Posted on 01/23/2008 7:20:33 PM PST by AndyJackson
Bears beware. The New Deal of 2008 is in the works. The US Treasury is about to shower households with rebate cheques to head off a full-blown slump, and save the Bush presidency. On Friday, Mr Bush convened the so-called Plunge Protection Team for its first known meeting in the Oval Office. The black arts unit - officially the President's Working Group on Financial Markets - was created after the 1987 crash.
It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry "short" traders in the hottest of oils.
The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.
Judging by a well-briefed report in the Washington Post, a mood of deep alarm has taken hold in the upper echelons of the administration. "What everyone's looking at is what is the fastest way to get money out there," said a Bush aide.
Emergency measures are now clearly on the agenda, apparently consisting of a mix of tax cuts for businesses and bungs for consumers. Fiscal action all too appropriate, regrettably.
We face a version of Keynes's "extreme liquidity preference" in the 1930s - banks are hoarding money, and the main credit arteries of the financial system remain blocked after five months
"In terms of any stimulus package, we're considering all options," said Mr Bush. This should be interesting to watch. The president is not one for half measures. He has already shown in Iraq and on biofuels that he will pursue policies a l'outrance once he gets the bit between his teeth.
The only question is what the president can manage to push through a Democrat Congress. The Plunge Protection Team - long kept secret - was last mobilised to calm the markets after 9/11. It then went into hibernation during the long boom.
It seems he failed to spot the immediate threat from mortgage securities and the implosion of the commercial paper market. But never mind.
The White House certainly has grounds for alarm. The global picture is darkening by the day. The Baltic Dry Index has been falling hard for seven weeks, signalling a downturn in bulk shipments. Singapore's economy contracted 3.2pc in the final quarter of last year, led by a slump in electronics and semiconductors.
The Tokyo bourse kicked off with the worst New Year slide in more than half a century as the Seven Samurai exporters buckled. The Topix is down 24pc from its peak. If Japan and Singapore are stalling, it is a fair bet that China's efforts to tighten credit are starting to bite. Asia is not going to rescue us. On the contrary.
Keep an eye on Japan, still the world's top creditor by far, with $3 trillion in net foreign assets. The Bank of Japan has been the biggest single source of liquidity for the global asset boom over the last five years. An army of investors - Japanese insurers and pension funds, housewives and hedge funds borrowing at near zero rates in Tokyo - have sprayed money across the Antipodes, South Africa, Brazil, Turkey, Iceland, Latvia, the US commercial paper market and the City of London.
The Japanese are now bringing the money home, as they always do when the cycle turns. The yen has risen 13pc against the dollar and 12pc against sterling since the summer. We are witnessing the long-feared unwind of the "carry trade", valued by BNP Paribas in all its forms at $1.4 trillion.
The US data is now relentlessly grim. Unemployment jumped from 4.7pc to 5pc - or 7.7m - in December, the biggest one-month rise since the dotcom bust and clear evidence that the housing crunch has spread to the real economy.
"At this point the debate is not about a soft land or hard landing; it is about how hard the hard landing will be," said Nouriel Roubini, professor of economics at New York University.
"Financial losses and defaults are spreading from sub-prime to near-prime and prime mortgages, to commercial real estate loans, to auto loans, credit cards and student loans, and sharply rising default rates on corporate bonds. A severe systemic financial crisis cannot be ruled out. This will be a much worse recession than the mild ones in 1990-91 and 2001," he said.
Sovereign wealth funds stand ready to rescue banks, as they have already rescued Citigroup and UBS. But as Moody's pointed out this week, the estimated $2,500bn in lost wealth from the US house price crash is more than the entire net worth of all the sovereign wealth funds in the world.
Add fresh losses as the property bubbles pop in Britain, Ireland, Australia, Spain, Greece, The Netherlands, Scandinavia and Eastern Europe, as they surely must unless central banks opt for inflation (which would annihilate bonds instead, with equal damage), and you can discount $1,500bn in further attrition.
Not even a Bush New Deal can hold back the post-bubble tide that is drawing in across the globe. What it can do is buy time. Fortunately for America - and the world - the US budget deficit is a healthy 1.2pc of GDP ($163bn). Washington has the wherewithal to fund a fiscal blitz.
Britain has no such luxury. Our deficit is 3pc of GDP at the top of the cycle. Gordon Brown has shut the Keynesian door.
I thought the Fed was not supposed to purchase S&P futures. Is Evans-Pritchard a liar?
We’re doooooomed!!!!!!!
More of the same ol’ stuff. Don’t know how “they” think they are helping those of us who work for a living, but it’s the thought that counts I s’pose.
I think Ambrose Evans-Pritchard is nutjob.
Not all households. The people who paid the most in taxes won't get any rebate checks. The people who paid no taxes will get checks - but that's not a rebate! That's a handout!
When is George going to announce that he is switching to the Democratic party. His departure is past due.
If we actually have some crash and a recession and it's what ushers in the bitch into the WH, we really are.
We should have suspected something when he introduced "compassionate conservatism" into our lexicon.
>>Plunge Protection Team <<
The Clinton Whitehouse had one of those, and it had nothing to do with finance.
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"True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression."
~~Ludwig von Mises
It appears to have powers to support the markets in a crisis with a host of instruments, mostly by through buying futures contracts on the stock indexes (DOW, S&P 500, NASDAQ and Russell) and key credit levers. And it has the means to fry “short” traders in the hottest of oils.
The team is led by Treasury chief Hank Paulson, ex-Goldman Sachs, a man with a nose for market psychology, and includes Fed chairman Ben Bernanke and the key exchange regulators.
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So now in addition to the usual suspects the federal gov’t is going to manipulate the markets and try to teach those bad bad short sellers a lesson ... IDIOTS! those short sellers ARE your liquidity generators...
