Friday, March 6, 2009
I've missed quite a few things this last week, thanks to a business trip and too freakin' much to do. I'll try to hit the highlights: TALF: Latest program by the FED, possibly more dangerous than previous moves, at least in the short term. TAF degraded the assets that back the dollar by swapping Treasuries held by the FED for crumby mortgage paper, now affectionately known as toxic waste. TARP quit beating around the bush and simply bought up more toxic waste with freshly printed money. The money has not caused inflation because it has not been lent out. The FED and Congress say they desire for banks to begin lending this money to help alleviate the so-called "credit crunch," which would be more accurate to call "fiscal sanity for a change." Imagine, banks having standards when they lend out money, and taking precautions to make sure they'll make a profit. This publicly stated position is a lie, however, at least on the part of the FED, as evidenced by the FED paying out interest on deposits held there. This is a baldfaced incentive not to lend, as Bernanke is fully aware of what would happen if the money supply were doubled over the course of ~3 months. Enter TALF. TALF is a new "consumer credit" program, in which the FED will explicitly create $200 billion more dollars to incentivize new lending for student loans, auto loans and the like by buying up yet more toxic waste. Theoretically, thanks to the fractional reserve system, this amount could multiply itself up to the trillion range. Theoretically. If it does, and it actually succeeds in "unfreezing markets," prepare for inflationary apocalypse. But I suspect it is specifically being designed not to unfreeze the markets, just to provide a bigger cash cushion to politically favored companies and debtors like the auto industry at the expense of savers and creditors. In any event, hold on to your wallet! Little Alan and Ben have been playing with matches and managed to set the carpet on fire. Their solution seems to be to douse the whole mess with gasoline. I don't know why it seems to them that the solution to too much debt is even more debt. But they've managed to create a nightmare that appears to have no solution at this point. I don't know when the house will burn down, but it will.