We might take out the Clinton era.

http://mauberly.blogspot.com/

when I see the "mall sized" homes that people bought with their stock market based profits during Clinton, I see the rotting away of American power since those communities were built on Clinton's policy of irrational exuberance and those folks will learn they're lifestyles aren't economically or ecologically sustainable.

I'll believe that Clinton's era of nonsense is over when people start getting back to growing investment supply again instead of growing FDR styled black holes that ultimately have negative returns.

the moment the GOP recaptured the White House, and we've enjoyed good honest American frugality ever since - until it became likely That Socialist might win the election this year.

_{"What we've got here is, failure to communicate"}

I'm not sure where the point is, but, in a larger sense, it's pretty easy to see that fiat currency eventually gets to the point where the total loan liabilities are larger than the amount of money in circulation. At that point, a sufficiently intense credit crunch will take the money supply to zero without `deus ex machina' intervention or banks defaulting to the fed. Because of risk aversion, the inflection point for this to occur is effectively at 0% inflation.

(AFAICT the survival strategy for a scenario like that is to collect some cash, non-perishables, a gun and gasoline, hide them, and file bankruptcy.)

I don't claim to have any special insight into the markets, but it seems to me that there's probably some GAAP between the real value of the assets and the book value. Moreover, the assets are likely to have lost dollar value in recent times, so the posted book value may be out of date.

Book values are likely to go lower and borrowing rates(Baa at 9%) will not make the future easy. The current spread between Baa and T is over 5, not good.

The markets will have to adjust to this, as time goes on. While it is tempting to look for a point of entry here, it is an entry into a market without the credit mechanism of years past. I don't know how to price it; it's a guess I'll just have to make at some point.

You're basically working with a clock that no longer ticks right.

http://mauberly.blogspot.com/

"You're basically working with a clock that no longer ticks right."

That was 1998-2008. At this point, I think the clock is being bashed on by a hammer as well.

have anything to do with the rebound?

How many more arrows remain in that bag?

Course I guess cash infusions are in essence paying banks to "borrow" money already anyway, so this shouldn't come as a surprise.

(deleted a piece. Out of my league here. Got to remember I am a simple dirt farmer.)

I did inhale.

If Obama ran on Sterling's platform he'd be John Edwards...

And he would have already lost the election.

I just hope and a tiny sliver of hope is all I can manage, that Obama will do right once in office.

I did inhale.

Is that he is very asute to taking the pulse of the nation and getting to the solution that people want (or better yet need.) I don't think he is fully aware of the problem yet, but when Joe Six-pack (or the Plumber if you prefer) abandons Reaganism, Obama will too. He is young and mentally flexible, after all who would have foreseen him taking Paul Volker on as his lead economic consul before the election? Would Reagan have done something like that? But he will follow the will of the people as long as he can and the people still believe in the Reaganite Kool-aid. Why wouldn't they, they just spent 30 years banking on it for their retirements, kids' educations, dreams of home ownership. Dreams may die but they never die easy. When the market tanks, the Fed is tapped out, the taxpayer is strapped to the gills in debt, and we all scream "Uncle!", that is the time to see what Obama will do. Just like Lincoln, he freed the slaves when he HAD to and not a month before.

Obama might still screw the pooch (badly), but I have a small amount of hope that he is smarter than the average candidate when making policy. I have no doubt the first thing he tries will fail miserably, but what will he do after that? That's the interesting question IMHO, looks like we'll get find out over the next 4 years.

At the moment, establishment experts like Volcker are trotting out the same prescriptions as Bernanke and Paulson - flood the financial sector with dollars. The dollars just get sucked up into the black hole of insolvency that is the broader financial system. Even Paul Krugman was saying last night that what Bernanke is doing is the only thing that can be done.

All of these economists talk as if the US has unlimited capacity to issue debt. Somewhere, sometime during the Obama presidency - probably next year but certainly out of the blue - will come a crisis of confidence in the US itself: in its debt and its currency. Nations are progressively hunkering down to defend themselves, and at some point both Japan and China will need their dwindling reserves for their own purposes, not for holding on to Treasuries. Worse, they will probably see that the US left to itself will continue to issue trillions more in debt, making what they already own worth much less. The result is the same thing; the US will no longer have the option of unlimited financing, and it will have to start looking toUS taxpayers to foot the bill. Good luck on that.

Obama can play the important role of national pastor while people are hurting, redirecting what resources the US does have to helping people in distress. But to raise the money even for remedial help, he will need a major transformation in his thinking, starting with something he has never mentioned doing: taking on the military.

that the US economy eventually tanks. What does the world do when it does? My answer...forgives a mountain of debt in various countries and designs a much better International system. The United States will NOT be the lone, financial superpower after world markets are corrected. Very likely the US Dollar loses its reserve status. The new reserve currency will be based on a basket of currencies.

Discipline

What we are witnessing now is called "lack of discipline." No, I'm not talking about the McCain-Palin campaign, but rather US monetary and fiscal policy based on "voodoo economics."

Lack of fiscal and monetary discipline is only possible when governments can create money at will, that is, when money is not directly convertible with a basis in value other than the money itself.

This type of money is called "fiat money." The Latin term fiat means "let it be." Money is created out of nothing more than faith in the credit of the government based on its ability to tax, together with a sufficient tax base to service its debts. The US dollar is not even a Treasury note, but a Federal Reserve note, which is printed with the words, "This not id legal tender for all debts, public and private." That means essentially that you can pay your taxes with it. That is its real value as a national currency. Its remaining value lies in the acceptance of it by others as money.

