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bkkandrew

And an admission that the TARP was just shovelled into a black hole:

Banks’ ‘Catatonic Fear’ Means Consumers Don’t Get TARP Relief



By James Sterngold

Jan. 5 (Bloomberg) -- As the new owner of $172.5 billion of preferred shares and warrants in 208 U.S. financial institutions, the Treasury Department hasn’t succeeded in thawing frozen credit markets, leaving taxpayers propping up an industry that won’t lend to them.

While inter-bank lending rates have fallen since Congress approved the $700 billion Troubled Asset Relief Program on Oct. 3, most bank lending to consumers remains tight and interest rates high. The average credit-card rate was 14.33 percent on Dec. 16, according to IndexCreditCards.com in Cleveland, almost unchanged from 14.41 percent in October 2007.

More at:

Bloomberg.com: Exclusive

Taxpayers pay the bill, but get no benefit (apart from another bill, one suspects...)

Spin

And who would want to lend to them? They all have a lower credit rating today than they did a year ago.

It isnt rocket science.

Banks should be encouraging people to come through their doors and open savings accounts for the difficult times that lie ahead.

Milkman

Interest rates are low.

Instead of putting money under mattresses, people are buying Treasuries at 0%, which is losing money.

Spin

Sadly yes but i think the fact savers are not getting any interest is an aside compared to what will happen if the lending system does break down completely.

bkkandrew

Hmmm, the higher yeild rates on T-bills now suggest people are realising what I save been saying for some while - that that the game is up for Government debt too. Investors face the stark reality of losing their money through a FED default or their investment inflated away when the printing presses are whirring at high speed...

Spin

^ Im a bit confused about all this talk of inflation. If this money that is being printed is largley being given to companies who are hoarding it to avaoid bankruptcy then how will that money ever trickle down into the economy to cause inflation.

Is there something I'm missing?, most talking heads seem to be of the opinion that inflation is off the table for at least the rest of 2009.

Spin

Meanwhile....across the pond

BRITAIN'S banks are to receive more of your money so they can continue to not lend it to you, it has emerged.

The banks say a second bail-out will be essential if they are to achieve their medium-term strategic goal of having all the money and throwing you out of your house.

Treasury sources admitted the initial multi-billion pound bail-out had not unlocked the credit markets as hoped and so the banks may now have to be filled with £10 notes until they burst.

Economists say this policy of 'quantatative bursting' will mean some money will eventually have to be released from the building so bank employees can at least get to their desks.

The government hopes this money will be picked up in the street by consumers who will then spend it on Jaguars and fine china.

A Treasury spokesman said: "Most of the banks have just piled the first lot of money in corridors and cleaning cupboards, although HBOS does seem to have spent quite a bit of it on magic beans and aromatherapy oil.

"We did plant the beans in the hope a massive beanstalk would appear which would then lead to a magical, golden egg-laying goose-type scenario. But that didn't happen."

He added: "We think the beans may have been eaten by a homeless man, or possibly a crow."

from here

Milkman

Right now, there seem to be two camps of thought.

1. some think there will be inflation (and even hyper-inflation) because of the Treasury printing more money.

2. Others see deflation, or don't see any inflation as a result.


As things have changed, making predictions is even more difficult than in past. And as well know, economists often error in predicting for the future.

__________________
Military men are dumb, stupid animals, to be used as pawns for foreign policy

Butterfly

not an option, the only way to achieve this would be to increase interest rates on deposits, money saved is money not spend, and that would have a dramatic effect on Aggregate Demand, and would "contract" Money Demand. Cost of borrowing would become high and distorted. Something you don't want now, like pouring oil on fire.

What a complete non-sense. If investors were expecting the Fed to default, they wouldn't accept the 0% interest rate they have now, the spread risk would be huge, and the Treasury yield on short term notes and medium term notes would be highly positive. This is not the case today. As usual, talking out of your ignorant ass.

