http://seekingalpha.com/article/69979-the-fed-is-deflating-10-reasons-why
- Interest rates too low in 2003-2004
- Higher supply of dollars and higher imports
- Dollar continues depreciating
- Fed raises interest rates
- Real estate market tops in mid 2005
- Domestic credit crisis in real estate financing starting in August of 2007
- Dollar continues to fall
- Fed cannot extinguish excess dollars (it would make the crisis worse) and cannot expand dollars (to offset deflation) as it may severely impact the market for U.S. treasuries ... so it essentially freezes the monetary base and "follows the market down" (we're here now)
- Lower interest rates and rising prices spur inflationists to declare victory (perhaps they are right, but isn't it premature?)
- Deflationary effects begin to overcome the initial inflationary effects perhaps late in 2008 or in 2009, although oil and other goods remain buoyant (supply / demand).
- 1 trillion in losses and 2-3 trillion in credit disappears, the net effect being several hundred billion subtracted out of GDP (about 2%-4% lost). The knock-on effects are larger than any correction since the great depression. Interest rates remain stubbornly high as risk aversion continues. Supply/Demand issues dominate in mortgage banking with "too many banks" being propped up for fear of a cascade of losses (like Countrywide).
- The near future coincides with extremes in Euro valuation against the dollar ... which will likely reverse, until both currencies see themselves in trouble against the Yuan.
- The Euro is given second thought as China will roughly equal U.S. GDP in 2011 (or near there) and their growth prospects, with some corrections, looks huge with the size of their population and available capital outbuild. Per capita GDP won't hit the U.S. level until an estimated 2040. Imagine the size...
http://www.cnn.com/2008/US/03/26/beck.deficit/index.html
Let me give you three numbers that will put this economic asteroid into perspective: $200 billion, $14.1 trillion, and $53 trillion.
$200 billion is the approximate total amount of write-downs announced so far as a result of the current credit crisis.
$14.1 trillion is the size of the entire U.S. economy
And $53 trillion is (drum roll please) the approximate size of this country's bill for the Social Security and Medicare promises we've made.
- NYT: March 31: Treasury's Blueprint for regulatory reform: Consolidate a large number of regulators into roughly three big new agencies: 1) Prudential Financial Regulator for deposit institutions; 2) merge the Commodity Futures Trading Commission with the S.E.C. for investor protection across all markets and instruments; 3) create a national regulator for insurance companies.
- NYT: Paulson: expand Fed's troubleshooter role and authority to intervene when system stability is threatened wrt banks, broker dealers, hedge funds, private equtiy. However: no calls for tighter regulation.
- March 26: Secretary Paulson wrt primary dealer discount window: Tight regulation/supervision for broker dealers necessary as long as they have access to discount window. However, this is a temporary emergency feature, not permanent.
- Frank: Single regulator/greater power to Fed good idea. Regulators should re-examine capital reserves, risk-management practices and consumer protection without regard to whether companies were commercial banks, investment banks or nonbank mortgage lenders.
- Wolf: Remember Friday March 14 2008: it was the day the dream of global free- market capitalism died.Implication: there will have to be far greater regulation of complex financial institutions.
- Both President Bush and Mr. Paulson remain philosophically opposed to restrictions and requirements that might hamper economic activity--> major overhaul unlikely this year.
- Bernanke: 3 principal public policy objectives: financial stability, investor protection, and market integrity. Challenges: Complexity, illiquidity, leverage
--> central banks and other regulators should resist the temptation to devise ad hoc rules for each new type of financial instrument or institution. Rather develop common, principles-based policy responses that can be applied consistently across the financial sector to meet clearly defined objectives. - Roubini: It would be a most dangerous step to expand the lender of last resort support of the central bank to most non-bank financial institutions beyond the few systemically important ones, even to all securities firms: risks of additional fiscal bailout costs of insolvent securities firms would be serious.
- Economist: Deposit-taking banks should keep their government guarantee, whereas banks that want to live like hedge funds should learn to die like them too.
- Krugman, Lex: Banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure--> reintroduce variant of Glass-Steagal separating banking and securities business and was repealed in 1999.
- SIPC: customers of a failed brokerage firm receive all non-negotiable securities - such as stocks or bonds -- that are already registered in their names. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash.
http://www.rgemonitor.com/index.php
http://www.msnbc.msn.com/id/23853415 Most sweeping changes since the great depression: msnbc
