income would require such exorbitant fees for the few services they could offer that nobody would take advantage. Your only remaining alternative would be a de facto non-profit or (gasp!) government bank. Explain to me why there has never been a full-reserve bank system when there should have been and maybe I'll lend the idea a little more credence.

If banks had a brochure explaining all the aspects of their business, it wouldn't much matter because most people wouldn't understand most of it anyway. Which is exactly why so much of the info that is out there today is errant. When something bad happens, people tend to blame the things they don't understand. It's been that way since the beginning of time and today is no different. The banks are certainly not without fault. But much if the blame is being misdirected.

As for thinking you were "talking down" to me, no need to worry. That would require questionable confidence in my own understanding of the issues. I drive a truck because I rather enjoy the lifestyle. I enjoyed education, never much relished the idea of working 100 hour weeks. I much prefer calling my own shots and my current 8-day a month schedule suits me perfectly. It's not the being out on the road that I enjoy, it's the abundance of time it leaves me to do the things I DO enjoy. If one day it stops paying enough to lead the lifestyle I want, maybe I'll return to my previous career path...which wasn't finance.

[Longsnowsm]

No_Worries,

I think I explained why I used the Q4 numbers, but let's look at the most current Total Credit Risk numbers 2Q09 since I know that will make you happy:

JP Morgan 283%
GOLDMAN 921%
BANK OF AMERICA 137%
CITIBANK 209%
WELLS 71%

Those are still acceptable levels of risk? And it is interesting you pointed out the marked improvement... Why are these banks suddenly hoarding their cash? Could it be the tidal wave of bad debts, bad bets, and deteriorating numbers? How anyone can lose money when they are getting free money to loan is really beyond explanation.

The smart money only has the funds they need to conduct business on a daily basis in the banks and has already sought out other investments in tangibles(commodities, real estate), overseas, and even in other currency markets. And of course there is the mattess, tin can in the backyard if that is your preference... but what dollars will be worth is the wild card.

As to the full reserve banks. Just because something hasn't been done system wide does not mean it shouldn't be done. Your right, in a self regulating gold standard full reserve banking will work just fine. So you don't think the "services industry" is profitable enough that banks should even bother serving customers with checking, savings, ATM cards, funds transfers, and a safe secure place for you to keep your money? That isn't value added enough for you to keep using a bank? Well then why do you use a bank now? If you think the fees will be too high in a full reserve bank then so be it. That is possible I suppose as the fees would be as high as the market will bear and there would be competition between the banks for your business. Banks would have two functions in full reserve. A warehousing function, and a lending function. That lending function could still exist, and people would choose to put money in those accounts for that purpose. At least at that juncture they(the customers) know that they are taking risks, and what those risks might be. The current one legged pony model puts everyone at risk.

Your right the banks haven't done it(full reserve) because the services and fees model doesn't permit the wildly profitable risky leverage schemes. The margins are thin, but some people find even in a thin margins environment that they can still earn a good living.... Sorta like trucking, you just gotta be willing to work for it. So if the banks aren't allowed to act like Mafia then it just isn't worth it?

I will agree with you on the issue of transparency, and a real marketplace for these contracts. It is just insane what is going on presently, and it is almost impossible to determine what any of these contracts are worth, or the real risks associated. So far the proposed regulation bouncing around from the Treasury is weak at best, and the bill working through Congress is already being watered down to the point that I don't know why anyone would bother passing the bill. So I guess we will see what happens. So far I am not impressed with anything I heard yet in either the derivatives or banking reform.

Then there is the whole off balance sheet transactions risk. I worked for one of these guys who thought they were the brightest guys on Wall Street playing the "structured finance" game. Our CEO and CFO were out on the street telling the world that we weren't Enron... BS, it was creative finance from A-Z with capitalization of maintenance costs, off balance sheet investments that were leveraged 7 ways from Sunday. It was those off balance sheet bets that had grown so large that they literally wiped out the company and sent both the CEO and CFO to a "country club". There was no way for Wall Street or the average investor to know about these other companies and other investment vehicles or what the real risk was to the company. Nothing has changed today, Wall Street convinced everyone that we don't want to go there as far as regulation.

Status quo works for you. That is great. So far I have heard you say that leverage is too high. The the Fed and the Treasury are asleep at the wheel. So what are you proposing to do about it? Your fractional reserve one legged pony has a broken leg and it laying out in the road. What is the solution to this inherently unstable system?

I am a transparency guy, and I want to know what I am dealing with in the banking and monetary situation. I guess I am the last guy to the party that slowly had the rind peeled back over the last few years to reveal the level of risk and fraud in the system. I am happy you are satisfied with what your getting and seem all to willing to play along with the "system". I however am not. I can only hope that by taking the time to at least post here and spill out a few of the numbers that someone will at least ask and start digging. Our banking system is unsafe, and just because we have creative finance programs to write off those bad bets doesn't change the fact that the system is rigged, profits are private, but loses are public. Sounds like quite a sweetheart deal if you can get it.

For example the numbers we have been talking about here in general terms so far are just the derivatives positions. What about the consumer and wholesale debt that is on their books. For example JP Morgan in the latest numbers they just posted.

Total Assets per the SEC filing is: (all numbers reflected in millions)
$2,041,009
Consumer loans:
$434,191
Wholesale loans:
$218,953

Now add the credit derivatives play into the picture:
$6,817,788

The talking heads are throwing out some pretty horrific loss percentages(20-30% loses right now) on these credit positions. So just how solvent is JP Morgan? You cannot answer because nobody knows, but even at a casual glance at the numbers here and the reported portfolio charge offs and losses it isn't far from the truth to say they are insolvent. Without the public backing and assurance that they "are too big to fail", and keep on doing business as usual. Otherwise they would probably have been shuttered already. Now think about that for a moment if Lehman is credited for setting off the current fireworks what would happen if a JP Morgan or Goldman were shutdown? So please if you have looked at the numbers and think this is perfectly sane and acceptable then so be it. I just hope that others reading this thread have taken the time to go and look for themselves. We are talking about banks and what is going on with our money, but please don't try to play down the risks. If it wasn't for FDIC I assure you that you wouldn't have the "casual" attitude about the financial state of our banks.

I am currently following the one full reserve bank that I know of called the Free Lakota Bank. I don't bank with them because I have a concern with the accepted mint that they will accept silver and gold from. The premium the mint is charging over the spot price of the metal is just too high. They should accept and recognize all forms of silver and gold that is out there in the market place and/or reduce the premium per ounce to a level that is in line with the market place. Otherwise the banks fees are reasonable. They perform as I have described here where you have deposits, and then you can also decide how much you want to put into the general investment fund and put those funds at risk. Again the customers choice if they want to put money at risk and not some scheme like with your one legged pony fractional ponzi scheme. So I can only hope that Free Lakota grows and expands to other locations and gets their mint premium sorted out or that other banks pop up to address that need. So it isn't that banks cannot make money, and that customers don't get value with full reserve banking. Otherwise Free Lakota wouldn't have been in business long.

Maybe it is time for people to start asking about the road that hasn't been traveled. There are many currencies and governments that no longer exist today because of the one legged pony and the expert direction of the arsonists. What are the risks to the system and to people with the method I have described compared to the ponzi scheme we have today? There is safety and security in the method I describe. It isn't pie in the sky, it is just hard for the crack head banks to accept we are not going to allow them to risk the entire system by their lending practices and creative finance. That we are not going to accept the Fed allowing this unregulated, unrestrained growth of the money supply in the form of debt and leverage that puts us all at risk. Until we demand better we will never get out of this boom and bust cycle that these crooks have created. Why your so opposed to safety, security, and transparency I don't know. I don't know how anyone can think the current system provides any of that.

I am a realist. I know what I am suggesting will not get done until the current system collapses and people demand safe and sound monetary policy. I know full well that a full reserve system will work. Just as I know your current status quo system always fails and ends up in utter ruin. I also know that it means enough people have to wake up to the the fraud being perpetrated upon them to ensure that the current band of crooks are run out of town. I personally don't think that they can save the dollar at this point unless someone grows a spine and attempts to defend the dollar. Until there are pitch forks and torches running through the streets to hang the crooks who bought us to this place nothing is going to change. As the dollar goes so does our nation.