That's right, it won't in the short term as everyone is adjusting his spending pattern and business investment, but it could in the long run once everyone realize that the storm has passed.

bkkandrew

As usual, you can't read my post properly, can't make a coherant argument, so decide to hurl insults.

The key word in my post was 'realising', i.e. before they did not realise. Now that this realisation is setting in the spread risk is increasing and will increase from here on in.

bkkandrew

There are two main causes of inflation, the most common being demand driven. Clearly there is little of that about right now...

The other is fiscally-driven, namely when a Government simply does not have enough money, cannot borrow (more) and, rather than cut expenditure (or default altogether), its prints money to pay those creditors that will accept its own currency. Thankfully Governments are seldom mad enough to try this, as it creates self-perpetuating inflation, i.e. more paper money chasing the same number of physical assets. Zimbabwe and the Weimar Republic are two good examples of this policy in full-swing.

At the same time, or even in fear that it will be attempted, confidence will be lost in the currency concerned, which will cause it to be devalued against other currencies. This effect on inflation was not so significant in the 1930's, as economies did not have total reliance on imported goods, as some do today, but it did add to the inflationary spiral. Recently, with great dependance of significant economies being utterly dependant on imports, such as the UK and USA, the risk of 'imported inflation' is large too. It is my view that, without printing so much as an additional 5-pound note, the UK's recent 30% drop in Sterling will see many goods increase in price well into double figures. Add the two effects together and you end up with Mugabenomics.

Butterfly

again, showing how confused you are. The government doesn't print or create money, the Fed or Central bank does. The Treasury, a government branch, only issue bank notes and that's it. They can't create money out of thin air as you are implying here. Again you are misleading, making up stories and facts, and using deceiving techniques just to "show" you are right. Absolute non-sense. You are stuck in the economics of the 1940s.

bkkandrew

^^On the same note, I found this table which shows that the Weimar Republic did suffer a brief year or so of DEFLATION prior to the now infamous hyper-inflation, so it shows that this can happen and (in response to MM's point) why some 'experts' get confused and entrench themselves into positions of inflation or deflation, rather than one followed by the other...

Anyway the chart:



Clearly, where I took this from:

Daily Pundit » WIN - Whip Inflation Now? Nope.

the commentator believes that the USA is at the end of the deflation phase, hence his (not my) arrows...

Butterfly

there are more than 2 actually, more like 4 main ones. The main source of inflation being Money Supply manipulation by the Fed. Demand pulled inflation only happens when the economy is doing great and at full potential. Hardly the case now. Cost push inflation, or supply shock are the most serious ones and difficult to "fix", this is the one we are having now. The "fix" is to create a long recession and kill AD. Very brutal.

bkkandrew

You would cause an arguement with someone about which raindrop would run down a window pain faster. If all the people in the world that belived the FED didn't do what the Government told them got together they would all fit into Larry's Dive with room for a Thai Visa party. There wouldn't be a normal person in the building, mind you.

Butterfly

since the Fed is completely independent and make decisions based on a committee of 12 independent governors, I don't see how the government, above all the current one which is absolutely clueless about anything, GW Bush wouldn't be able to balance his personal account if he had to manage it himself, could intervene or dictate the Fed policy.

The bailout was an exception because the Treasury was getting desperate, but the Fed made the calls, and the Treasury followed, so at the end the Fed actually gave instructions to the government how to act.

Again, you have no clue

Milkman

What is "AD?"

American dollar?

bkkandrew

Oh, I see

And then there is the next bailout 'exception', then Obama's 'exception'. Did you argue with your grandmother as a child?

bkkandrew

Alistair Darling?

Milkman

Here's a snippet on hyperinflation under the Weimar Republic.

The money-supply increase (printing of money) is noted at the 2:00 mark.

Most posters probably already know this, but any comments or opinions are welcome, as the topic has turned to inflation, deflation --> inflation --> hyperinflation, possibilities: