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Are Central Banks driving the World Economy into recession?

  • #1
  • First Post: Aug 9, 2007 1:04pm Aug 9, 2007 1:04pm
With all the news of global hedge funds losses due to the sub prime mortgage lending problem in the US, and most central banks around the world ever increasing rates I wonder whether they are trying to kill the consumer?


There is now also wider talk that this mortgage problem is not restricted to those of "sub-prime" status, but also people who are more credit worthy: there is much evidence that people of "Alt A" status are also now starting to have problems repaying their mortaages in the U.S.

I really feel for all those people in the US who are having their homes repossessed because they can not afford their mortgage repayments at present due to the inrease in US rates from 2% to 5% over the last few years. It makes me wonder why the Federal Reserve Bank is taking a stance of keeping interest rates unchanged instead of cutting them - is the fear of inflation or the need to fight inflation really that bad?


People at the moment are focusing on the subprime problem in the US, but here in the UK we also have an increasing no. of people in the UK losing their homes, with house repossessions up 30% in the first 6 months of this year in comparison the the first 6 month in 2006. Even with this increasing rate of repossessions we still have the Bank of England signalling the need for yet another rate hike. There is also the perception that the ECB will increase interest rates again in September and it makes me wonder whether President Sarkosy is correct in thinking that ECB president Trichet is obsessed with fighting inflation.


With both the Federal Reserve and the ECB taking the rare move of pumping money into the financial markets to provide more liquidity to banks today I feel that this situation can only get worse.

I am interested to know what other people think.
  • #2
  • Aug 9, 2007 1:25pm Aug 9, 2007 1:25pm
It's tough to argue with your logic. I tend to agree that there's a fine line the central banks are walking with regards to rates.

Unfortunately, we're at bit of a threshold. Economies are still moving along, and prices are showing moderate increases. So the question is, do you set a new price floor by lowering rates which may force inflation to rise faster in the future and hurt MORE people 6-9 months from now?

With no evidence of any recessionary trends at the moment, the best medicine seems to be to stand still. It's certainly better than the alternative.

The problem is that there is a bit of a disconnect between the "average" consumer and the consumer that is currently being tracked. You may or may not have noticed, but there has been pretty large increases in the cost of your everyday items ESPECIALLY food. Ex-food prices are STILL rising, which can only give you a better indication of how much inflation could be impacting the standard and lower end consumers. Furthermore, borrowing rates with the above average and slightly above average consumers is increasing (as opposed to decreasing), which also doesn't bode well for prices.

The news in all of this is that there are visible weakness in the overall ecomony that could help ease prices (like the housing situation) which could enable the fed to goose the economy with a small rate cut early next year. It's just difficult because everyone is aware that there's a price bubble in most major metropolitan areas in regards to housing and with housing being the primary weakness, the question remains, is it the bubble deflating, or is the credit market truly in trouble? It just seems bad because the numbers of foreclosures are increasing...but a good chunk of that is investment foreclosure...and those numbers aren't really tracked...which might skew the picture a little bit. Of course, perception is reality and if the average consumer "feels" squeezed, he/she will act squeezed.

Like I said, fine line for the fed to walk...

Quoting treberk
With all the news of global hedge funds losses due to the sub prime mortgage lending problem in the US, and most central banks around the world ever increasing rates I wonder whether they are trying to kill the consumer?


There is now also wider talk that this mortgage problem is not restricted to those of "sub-prime" status, but also people who are more credit worthy: there is much evidence that people of "Alt A" status are also now starting to have problems repaying their mortaages in the U.S.

I really feel for all those people in the US who are having their homes repossessed because they can not afford their mortgage repayments at present due to the inrease in US rates from 2% to 5% over the last few years. It makes me wonder why the Federal Reserve Bank is taking a stance of keeping interest rates unchanged instead of cutting them - is the fear of inflation or the need to fight inflation really that bad?


People at the moment are focusing on the subprime problem in the US, but here in the UK we also have an increasing no. of people in the UK losing their homes, with house repossessions up 30% in the first 6 months of this year in comparison the the first 6 month in 2006. Even with this increasing rate of repossessions we still have the Bank of England signalling the need for yet another rate hike. There is also the perception that the ECB will increase interest rates again in September and it makes me wonder whether President Sarkosy is correct in thinking that ECB president Trichet is obsessed with fighting inflation.


With both the Federal Reserve and the ECB taking the rare move of pumping money into the financial markets to provide more liquidity to banks today I feel that this situation can only get worse.

I am interested to know what other people think.
  • #3
  • Aug 9, 2007 1:46pm Aug 9, 2007 1:46pm
No, it's idiot consumers and lazy investors who seem to believe that low rates could last forever, or that the rest of the world would be happy to work forever at really low pay to provide the West with creature comforts. So sorry, no sympathy here....Bubbles break, it's just a fact of life....
  • #4
  • Edited 2:47pm Aug 9, 2007 2:20pm | Edited 2:47pm
Quoting treberk
With all the news of global hedge funds losses due to the sub prime mortgage lending problem in the US, and most central banks around the world ever increasing rates I wonder whether they are trying to kill the consumer?
I personally do not think that central banks are trying to kill consumers through their respective monetary policies. I think they are trying to be vigilant with respect to current data while keeping an eye on inflationary signals. This may mean that people lose their homes. As a citizen of the US, I think that the Federal Reserve should take into consideration all of the economic data, and make judgements and decisions on the economy as a whole - not just the people who took out an ARM (adjustable rate mortgage) to buy a house they could otherwise not have afforded and are now in danger of being foreclosed upon.

Let's not forget, the mortgage buyers and lenders all took a risk. Specifically, rates were at historic lows a few years ago and ARMs allowed people with poor credit to suddenly qualify as homeowners. The risk is that if rates increased, the interest rate on the ARM would reset to a level that would make the monthly mortgage payments unaffordable. In this case, the mortgage lender needs to foreclose on the property and a homeowner is now on the street.

Roughly 14 million people in the US took a home loan in the last three years and just about half of them have some sort of ARM. Still, I don't think the Fed should get into the business of keeping ARM rates low so homeowners don't default. I think that interest rates should accurately reflect the risk taken on by investors in the current economic context. Far more than 7 million people invest in the US equity and fixed income markets and I don't see the Fed adjusting rates just to keep stock and bond prices elevated (and my 401(k) growing).

Quoting treberk

I really feel for all those people in the US who are having their homes repossessed because they can not afford their mortgage repayments at present due to the inrease in US rates from 2% to 5% over the last few years. It makes me wonder why the Federal Reserve Bank is taking a stance of keeping interest rates unchanged instead of cutting them - is the fear of inflation or the need to fight inflation really that bad?
Yes. Inflation is very bad for an economy. Even the threat of inflation is enough to slow things to a slow, grinding halt. Often times the only thing that can "wring out" high inflation is a protracted recession accompanied by high unemployment. Fortunately, both political parties in the US seem to have some understanding of this and want high employment and low inflation. But their understanding probably comes from the fact that during recessions politicians are frequently voted out of office as citizens put in place new leaders promising to pave the way to greener pastures.

I'll say again that the Fed's job shouldn't be to keep people in their homes. Their job should be to set monetary policy. Some people will always be hurt by the decisions the Fed makes. But the US has enjoyed a long period of prosperity in large part because the Fed has tried to keep inflation "in check".

When the Federal Reserve did not attempt to keep inflation tamed, business and consumers were forced to "price in" the threat or real effect of inflation. In effect, the entire economy was speculating on whether or not inflation would crop up and the extent its effects. Whether or not these fears were ever realized was beside the point - the "pricing in" of inflationary threats proves to always be a self-fulfilling prophecy as goods & services increase due to fear of inflation and then increase further as fears are worsened due to the general price increases! On the other hand, when the Fed attempts to target inflation, businesses don't always have to speculate on inflationary fears and can keep prices (relatively) low.

What the general fear is that if the Fed does cut rates (by injecting funds into the money supply), the dollar will be depressed at a time when it is already hovering near or at all-time lows. This will make foreign goods sold in the US seem relatively more expensive. While some in the US may welcome the thought of foreign imports increasing in price, the real-world effect will most likely be that domestic producers will raise prices as the dollars falls (for numerous reasons unimportant to this discussion). Well, you can see here that the US will be suffering from a decreasing dollar in addition to high inflation. Ouch! Recession here we come.

This would be a pretty bad time for any further frustrations to the credit markets to arise. Much of the loan money available to US mortgagees comes from foreign capital seeking investment opportunities in the US. You can imagine how a depreciating dollar, high inflation, and submerging credit markets will make foreign investors think twice before offering their cash to prospective US homeowners.

It can get even worse.

Should the Fed induce a drop in the dollar, the US runs the risk of enticing other countries to "speculate" on the dollar losses by selling their dollar reserves to decrease their own risk exposure. Likewise, trading firms like hedge funds will no doubt take every opportunity to short dollars that is presented to them in such an economic nightmare.

While I feel for people who might lose their homes, they attempted to get a home at a cheap price and the gambit has not paid off like they had hoped. Such is life - some will always think that pricing is unfair. For instance, if we set policy such that only people with blonde hair may own their own home, redheads and brunettes would cry foul. Currently, we price mortgages such that only those with good credit history, ample cash, and steady income can get a mortgage. While the Fed should not ignore a slowdown in home buying or increases in foreclosures, we cannot possibly expect the Federal Reserve to psuedo-guarantee home loans by continually increasing the money supply and keeping credit lax.

Quoting treberk
With both the Federal Reserve and the ECB taking the rare move of pumping money into the financial markets to provide more liquidity to banks today I feel that this situation can only get worse.

I am interested to know what other people think.
I think you are right - things will get worse. There is no magic solution to the problems the US is facing. I cannot comment on the UK's issues. We in the US are coming into an election year - no politician does much of anything in an election year (besides campaign) because any negative effects caused by new legislation will be fresh in the voters' minds and the oppositions' tongues.

We're spending like drunken sailors on leave to fund a couple of wars ($12 billion per month!), increasing entitlement programs left and right(Medicaid perscription plan), in addition to seriously talking about nationalizing healthcare. Wowzers. No matter what your position on these policitcal issues may be, the financial side of me shudders to think how the US will pay for all of it - especially with a vice-president who publicly stated that "defecits don't matter" as if he's never had a credit card. Couple these fiscal issues with the looming monetary problems beginning to show their ugly faces and I think that it is either 1) the most exciting time to be alive in the US or 2) the worst possible time to be alive in the US.
  • #5
  • Aug 9, 2007 2:38pm Aug 9, 2007 2:38pm
Dave's right. When comsumers waited for interest rates to drop to 6.25% because they couldn't afford a home loan at 6.75%, they were gambiling with everything they had. Just as if you throw half of your capital into one single forex trade. If it goes your way a few pips you're in the money but if it goes against you a few pips, you've lost it all. That's effectively what the US consumers have been doing and now the market has turned on them. There was no thought on their part about what might happen if rates increased. They just saw that big house, big SUV, big screen TV, and went for it and now they have to pay.
  • #6
  • Aug 9, 2007 2:39pm Aug 9, 2007 2:39pm
Quoting mrmikal
You may or may not have noticed, but there has been pretty large increases in the cost of your everyday items ESPECIALLY food. Ex-food prices are STILL rising, which can only give you a better indication of how much inflation could be impacting the standard and lower end consumers.
This is a great point you make. The world in which I live in forces me to pay for things like food and energy - two things that aren't factored in to the Fed's "core" inflation numbers because they are so volatile. Well, it may be easy for the academics and beaurocrats to ignore such inconveniently volatile things, but I still have to buy them no matter what. I am not afforded the luxury of ignoring volatile commodities. I don't want to starve, sit in a cold house in winter, or roast in a hot house in the summer. Why food and energy prices aren't a part of the core numbers is ridiculous.

I get the sense that US consumers are facing a form of "hidden inflation" as food & energy prices rise.
  • #7
  • Aug 9, 2007 2:47pm Aug 9, 2007 2:47pm
from my point of view, this questions have simple answers:

central bank are currently increasing their interest rate to fight inflation (to much money in the market, due to very low interest rate and easier to get credits). if your more intrested in this subject, read my post about inflation
http://www.forexfactory.com/showthread.php?t=37909

on the other side of the coin, about hedge fund collapse, it's a hedge fund, wich ultimatly means high risk involved around it. when they took those bad decisions that lead to the bank-rupcy, they should have know this is also an alternative. not everything is green all day around

Hope i make my self clear.
"Abandon all hope, you who enter here" La Divina Commedia, Dante Alighieri
  • #8
  • Aug 9, 2007 3:03pm Aug 9, 2007 3:03pm
Thanks for the nod, Dave.

Your previous post was very thoughtful. I would like to make a slight counter-intuative retort, only because I'd like to get your opinion.

Let me preface all of this by saying that I pretty much agree with everything that you're saying. So technically, I'm arguing with myself...but in the interest of enlightening everyone else...let's chew on this for a sec.

You mentioned that the fed's responsibility is monetary policy and NOT to keep people in their houses. This is very true...BUT...just to be argumentative...how much MORE deterimental would it be to suck out 5-15% of the credit market with foreclosures? Think about it for a second, MOST of the loans that get defaulted are sub-prime loans which represents, what? like 15-25% of the mortgage loans out there, right? Well, if half of those puppies go belly up...those are credit carriers that get virtually sucked out of the credit market...that raises the risk, and the credit rates of all those other "good standing" loans, thus making money harder to finance. That also affects all forms of spending if cash suddenly comes at a premium, wouldn't you think? SO...TECHNICALLY, there is SOME interest in keeping the default rates low because that takes the pressure off the fed to have to do anything. I know...ass-backwards logic, but the point was to show that we're a bit more connected than one would think.

The Fed's responsibility is to keep the economic engine running as efficiently as possible. If you end up having high unemployment and low credit availability, you end up relying on the Government to eventually bail these folks out with transfer payments (for social services, etc), which takes away from the Government's ability to freely pump money into the system with things they actually pay for (like road projects, etc). This affects the GDP, which affects foreign invesmtent and state-side capital investment and so on. Obviously, this isn't an immediate effect, but it does affect the process down the line.

Your points are probably more correct than mine, but I do want people to consider the flipside of letting the other side of the income-gap fall off the face of the planet.

Quoting megadave5000
This is a great point you make. The world in which I live in forces me to pay for things like food and energy - two things that aren't factored in to the Fed's "core" inflation numbers because they are so volatile. Well, it may be easy for the academics and beaurocrats to ignore such inconveniently volatile things, but I still have to buy them no matter what. I am not afforded the luxury of ignoring volatile commodities. I don't want to starve, sit in a cold house in winter, or roast in a hot house in the summer. Why food and energy prices aren't a part of the core numbers is ridiculous.

I get the sense that US consumers are facing a form of "hidden inflation" as food & energy prices rise.
  • #9
  • Aug 9, 2007 4:07pm Aug 9, 2007 4:07pm
I agree with Dave 100%. I am a landlord in the US and the last couple of years have been very rough. Landlords were tripping over themselves to go after the few tenants that were available. We lowered rents. We let the current tenants go without rent increases. I have friends who did not have a pot to piss in, qualify for a 200k home loan with zero down and one of them had no stated income. You had nobody who wanted to rent. If they did, it was for a short time until there brand new house was being built so they can show off to their friends. This happens, things go through cycles. This too shall pass.
  • #10
  • Aug 9, 2007 4:21pm Aug 9, 2007 4:21pm
Quoting mrmikal
Thanks for the nod, Dave.

Your previous post was very thoughtful. I would like to make a slight counter-intuative retort, only because I'd like to get your opinion.

Let me preface all of this by saying that I pretty much agree with everything that you're saying. So technically, I'm arguing with myself...but in the interest of enlightening everyone else...let's chew on this for a sec.
Absolutely - I love a good discussion! And thank you for the kind words

Quoting mrmikal
You mentioned that the fed's responsibility is monetary policy and NOT to keep people in their houses. This is very true...BUT...just to be argumentative...how much MORE deterimental would it be to suck out 5-15% of the credit market with foreclosures? ... there is SOME interest in keeping the default rates low because that takes the pressure off the fed to have to do anything.
I love it when we can get the government into a position to "do nothing" - there isn't anything that they can screw up heh!

On a serious note, you're right in describing the effects of increased home foreclosure. And more importantly, I think you're asking a great question and addressing a worthy issue: does the Fed foresake the people who bought homes when rates were low and cast them to the wind as credit tightens? Furthermore, what about the effects of the foreclosures and the credit shake-ups that follow?

I think that the Fed cannot afford to ignore the mortgage woes of sub-prime and alt-A lenders. I didn't want to give the impression in my post above that the Fed can write this off as inconsequential.

My personal answer to your question is complex and consists of the next few paragraphs.

First of all, I will say that the Fed has to ask these questions as well and must make good decisions on how it chooses to address them. More specifically, I think that the effect of increased foreclosures will hurt a lot of people - many more than just those who find themselves homeless. Should we see a recession from the foreclosure effect alone (unlikely) we're all going to be hit in the US to one degree or another. What is more pressing is the overall effect of cutting rates and letting inflation creep in.

The mortgage situation has lead to tighter credit and the inability of investors/speculators holding sub-prime issues to accurately price those issues as liquidity has dried up. Essentially, no one is bidding for the high-risk debt issues so we don't know how to price them!

This situation has definitely caused a lot of worries in other markets - but really they have already been dealing in their own way with higher interest rates and the decreasing dollar. Now, what really hit the equities hard lately is the all-out screeching halt to leveraged buy-outs by private equity firms and mergers that were funded with a seemingly unending source of loan money! This illustrates one way in which the tighter credit scenario brought on by the mortgage industry has spilled over into another industry. You'll notice that Treasuries have rallied as investors have been fleeing to safety like war refugees.

So this is the short-term effect WITHOUT the addition of inflation that would (in my mind) undoubtedly creep in should credit loosen up. Sure, more money would be available for sub-prime loans which would keep people in their homes, but at what cost? Now EVERY sector would be in near panic-mode as interest rates are relatively high and consumers begin to lose purchasing power. I suppose I should have mentioned that consumer spending makes up a huge majority of US GDP so any slow-down in spending caused by inflation would put the brakes on even harder.

Now, as you may be able to guess, a slow-down in homes, high inflation, high interest rates, and now low consumer spending will inevitably lead to lay-offs and unemployment. Yuck.

So, taking all of this in to consideration, I think that without inflationary pressures indicating intervention, it would be wise to keep credit tight and let markets work the way they're supposed to. Yes, it will be hard on lots of people, but intervention at this point that spurs general price increases means that the dollar could go into free-fall and inflation could lead to unemployment. The cure could be worse than the disease.

Let me touch on something I just mentioned. Markets need the freedom to work without government jumping in just because "hard times" loom ahead. Think about the invention of the automobile and what it did to horse-and-buggy manufacturers. Should the government have intervened and subsidized the horse-and-buggy industry due to the popularity of the car? I don't think so. Markets were certainly cruel to these craftsmen but still worked like they were supposed to.

Likewise, the credit markets aren't broken because high-risk homeowners are losing their homes. This is a natural. It hurts, but I think I'd rather have a re-pricing of risk as markets work themselves out rather than a Fed-induced dumping of dollars out there to 1) let risky homeowners continue risky behavior and 2) let inflationary effects cause more disaster.

I don't want you to think that I am a libertarian - I think that government needs to stay on the sidelines when it makes sense for them to do so, and get involved when markets cannot handle the load.

(Sidenote that I want to mention before I forget: the Fed Funds futures contract was pricing in a 100% chance of a rate cut by the end of the year in early trading this morning. Huh.)

Quoting mrmikal
The Fed's responsibility is to keep the economic engine running as efficiently as possible.
I agree 100%. This needs to be understood by everyone reading this - the Fed's job is a tough one and I certainly would not want it.

Quoting mrmikal
If you end up having high unemployment and low credit availability, you end up relying on the Government to eventually bail these folks out with transfer payments (for social services, etc), which takes away from the Government's ability to freely pump money into the system with things they actually pay for (like road projects, etc). This affects the GDP, which affects foreign invesmtent and state-side capital investment and so on. Obviously, this isn't an immediate effect, but it does affect the process down the line.
Quite right. Unemployment becomes a social cost that the nation must bear. The social and fiscal policy makers usually are worse at making social and fiscal policy than the Fed is at making monetary policy (although you can argue the exact opposite point with me on this), so I would rather have the Fed take the lead and try to avoid unemployement with inflation-fighting effects rather than rely on beaurocrats to solve the problem later when things are completely out-of-hand.

Quoting mrmikal
Your points are probably more correct than mine, but I do want people to consider the flipside of letting the other side of the income-gap fall off the face of the planet.
I wouldn't sell yourself short! You bring up great points - specifically how far can we let things go before the Fed HAS to intervene. My answer is at least farther then what we've seen up until now. At least until we can determine that increased credit and a larger money supply won't cause inflation to become a problem for everyone.

One last point, there are a lot of people out there that benefited from the low interest rates. Specifically, people who could not get a loan before due to past credit problems are now in a home - and not ALL of them are being forced out by rising rates. Many of them are comfortably enjoying the benefits of homeownership. Secondly, lots of people made a LOT of money in the sub-prime blitz. It's only when the spiggot is shut off that they start to cry. Finally, if you remember, home prices were a fraction of what they are today when these loans were written. So smart investors (speculators) were able to buy property on the cheap and sell off as prices topped out. Things haven't been ALL bad, but we don't know yet how bad they are going to get, and that's the problem.
  • #11
  • Aug 9, 2007 4:29pm Aug 9, 2007 4:29pm
Quoting semar
from my point of view, this questions have simple answers:

central bank are currently increasing their interest rate to fight inflation (too much money in the market, due to very low interest rate and easier to get credits).
That may have been the situation a few months ago but it certainly is not the case now.

Today the European Central Bank was unprecedently forced to inject more than $130 billion into the continental banking system so it wouldn't seize up after BNP Paibas suspended trading in 3 of its hedge funds and The Federal Reserve put more than $24 billion extra into the U.S. banking system.

Also, what about this money that the ECB and Federal Reserve injected into the banking system today? Won't this money increase the money supply and hence inflation, which is the very thing that they are fighting against? This will just be a vicious circle. I feel that these may just be attempts to pave over the cracks.

What happens if there is more crisis in the banking system due to illiquity? Will the Central Banks pump more money into the banking system?
  • #12
  • Aug 9, 2007 4:33pm Aug 9, 2007 4:33pm
Quoting treberk

Also, what about this money that the ECB and Federal Reserve injected into the banking system today? Won't this money increase the money supply and hence inflation, which is the very thing that they are fighting against? This will just be a vicious circle. I feel that these may just be attempts to pave over the cracks.
No, it's just very short term repo's (loans against collateral, very much like a pawnshop where you are obliged to buy back your goods).
  • #13
  • Aug 9, 2007 7:01pm Aug 9, 2007 7:01pm
1) we should look at how The Great Depression was created.

2) we should know which Central Banks are private.
  • #14
  • Aug 9, 2007 7:18pm Aug 9, 2007 7:18pm
Just a quick one Dave.....
Where to sell the wife and Kids.....cos Ebay wont list mine..
If we aren't supposed to eat animals..... why are they made out of meat??
  • #15
  • Aug 9, 2007 8:31pm Aug 9, 2007 8:31pm
Quoting findcount
1) we should look at how The Great Depression was created.

2) we should know which Central Banks are private.
I wouldn't worry about a Great Bepression just yet, this is just a bad case of the blues, so no reason to call in the Fed's Prozac. It's not as bad as even the burp on Feb 27th (stockwise), and not even close to '87. and shoot, the Dow is still up on the week...Also some of the real faults in the system in '29 no longer exist (for example, bank savings are now guarenteed, and there's no gold standard). I can't say how bad it could get (can't predict the future, and no one knows yet the full extent of over-leveraged/under-scrutinized financial instruments that are floating around) but there's no reason for alarm. Some things, of course, are worrisome (like protectionist tendencies which may have accerated the Depression); the best thing is just trade conservatively. FWIW, wikipedia has a good (brief) discussion of it, plus references.

As for CB's, they are generally a wing of their governments, just as the Fed is (i.e., not private). Though some occasionally don't seem to realize this, like Bank Negara a decade or so ago...
  • #16
  • Aug 9, 2007 8:46pm Aug 9, 2007 8:46pm
If the western world's money supply is running between 10-15% per year and the interest rates set to about half that on average, how is that the fault of the average joe in the street? In rhe 1920's the banks injected cash a plently, then called in the all their loans and people had to grab money from every where they could to pay. This spilled into an economic meltdown. After this, the banks dryed up the money supply. The elite families went out and bought up everything on the cheap. Here we go again with the London Financial Times saying 'Pop it Pop it'.
  • #17
  • Aug 9, 2007 9:45pm Aug 9, 2007 9:45pm
Quoting HalifaxCB
I wouldn't worry about a Great Bepression just yet, this is just a bad case of the blues, so no reason to call in the Fed's Prozac. It's not as bad as even the burp on Feb 27th (stockwise), and not even close to '87. and shoot, the Dow is still up on the week...Also some of the real faults in the system in '29 no longer exist (for example, bank savings are now guarenteed, and there's no gold standard). I can't say how bad it could get (can't predict the future, and no one knows yet the full extent of over-leveraged/under-scrutinized financial instruments that are floating around) but there's no reason for alarm. Some things, of course, are worrisome (like protectionist tendencies which may have accerated the Depression); the best thing is just trade conservatively. FWIW, wikipedia has a good (brief) discussion of it, plus references.

As for CB's, they are generally a wing of their governments, just as the Fed is (i.e., not private). Though some occasionally don't seem to realize this, like Bank Negara a decade or so ago...
Hi Halifax,

Not sure about the rest of Central Banks in The world. Yet wanted to clear up one minor error.

The Federal Reserve in The U.S. is a PRIVATE entity, Fed can print money at will.... Has been since 1913 when it was formed by major bankers.
Lots of info on this......one could google '' Fiat empire'' , ''Monopoly Men'', "Ron Paul On the Fed''....etc....... for a history....several short term movies there , about 45 minutes in lenght. YouTube also has some info.

In the US....The FDIC ( which "insures" deposits ) only has .5% of 1% of the $100,000 policy guarentee.....if my math is correct , that is $500 for every $100k account. Few US citizens know this.

Any corrections to this, please advise.....Take Care all
Proper Prior Planning Prevents Piss Poor Performance
  • #18
  • Aug 9, 2007 10:34pm Aug 9, 2007 10:34pm
Quoting FxJarhead
Hi Halifax,

Not sure about the rest of Central Banks in The world. Yet wanted to clear up one minor error.

The Federal Reserve in The U.S. is a PRIVATE entity, Fed can print money at will.... Has been since 1913 when it was formed by major bankers.
Lots of info on this......one could google '' Fiat empire'' , ''Monopoly Men'', "Ron Paul On the Fed''....etc....... for a history....several short term movies there , about 45 minutes in lenght. YouTube also has some info.

In the US....The FDIC ( which "insures" deposits ) only has .5% of 1% of the $100,000 policy guarentee.....if my math is correct , that is $500 for every $100k account. Few US citizens know this.

Any corrections to this, please advise.....Take Care all
You're right, I'm wrong (sort of). It's rather a mish mash with the Board installed by the Government, and moving on down from there to the private sector. Here's a link describing the structure:
http://en.wikipedia.org/wiki/Federal_reserve
...Thanks!
  • #19
  • Aug 9, 2007 10:48pm Aug 9, 2007 10:48pm
Quoting megadave5000
This is a great point you make. The world in which I live in forces me to pay for things like food and energy - two things that aren't factored in to the Fed's "core" inflation numbers because they are so volatile. Well, it may be easy for the academics and beaurocrats to ignore such inconveniently volatile things, but I still have to buy them no matter what. I am not afforded the luxury of ignoring volatile commodities. I don't want to starve, sit in a cold house in winter, or roast in a hot house in the summer. Why food and energy prices aren't a part of the core numbers is ridiculous.

I get the sense that US consumers are facing a form of "hidden inflation" as food & energy prices rise.
Whoa, stop the presses.
I didn't know energy wasn't factored in. Actually, isn't food part of the consumer price index thing, don't they use that too?
I have more learning to do than I thought.

If energy wasn't factored in, I figured rising energy prices cause prices of EVERYTHING to rise anyway, and that's where the inflation was coming in mainly. Isn't that part at least true? So if gas hit $5 or 6 a gallon, there goes inflation again, as all the prices for everything, thanks to transport or even manufactoring like plastics have massively increased.
  • #20
  • Aug 9, 2007 10:55pm Aug 9, 2007 10:55pm
Quoting PTOURNIS
I agree with Dave 100%. I am a landlord in the US and the last couple of years have been very rough. Landlords were tripping over themselves to go after the few tenants that were available. We lowered rents. We let the current tenants go without rent increases. I have friends who did not have a pot to piss in, qualify for a 200k home loan with zero down and one of them had no stated income. You had nobody who wanted to rent. If they did, it was for a short time until there brand new house was being built so they can show off to their friends. This happens, things go through cycles. This too shall pass.
You're obviously not in Florida where all the apartments were converted to condos, supply dried up, you had to sign up on a waiting list, and rents increased from there.
But then again, we don't have landlords. We have corporate run apartment complexes, and were #1 in the condo conversion craze. Which is where you're foreclosure rate is also coming from. I wonder if there's numbers on how many condo investors there are versus people who actually live in these units. I've heard a lot of these buildings are practically empty.

Either way, as you pointed about people not renting and getting zero down houses, in our growth for the houses market too, I don't know where all these people came from. Must be the investors too. Stories are that investors would comb whole subdivisions looking to buy all the houses they could.
There's your problem again.

This reminds me this isn't a new topic. Everyone here has noticed this years ago and has been waiting for this bubble panic since.With the hurricanes, we're used to having to lay in the bathtub through all sorts of crises!
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