So disregard the questions I asked. Your for the ponzi scheme, and I am against it. You trust it to work out and I think history is replete with stories showing that it won't unless of course your a banker. We can pour over the numbers until we are blue in the face and it won't change anything. I think that the state of our government spending and financial system is mind bogglingly insane. You seem to think that our financial system has always worked this way and it just needs a little tweak. It hasn't always been this way, and it will take a lot more than some minor tuning to save the existing economy and monetary system. So I am voting with my money and taking the appropriate actions on my part, tin can, mattress, lotto tickets, cabbage patch collection, and an autographed picture of Mr Green Jeans and heading for the hills. I wish you the best of luck with the one legged pony, and I truly hope that it's leg heals and we are OK. At this point I think that if one can look at these numbers and not think we are in desperate straights it is pointless to continue posting in this thread. We can go over SEC filings and financial statements until blue in the face and you will tell me things are fine, and I will say they aren't or vis versa. So if we are both still kicking around in 5 years let's come back and see who was right... Obviously reality might change perspective.

Just wake me up when the economy starts to improve... I hate it when I miss that part! LOL

Longsnowsm

[no_worries]

Yes, and if you look at that metric for risk exposure from Q2 1998 the top five banks look like this:

728%
373%
334%
194%
172%

Gee, that actually looks worse than the most current numbers. Does that mean banks are more stable today than they were 11 years ago? No. What it means is that this isn't a reliable risk metric. I tried to point out to you why most of these numbers aren't reliable risk indicators. Maybe hearing it from the OCC itself will help:

"Notional amounts are helpful in measuring the level and trends of derivatives activity. However, these amounts are a misleading indicator of risk exposure."

You talk about off-balance sheet activity as if it was something completely different. You do realize that most of those derivatives numbers you "analyzed" from the OCC's report are in fact off-balance sheet. Derivatives that do not involve booking assets or liabilities are, by definition, off-balance sheet since a balance sheet is simply a listing of the two. Swaps, futures, options...in other words most derivatives, fall into that category.

Banks are not "hoarding" money. They are lending. I've been house shopping all summer and I can get a mortgage from multiple sources. I just stopped by a trailer dealer the other day. If I wanted to finance through them, I could. But I'll probably just go through my local bank...they'll loan me money too. Is credit harder to come by these days? Damn straight! Businesses are going under left and right as spending has crashed. People are losing their jobs and therefore their homes and cars. Even if the banks got their money for free (which they don't) they still have to pay it back AND cover their operating costs. Pretty tough to do if the borrower isn't paying you anymore. Better hope the asset is worth enough to cover the liability. If it's early in the contract and/or you didn't require enough down, you're going to lose money. THAT'S what got the banks in the predicament they're in and that's why they're more careful about who they loan to these days.

You say there was no way for people to know what was going on leading up to the credit crisis. Baloney! There were plenty of people who knew what was going on. They may not have known the specifics, but that was irrelevant. They knew something wasn't right and trouble was brewing and they talked about it. People, for the most part, just didn't listen. Times were good, everybody was making money, nothing could go wrong. But the signs were there. I pulled out of the stock market in early '07, not because I thought a recession was inevitable, but because I knew the banks were going to have trouble. All you had to do was look at what was going on in the mortgage market. Those that didn't see something seriously wrong weren't being objective. I sat through over a year watching the market continue to go up as people poo-pooed the naysayers. But we were eventually proven right. I have a suspicion the same thing is going on today and yet the market continues to climb. The point is, none of this was ever a big secret...the signs were there.

You're right, the bank bailout was a sweetheart deal for those banks. However, the government has made money on several of those deals and has yet to lose a dime. I doubt that streak continues because I don't think AIG makes it and Citi and B of A are still questionable. But as of today, the taxpayer hasn't been taken to the cleaners. JP and Goldman are making money hand over fist again.

Your reaction in the name of safety is the same as the mom who reads a story about kidnapping and never lets here kid outside again...it's overreaction; throwing the baby out with the bathwater. The system you advocate certainly wouldn't need much regulation. Of course, it wouldn't serve much of a purpose either. A bank as nothing more than a depository institution; who needs it? You ask why I use a bank now. I give them my depository business so that I have a relationship with them when it comes time to borrow money and to make a little return on my liquid assets. If they didn't lend or pay interest, there are other options available. You claim the fees will be dictated by demand for service. Of course, but that doesn't mean that anybody has to fill that role. If the demand for basic banking services doesn't equate to high enough fees, nobody will open a bank.

