Posted on 08/25/2007 5:04:49 AM PDT by Hydroshock
Yer too funny
Please enlighten me. Your examples may prove interesting.
“Will someone explain what all this means”
They can’t meet their depository requirement which I believe is 3.5% of deposits.
Thats how the banks forced the S&Ls into insolvency when they were encroaching on their business was by raising the depository requirement.
Since the 11 member banks hold the majority of the seats on the Federal Reserve they call the shots.
BofA is the board member for the 11th district so guess what they voted to save their skin when by rights BofA should have been shut down.
First, you've got to see the process. There's a mortgage originator out there. He loans you money for a home. Heck, he loans money to lots of people for lots of homes.
Then he packages the loans that he made this month. Each group of loan packages is then "wrapped" in both a third party insurance protection as well as a repurchase guarantee (i.e. if the Loan Originator is selling bad paper hiden inside these packages, the new Buyers have 6 months or so to find out and make him buy his own loans back at full price).
Now he sells those packages on Wall Street. Wall Street runs a Secondary Market that buys all sorts of debt instruments. People with cash want to trade their cash for income-producing pieces of paper.
This sale then gives him the funds to make new home loans.
OK, are you with me so far?
Well, the Loan Originator arm of Bank of America has run into a problem; people aren't buying their old loans on the Secondary Market.
This means that BofA's mortgage division (or whatever commercial paper branch) has to hold all of their old loans *and* that they have to use more of their own cash to fund the new loans that they are making.
Which just about doubles their investment in this area...putting them over the Fed's caps for how much of the bank can be invested in any one area (e.g. the 10% cap referred to in the article above).
So unless the Fed wants BofA to cease making new mortgage loans (and perhaps even cease making new commercial business loans as well), something has to give.
Should major lending institutions like BofA and CitiGroup stop making commercial loans and mortgages, then a substantial portion of our "Just In Time" economy would immediately grind to a catastrophic halt.
Businesses that were well run, through no fault of their own, would see their credit disappear. They would die.
International competition has forced U.S. businesses to operately leanly, so fast growing businesses do not grow with their own cash, but with credit. If the credit was unexpectedly cut-off, thousands of U.S. businesses employing millions of Americans would have to close their doors within two weeks because they would run out of cash to pay their bills and employees, even though they are profitable, well-run, and share no part of the sub-prime fiasco's culpability.
And Congress/White House and the American People would look unkindly upon the Fed if that situation was allowed to reoccur (last happened in 1930).
So the Fed isn't going to let BofA and/or Citigroup stop making business loans and mortgages due to some regulation that limits each bank's self-investment to 10%.
Looking at this I think that the fed will do everything under the sun to keep from cutting the rate.
Good analysis, Southack!
1. Corn. Supply and demand has pushed up prices. Corn is used in many foods and products and those prices ripple. As people feel a price pressure they expect more in income to reach the same standard of living.
2. Hurricane heads to Florida, my $700 generator has a sudden inflationary jump to $1400.
3. Very low unemployment forces wages up ($10 to start at McD's). This has the dual effect of increasing the cost of product and allowing the market to bear higher prices. Big Mac goes up 10 cents.
Government money supply is the most ham fisted and obvious inflationary pressure, but it is hardly the only one out there. We have had constant inflation for the last 60 years, yet the cost of many products of comprable quality can decrease due to other factors. For instance the cost of VCRs dropped constantly over a 20 year period, even while quality improved. The same thing is now happening with flat panel TV's.
Honestly, I agree with that sentiment. Where you and I may disagree is that I see the Fed as having no other choice after exhausting every other avenue. The Fed can't just let the banking system cease to exist.
So I say that the Fed will cut the Fed Funds rate by .50% or more in their next announcement (i.e. before September ends).
All of those arew poor examples. Each case is a single product example. though the Florida hurricane example would involve more than more product.
Even so, that example speaks more of a temporary supply and demand situation, rather than inflation per se, and after a few weeks everything returns to normal, more or less. Of course, in short order, the government would be pumping a lot more money into the system, so what does that do to your example?
Keep thinking, maybe there is an example, but even so, that would be one. You’d need a number of examples to begin to make your case.
They should let the banks fold!
If it causes a depression good, we have 3 generations that need the learning experience and get shocked into economic reality/1
You’re sick.
Corn is not a single product example, as its price effects the price of countless other commodity grains and food stuffs. Surely, food remains a strong indicator of inflation.
Even so, that example speaks more of a temporary supply and demand situation, rather than inflation per se,
Everything is temporary. Yet that doesn't mean short. In the 70's the price of sugar skyrocketed and sent candies and soda soaring from 10-15 cents to 50 cents in short order, many other food stuffs were also so affected. It never retreated. It is correct that the money supply works relatively evenly across the board, but that is far from the same as saying it is the only mover.
Of course, in short order, the government would be pumping a lot more money into the system, so what does that do to your example?
I assume you mean for a disaster. That depends on the disaster. If you are Germany or Japan at the end of WWII you experience rising prices for commodities and a complete lack of government funds. In such a case inflation is only overcome through increased productivity. Conversely, decreasing productivity will be a strong inflationary force.
Keep thinking, maybe there is an example, but even so, that would be one. You’d need a number of examples to begin to make your case.
No, just one. Perhaps you forget my case. I didn't say that money supply wasn't a major factor. I said increased prices = inflation, and that increased money supply is one of the factors that can lead to increased prices. To make my case, all I have to do is show that there are other factors, and I have readily done that.
If they do, which again I think they will do anything to avoid, I do not think it will turn things around.
No, you haven't. You've pointed out narrow price increases and concluded that those are cases of inflation. They are not.
The reason is simple: It is definitional, to coin a word. The definition of inflation, going back many years, has been an increase in the money supply. Even sources that now define inflation as increased prices say that they are caused by an increase in the money supply.
Are there causes for narrow price increases other than an increase in the money supply? Yes. Are there other causes for broad-based, long term inflation? I would answer, no (because it's definitional). You would answer, yes. Where does that leave us?
At the end of a discussion, agreeing to disagree, I think.
So it is your view that if 55% of products increase in price due to various independent causes, inflation has not occurred. I disagree. The inflation index has always been an average.
The reason is simple: It is definitional, to coin a word. The definition of inflation, going back many years, has been an increase in the money supply. Even sources that now define inflation as increased prices say that they are caused by an increase in the money supply.
The origin or a word is hardly proof of its current context. By your definition, if money supply increases but prices do not increase there is inflation, but if money supply doesn't increase and prices do, there is no inflation. This is not how anyone has used the word in over a century for sure.
Are there causes for narrow price increases other than an increase in the money supply? Yes. Are there other causes for broad-based, long term inflation? I would answer, no (because it's definitional). You would answer, yes. Where does that leave us? At the end of a discussion, agreeing to disagree, I think.
The economy is always the average of many separate particulars. Yes, I'll agree to disagree with you, although I'm sure we are in agreement that over increasing the money supply will give us inflation, whether it be instant or delayed.
http://www.futurecasts.com/Understanding%20Inflation.html
http://www.megaessays.com/viewpaper/20479.html
FWIW.
You're a pussy. This country is circling the drain because so few people have character built from any true hardship.
You are no doubt a poster child for "circling down the drain for lack of character."
The answer is not to hope for more hardship, you psycho, it is to teach the young to handle hardship with character.
Tough love never looks pretty. If a depression comes to this nation, whoever is left standing at the end will have shoulder you can build on.
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