When a government is disciplined in its fiscal and monetary policy, there is no problem with a fiat currency. But when discipline is lost, problems begin to arise that affect the value of money. While it may still be accepted as money, if too much money is in existence relative to goods, purchasing power drops and the price of goods will rise. This is called inflation.

In non-governmental entities, lack of discipline leads to negative cash flow and insolvency. However, a government run on the basis of fiat money can always create more money "out of thin air." But this has the effect of debasing or watering down the value of money, reducing its purchasing power, creating inflation.
Creating more money does not create more real wealth, since money is just a token for real wealth. What it does instead is to devalue savings and debt, and a host of other things that result in instability. Since debt is devalued, interest rates rise, for instance. Since savings are devalued, money is not held but rather is either spent either on consumption or used to speculate, since return on ordinary investments cannot keep up with loss of purchasing power.
Beginning to sound familiar? Like back when the dot.com bubble popped, or when the housing bubble popped? Well, there they go again.

What is happening now is forced selling (deleveraging), depressing values of assets being liquidated. In order to counteract asset deflation, the powers that be are attempting to reflate to maintain nominal asset values and protect the nominal value of existing paper by injecting more money into the system. What this involves is a massive transfer of wealth upwards to holders of paper assets at the expense of real wealth, especially, the labor of workers whose taxes will pay for the debts the government is incurring in their name in order to inject this money.

Where does the money come from to fund these debts initially? A good part of it is created out of thin air by the Federal Reserve through the banking system. But the debt goes on the national tab, whose interest must be paid and its principal repaid — eventually from taxation. Because this is a bankers' shell game rather complex process, most people have no idea what is going on.

The national debt already stands at over ten trillion, and some are estimating that it could reach fifteen trillion before this huge credit bust is over. Fifteen trillion is approximately equal to the size of nominal GDP. Remember, we are just dealing with the paper economy now. The real economy hasn't begun to really tank yet, putting the huge pile of consumer debt and commercial debt at risk as unemployment increases.

This trend is unsustainable and will ultimately fail, very likely through either a deflation (depression), as credit risk rises and paper cannot be propped up artificially any longer, or else a currency crisis occurs due to rising inflation, when confidence in dollar stability breaks down.

On the way there, however, great injustice and hardship is being perpetrated through this attempt at wealth transfer:

On October 11, the Group of Seven leading industrialized nations stated in a communique that "Crisis Requires Urgent and Exceptional Action. We agree to: Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure. Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding. The actions should be taken in ways that protect taxpayers and avoid potentially damaging effects on other countries. We will use macroeconomic policy tools as necessary and appropriate."

However, in of spite their declaration, Western central banks continue to reject adamantly the most important tools for stabilizing monetary policy, and only want to perpetuate, at any cost for the economy, the unsustainable monetary policy that brought about the present financial and fiscal chaos.

It is not understood why Western central banks insist on a cheap money policy and on forcing negative real interest rates, despite the disastrous consequences. Bernanke wants to solve the financial crisis by still reducing the federal funds rate from its present 1.5%. What did he achieve with previous cuts? In an environment where many leading banks are overly leveraged and their assets are impaired, is 1.5% an equilibrium rate for interbank loans? Although the market mechanism is disrupted, could the equilibrium rate be 20% or 30% instead of 1.5%?

The only plausible explanation for such negative real interest rates and massive bailouts is to force speculative losses on taxpayers and workers.
Monetary despotism by Hossein Askari and Noureddine Krichene

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig von Mises

addendum

Look at the steepening slope post 1971 when Nixon/Connally cut the dollar loose from gold, then sharper in the 1980's with Reaganomics, and finally spiking up post Sep, 2008 with the "rescue." Obviously, it can't go to infinity, but where's the top and why. To be continued.

It isn't even fiat money. Since fiat money is backed by the government's power to tax. One of my profs said that "even lower than paper money, is stove money." Stove money comes in bales. People burn it.

garner a lot of readers in and of itself!

^{“Is not our first thought to go on the road? The road is our source, our vault of treasures, our wealth. Only on the road does the ‘traveller’ feel like himself, at home.”
Ryszard Kapuscinski}

Mr. N,

You want to see past conventional wisdom to the heart of the situation, and do not care what other, uneducated and not-so-curious people think and say.

A strength, for certain things.

A weakness, for others.

There is no possible successful political action that does not have public support.

So it is no good to suggest that we just leap to the essential action. You must apply your imagination to a sequence of plausible events that might get us somewhere near where we need to go.

Yapping about dicing up the military is not obvious to most, won't get support, and just makes people shut down. Hell, I have wished for dramatically less military spending for 30 years. But it is not step one.

And if events unfold as seem likely, we won't have to bring it up. People will think of it.

Anyway, back to the main point, what are you suggesting for action?

I don't get it. On the one hand, it seems to be to balance the budget, don't have too much govt spending unsupported by current revenue. But don't we need public spending in a depression?

Maybe it is a matter of degree, and what the spending should be on. That seems reasonable. But what are the specifics? How should it be sold? And what action should be taken first.

I trust your judgment. But it seems to me that you get distracted at times.

8200 seems to be the current support, but I would be surprised if, like all the other previous supports in this crash, it lasts the next week. Every move by the Fed has acted as a minor breaking action, but nothing has actually halted or reversed the downward trend. And each progressive Fed move has had diminishing returns. Assuming a support at this particular moment seems a fine way to get burnt by the irrationality in the market.