Which bring us to you Lakota Bank. Are you serious? It took me less than three minutes to start having serious questions about those guys, starting with their lack of information. They hardly give you any concrete information on their operation. Try clicking on their "Management" tab...coming soon. Where are they located? They imply that they're affiliated with the Lacotah Nation, though the tribe disagrees. You're right to be wary of the AOCS. Their exchange right now is $50 per ounce when silver is trading under $18 per? And once silver hits $41.50 on the spot market, their one ounce coin jumps to $100. Are you kidding me? That's not just a "high premium" it's a scam. And back to the bank. They will do you a favor and accept your dollars as deposit "on a temporary basis." Of course, when you want to withdraw you can only get AOCS coins which are accepted at "over 23,000 merchants." I looked at the list. It does look like a great savings program because you'll have a hard time finding somewhere to spend you money. After you've deposited your "fiat currency" and they disappear without at least giving you their overvalued coins, who are you going to complain to? They aren't governed by any regulator since they aren't a real bank. In fact, if they ARE in fact some sort of Native American business, you probably wouldn't even have much in the way of legal recourse.

It doesn't strike you as odd that they take two concepts, full-reserve banking and commodity based currency, that are wildly popular among certain groups right now, sprinkle in some Ayn Rand quotes and Voila! the "perfect" bank. Oh, and they HAVEN'T been in business long. They "opened" at the end of last year. When times are darkest, that's when con artists make their killing. If that is safety, I'll take the "Ponzi scheme" every time.

[Longsnowsm]

No, What it means is the banks have been out of control for decades... This kind of leverage is dangerous... And now we all get to see just how dangerous. When these same banks are forced into either raising huge cash or into wholesale liquidation of their holdings due to the layer upon layer of leverage will you still be casual about how bad this is? Are we really going to qualify this as "normal"? You may be partially right that the banks have unwound some of their risk due to the pull back in people looking for loans. I agree if your in the market and have decent credit you can get a loan. But I also have heard some of the banking brass on the talking head circuit admitting they have pulled back their horns. Don't get me wrong I think it is a good thing for them to try to get this under wraps, but we are far from them having this under control, and I don't think they have learned a darned thing. I take that back, they learned we are stupid enough to bail them out no matter how badly they should be put out of their misery and ours.

How have the banks drawn down so much risk so quickly? This explains some of it:
http://www.moneyandmarkets.com/bernanke-gone-berserk-bank-reserves-explode-4-36033

I think this comic sums it up nicely:
washingtonpost.com (http://www.washingtonpost.com/wp-dyn/content/opinions/tomtoles/)

Two thumbs up on your assessment of the markets, I couldn't agree with you more. They are way ahead of themselves. I think we are setup for a significant correction while the economy tries to figure out where they new economic base is. Buy the rumor, sell the news. Until some of the dead weight companies are weeded out and some of the bad debt is finally dealt with there is no way this economy will get back to healthy footing. I don't don't see this recovery they are talking about yet. Until we see the government pull in some of this stimulus there is no way to know just what kind of economy we are actually dealing with.

I don't agree with your assessment the banks aren't getting free money. With the rates they are getting the money is free. If you cannot make money with zero interest rate money then maybe they shouldn't be doing this "banking" thing. The downside is they now have to do this thing called qualify the borrower. It is an old school technique where the bank actually finds out how much the borrower makes, how much they owe, what kind of credit history they have etc. :-) I know it is really is going to be a drag that they cannot just keep sending out credit card offers with no qualification whatsoever, but you know sometimes this thing called work is a drag. This is that thing that gets said every once in a while called "responsible behavior". Not just on the borrowers part, but on the lenders most especially. So I will agree it is a lot harder to make loans, but then again it should have been always a fair amount of work to make sure that your loans were good. I discovered when I started doing a small investment on prosper.com just how loose the lending standards are and the fact that it is a numbers game. The name of the game at the time a few years ago was to write as many loans as you could. Statistically the percentage of bad loans was low even with those with shakier credit. You could blend your portfolio with loans with varying rates of interest to help compensate for those loses. It worked pretty well as long as the funny money continued to flow, but as soon as times became rough the defaults have skyrocketed. It is still true it is a numbers game even today, but the numbers that fall into the range of default are high enough that you better have a good stomach for risk if you want to play right now. Same is true for the banks I assume. I can tell you that the information that the lender has on hand many times is not factual, or complete. So it is really hard to decide if you really want to stick your neck out on a loan. It is good that people and banks are pulling back, and I know I have drawn down my lending through Prosper until I see a stabilization of the economy. So I can sympathize with the struggles of the banks to continue to make money, but I cannot endorse the outrageous behavior they have exhibited to bring us to this point. I think for the most part it has been so long since we have seen a rip roaring correction due to the extraordinary effort that has been put forth by the fed to move from bubble to bubble over the last couple decades that people don't realize just what we are in for. This is especially true if they do not know the history of how this has played out in the past. What else could explain peoples willingness to borrow so much and save so little... You only do such a thing if your fearless, and/or stupid.

