Quote:
Originally Posted by Hatterasguy
Right now the Fed is trying to cause a bit of inflation, which is what you need to have a healthy market. Deflation is very destructive and what they are trying to avoid.
When the market starts to come back they will tighten the money supply and raise interest rates to bring it under control.
Commodities will also drop since their will be other investments, right now you have a lot of money chasing very small returns.
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I am of the camp that the fed will not be able to control rising prices. They have inflated the money supply way too much. The thing that most people don't realize is that the money supply is already inflated, it's just that the velocity of that money is 0. It is parked at the fed as excess reserves of the banks. In layman terms. billions of tax payer dollars were given to the banks to bolster their balance sheet. the money is not the banks, they borrow it at 0.25% interest and earn 2% interest from the feds (number arbitrary, but you get the gist). No one knows what will happen with the sour mortgages, they are on the banks books at 100% while they are worth maybe 20 ¢ on the dollar.
then there's the MERS/MBS mess
what I'm getting at is the fed will not be in a position to raise interest rates when they will need to, they will be too late (IMO) and when they do raise rates what about all the money uncle sam owes? the interest alone will consume the entire collection of taxes, and the government will have absolutely no money to run on.
It's a total mess, I wish you guys could convince me otherwise, but I just can't see any positive outcome in the very near future.
And I haven't even mentioned the unfunded liabilities (SS, Medicare, Medicaid), local & state pension shortfalls, State & local Bancruptcies, Banks being forced to buy-back the liar-loans bundled into MBS's that they fraudulently claimed to be triple A rated, continuing increase in the numbers unemployed, Baltic Dry Index,,,,
didn't want to add another post, but I forgot to comment on interest rates and commodities.
November 16, 1979 the "prime" used to calculate ARMs stood at 15.75%
Gold closed out in December of 1979 at over $500 per ounce. So we have both high interest rates AND high price of gold. Inflation adjusted POG is $2250, so we got a ways to go before we're even remotely in bubble territory, and the US is not a creditor nation anymore, in fact it's seriously close to banana republic status with national debt fast approaching 100% of GDP.