Can helicopter Ben be sued under RICO?
Explain to me how we are going to get a short-term stimulus plan with Nancy and Harry in charge of both Houses?
I agree this is too Keynesian for my blood, and Bush has always been more of monetarist. One has to remember, that even the Reagan administration was gun shy when it came to the Laffer Curve and was not willing to abandon Monetarist policies all together.
First we got into this mess because of runaway lose monetary policy. THis loosey-tighty policy we have now cannot fix that. It is going to take enormous fiscal efforts to inflate us out of this mess.
It’s throwing money from a helicopter...without the helicopter.
It's already happening. Fixed rate mortgages are down to almost 5%.
p.s. Nancy and Harry would not be in charge and it would be a Republican House and Senate if George had been a better leader.
If they do have a loss they want you to pay for it.
As near as I can tell, the Bushes, pere et fils, are completely innocent of any knowledge of how money works. They are just good and loyal friends of lots of folks who know how to work the system.
Are you serious?!
I guess it depends on the loan amount, but I have done 3 today and my borrowers are saving from $200 - $300/month.
That’s huge...
They get the refi costs back in less than a year. And some are going from ARMs to fixed so they don’t have to worry about rate increases.
That’s total bullshit. The Republican House held the line on Immigration, and look at how those guys who did hold the line were rewarded.
With 30 year mortgage rates at 5.125% now, the stimulus is already happening.
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If the dollar keeps moving down in value you’ll be able to pay off your mortgage with your lunch money ... there are plenty of money making opportunities right now and gaining real assetts and paying back with highly inflated dollars sounds real good.. 5.125 sounds good but what about refi’ing at 0.5% with your salary/income doubled (of course prices will double also) ,, if the gov’t keeps trying to mnipulate markets instead of letting them correct we’ll be in the same situation as Japan was.
Purchased through an intermediary with plausible deniability of attribution.
The White House should have supported them!
The White House has undermined efforts to close our borders and has undermined support for legislators who attempted to do so.
1/2 of that savings goes out in taxes, so it is not $200-$300 per month in after tax income that is saved.
What short sellers did traditionally was kept markets from overheating too much by selling whent prices got too high. In the process, because they had to buy back in the future, they provided liquidity after the drop. Effectively, it takes out an effective natural regulator of market prices.
Maybe, maybe not it depends on tax brackets.
But I do that we had a frenzy starting today.
There are also people shortening up their terms from 30 to 15.
There people combining interest only 2nds into one fully amortizing 1st which will take a chunk of payment and now pay principal. That’s also a good thing.
Has that ever really worked? I see more short squeezes than anything else. I think a more natural way to regulate a rapidly rising market is for companies to issue more stock.
What is hurting my monthly payments is the property tax increases caused by Greenspan's run up of real estate prices, and nothing Bernanke does can help me there, unless he stands back and lets prices fall to where they were 5 or 6 years ago, and we can convince our tax assessors to give back the increases. None of that is going to happen.
Choice two is a high rate of inflation while keeping property prices more or less stable, i.e. inflating away the debt and taxes that resulted.
What has really started to hit home is real genuine inflation. Increased property taxes + fuel taxes + food taxes, plus increased costs of imports + more regulatory burden + more litigations costs factored into everything.
Those are the things that Bush needs to go after, not short-sellers in a market that has been overheated since Greenspan took the brakes off monetary growth in 1978. It was a heluva ride, but the cliff is up ahead, and the only question is whether we go over it or smash into it.
And when the market rocket up 500 points in one day, who is pouring in the funds to squeeze the shorts. Greenspan has perfected this move.
The government has decided to act in the name of political expediency instead of monetary soundness.
Hillary grins in anticipation of taking over monetary policy.
That's nothing but a conspiracy theory, and Greenspan is retired.
I just know that if I can drop someones rate from 6.625% to 5.125%, that’s just something they must do.
They will have more money in their pocket no matter how it is figured.
And yes I am telling people, pay down your mortgage, don’t just focus on payment.
The best mortgage to have is no mortgage.
People that have gotten mortgage free love the feeling.
Greenspan is retired, but his newfound monetary policy lives on...
He should have stuck with his Ayn Rand position. At least it was honesy!
You are becoming the minority.
I am right there with you.
Funny, the are still ignorant folks on FR that argue this is a MSM/Dim/Clinton conspiracy.
Today's mortgage rates are not what is keeping buyers out of the housing market. Every newspaper and TV news show carries a daily story about home prices falling. Home buyers are now like electronics shoppers: they would just as soon wait, for lower prices next year.
Exercising Sarcasm with extreme prejudice..
Really? None of us knew that. You clearly missed the point of the article. It is not just a conspiracy theory. It is a real live conspiracy, and it involves the President, the secretary of the Treasury and the Chairman of the Federal Reserve, among others.
Careful with that around here. A lot of folks are too dumb to duck when you swing it around.
I know. I just caught one. Who kept appointing Greenspan? Who appointed Bernanke? {oops that's right. Until someone just pointed it out I didn't really know Greenspan retired. Should I have known? Couldn't tell it from monetary policy. [/sarcasm]
There is no such thing as a PPT, and they’ve never bought stocks.
Yep. Was and still is.
Well, I am glad all it took was a post by an anonymous poster to clear that up. Of course no one said they bought stocks. Pritchard’s claim is that they buy index futures letting the index arbitrageurs do the actual stock purchases, I guess, but hey they don’t do this. You just told me.
What the hell is that supposed to mean? The Bush presidency will end next January, recession or not.
Save the Bush presidency's legacy or reputation is what I think he meant. Nobody wants to go down in history as the new Herbert Hoover, who was on duty for the 8 years leading into a depression.
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