There are off balance sheet and then there is "off balance sheet". The company I worked for had dog piled like many companies into the dot.com bubble. They were buying up any company that had a web presence or was in tech in any way shape or form. What was happening and I am sure to a smaller degree even now, elephant investors were pouring in money into these small start-ups. These companies then IPO'd, and then the rolled the big bankroll from the elephants and the IPO money to springboard into some of the riskiest ventures possible. By the time it was all said and done the layers in at least one of these companies that we had bought through these lucrative off balance sheet arrangements was at least 7 layers deep that I heard about. And this was just one company that they had acquired. When it was all said and done it was revealed that these carefully crafted shill companies were so leveraged that it was many times the total assets and capitalization of the entire company(the elephant parent companies). There is no way that the Wall Street could possibly know just how deep the trouble ran due to the way this was all setup. It was very Enron like. This is what I was referring to when I said off balance sheet and I know for sure that nothing has changed with many of these companies. They may not be the IPO mill that it was, but this behavior still exists with structured acquisitions. They have created shill companies to do their bidding and make these transactions even more obscure to the street and the government. These aren't banks, but they are huge companies that definitely will send shock waves through the economy if they collapse. To what degree the banks are involved in this activity nobody will know until people start shifting through the ashes after the fact. As they say "there is more than one way to skin an investor... I mean cat".

I don't think average Joe on main street has had any idea just how bad these banks have gotten. Or just how risky this is. Like you pointed out most people don't understand most of this anyway. Most come to the conclusion something is going on when it is an emergency and all over the news. I seriously doubt most people have a clue. Not because they shouldn't know, or they shouldn't be told, but because most of this information just isn't out there for public consumption in a way that makes it easy for them to understand. Do a man on the street experiment and ask people you know what derivatives, CDO's, or swaps are... See how many can even give you a general hint/pointer what your talking about.

I would agree that a lot of people knew something was up with the mortgages. If you could fog a mirror and had a pulse you could get a loan. People saw the prices going crazy, and some realized it was a bubble. But as we have already discussed there are always those that are willing to dog pile on after the big move has already happened.

My reaction isn't an over reaction. I believe our banking system and our economy should not be allowed to be treated like a casino at the behest of the banking elite. These banks are taking high stakes gambles with our economy, our life savings, and our future. And of course our government just cannot spend the borrowed money fast enough. I will take safe sound money where commerce and the real economy exists, and not in a barrage of funny money and debt that has been implicated time and time again with the fantastic booms and busts. If sound judgment were exercised we should never have been in this situation in the first place and it is going to get much worse before it is over. Since we have seen time and time again that sound judgment does not exist then we will endlessly be in these cycles of boom and bust. Do you think they called it the "Great Depression" because it was great in a wonderful way? Do people remember these events if they are just minor inconveniences to them? Our money and our economy are not a game. Peoples lives and savings are not a game that you can just hit the redo button and they get their life savings back. You may be well enough off that if you lose some money in this scheme it won't kill you, but there are a lot of people out there that it will destroy.

There are examples right now on the globe of countries that are experiencing this and it is just a preview of what is coming here. Same global banks, same ponzi scheme. Fortunately I don't think I am the minority here when it comes to what is happening and considering this an unacceptable risk as more information is revealed about the depths of corruption. It looks like the sleeping giant of the general public is being awoken. Only if the barrage of funny money some how lures them back to sleep is this going to avoid getting ugly.

