The rising cost of money

[Pox Eclipse]

All men are created equal; but some are more equal than others.

[OlJarhead]

All men are created equal; but some are more equal than others.

All animals are created equal, it's just that some animals are more equal then others.....

Ya, I've heard that and it's a very good argument as to why socialism doesn't work.  Animal Farm is the book.

[OlJarhead]

http://jsmineset.com/2010/06/21/the-u-s-dollar-falls-by-fall/

Haven't had a chance to read it yet...got get sleep but saw this just now.

[muldoon]

Looks like the European central bank has hit the proverbial wall.

As they continue to try to sell debt to cover their insolvency, the amount of available capital has continued to fall while their need for capital has continued to increase.  Even though they were using "sterilized" auctions it has reached the point where they were unable to sell the debt they needed.  In the last operation they attracted only 31.9billion euro when they needed 55billion.  They also had to raise the yield on those notes in the middle of the auction to get them.  A week ago 67 banks bid (and they paid 0.31%), this week only 45 banks (and they tailed to 0.54% with the highest rate hitting 1% - which is the legal max).  They were unable to draw it.  

http://ftalphaville.ft.com/blog/2010/06/29/273606/ecb-fixed-term-deposit-fail/

As for the trend of available money vs. needed funds for ECB, here is a good visualization: (edited to make chart smaller)


They have a bigger problem looming than inability to raise cash on Tuesday.  They have a debt rollover coming on Thursday.  They dont have the cash.  Historically this has led to one of thwo things when big players go pop.  Either outright default, or forced liquidation.  Liquidation means the selling of assets.  (Not unlike Greece selling islands now).  They also sell any assets they have, like stocks, like bonds, like gold, anything.  Those who follow gold saw it got crushed yesterday.  Take a look at the US stock markets today to see this in action as well.  

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The european countries are burning again, and it looks as though the bond markets may be raising the battle cry for the final pillage in coming days and weeks.  (you can see money leaving the european continent and landing in the one place deemed "safest" - US treasury notes).   The US treasury 10 year touch 2.99% yesterday.  

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At some point the US will have to face the same funding market, and will likely have the same pressures selling debt and needing to raise taxes, cut spending, and likely force seizures of assets they can.  It falls under the "invetible" target I think.  But in the meantime, we can learn from what others are facing and position our lives to accept a similiar fate.  

I still dont see any wheelbarrows full of money in our future.  I see money and credit being scarce and thus more "valuable".  fiat or not.  paper or not.  worthless or not.  its what people pay their bills with so people need it.  and when people need something in scarce supply, it goes up in value.  

[peternap]

So far, I agree and pretty much have agreed with your analysis so far Muldoon.

Here's where I'm sitting on the fence. Obama is admitting now, that he has to deal with the deficit. The very public secret plan, is to crank up the printing presses,

How will we avoid inflation?

[muldoon]

Don, I dont know for sure what's going to happen but I agree that is the million dollar question.

I don't agree 100% that the secret plan is to fire up the printing presses.  the aggregate of money or wealth in a nation is what can be produced or borrowed.  They cannot replace the consumer side of the equation.  The more they try to replace the consumer piece the more they in fact kill it.  You cannot push a wet noodle,  which is effectively where we are in terms of "trying" to restart the credit engine.  46 of the 50 states have a full on budgeting collapse on their hands, the federal goverment is not even sending the states the money they owe them, tax rolls are way down, and everyone is tapped out.  we cannot borrow ourselves any richer.  we cannot spend to avoid bankruptcy.  "printing" is borrowing.  the federal reserve is a bank, it is not federal in the sense that it is a federal entity.  federal express is not a federal package delivery service - it's just a name.  it is more accurately a collection of member banks.  they do not print money anymore or any less really than visa prints money, or gm financing, or any other bank.  Once the ability to borrow is exceeded, so is the ability to "print". 

unless you think the bankers who created this mess are going to just begin giving money for free to to everyone?  why did they steal all of this money just to watch it become worthless?  they have not done that anywhere else in history.  the countries that eventually shunned the banks and went to self currency - german weimar, zimbobwe, us confederate forces post civil war, - yes, they inflated and hyperinflated away, but were not divorcing ourselves from the banks.  Do you see that on the horizon?   Just thinking outloud here. 

[ScottA]

Looks like the note has come due. Now they'll need to cut spending to pay the intrest on the 13 trillion they borrowed. I'm starting to think we won't see inflation so much as deflation unless the banks start spending the money they stole, which they may do. I expect energy, food and imports to go up and services and local products to go down or stay stable. Look for social security to get cut in the next few years and for some major tax increases. Many tax increases are already on the table being discussed. The simple solution would be to bring the army home but no one is discussing that for some wierd reason.

[peternap]

Don, I dont know for sure what's going to happen but I agree that is the million dollar question.

I don't agree 100% that the secret plan is to fire up the printing presses.  the aggregate of money or wealth in a nation is what can be produced or borrowed.  They cannot replace the consumer side of the equation.  The more they try to replace the consumer piece the more they in fact kill it.  You cannot push a wet noodle,  which is effectively where we are in terms of "trying" to restart the credit engine.  46 of the 50 states have a full on budgeting collapse on their hands, the federal goverment is not even sending the states the money they owe them, tax rolls are way down, and everyone is tapped out.  we cannot borrow ourselves any richer.  we cannot spend to avoid bankruptcy.  "printing" is borrowing.  the federal reserve is a bank, it is not federal in the sense that it is a federal entity.  federal express is not a federal package delivery service - it's just a name.  it is more accurately a collection of member banks.  they do not print money anymore or any less really than visa prints money, or gm financing, or any other bank.  Once the ability to borrow is exceeded, so is the ability to "print". 

unless you think the bankers who created this mess are going to just begin giving money for free to to everyone?  why did they steal all of this money just to watch it become worthless?  they have not done that anywhere else in history.  the countries that eventually shunned the banks and went to self currency - german weimar, zimbobwe, us confederate forces post civil war, - yes, they inflated and hyperinflated away, but were not divorcing ourselves from the banks.  Do you see that on the horizon?   Just thinking outloud here. 

I'll be honest...I don't have a clue at this point.
I've been predicting a melt down for a long time and I think we're in the early stages of it. Past that point, I don't know. There's so much more than pure economics involved, it's mind boggling.

I'm seeing the black markets kick up now and more people are doing off the record work to survive. Housing hasn't picked up and won't without financing which is dead as we know it. Prices are going up though and it's just the death throws of companies trying to survive.

I like to look at historical loops but there really isn't anything in history to duplicate the cashless society we have right now. We have so many low spots that can cause the water to swing one way or the other, I'm stumped.

Whatever happens though, I think we're in for a very different world.