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Post by jeffolie on Jul 7, 2007 13:59:24 GMT -6
"This is the big one: all investment portfolios will be shredded to ribbons," said Albert Edwards, from Dresdner Kleinwort. Don't blame capitalism. This is a 100pc-proof government-created monster. Bureaucrats (yes, Alan Greenspan) have distorted market signals, leading to the warped behaviour we see all around us. As the BIS notes tartly in its warning on the nexus of excess, this blunder has official fingerprints all over it. "Behind each set of concerns lurks the common factor of highly accommodating financial conditions" it said. Rebuking the Fed, it said Japan and Europe have turned sceptical of the orthodoxy that central banks can safely let asset booms run wild, merely stepping in afterwards to "clean-up". The subtext is that you bake slumps into the pie when you let credit booms run wild. You can put off the day of reckoning, as the Fed did in 2003, but not forever, and not without other costs. So the oldest and most venerable global watchdog is worried enough to evoke the dangers of depression. It will not happen. Fed chief Ben Bernanke made his name studying depressions. He will slash rates to zero if necessary, and then - in his own words - drop cash from helicopters. But his solution is somebody else's dollar crisis. On it goes. Perhaps governments should simply stop trying to rig the price of money in the first place. www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/02/bcncrunch102.xml
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Post by unlawflcombatnt on Jul 7, 2007 14:46:44 GMT -6
Great article. I read a similar article last week.
Many economists (such as Nouriel Roubini), don't believe the Fed can stave off a recession. Though Bernanke may be able to delay it, many believe one is inevitable, regardless of what the Fed does.
One explanation for likely Fed ineffectiveness is that most credit creation is now beyond the control of the Fed. The Fed can control bank credit creation, but is powerless to control other major sources of credit, such as hedge funds.
That's the theory, at least. I don't have a great understanding of this area. But I suspect those claiming the Fed ineffectiveness in preventing a recession are correct. Clearly much credit creation is beyond the direct control of the Fed.
Only time will tell. But it won't be too much longer before we find out, one way or the other.
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Also, I completely agree with the following statement: .
This certainly is not the fault of free enterprise capitalism. This is the fault of a government that has intervened on the side of big business, Corporations, banking & financial institutions, and multinational investors. It's the result of highly selective de-regulation and regulation, all aimed at protecting the interests of the rich Corporate elite, at the expense of everyone else- workers, the poor, the middle class, and small business.
Our country has devolved into a Corporate Plutocracy, where money always trumps the will of the people, and always trumps the best interests of the nation as a whole.
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Post by jeffolie on Jul 7, 2007 16:59:09 GMT -6
The lack of regulation and government entities plus a runaway money supply by the Fed and Foreign Central Bank (especially China's) create the downpayments on loan creations. The yen carry trade is where a creditor borrows in yen from Japan at near zero interest rates then invests the money as collateral for 10 times as much to buy bonds or even CDOs. The leverage is unbelievable. Hedge funds sometimes do this. It is completely unregulated. Thus liquidity is created outside the Federal Reserve system on a phenomenal scale, hundreds of Trillions in derivatives.
As Warren Buffet put it: Its like Hell, easy to enter and impossible to leave. These derivatives seem to be made by madmen.
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