I know, we smug Americans say, it's only Argentina, it's only Iceland... It's only "fill in the blank", because most people don't realize the same circumstances and same institutions are involved. This experience isn't unique to us. The same fraud is unraveling all over the globe. If people knew that and understood this would it make a difference?

pl.net enoaro 13-8-2002 (http://www.pl.net/9politics/enoaro.htm)

I agree with you on Free Lakota. No they are not affiliated with the Lakota nation. And for the very reasons you cited is why I don't bank with them. I do hope that they wise up and expand what they are doing and offering to include real market exchange. Right now I cannot say I would risk my money until they prove they are going to stick around and that they learn from the market place. But I do think it is promising which is why I continue to watch and hope that something good comes from it. At least then some of us who are not willing to risk everything for the profits of fractional reserve bankers will have a choice in the market place of banking if this catches on. People should have a choice, and the option to opt out of the ponzi scheme. Let people decide by giving them enough information and then lets see what they would do. Will they still choose to put their money at risk even if they understood the consequences and that there were other options available to them? Hopefully we will get the chance to see. Until then you will find me in the back yard digging holes for my tin cans.... :-)

Longsnowsm

[no_worries]

I certainly don't have any issue with people who prefer to be ultraconservative with their money, especially these days. I know plenty of people that have taken their money out of traditional accounts and done various things with it. However, I see no reason to be so conservative as to earn zero or negative returns. I consider myself to be conservative with my money. Not because I bury it in the backyard but because the places I put my cash, whether investments or demand accounts, are subject to a high level of scrutiny. I certainly am not so well off that I don't mind losing money. I can't imagine there being a level of wealth where losing money wouldn't bother me. However, I haven't lost a dime so far and I don't plan on that changing. During the period that the market lost over 50%, my rate of return was almost 10%. I put my faith in my own ability to do due diligence. To me, that is conservative.

Like I said, I have absolutely no issues with people that want to be even more conservative. When people don't understand what is happening, that's probably the smart choice. We both agree that mistakes have been made. That mistakes and greed ruled in the banking industry is no surprise. Banks, or any business for that matter, are built in profits, at least in a capitalist society. Which is why I lump the bulk of the fault on the regulators. There were already many regulations in place that could have prevented much of what happened if they were simply enforced correctly. Some other things weren't addressed that should have been.

You see fault with the entire system and prefer to scrap it and its benefits entirely so as to prevent the negatives. I see the negatives as easily remedied by proper regulation and far outweighed by the beneficial aspects.

History has not looked particularly favorably on the solutions you champion. They've either been tried, sometimes multiple times, and abandoned or never even been tried. For your Armageddon scenario to occur, we would have had to follow the trend of a year ago for much longer. However, the data has shown that that trend stopped awhile ago and, in some instances, has retraced. I don't think we're going to have a recovery anytime soon, but neither do I think that things will get appreciably worse. And while there will certainly be more banks that fail, maybe even a big one, the banking system itself will remain intact. The problems now are institutional not systemic.

Now, show me some data proving that banks are borrowing at zero percent interest. The Fed Funds target rate is above zero, as is LIBOR 1-month, and the discount rate is .5%. As it so happens, banks ARE making money on their lending originated in the last year. It's the loss provisions to account for their older dated books that are still pulling them down. Even so, many of the banks are reporting significant profits. JP and Goldman last week, Mellon and M&T today. Of course, JP and especially Goldman are making the bulk of their money through trading rather than lending, but the fact remains that a large portion of the banks are making money these days.

[LightsChromeHorsepower]

I see I have missed a great discussion while I've been away. Please keep the comments coming on this one.

No Worries- You talk about being able to get a mortgage from multiple sources. I'll wager that this is for a conforming mortgage that will end up in the hands of Frannie or Freddie, which means that actually the ONLY place you can get a mortgage is from the govt.

[no_worries]

I see I have missed a great discussion while I've been away. Please keep the comments coming on this one.

No Worries- You talk about being able to get a mortgage from multiple sources. I'll wager that this is for a conforming mortgage that will end up in the hands of Frannie or Freddie, which means that actually the ONLY place you can get a mortgage is from the govt.


It's true that roughly 90% of mortgages are extended or guaranteed by the Feds these days; but private investors have started to come back into the secondary market as originators have toughened their qualification standards and the quality of mortgages and related securities has improved. The bulk of mortgages are still made by private lenders, at various price points, and subject to a range of qualifying criteria. As a borrower, what happens on the secondary market makes little difference to me. My point was while credit has tightened substantially, it's still available to creditworthy individuals and businesses. And isn't that how it should be?

