Monday, May 18, 2009

The Destructive Implications of the Bailout - Understanding Equilibrium - Hussman

Nothing really new on the "War On Taxpayers" but when Hussman is almost ranting ( by his standarts ) it should be worth a few minutes of your time... If you want to hear his comments on the “cash on the sidelines” myth go and read the entire link .....

Nichts wirklich neues in dem von mir bezeichneten "War On Taxpayers" aber wenn einer wie Hussman einen für seine Verhältnisse fast schon bemerkenswerten "Gefühlsausbruch" zeigt ist das allemal einen zweiten Blick wert..... Empfehle zudem den kompletten Link. Der beinhaltet u.a. noch den ein oder anderen Kommentar zu dem täglich neu verbreiteten Mythos das es haufenweise “cash on the sidelines” gibt.......


The Destructive Implications of the Bailout - Understanding Equilibrium
One of the features that has enabled the bureaucratic abuse of the public during the past year has been the frantic, if temporary, flight-to-safety by investors. The Treasury has issued an enormous volume of debt into the frightened hands of investors seeking default-free securities. This has allowed the Treasury to finance a massive and largely needless transfer of wealth to bank bondholders so easily over the short-term that the longer-term cost has been almost completely obscured.
But by transferring wealth from those who did not finance reckless loans to those who did – providing monetary compensation without economic production – the bureaucrats at the Treasury and Federal Reserve have crowded out more than a trillion dollars of gross investment that would have otherwise have been made by responsible people in the coming years, shifted those assets to those who have proven themselves to be irresponsible destroyers of capital, and have planted the seeds of inflation that will cut short any emerging recovery.

The Fed has turned its balance sheet into a garbage dump, in order to accommodate all of the additional Treasury issuance required to finance the rescue of bank bondholders. UPDATE: SPEAKING OF GARBAGE....... Fed to Add Older CMBS to TALF in July, Allow More Ratings Firms

http://www.frbatlanta.org/econ_rd/macroblog/100708c.jpg

The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921.
This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade
As I've noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals.
Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.

> Thanks to the commercial real estate, credit card & corporate debt crisis & massive overcapacity etc i think the recovery leading to rampant (CPI ) inflation is still at least 24-36 months away.... As long as the US $ is not weakening significantly.......

> Dank der zusätzlichen Krisen in allen Lagen der Kreditvergabe ( gewerbliche Immobilien, Kreditkarten, Unternehmen, massivste Überkapazitäten usw ) denke ich das trotz der verantwortungslosen Bailouts die Phase extremer Konsumentenpreisinflation noch mindestens 24-36 Monate entfernt ist..... Bin mir bei den Amis allerdings nicht ganz so sicher..... Ein schnell fallender US$ könnte allerdings den Zeitplan gewaltig durcheinanderwirbeln....

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1 Comments:

Anonymous Bangkok Property said...

What a great and adpt picture/cartoon to go with the story,loved it!

2:47 AM  

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