[Dejanh]

It's true that roughly 90% of mortgages are extended or guaranteed by the Feds these days; Ok....

but..there's a but?


private investors have started to come back into the secondary market There is a secondary market? What is a secondary market if goverment provides 90% of the loans? Is it that other 10%?

as originators have toughened their qualification standards and the quality of mortgages and related securities has improved. No they didnt, government makes sure that they dont by distorting real market conditions which would have never let these mortgages come about in the first place. If you get refused by a bank, you can get a loan elsewhere which is backed by the feds.


The bulk of mortgages are still made by private lenders, at various price points, and subject to a range of qualifying criteria.
Thats good, BUT again. Government has its own programs which are undermining these companies from tightening their standards. Bank that were bailed out still make risky loans because they know they will get bailed out again.
As a borrower, what happens on the secondary market makes little difference to me. Yes, because secondary market makes only about 10% of existing morgages and, even if they get in trouble, Benny boy whips up more dollar to bail them out too.....

My point was while credit has tightened substantially, it's still available to creditworthy individuals and businesses. Because of the government credit is available. It wouldnt be available if these firms failed, which they should of have..

And isn't that how it should be? Yes, but, very few Americans have good credit and were still able to get deeper into debt. It should be like that, sure, but only if free market policies were followed and true capitalisam was in charge, not Federal Reserve which can create credit out of thin air and call it capital.....

Everyone blames the banks for our problems while turning a blind eye on those who gave them dollars so that they can leverage up. If it wasnt for Fed, none of this would have happened.

[no_worries]

You're not understanding what the secondary market is.

[Dejanh]

You're not understanding what the secondary market is.Enlighten me...


**Enlightenment (spiritual), a final blessed state free from ignorance, desire and suffering**

[no_worries]

The secondary market is where the mortgage originators sell their assets. Banks and private mortgage companies provide the funding for the great majority of all mortgages. However, they usually prefer not to keep those assets on their books. They sell the mortgages on the secondary market to companies that securitize them by packaging them into MBS's which in turn are sold to investors. The government is a huge player in the secondary market through Ginnie Mae, Fannie and Freddie. None of those companies actually make loans to borrowers. They buy already existing mortgages in order to maintain liquidity in the market.

Of the 90% that I mentioned, almost all of those are guaranteed by, not actually owned by the Feds. The government actually does very little direct lending.

[Dejanh]

The secondary market is where the mortgage originators sell their assets.

Banks and private mortgage companies provide the funding for the great majority of all mortgages. However, they usually prefer not to keep those assets on their books. They sell the mortgages on the secondary market to companies that securitize them by packaging them into MBS's which in turn are sold to investors. The government is a huge player in the secondary market through Ginnie Mae, Fannie and Freddie. None of those companies actually make loans to borrowers. They buy already existing mortgages in order to maintain liquidity in the market.
Wal Street, being what it is, with their MBS's, derivatives and what else, makes economics much more confusing that it should be. Thats how they make their money. You can make ten more morgage markets on the top of that ,,secondary'' that you're talking about and they all come down to one place. There is only one morgage market and not another one.
Of the 90% that I mentioned, almost all of those are guaranteed by, not actually owned by the Feds.If government guarantees something, it owns it. If that asset defaults who is gonna backstop it other than the crooks who are guaranteeing it against the default? If it wasnt for the feds owning the financial system as a whole, there would be no banks to have those assets in the first place.

The government actually does very little direct lending.No, they only own those who do lend...

Federal Reserve is the lender of the first choice. American Express became a deposit holding company just so that they can borrow from the Fed, so did GMAC, JP Morgan and all other commercial banks who shouldnt be.Banks are borrowing at .25% right now and people wonder why their stock is up. They borrow capital which is not real from the agency who can create it out of thin air......but for how long?

Our bubble economy just keeps getting bigger.

[BigWheels]

CIT Group became a bank holding company and received 2.3 Billion from the TARP program.

Now they are bankrupt. Perhaps the fourth largest bankrupcy in American history (so far).

AIG, Citigroup (different from CIT Group), and Bank of America have received 100 Billion from the TARP program.

Yikes.

[LightsChromeHorsepower]

[QUOTE=
Our bubble economy just keeps getting bigger.[/QUOTE]

And we now know what happens to bubbles.

[LightsChromeHorsepower]

[QUOTE=Our bubble economy just keeps getting bigger.[/QUOTE]

And we now know what happens to bubbles.

[Dejanh]

And we now know what happens to bubbles.

..ummmmm, they get bigger it seem ?